Nanahoshi Management

Optimize Yaizu (2812 JP Equity)

-for an increase in shareholders' value-

Presented by

This website is a campaign website for the YAIZU SUISANKAGAKU INDUSTRY CO.,LTD. ('YSK') shareholders.

Our shareholder proposals overview for the AGM in June 2023

Increase in dividends to achieve the dividend-on-equity ratio of 10% Votes against percentage was 74.5%

Reversal of separate reserves to avoid rigid managerial decision

Nomination of an independent outside director from Nanahoshi Management Ltd. Votes against percentage was 79%

Decisions on dividend payment should not be left solely to the BoD, but to the AGM Votes against percentage was 73%

Disclose the net-zero transition plan to promote net-zero initiatives and reduce the cost of equity Votes against percentage was 78.4%

Abolishing takeover defences Votes against percentage was 66.6%

*Due to YSK's reaction to one of our formal shareholder proposals, we accordingly requested a withdrawal of the corresponding proposal (YSK has voluntarily reversed its Separate Reserves.).

Recent dialogues

15.3.2024 Letter to Board of Directors dispatched.

Concerns Regarding the Special Committee Acting as a Yes-man Entity

16.2.2024 Letter to Board of Directors dispatched.

Concerns Over Recent Tender Offer Attempts and Calls for Reconsideration

20.10.2023 Letter to Board of Directors dispatched.

Necessity for Increasing Shareholders’ Value of YSK

20.10.2023 Letter to a major shareholder dispatched.

Request for Voluntary Restraint on Share Buyback Requests, Including TOB, for YSK

17.10.2023 Letter to Board of Directors dispatched.

A shareholder derivative action against Representative Director Yamada et al.

17.10.2023 Letter to Board of Directors dispatched.

Our view on the letter received from Director Uchiyama

15.8.2023 Letter to the Board of Directors dispatched.

Issues of the Tender Offer and Request on Withdrawal of the Opinion in Favour of the Tender Offer

6.7.2023 Letter to President Yamada dispatched.

Request an amendment of the annual report etc.

12.6.2023 Letter to President Yamada dispatched.

Followup to the meeting held last week

5.6.2023 Letter to Shizuoka Bank dispatched.

Curiosity about the main bank ex-officer begin as a candidate for YSK's director

1.6.2023 Letter to President Yamada dispatched.

Response to YSK's opposite opinion of our shareholder proposal

23.5.2023 Partial withdrawal of one of the shareholder proposals

YSK has voluntarily reversed its Separate Reserves

12.4.2023 Disclosed shareholder proposals

Proposals for the AGM coming June

11.1.2023 Letter to the Nomination and Remuneration Committee dispatched.

Recommendation of our CEO as YSK’s candidate for management.

11.1.2023 Letter to President Yamada dispatched.

Summary of discussion regarding lower P/B Ratio listed companies.

13.10.2022 Letter dispatched.

Feedback on the content of the previous day's meeting.

Supplemental Charts for shareholder proposals

TSR and equity-to-assets ratio after the BoD controls the dividends

TSR is massively underperformed compared to TOPIX though the equity-to-assets ratio increased

Change from the end of FY14 vs each FY end depicts the collapse of TSR vs TOPIX and the increase in equity-to-assets ratio.

Note: TSR is gross basis. Recalculation by using net TSR shows -52%pt in FY22.

Calculation on the dividend at DOE 10%

The sum of dividends of YSK's and our proposal (&) equal to 10% of BPS()

YSK's Challenges and our Solutions


Exceptionally low P/B ratio

Implement a management policy focused on increasing shareholders' value


Significantly low ROE target

Target ROE above CoE or ROIC above WACC

Engage in sincere dialogue with shareholders, understand the market's perception and incorporate it into management policy


Extremely high equity-to-assets ratio due to inefficient capital allocation

Publish optimal equity-to-assets ratio

Establish a shareholder return policy with 10% DOE

Cancellation of treasury shares (YSK announced the cancellation on 3.2.2023)


Insufficient disclosure on the issue of fraudulent labelling resulted in significant damages

Publication of investigation reports

Hold those responsible appropriately accountable; implement effective recurrence prevention measures


Inadequate climate change risk analysis and other disclosures and large separate reserves

Elaborate assessments of climate change risks, including sea level rise

Reversal of the entire separate reserve fund on non-consolidated B/S(YSK announced that the BoD resolved the reversal on 22.5.2023)


The extremely low-profit margin of the Marine Products segment

Review the business portfolio strategically

Divest businesses that do not contribute to improved capital efficiency


Withdrawn only a short time after declaring the Prime Market listing

Set listing on the prime market as a medium-term target

Abolish takeover defences


Relative TSR (net) v.s. TOPIX incl. dvd after the announcement of MTSP

De-list from the equity market if YSK does not adopt management policies to increase shareholders' value

If YSK chooses to remain listed, President Yamada should resign and be replaced by a director who will promote to increase shareholders' value

(Important note: on this website, the currency is in JPY, market values are as of 11 May 2023, financial data are as of March 2023, and financial data are from the consolidated financial statements unless otherwise stated. The Japanese text is the original, and the English text is for reference purposes. The Japanese text shall prevail if conflict or inconsistency exists between these two texts.)

