IR InformationA Message from the President & CEO
Leasing enables customers to level expenses by paying a fixed amount based on the contract term. For this and other benefits, it is a widely used procurement method. On the other hand, insofar as there may be periods during which the customer is not using the asset, I believe we must alter our leasing services in response to such periods of disuse.
Today, the sharing economy is spreading throughout the world, and from the standpoint of the customer, there may come a day when payment based on usage, rather than contract term, will be the accepted standard for the leasing business.
If such thinking gains further traction, I believe the leasing business itself may arrive at a major turning point that requires the provision of finance and services that go a step beyond conventional leasing.
In part to express our determination to keep pace with the changing times and meet diversifying customer needs, we removed the word “lease” from the company name to become Tokyo Century Corporation as of October 1, 2016.
We are transforming our company from a provider of leases and financing centered on the conventional leasing business into a versatile business operator with financial capabilities, pursuing viable business that generates high revenue.
As we grapple with global environmental issues, including climate change and the depletion of natural resources, we will be required to pursue management with an even greater consideration for the global environment.
To begin with, establishing a leasing business requires expertise in secondary markets that enable the reuse of assets. So the formation of an environmentally-sound, sustainable economy and society is something that comes naturally for a leasing company.
For example, there are established secondary markets for our core businesses of automobile leasing and aircraft leasing, and our contracts with customers are mainly operating leases in which the company bears the residual value risk. We are capable of supplying quality “assets” at a reasonable price to the secondary market by adding maintenance and service to maintain the utility value of automobiles and aircraft throughout the term of the lease contract.
From the perspective of spreading renewable energy, we are engaged in an environmentally friendly business that does not use fossil fuels but instead pursues solar power generation at the scale of an industry leader. We are also focused on generating power from sludge digestion gas and biomass to make use of materials that were disposed in the past, such as sludge and waste.
Thus, we believe that our business operations, including leasing and renewable energy, significantly contribute to the creation of an environmentally-sound, sustainable economy and society. We intend to continue exploring viable business aimed at creating an environmentally-sound, sustainable economy and society that is friendly to the environment, by transcending the boundaries of leasing and finance.
In addition to rapid aging, the Japanese population is becoming concentrated in cities while outlying regions face depopulation. Regenerating local communities is crucial for economic recovery.
As a company, we are constantly seeking ways to assist in the regeneration of local communities. In recent years, we have observed a considerable increase in the number of foreign tourists visiting Japan, and we see tourism as one of the nation’s few growth industries.
Against this backdrop, we are working on developing the ANA InterContinental Beppu Resort & Spa, the first onsen resort in the world operated by an international hotel known for its five-star properties.
We think our ability to attract InterContinental, one of the world’s leading hotel brands, to Beppu in Oita Prefecture is surely a positive development. Beppu is easily accessible from overseas, with ample tourist attractions including hot springs, which we believe is what captivated InterContinental, known for its strict standards for locating hotels.
We have been involved with the ANA InterContinental Beppu Resort & Spa project for the past few years and are gaining valuable experience for future endeavors. Above all, we feel this is a highly worthy project that allows us to assist the local community in its effort to survive for years to come.
Agriculture is another area we would like to emphasize with respect to revitalizing local regions, where the main challenge has been poor job opportunities caused by a lack of industries. The ideal solution is to establish the primary industries of agriculture, fisheries and forestry to ensure livelihoods, and addressing this issue will revitalize outlying regions. With the belief we have a role to play in this area, we have begun consulting corporate partners on developing agricultural ventures into businesses.
In the course of my work these days, I am always thinking about how our company can contribute to Japanese society. Japan faces a number of issues, including revitalizing local regions, developing tourism and building infrastructure, and there are many opportunities for addressing social issues through our business.
- We will provide the best products and services around the world to contribute to the success of our customers’ businesses while pursuing all possibilities by collaborating with customers and uniting the overall strengths of the Group.
- We will strive to raise our corporate value over the medium to long term by pioneering new business fields and realizing sustainable growth.
- We will cultivate a corporate culture that allows diverse human resources to fully demonstrate their skills and personalities, and we will build a company where all officers and employees can hone their expertise and experience growth as well as a sense of pride.
- We will always be mindful of our social responsibility as a corporation and will conduct our business activities with vigor and sincerity as we fulfill our role of creating a sustainable economy and society.
As a company with financial capabilities that benefits from a flexible business environment, we are pursuing a broad range of viable businesses that generate high revenue, through joint management with corporate partners. The success of this business depends above all on forging relationships of trust with our corporate partners.
