TOKYO DOME CORPORATION

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Management Message

Shinji Kushiro

Shin-Kijiku “Innovation” Medium-Term Management Plan Has Begun:
One more Step toward the Next Generation of Value Creation

Representative Director, President and COO
Tsutomu Nagaoka

Shinji Kushiro

Summarizing the overall successes of the previous Kidou “Activate” medium-term management plan and looking back at our performance in the fiscal year ended January 31, 2016

The fiscal year that ended on January 31, 2016 was the final year of the 5-year Kidou “Activate” medium-term management plan. Although this plan was launched under rather harsh conditions, in part due to an amusement park ride accident and the earthquake at the beginning of the first year of the plan, we were nevertheless able to achieve our targets through concerted, group-wide efforts. Centered around the newly established Safety Promotion Office, we concentrated our energies on the development of systems dedicated to safety throughout the Group, which became the cornerstone on top of which we were able to achieve the targets. Although we naturally need to make continuous efforts to ensure even higher levels of safety, we demonstrated our ability to make solid progress on this top-priority issue, which contributed to driving our business growth.

Under the Kidou “Activate” plan, we addressed three management issues that we needed to work on: “breaking free of the cycle of gradually diminishing returns,” “research and development for new growth strategies” and “measures to strengthen management foundations.”

With regard to the first issue of “breaking free of the cycle of gradually diminishing returns,” we achieved our target of “consolidated operating income of ¥10.0 billion in the final year of the plan” in the third year, which was earlier than expected. Following this, we were able to achieve results that exceeded our target for the next three years in a row, and which I believe allowed us to lay the foundations for generating a certain level of profit successfully, something that will be a driving force behind the Shin-Kijiku “Innovation” medium-term management plan.

As profitability increased, we also made progress on the issue of “measures to strengthen management foundations.” We also achieved our target of “consolidated interest-bearing debt of ¥170.0 billion” one year earlier than expected, reducing the amount to ¥158.6 billion in the fiscal year ended January 31, 2016. In terms of cash dividends, although we did not pay any dividends in the first year of the plan, we were able to pay ¥5.00 per share in the second year and even higher dividends of ¥6.00 per share in the fourth and fifth years.

With respect to “research and development for new growth strategies,” we made progress on the development of facilities that were unprecedented such as ASOBono! (Indoor Kids’ Playground), SPO-DORI! (Indoor Sports Facility) and TeNQ Space Museum. However, this success was seen only inside Tokyo Dome City, thus leaving unfinished the issue of new development outside the City, which we had hoped to achieve when the plan began. That said, the motivation among the entire group has risen considerably, namely the motivation to continually raise profits by upgrading the content of the facilities and thereby add value, rather than allowing them to simply take up space once they are established. In this respect, we have gradually come to the stage where we can be confident in our hopes for future developments.

Financial Highlights for FY2016

Net sales Operating income Ordinary income Net income
85,875million yen
(up 3.2% year on year)
12,737million yen
(up 13.0% year on year)
10,636million yen
(up 16.4% year on year)
4,559million yen
(down 38.7% year on year)

Four business objectives to be achieved under the 5-year Shin-Kijiku “Innovation” medium-term management plan

“Shin-kijuku” literally means “new axis,” and the plan was so titled to reflect our desire to create something new as we envision what we want the Company to be in the future. The subtitle, “toward the next generation of value creation,” implies the theme of this plan: to “establish the direction of the Company now” with an eye toward the future, so that the Tokyo Dome Group can carve out a path of growth to become a company that continues to create value for the next 100 years. We will strive to increase business investment more than ever and proactively take on new challenges. We will press ahead with the goal of going into outside businesses and developing new businesses as growth strategy, a goal which was not achieved under the previous Kidou “Activate” medium-term management plan.

In terms of business objectives, we are focusing on the following four points: The first objective focuses on “increasing profitability,” that is, improvement of consolidated operating income. As the operations of the Misaki Building and Hall of Atami Korakuen Hotel will end in August 2016, which marks the 50th anniversary year of its opening, our target is to maintain the current ¥10.0 billion level in the first to third years of the plan. Thereafter, we plan to raise consolidated operating income to the ¥13.0 billion level in the fourth to fifth years of the plan by starting the operations of a new facility. We will exert continuous efforts to increase value by making investments in areas where they should be made, and establish a new direction under Shin-Kijiku “Innovation,” leading to sustained profits that will allow us to achieve our targets.

With respect to the second objective of “improving our financial structure,” we will continue to make efforts to reduce consolidated interest-bearing debt to ¥139.0 billion.

For the third objective, “efficiency of capital operations,” we set the targets of the next five years for ROA (Ratio of ordinary income to total assets) of 4% and ROE (return on equity) of 6% on a consolidated basis. For a group like ours that owns considerable assets and raises profitability by continually increasing asset value, there are major replacement investments that must be made, and accompanying depreciation expenses that are incurred. In addition, because trends in amusement facilities change quickly, and maintaining out-of-date assets will not produce profits, we need to replace existing facilities with new ones promptly. As we do this, the probability of incurring losses from the destruction of assets and other similar losses will increase, thereby introducing a factor of fluctuation in profit attributable to owners of the parent and also increasing the range of ROE fluctuation. In order to respond to this problem, we also established a target indicator for ROA that is calculated with ordinary income as the numerator of this rate of return, as ordinary income has smaller variation factors. We are aware that raising ROA is definitely a significant challenge for our Group because we own a great amount of assets; however, we will make efforts to maintain a steady increase.

The fourth objective is to pay “dividends that are linked to stable dividends and earnings.” Not only have we promised our shareholders to pay ¥12.00 per share or greater consistently, but we will also provide earnings-linked dividends for the portion exceeding a net income (attributable to owners of the parent) of ¥6.0 billion. We believe this will directly translate the result of business growth into returns for stockholders.