Exceptional low valuation of YSK in a nutshell

As shown in Annexe 1, YSK's shareholders' value is valued at only half of the book value.

In addition, as shown in Annexe 2, YSK’s value of operations is approximately JPY 3 billion. On the other hand, YSK's business generates free cash flow (FCF) of between 700 million and 1.2 billion yearly. Therefore, it can be said that YSK's business has only been valued at the equivalent of about 3-4 years of FCF.

Annexe 1: Price-to-Book Ratio

The P/B ratio is exceptionally low.

Annexe 2: Value of Operations

YSK's operation is valued at only 3-4 years of FCF.

(2 note: The value of operations is calculated by deducting non-operating assets from the enterprise value, which is the sum of the value held by shareholders and creditors (market capitalisation and interest-bearing debt, respectively). Non-operating assets are calculated as total cash and cross-shareholdings less operating cash and est. tax. Minimum cash equals 2.5 months of YSK's guidance sales for the full year (2.5 months equal to cash/sales).

Consideration of why YSK's value is significantly undervalued

In general, as shown in Annexe 3 (yellow highlight), shareholders' value and enterprise value decrease as the cost of equity ('CoE') and the weighted average cost of capital ('WACC') increase.
In addition, as shown in Annexe 4 (green highlight), the market discounts equity capital and invested capital as ROE and ROIC are lower than CoE and WACC.

We believe that the low valuation of YSK is that the risk a,k.a. uncertainty (≈CoE, WACC) is increasing while capital efficiency (≈ROE, ROIC) remains low. Therefore, we believe that YSK's shareholders' value has opportunities to increase through reducing the cost of capital and improving capital efficiency.

We expect YSK to implement management policies that increase shareholders' value and improve its reputation in the market rather than letting such low valuations go unchecked.

Annexe 3: Relationship between shareholders' value and cost of capital

As the cost of capital increases, shareholder and corporate value decrease.

<Evaluation of shareholders' value using the dividend discount model>

\begin{align} \style{background: linear-gradient(transparent 80%, yellow 50%);}{\textsf{Shareholders' Value}}=\frac{\textsf{Net Income} _{1}\times\textsf{payout ratio}{(\frac{\textsf{Dividends} _{1}}{\textsf{Net Income} _{1}})}}{\style{background: linear-gradient(transparent 80%, yellow 50%);}{\textsf{Cost of Equity}}- \textsf{g}} \end{align}

<Evaluation of shareholders' value using the value driver formula>

\begin{align} \style{background: linear-gradient(transparent 80%, yellow 50%);}{\textsf{Enterprise Value}}&=\frac{\textsf{NOPAT} _{1}\times{(1- \frac{(\textsf{g})}{\textsf{ROIC}})}}{\style{background: linear-gradient(transparent 80%, yellow 50%);}{\textsf{WACC}}- \textsf{g}} \\ \\ \textsf{Shareholders' Value}&= \textsf{Enterprise Value}\ -\textsf{(Debt - cash equivalent}) \end{align}

Annexe 4: Relationship between capital efficiency and cost of capital

If capital efficiency is lower than the cost of capital, equity and invested capital are valued at a discount.

<Equity spread formula>

\begin{align} \style{background: linear-gradient(transparent 80%, #6CD5C7 50%);}{\textsf{PBR}}=1+\frac{\style{background: linear-gradient(transparent 80%, #6CD5C7 50%);}{\textsf{ROE}-\textsf{CoE}}}{{\textsf{CoE}}} \end{align}

<EVA® (Economic Value Added) formula>

\begin{align} \style{background: linear-gradient(transparent 50%, #6CD5C7 80%);}{\textsf{EVA}^®}=\style{background: linear-gradient(transparent 80%, #6CD5C7 50%);}{\textsf{(ROIC}-\textsf{WACC)}}\times\textsf{Invested Capital} \end{align}

% votes in favour of the appointment of President Yamada and outcomes of institutional investors

As shown in Annexe 5, the percentage in favour of the appointment of President Yamada has been consistently low, mainly due to low ROE (note that the rate in favour of the top management of TOPIX 500 companies is 91.2% (DIR "Summary and Implications of the June 2022 Shareholder Meeting Season").