For example, the construction of large-scale solar power plants is a project we cannot handle alone due to the considerable amount of funding required. We were able to promote such a project and boost the combined capacity at 75 plants to 236 MW based on our trusted relationship with corporate partners, including Kyocera Corporation, the top manufacturer of solar modules, and financial institutions.
To maintain such collaborative efforts, we will always be a company that earnestly strives to meet the expectations of our corporate partners, both operating companies and financial institutions, by assisting in the successful development of their businesses.
We also believe that the key to gaining recognition from corporate partners is to understand the needs of society and establish a solid track record in developing the FinTech business in Asia as well as the aircraft leasing business.
Our business model is flexible and extremely intriguing, and together with our corporate partners we intend to continue developing new financial services that transcend existing business classifications as a company with financial capabilities.
In the third year of our third medium-term management plan, we are now applying the finishing touches as we come ever closer to attaining our target of at least ¥80.0 billion in consolidated ordinary income. We will do our best to achieve the target to make this fiscal year a milestone for the company’s 10th anniversary. Moreover, we will determine the vision and KPIs for our next phase, the fourth medium-term management plan in the latter half of fiscal 2018. As we seek to continuously expand our highly profitable viable business, I think ¥100.0 billion would be a sound target for ordinary income.
Although elements of uncertainty abound in the external environment, we expect growth in the Asian and U.S. economies. And while we must remain alert to the political and economic climate in China, as it continues to exert increasing impact on the global economy, I am confident that a bright future lies ahead for the company as long as we remain true to our credo of doing business with a creative attitude through relationships of trust with our corporate partners.
FY2018 Consolidated Results Forecast
(Billions of yen)
|FY2017 Result||FY2018 Forecast||Change||% Change|
|Net income attributable to owners of parent||51.3||51.5||0.2||0.3％|
Tokyo Century Group has always faced diverse risks, including corporate credit risk, interest rate and exchange rate fluctuations, risks related to the items that provide value to real estate, ships, aircraft, automobiles and other assets, information security risk, system and administration risk, trends in capital investment, fluctuations in the price of assets held by the company, and regulatory revisions.
We recognize the importance of an effective corporate governance mechanism for maximizing corporate value. To enable us to swiftly respond to changes in the business environment and make accurate decisions, we endeavor to create a sound and highly transparent management structure.
In April 2018, we established the Sustainability Committee as the organization responsible for the planning, promotion and supervision of sustainable corporate activity and for addressing issues of materiality related to sustainability.
The committee will discuss issues related to the global environment and society at large while also addressing the SDGs (Sustainable Development Goals) to come up with ideas for the next medium-term management plan.
There have been a spate of corporate scandals recently, and we feel the need for reinforcing management oversight. In view of the company’s diverse businesses, we pay careful consideration to ensuring diversity and balance in terms of the background and capabilities of our external directors. In this context, we have chosen a former chairman of the Japan Society of Monetary Economics, a former manager of a business company, and a manager of a shipping company, and we expect each of them to play a distinct role. At the same time, we will seek to further strengthen our governance, including the functions of directors.
While Equipment Leasing is our founding business, with a history of over 50 years, today we face the challenge of responding to dramatic changes in the business environment. This operating segment has maintained stable revenues, even under low-interest rates, by leveraging our extensive client base and adding further services to conventional businesses. Also, it has significantly benefited from the expansion in viable business through collaboration with Japan’s leading manufacturers. We believe that IT-related equipment, characterized by short product life cycles and the constant need for upgrades, have a particularly high affinity with leasing.
As the era of IoT becomes a reality, we intend to create new business models targeting IT equipment and medical robots based on a business alliance with Bplats, Inc., which provides a subscription platform that can be applied to pay-per-use services based on units of usage and time. We will also expand service-added businesses, primarily in the fields of robotics, power generation and IoT, in collaboration with leading partners.
This operating segment is the central core of our business and an engine of growth. We expect the aviation business to expand in Asia and will continue to focus our resources as the main means of modern transport.
Since the cost of a single aircraft at times exceeds ¥10 billion, major airlines are increasingly turning to leasing to procure aircraft. Tokyo Century has made Aviation Capital Group LLC (ACG), a leading U.S.-based commercial aircraft lessor, an equity-method affiliate and plans to expand new aircraft operating lease business mainly through ACG.
Meanwhile, our real estate business is doing extremely well in the U.S., and we intend to invest further in overseas markets by collaborating with corporate partners.