Initiatives for addressing the eight management issues

1. Maintaining and expanding Tokyo Dome City’s business profit levels

We intend to invest even more into the renovation and replacement of facilities to increase added value with the aim of maintaining and expanding profit levels. First, we will renovate the Tokyo Dome facilities, updating the seats as well as the lighting and acoustic systems; these will be the first major renovations since its opening. We are also considering renovating LaQua, which has been operating for 13 years, as well as Tokyo Dome City Attractions. At the same time, we will work to secure stable profits and build sound business foundations by accelerating the development of new content.

2. Research and development of a new growth strategy and the growth of existing businesses outside Tokyo Dome City

The biggest effort involving this issue is the Atami business. At Atami Korakuen Hotel, we will cease the operations of Misaki Building and Hall at the end of August 2016, although we will continue to operate the Tower Building for the time being. At the site of these discontinued facilities, we will build a next-generation facility that responds to changes in the ways that people travel and stay at resorts, with the aim of opening and making this facility capable of contributing to profits during the Shin-Kijiku “Innovation.”

We will renovate the buildings and facilities of the Matsudo Keirin Racetrack to make them more earthquake resistant and make such improvements so as to increase the facilities’ value potential.

In addition to the above, we will redouble our efforts in terms of intangible assets as well by, for example, by commercializing the expertise and content that the Tokyo Dome Group has acquired over the years―instead of focusing only on physical, infrastructure―and then offer these products and services to the community as a new business.

3. Responding to shortages in manpower

In the course of the business operations of the Group, whose management philosophy is “thrilling and entertaining the public,” the presence of people who can interact with the customers while sharing in the excitement is of paramount importance. Personnel development is therefore a crucial topic for us, on par with safety. We need to reinforce the employees’ understanding and raise the awareness of each and every one of them on this point of the management philosophy, and train our employees to become educators for on-site staff. To this end, in February 2016, we opened the Tokyo Dome Group Education Center, which is engaged in the education of employees throughout the Group. By maintaining the function of this educational organization, we will continually train employees to enable them to offer a high level of service. Such diligent efforts are expected to lower the job turnover rate.

4. Instilling and maintaining a culture of safety

There is no end to our efforts to ensure safety. Our constant commitment to make safety a priority and to implement even more thorough safety measures will help to keep the culture of safety that we have fostered from losing its substance.

We will of course continue to take the initiative in replacement investments to mitigate the aging of facilities and equipment. In addition, we will also boost and expand safety management systems, bolster measures against terrorist attacks with an eye toward the Olympic Games, offer education on disaster and crime prevention and step up our training operations, thereby reinforcing our efforts to maintain a safe and sound environment.

5. Adhering to the Corporate Governance Code and the Stewardship Code

We will design our governance system in accordance with the intent of the Corporate Governance Code and place importance on dialogue with stakeholders. In terms of Shin-Kijiku “Innovation,” we will fully convey our aims and what we want to achieve to our stakeholders―rather than just focus on business results in numerical data―and secure more stakeholders who show an interest in our group and give us their support.

6. Support for guests from overseas and involvement in the Olympics and Paralympics

The Group seeks to provide places that all guests can enjoy, feeling welcomed and comfortable no matter when they visit. Considering that the number of foreign visitors to Japan is increasing, we will accelerate the development of intangible services, such as multilingual services and duty-free counter services, in combination with more tangible measures like tourist-friendly signboards.

7. Responding to changes in consumer behavior due to shifting demographics

As Japan is experiencing a declining birthrate and an aging population, we will naturally provide content that can be enjoyed by elderly customers and offer facilities and equipment featuring universal design with a focus on barrier-free services. Despite the declining birthrate, a large number of young families visit our facilities. We will also offer diverse content that appeals to middle-school, high-school and university students as well as customers of every age, thereby boosting the number of visitors.

8. Strengthening group management

We will evaluate business efficiency of all our business segments in a comprehensive and multi-faceted manner based on our investment policy, with the aim of developing the optimal business portfolio for the Group and its functions. We will also share information among the Group companies, develop content horizontally, and increase the number and scope of jointly sponsored events, thereby accelerating the Group’s growth.

Toward the creation of the next generation of value

The Shin-Kijiku “Innovation” medium-term management plan has started with the task of asking what we will have to do for the future of the Group and stakeholders in order to determine the direction we take going into the next generation of value creation.

Certainly, we will not only follow our conventional business models. I am convinced that other business approaches are necessary as well. We will establish the direction of the Company under the Shin-Kijiku “Innovation” in the first to second years of the 5-year plan, and thereafter make the plan a reality in concrete ways. I see building solid foundations heading into the next generation of value creation over the 5-year period as the commitment that has been assigned to me. We are very grateful for your continued encouragement and support for the Tokyo Dome Group, and we deeply appreciate your continuous guidance and encouragement.

Outlook of consolidated operating income and consolidated interest-bearing debt under Shin-Kijiku “Innovation”

Consolidated operating income
Considering that the post-season and all-star games of major professional baseball events are not expected to be held, and only the Tower Building of Atami Korakuen Hotel will be in operation, a decrease in earnings is unavoidable until the midpoint of the plan. However, we will maintain a level of consolidated operating income of ¥10.0 billion, which has been reached under the Kidou “Activate” plan, in a bid to increase earnings and returns to the level they were before the collapse of Lehman Brothers in the second-half period of the plan.

Consolidated interest-bearing debt
This will continue to be reduced. Capital spending of ¥43.0 billion is expected during the Shin-Kijiku “Innovation” period.