In May 2022, YSK announced its medium-term management plan ('mid-term plan'). And revealed targets such as an ROE of 5% and an operating profit of JPY 850 million.

However, as in previous years, many votes against President Yamada were cast at the held in June 2022. The low percentage of votes in favour can be explained by the fact that institutional investors considered YSK's capital allocation policy and efficiency problematic, as shown in Annexe 6.

Before voting against YSK, institutional investors should have examined the contents of the mid-term plan announced before the AGM and discussed with YSK to check whether there are signs of improvement in capital efficiency above a certain level. Therefore, the institutional investors, based on the contents of the mid-term plan, judged that YSK was not being managed from a cost-of-capital perspective.

The corporate governance ('CG') report states that President Yamada is in charge of overall dialogue as shown in Annexe 7. Since President Yamada can discuss the above issues with institutional investors, we hope he will understand the cost of capital perspective and utilise it in his management.

We expect YSK to adopt a management policy that considers the cost-of-capital perspective.

Engage in sincere dialogues with shareholders, understand the market's thinking and incorporate it into management

YSK should understand the concerns of institutional investors who voted against President Yamada, recognise them as management issues and promote solutions.
In addition, we requested a meeting with President Yamada or the Board of Directors to explain YSK's approach to the cost-of-capital and other issues, but this was refused. If President Yamada does not respond to the dialogue, the CG Report is suspected of misstatement and will be corrected to the correct wording.

Target ROE above the CoE or ROIC above WACC in the mid-term plan

If YSK recognises that its cost of equity is 5%, the same as the ROE target in the current mid-term plan, disclose the level of the cost of equity and the basis for the calculation.

Annexe 5: Percentage in favour vote for President Yamada and ROE

The ratio in favour of President Yamada is low, at around 80%, while the level of ROE is consistently low.

Annexe 6: Opposition reasons to President Yamada by institutional investors at the 2022 AGM

Uncertainty over capital policy, poor capital efficiency and inadequate shareholder returns were the main reasons for opposition.

  • Unable to support the continued appointment of directors in the face of continued poor performance. Unable to support management directors due to inadequate explanation of capital policy. (BlackRock)
  • Because they are deemed responsible for performance not meeting our standards (Nomura AM. Note that they were in favour last year.)
  • Oppose as YSK's return on equity has been below a certain level for three consecutive terms, and management is considered responsible. (Mitsubishi UFJ Trust)
  • Because they do not meet our criteria for operating results or effective use of shareholders' equity (Daiwa AM).
  • Because performance does not meet our criteria and the number of outside directors does not meet our policy (Nikko AM).
  • Criteria for appropriating surplus funds are met (Nissay AM).
  • Levels of shareholder returns, retained earnings, etc., and standards on capital efficiency (Resona AM).
  • The company has a poison pill in place (Amundi AM).
  • ROE criteria (Sumitomo Mitsui DS)
  • Meets performance criteria (Pension Fund Association, AM One, Dai-ichi Life, Mizuho Trust, Sumitomo Mitsui Trust AM. Note that Dai-ichi Life was in favour last year).

(Note: compiled by us from the companies’ websites concerning the website of Prof. Tsumuraya's laboratory).

Annexe 7: Statement of YSK's policy on constructive dialogue with shareholders

President Yamada is in charge of the overall dialogue.

YSK has designated an IR officer to deal with shareholders and institutional investors, while the President and CEO handle all dialogue aspects.

Extract from CG Code Principle 5-1, CG Report dated 23 June 2022.

Inefficient capital structure (equity-to-assets ratio of 89%) and capital allocation policy

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.

Publish YSK's optimum equity-to-assets ratio

To achieve the optimum capital structure, YSK should set out specific policies, such as how much it will return to shareholders and the target level of financial leverage.
To avoid idly accumulating cash and equity capital, clarify, for example, how much cash is required for guidance sales and how much surplus cash is.

Establish a shareholder return policy with 10% DOE as an indicator

For example, a DOE above CoE would allow shareholders to expect stable and attractive shareholder returns and reduce the risk of investing in YSK. We have calculated YSK's cost of equity to be around 10% (based on the figures in Annexe 2, the historical average* of dividend per share / {share price - non-operating assets per share - interest-bearing debt per share}), which is 9.6%*).
*After the accnocemeant of mid-term management plan excl. share-buyback effect

Cancellation of treasury shares

YSK holds treasury shares amounting to 10%. Clarify YSK's policy not to make acquisitions using its treasury shares that would cause significant dilution at the current share price.