In our environment and energy business, we are achieving steady progress in solar power generation. Led primarily by our power generation business through Kyocera TCL Solar LLC, we have recently also begun to acquire solar power plants in the secondary market and to develop our solar power generation business in Taiwan. We estimate that our total investment in the solar power generation business in Japan and Asia will reach around ¥200 billion.
Domestic Automobile Financing
The Domestic Automobile Financing has steadily generated high profits each year due to the industry-leading scale of our fleet under management and a solid business base ensured by our highly specialized services. The automobile industry is expected to undergo a major transformation. Self-driving research and the spread of ridesharing will possibly advance in Japan. In a time such as this, our fleet of about 640,000 managed vehicles and broad range of services from automobile leasing for corporate customers and individuals to car rental will give us a significant advantage. Automobile leasing includes providing outsourcing services that require highly specialized expertise and quality, and car rental business responds to inbound demands from foreign visitors. They represent the cutting edge of our viable business with great potential for further growth. We expect the spread of the sharing economy will provide a tailwind.
Until now, the Specialty Financing has represented a primary driver of growth. In the future, we hope the International Business will also become a major driver for even greater growth. We will expand this business by demonstrating the synergies created by combining the client base of our corporate partners around the world with the expertise offered by Tokyo Century Group. In particular, we anticipate that the FinTech business, currently under development in Asia with our corporate partner, will become a pillar of revenue for the International Business. In China, we have launched an e-commerce and financial joint venture with China UnionPay Merchant Services Co., Ltd., the largest card payment service operator in that country. In Indonesia, where the use of electronic money is on the rise, we plan to expand our FinTech business through an alliance with Lippo Group. Through our alliance with Grab, the largest ride-hailing platform in Southeast Asia, we will also make a concentrated effort to expand our automobile leasing and financing services for local drivers.
For fiscal 2017, we decided to increase annual dividends by ¥9 per share above our forecast at the beginning of the fiscal year to ¥114 (payout ratio: 23.5%), as net income attributable to owners of parent rose to ¥51.3 billion, exceeding our forecast at the start of the term. In fiscal 2018, we plan to pay an annual dividend of ¥122 (payout ratio: 25.0%), a further increase of ¥8 per share, in line with the forecasted growth in net income attributable to owners of parent, and a year-on-year rise in the payout ratio of 1.5 percentage points.
Return on Equity (ROE) has become widely established as a key management indicator. Since there is a correlation between ROE and PBR, we think that an evaluation based on ROE would be easy to understand from the investor’s perspective as well.
Tokyo Century has an ROE track record that is overwhelmingly superior to industry peers, including nine consecutive years of ROE above 12%. We intend to maintain ROE at high levels and meet the expectation of investors well into the future.
With respect to our dividend policy, we will follow our basic principle of providing stable longterm returns to shareholders while seeking to achieve sustainable growth in profit to improve our payout ratio.
Thanks to the business expansion in our four operating segments, our market capitalization has grown 11-fold over the past nine years since 2009, when the company was established through a merger.
Tokyo Century is categorized under “Other Financial Services” in the Tokyo Stock Exchange’s 33 industry categories, and our PBR is higher in comparison with other companies in the category. We believe this is due to the relatively high proportion of our viable business, which can be viewed as a service business instead of a financial business. We want investors to recognize our business with a PBR as commensurate with a service business that transcends the borders of industry sectors. To that end, we will make further efforts to develop novel financial services businesses.
Dividend and Dividend Payout Ratio
Aiming for a steady increase in revenue by prioritizing investment in growth businesses while paying due consideration to increasing dividends
Tokyo Century Group has benefited from excellent customers as a unique entity capable of developing versatile businesses free from regulation in areas bordering banks, trading companies and manufacturers.
We are advancing in step with the ongoing drastic shift from “Ownership” to “Usership” toward our goal of developing novel financial services business that transcend leasing, by integrating Finance, Services and Business Expertise to become a company with financial capabilities.
Building on our robust operating base in Equipment Leasing, Specialty Financing, in which we showcase our high level of expertise. Domestic Automobile Financing, in which we boast one of the broadest product lineups in the industry while we have been achieving remarkable growth in International Business, in which we maintain operations in 37 countries and regions around the world through partnerships with leading companies. These four operating segments constitute the four solid pillars of Tokyo Century Group.
By combining the capabilities of the entire Group, we will supply the best products and services around the world to assist our customers and corporate partners in pursuit of their growth.
We look forward to the continued support and patronage of our stakeholders for Tokyo Century Group.