IR InformationMessage from the President & CEO
I would like to thank our shareholders and investors for their ongoing support. In response to the market restructuring of the Tokyo Stock Exchange, Tokyo Century has opted to become a constituent of the prime market segment (transition to take place on April 4, 2022). We will continue to actively exchange views with our shareholders and investors and strive to maintain a constructive dialogue to deepen understanding of the Tokyo Century Group.
In April 2020, when Tokyo Century launched New Fourth Medium-Term Management Plan (hereinafter referred to as “the Plan”), COVID-19 spread rapidly throughout Japan, and a state of emergency was declared for the first time in Tokyo and six other prefectures. Although there has been a temporary lull, the situation remains unpredictable due to a potential rebound in the emergence of new COVID-19 variants. More recently, the uncertain outlook on the Russia-Ukraine situation has fueled concerns about a surge in the price of resources and disruptions to the supply chain that may have serious implications for the global economy, which had otherwise been showing signs of recovery from the pandemic.
Although our aircraft leasing and car rental businesses have been greatly affected by restrictions on behavior associated with the pandemic, we have tried to offer clear and detailed explanations as much as possible to help investors understand the situation.
Business Strategy Outlook from a Medium- to Long-Term Perspective ―Seven Pillars of Business Strategies
I believe that, to effectively advance business strategies from a medium- to long-term perspective, it is prudent for us to divide businesses into two categories: businesses in which we will pursue organic growth to develop stable foundations for supporting management and businesses in which we will pursue substantial growth over the next decade. In this context, I would like to explain the seven pillars of business strategies, which were established for sharing with stakeholders how we envisage achieving future growth.
We need (i) resumption of growth in the aircraft leasing business and (ii) revitalization of the auto business centered on car rental operations as they were severely affected by the COVID-19 pandemic. However, our focus is not merely on recovering these businesses; we look to achieve further growth by reforging these businesses to be even stronger after the damages dealt by the pandemic. In addition, we will strengthen the business base of Aviation Capital Group (ACG), a consolidated subsidiary operating an aircraft leasing business in the U.S. At the same time, we aim to resume growth in the aircraft leasing business through expected recovery in travel demand and responding to replacement demand from airlines for the next-generation aircraft featuring higher fuel efficiency.
Meanwhile, the following three initiatives represent new growth fields for Tokyo Century: (iii) the real estate business, including participation in large-scale urban development projects; (iv) our alliance with Advantage Partners, a leading company in the Japanese private equity industry; and (v) the environment and energy businesses that aim to expand renewable energy sources such as solar power generation. We have already accumulated a large number of achievements in these fields and intend to effectively expand our investment in these businesses, which represent important pillars going forward. (vi) the expansion of CSI’s business domain is a pillar of our global strategies. Major U.S. IT equipment leasing consolidated subsidiary CSI Leasing, Inc. is central to the International Business segment. During the period of the Plan, CSI has been steadily expanding its business base in Asia, including India and Japan, as well as in Northern Europe, and we will continue to increase the driving force for our global strategies and contribute to earnings growth.
The most substantial of the seven pillars is (vii) our alliance with NTT. We have been generating success at a pace that surpasses our initial expectations since the conclusion of our capital and business alliance with NTT in February 2020. NTT TC Leasing Co., Ltd, our joint venture with the NTT Group, boasts massive potential. In fact, I believe in the ability of this company to double its ordinary income through collaboration with Group companies. Furthermore, we are also making steady progress in our data center businesses in India, as well as our business collaboration in the real estate and environment and energy fields. Undoubtedly, this alliance will be lauded as a major turning point in the growth of Tokyo Century when we look back on our progress a decade from now. We will engage in a dedicated, concerted effort to advance the alliance with NTT going forward. At the same time, however, we will need to develop a balanced portfolio that comprises businesses to be steadily grown today and businesses from which we expect more significant returns later down the line. Through this approach, I hope to build this pillar into an even more substantial aspect of our business strategies.
New Fourth Medium-Term Management Plan
The Plan, a three-year plan that started in fiscal 2020, describes that Tokyo Century will focus on deep mining of growth businesses (including aviation, fleet & mobility in and outside Japan, real estate, environment & energy, and principal investment) and further strengthening of strategic partnership. In addition, we have set the targets for fiscal 2022 to achieve: (1) JPY130 billion in ordinary income; (2) JPY80 billion in net income attributable to owners of parent; (3) shareholders’ equity ratio of 12%; and (4) return on equity (ROE) of 12%. We will also promote to raise earnings per share (EPS) from JPY525 for the fiscal year ended March 31, 2020 to about JPY650, a target for March 31, 2023. In relation to the shareholder returns policy, Tokyo Century will aim for payout ratio of 30% for fiscal 2022 based on the stable long-term return of profits.
Fiscal 2022 as the final year of the Plan will be critical for establishing a solid business foundation, both to fulfill the objectives of the current Plan and prepare for the next Medium-Term Management Plan. As for the years beyond the next Plan, we are committed to realizing further growth through an evolution in the seven pillars of our business strategies.
For the Next 10 Years
I anticipate that the next decade will give rise to an operating environment in which our past experience will cease to be a reliable guide as we are expected to evolve and act with incredible speed. This environment is likely to be characterized by energy issues, such as those related to the decarbonization trend, and sophisticated communications brought about by 5G or even 6G networks. Given such an environment, it is of utmost importance to develop flexible management systems capable of both proactive expansion and internal fortification so we do not miss a single opportunity.
Efforts for proactive expansion will include applying digital transformation methodologies to the basic leasing business model to achieve further growth. At the same time, we will build upon our seven pillars of business strategies to strengthen these pillars and reap greater rewards. Also, it is necessary to acquire highly specialized expertise and abundant knowledge outside the leasing business in order to develop sophisticated businesses that can win out against global competition. Tokyo Century is at a great advantage in this regard as it has long been engaged in collaborative businesses with numerous partners boasting significant expertise. Therefore, we look to refine our partnership strategy to address social issues while steadily growing.
As for internal fortification, a rigorous risk management system is the key to developing businesses that evolve in response to wide-ranging, global expansion. Based on this recognition, we set up the Investment Management Committee as a cross-business entity. This committee judges the appropriateness and rationality of investments in new investment candidates on the basis of their projected profitability and social contributions. For existing businesses, meanwhile, the committee is ramping up monitoring, including adequate checks based on a fixed-point perspective, to determine whether businesses will be continued or exited. With these provisions, we have developed a rigorous risk management system.
Tokyo Century will constantly provide financial services that benefit society. As we seek to make greater contributions to society, we will raise the presence of Tokyo Century as a pioneer in new business models that expand beyond the boundaries of a leasing company to further improve corporate value. I would like to ask for the continued understanding and support of our shareholders and investors.
President & CEO, Representative Director