YSK announced the cancellation of the treasury shares on 3.2.2023 (press release)

Annexe 8: YSK and industry average equity-to-assets ratios

YSK's equity-to-assets is significantly higher in absolute terms and relative to its peers.

Annexe 9: Net cash per share

As a result of cash and other savings, net cash per share was equal to the share price.

(8 Note: Figures for the food sector are quoted from the aggregate [consolidated] [total] (First Section, Second Section, Mothers and JASDAQ markets) of the financial results for each year of Japan Exchange Group, Inc.
 (9 Note: Net cash is the sum of cash less interest-bearing debt and cross-shareholdings less est. tax. The cross-shareholdings are the amount in end-March 2022, while all other figures are as of end-March 2023).

Annexe 10: Comments on cash and cash equivalents ratio

YSK also recognises that it has a high cash ratio.

Management issue: a high proportion of cash and cash equivalents with low capital efficiency, possibly damaging shareholders' value.

Extracts from the financial results briefing material for the year ending 31 March 2022

Insufficient disclosure of the fraudulent labelling resulted in over 600 million yen in damages

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.

Publication of investigation reports

The investigation committee members should not be 'lawyers and experts who have no interest in YSK' but should be named, etc.

Hold those responsible appropriately accountable; implement effective recurrence prevention measures

If the disciplinary action is appropriate, publish the investigation report as the basis on which it can be judged appropriately.
It is considered to be an effective measure to prevent the recurrence of the issue by stating that it is YSK's policy to claim compensation from directors who caused damage to YSK, such as the mislabelling issue, due to a 'Lack of understanding and awareness of directors' responsibilities'.

Annexe 11: Disclosure of mislabelling issues

Although a committee was set up to investigate the scandal, which paid out damages of up to 600 million yen, the investigation report has not been made public. It may be insufficient to address responsibility and prevent a recurrence.

11 Sep 2019

Apology and future action regarding inappropriate food labelling on some of our products.

18 November 2019

Notice the formulation of measures to prevent recurrence and the disciplinary action against the persons concerned.

Six causes by the Investigation Committee.

  • Lack of understanding by directors, managers and employees of the importance of food labelling
  • Low awareness of legal compliance (compliance) among officers, managers and employees
  • Lack of prioritising the trust of business partners and consumers
  • Lack of understanding and awareness of directors' responsibilities
  • Lack of information sharing and coordination between departments, lack of personnel
  • Lack of understanding of the actual situation on the ground and employee awareness by directors and managers

Preventive measure

  • Reform compliance awareness and strengthen corporate governance systems
  • Fundamental review of the quality assurance system
  • Strengthening of the manufacturing system
  • Stimulation of company-wide communication

Disposal of relevant personnel

  • Mariko Ishikawa Demotion from the director and managing executive officer to director and executive officer
    • (Nanahoshi Management addendum) Her background in the organisation corresponding to the current Quality Assurance Division is as follows.
      • Aug 2001 Quality Assurance Section Manager, Quality Assurance Department, Production Division
      • Jul 2003 Head of Quality Assurance Office
      • Jul 2005 Head of Quality Assurance Centre
      • Jun 2007 Director, Head of Quality Assurance Centre (since Nov 2010 Managing Director, Head of Production Division, etc.)
      • Nov 2012 Managing director and head of the Quality Assurance Centre (from Apr 2013, managing director and head of the Sales Division and Sales Management Department, etc.)
      • Jun 2015 Director and Executive Officer in charge of Quality Assurance Office and Internal Audit Office
      • Apr 2016 Director, Managing Executive Officer and General Manager, Quality Control Division
      • Apr 2017 Director, Managing Executive Officer and General Manager, Quality Assurance Division
  • Six full-time directors and one external director Partial reduction of executive remuneration (10%-50% reduction for three months)
  • Yukimichi Tomoda, the Executive Officer, was relieved.

(Note: compiled by Nanahoshi Management from YSK's website.)

Annexe 12: Unclear reasons for non-publication of investigation reports

As a shareholder, it isn’t easy to understand YSK's policy of not publishing either the investigation report or the report for the public.

It is the policy not to publish the investigation report, as it was not prepared with a view to making it public.

Written response by Executive Officer Nakajima on 8 November 2022.

Inadequate climate change risk analysis and other disclosures and large separate reserves

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.

Elaborate assessments of climate change risks, including sea level rise

As YSK's equipment and other facilities are distributed in coastal areas, YSK elaborates on assessing climate change risks and explains the risks correctly to shareholders.

