As shown in Annexe 8, YSK's equity-to-assets ratio is exceptionally high at 89%. The ratio is also high compared to other sector companies.

One of the reasons for YSK's remarkably high equity-to-assets ratio is that YSK has made little use of interest-bearing debt and accumulated cash. As shown in Annexe 9, the amount of net cash per share is almost at the same level as YSK's share price.

As shown in Annexe 10, YSK also seems aware of the unusual situation where shareholders' value ≈ cash as a management issue. Therefore, we expect YSK to clarify what YSK considers the optimum level of equity-to-assets and disseminate information on specific measures to the market, as described below.

YSK improperly labelled 139 products out of a total of 570 products in 2019. In connection with the mislabelling issue, YSK paid damages of over JPY 600 million (link to the Annual Report Notes).

However, YSK has not disclosed the investigation committee's investigation report. This makes it difficult to understand the actual situation regarding the mislabelling issue and to assess the effectiveness of the measures taken to prevent recurrence and the appropriateness of the disciplinary actions against those involved. The two main questions regarding YSK's response to the mislabelling issue are as follows.

(1) Have appropriate disciplinary measures been taken?

As stated in Annexe 11, only one director (Ms Ishikawa, who was the Director, Managing Executive Officer and General Manager of the Quality Assurance Division at the time) received a demotion in addition to a reduction in his remuneration.
Annexe 11: 'Six Causes by the Investigation Committee' states a 'Lack of understanding and awareness of directors' responsibilities'.
As a shareholder, we have a strong interest in what kind of investigation led to the decision not to claim damages against Ms Ishikawa, who has been involved in quality assurance-related work for many years as a director and employee.

(2) Are recurrence prevention measures adequate?

It needs to be clear when whom and how the misrepresentations were made. Based on those facts, it is necessary to assess the effectiveness of the recurrence prevention measures.
In addition, we believe that it is an effective measure to prevent recurrence to clearly state that it is a policy to claim damages against directors who cause damage to YSK, such as the mislabelling issue, due to a 'Lack of understanding and awareness of directors' responsibilities'.

We have requested that the investigation report be made public, but this has been refused, as shown in Annexe 12. YSK's management should implement the following actions.

YSK’s main assets are located in coastal areas. For example, as shown in Annexe 13, YSK's head office address is not submerged when analysing the impact of sea level rise in a risk scenario. However, neighbouring parts of the city are exposed to the risk of disasters caused by sea level rise.

There are two types of disaster preparedness: preparation and post-response YSK should first analyse the risks YSK is exposed to in advance. To this end, we expect YSK to provide detailed disclosures on climate change risks.

It should be noted that in its non-consolidated balance sheet, YSK has recorded separate reserves amounting to JPY 8.4 billion. According to our interviews, the large number of separate reserves was due to 'disasters, etc.'.

Suppose the purpose of the separate reserves is to be used flexibly in the event of a disaster, for example. In that case, it should be transferred to other retained earnings instead of being recorded as separate reserves.

YSK operates in three main business segments. As shown in Annexe 14, the operating profit margin of the Marine Products segment is significantly low compared to the other segments. Noting the low-profit margins, the capital efficiency of the Marine Products segment may also be not high.

The beginning of YSK's development of the Marine Products segment was the acquisition of the primary sales division of Marumi Corporation, a long-established Marine Products company in Yaizu city, in 2005 in response to the deteriorating performance of Marumi Corporation, as shown in Annexe 15.
According to YSK, the acquisition was made in anticipation of new business opportunities, but nearly 20 years later needs to be clarified what opportunities were anticipated.

In light of the above situation, we believe that YSK should review its business portfolio (as referred to in CG Code Principle 5-2) to determine whether it needs to continue its business from a cost of capital perspective and, if necessary, withdraw from the Marine Products segment.
We expect YSK to formulate and publish a concrete plan on how to promote the improvement of capital efficiency, as follows.

As shown in Annexe 16, YSK announced its policy to continue listing on the prime market at first. However, less than four months later, YSK gave up detailing the prime market, mentioning that YSK did not meet the criteria related to shareholders' value (share price), such as 'market capitalisation' and 'trading value'.

We need to understand why YSK decided against a prime market listing. This is because improving profitability and increasing shareholders' value go hand in hand. YSK should achieve the criteria for a prime market listing while improving its profitability.

We also expect YSK to adopt the view that increasing shareholders' value is the most effective defence against takeover bids and abolish takeover defences in favour of serious efforts to increase shareholders' value.

YSK has set a target of 5% ROE in the final year of its mid-term plan. However, as shown in Annexe 17, the estimated result is that an ROE of 5% cannot be achieved under the assumptions of an operating profit of JPY 850 million and current equity capital. As YSK's current equity capital is approximately 19 billion yen, if equity capital were to decrease by about 7 billion yen to about 12 billion yen, YSK would be able to achieve a 5% ROE with an operating profit of 850 million yen.

During our interview with YSK, we asked Executive Officer Nakajima about this equity capital gap. He said, 'We (YSK) are aware of the gap you (Nanahoshi Management) have pointed out.' He stated that he was aware of the deviation. Therefore, on 12 October 2022, we said orally and on 13 October 2022 in writing that we would like to ask for an explanation to investors at the first-half results briefing. However, President Yamada has not explained this point at the H1 results briefing on 28 November of the same year.

Therefore, as shown in Appendix 18, we asked the question again during the Q&A session in the briefing, but the response was that '5% ROE can be achieved if operating profit is achieved more than the plan'. We believe that setting an ROE target that will not be achieved even if the operating profit target is achieved is misleading to shareholders and investors and is not appropriate for the content of a mid-term plan.

As shown in Annexe 19, as long as YSK is listed on the equity market, its share price will always be subject to valuation. However, companies do not necessarily need to be listed.

According to YSK's 50 Years History mentioned above, when President Yamada was in the Research Group of the Seasonings Development Department, he said, 'We want to continue to be a company with one-of-a-kind technology. To be the world's only company!'.

Suppose President Yamada does not take the helm in managing YSK to increase shareholders' value. In that case, we urge him to delist YSK and aim to become the world's only one company as an unlisted company. Alternatively, if he does not delist YSK and continues to leave the unusually low valuation of YSK, we would like him to invite a director to promote the enhancement of shareholders' value and resign.

Annexe 19: Total Shareholder Return following the announcement of the mid-term plan

The TSR has deteriorated after the announcement of the mid-term plan, which does not contribute to increasing shareholders' value.

(Supplementary note: Total return is a measure of share price excluding the effect of ex-dividends. The total return index is used as YSK pays an interim dividend. The TOPIX, including dividends, is on an after-tax basis, and YSK's interim dividends are recalculated and compared on an after-tax basis as well).