Actions for Realizing Management That Emphasizes Cost of Capital and Stock Price

Current Status

We consider Tokyo Century’s cost of shareholders’ equity to be currently around 10%, although there are various ways to calculate it. We therefore believe that raising return on equity (ROE) above 10% would exceed the cost of shareholders’ equity and create added value.

The Company’s price-to-book value ratio (P/B ratio) had remained steadily above 1.0 since fiscal 2013. However, significant losses in the aviation business due to the impact of COVID-19 and Russia’s invasion of Ukraine, as well as from operational investment securities in Asia and the environmental infrastructure business, caused our ROE to fall below 10% in fiscal 2021 and fiscal 2022, and our current P/B ratio has remained below 1.0.

We are aware that consistently improving our P/B ratio will require the steadfast implementation of every measure formulated under the Medium-Term Management Plan 2027, approved by the Board of Directors. This will allow us to maintain ROE of above 10% while lowering the cost of shareholders’ equity and to gain adequate recognition for the Company’s earnings stability and growth over the medium to long term from the stock market.

From the fiscal year ended March 2013 to the fiscal year ended March 2019, the Company’s P/B ratio had been hovering above 1.0 as a results of the expansion of the highly profitable Specialty Financing, Automobility, and International Business segments by maintaining high ROE and achieving profit growth. From the fiscal year ended March 2020 to the fiscal year ended March 2023, the Company recorded substantial losses due to the impact of COVID-19 and the Russian invasion of Ukraine, resulting in a decline ROE and low P/B ratios. Going forward, the Company aims to achieve a P/B ratio of above 1.0 by improving ROE and reducing the cost of shareholders’ equity with TC Transformation, the basic policy of the Medium-Term Management Plan 2027.

Approaches to Improving the P/B Ratio

We intend to develop a structure for steadily maintaining ROE of above 10% by realizing TC Transformation (TCX), as laid out in the Medium-Term Management Plan 2027, which involves driving change in the four elements of “Portfolio,” “Human Resources and Organization,” “Green,” and “Digital,” to achieve medium- to long-term profit growth.

To bolster profitability, we will fully commit to achieving profit growth and raising return on assets (ROA) by increasing the value of existing businesses, facilitating asset turnover in business investments, replacing and divesting unprofitable assets, and exploring new business fields, to promote the transformation toward a highly profitable and stable portfolio. We will also work to construct a business portfolio that can withstand changes in the external environment by creating businesses that contribute to resolving social issues, including carbon neutrality, and optimizing management resources.

Human resources constitute the core of Tokyo Century’s value creation process, and it is essential that we strengthen our human capital to realize sustainable growth. In addition to nurturing human resources that can bring about change on their own and digitally proficient human resources, we will also develop highly capable organizations for maximizing human resources while empowering individual employees at the same time.

As for shareholder returns, Tokyo Century follows the basic policy of providing stable, long-term returns to shareholders while striving to expand returns based on profit growth over the medium to long term by maintaining its dividend payout ratio of around 35%.

Furthermore, we will enhance disclosure and engage in a constructive exchange with market participants to ensure adequate understanding of the results and content of these initiatives and thereby reduce the cost of shareholders’ equity.

Equation: P/B ratio equals ROE (*) divides costs of shareholders’ equity including expected growth rate. The Company aims to achieve ROE above 10% and reduce the cost of shareholders’ equity by promoting TC Transformation and eliminating information asymmetry through constructive dialogue with shareholders and investors, leading to P/B ratio above 1.0. * Annualized ROE for the second quarter of the fiscal year ended March 2024.

To achieve P/B ratio above 1.0 from the current P/B ratio of 0.8 to 0.9, we need to improve ROE and reduce the cost of shareholders’ equity. As a transformation to P/B ratio above 1.0, we will strengthen our portfolio from the perspective of improving ROE, and we will work on reducing performance volatility and cultivate anticipation for growth from the perspective of reducing the cost of shareholders’ equity. Specifically, we will increase value of existing businesses, replace or divest unprofitable assets, facilitate asset turnover in business investments, explore new business fields, enhance risk management, resolve social issues addressing carbon neutrality, utilize Digital Transformation to establish business base, strengthen human resources and organization, and strengthen investor relations.

Engagement with Shareholders and Other Investors

Tokyo Century advances its investor relations (IR) activities focused on generating a cycle of proactive dialogue with shareholders and other investors and communicating their input and requests to management and employees. The input gained during IR activities is used to improve information disclosure and respond to management issues to build trust with shareholders and other investors and to ensure that capital markets accurately appraise the Company, which in turn is expected to contribute to higher corporate value over the medium to long term.

Major IR Activities (Fiscal 2022)

Scrollable horizontally

Activities Frequency Details
Analysts and institutional investors Earnings call for analysts and institutional investors 4 times Quarterly earnings calls (three-month and nine-month calls led by the officer responsible for investor relations, and six-month and full-year briefings led by the president)
Business briefings for analysts and institutional investors Once Briefings on specific operating segments, including individual strategies, and topics (conducted a business strategy briefing on joint businesses with the NTT Group in fiscal 2022)
Overseas roadshows Once Visited Europe and North America and held individual meetings with overseas institutional investors
Conferences organized by securities companies Once Attended investor conferences organized by securities companies, both in Japan and overseas, as well as online and focused on one-on-one meetings, primarily with overseas institutional investors
Individual IR consultations Approx. 250 Individual meetings with institutional investors, primarily fund managers and analysts of active funds in Japan and overseas
Private investors Company briefings for private investors Twice Briefings on the Company, business strategies, shareholder return policies, etc.

Representative Improvements Based on Feedback from Dialogue with Shareholders and Other Investors

  1. 1Opinion on formulation of the medium-term management plan, received prior to disclosure of the Medium-Term Management Plan 2027
    Profit growth scenario for each operating segment
    In terms of disclosure of profit targets under the Medium-Term Management Plan 2027, market participants will consider that Tokyo Century should disclose earnings forecasts and offer a profit growth scenario for each operating segment. Merely indicating figures for the entire plan will not be enough to factor the plan into the Company’s stock price because Tokyo Century is not a corporate group selling a single product.
    We sought to enhance our disclosure by presenting profit plans, profit growth scenarios, and increases in assets for each operating segment in the Medium-Term Management Plan 2027, based on communication of investor opinions to management and due consideration of our disclosure required through dialogue.
  2. 2Opinion on profitability
    Improvement of ROA
    To improve ROA, it is important to raise the profitability of each business whose ROA is lower than that of the entire company. I know this will not be easy, as many of Tokyo Century’s businesses are joint ventures, but I hope the Company will make progress on this point.
    One of the case examples of ROA improvement was attributable to the conversion of Orico Auto Leasing Co., Ltd. (OAL) and Orico Business Leasing Co., Ltd. (OBL) into equity-method affiliates.* They are joint operating companies with Orient Corporation. We decided that OAL and OBL needed to improve efficiency and productivity through flexible business development and create optimal systems in order to respond promptly to customer needs and that their sustainable growth required reinforcement of collaboration with the Orico Group going forward.
    • *Converted into equity-method affiliates on September 29, 2023.
  3. 3Opinion on disclosure of IR materials on earnings
    Identifying core earnings
    Tokyo Century’s business profit includes transitory gains and losses such as gain on sales and impairments. The Company should at least disclose a breakdown of these items so that the core earnings can be identified and reflected in its share price.
    As for gain on sales, we disclosed gains on sales of real estate and operational investment securities. In addition to the gain on sales, we disclosed figures for transitory gains and losses as “Impairment, bad debt, and gain (loss) on valuation of operational investment securities.”

Investor Relations