Reversal of the entire separate reserve fund

YSK announced that the BoD resolved the reversal on 22.5.2023 (press release, note the relevant part is the second page of the pdf uploaded to the website. Only Japanese is available.)

Appendix 13: Address of YSK's head office and projected sea level rise range

RCP 8.5 case.

(Source: Google Maps)

(Source: Greenpeace Japan Office website)

The necessity of the strategic review of the business portfolio (i.e. Marine Products segment (opm. 1-3%))

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.

Review the business portfolio

Clarify the business portfolio review system, business assessment quantitative criteria, etc., based on business restructuring guidelines 2.2.3 and 2.2.4.

Divest businesses that do not contribute to improved capital efficiency

Annexe 14: Changes in operating margin by segment

The operating profit margin of the Marine Products segment is significantly lower than the profit margin of YSK as a whole.

Annexe 15: Marine Products segment inauguration inception

It remains to be seen how the new business opportunities and raw material sourcing channels contemplated at the time of the acquisition in 2005 are contributing to YSK's performance.

YSK took over leading the sales division of Marumi Corporation and newly established it as a wholly-owned subsidiary, Marumi Foods Corporation, in August 2005. (Omitted) Marumi Corporation was a long-established seafood company in Yaizu city that engaged in the brokerage, consignment trading, processing and sales of seafood products as the freezing and refrigeration business. (Omitted) With this acquisition, our company gained a new section to handle the fresh fish sector and target new business opportunities. (Omitted) YSK’s financial position deteriorated due to the decline in landings at the port of Yaizu city, which led to the transfer of operations to us. (Omitted) There were two main benefits for YSK from this acquisition.
The first is the expectation that new business opportunities will open up by securing our procurement and sales routes for marine products by acquiring the unique fish processing and wholesale divisions. Securing raw materials for seafood is an essential issue for YSK, and this acquisition also secured one route for purchasing raw materials.
Another is that it will directly link the Yaizu plant with the Yaizu Danchi of both plants. As the Marumi plant is located right in the middle of both plants, the acquisition of this land was expected to allow both of our plants to be connected to the ground and to operate as one.

'50 Years of Yaizu Suisan Kagaku Kogyo Kogyo', edited and produced by the YSK' s 50 Years History Editorial Committee (20 September 2009), cited in.

Withdrawal of Prime Market listing policy and maintaining of takeover defence measures

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.

Set listing on the prime market as a target of the mid-term plan

The management target is to achieve prime market initial listing criteria (e.g. market capitalisation of at least JPY 25 billion, the market capitalisation of at least JPY 10 billion in tradable shares).

Abolish takeover defences

Annexe 16: YSK's press release regarding the application for selecting a new market segment

After just under four months, YSK gave up on its prime market listing.

27 Aug 2021

Notice of the change of the market to be selected in the application for the selection of a new market segment.

On 9 July 2021, YSK received a notification from the Tokyo Stock Exchange (TSE) of the results of the initial assessment on the status of compliance with the listing maintenance criteria for the new market segment "Standard Market", and although YSK complied with all listing maintenance criteria for the new market segment "Prime Market", it did not meet the requirements for "market capitalisation of tradable shares" and "trading value" among the listing maintenance criteria for "Prime Market". The requirements for the "Prime Market" were not met in terms of "market capitalisation of tradable shares" and "trading value". (Omitted)

Based on the above, YSK will apply the transitional measures by preparing, submitting and disclosing a "Plan for Compliance with the Listing Maintenance Criteria for the New Market Classification" between September and December 2021. It will continue to promote business to increase corporate value further, improve corporate governance, actively engage in IR activities, and work towards fulfilling all prime market criteria.

17 December 2021

Notice of Intention to Conform to Prime Market Maintenance Standards.

While further effort and costs will be required in the future to continue to achieve the standards for maintaining the prime market, the top priority at the moment in YSK is to improve profitability.
Given the current size and reality of YSK, we should select the 'standard market' and concentrate our management resources on measures to improve our earning capacity and achieve sustainable growth.
Regardless of the market category to which we belong, we will continue to work on improving our corporate value through enhanced corporate governance and active dialogue with our shareholders and investors, based on the recognition that these are important, and we aim to be listed on the 'Prime Market' in the future by promoting them.

(Note: compiled by Nanahoshi Management from YSK's website.)

Inconsistency between target operating profit and target ROE in the medium-term management plan

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.

Clarify the basis for calculating ROE in the final year of the mid-term plan

Target figures for net profit and equity capital for the final year of the mid-term plan are to be announced.

YSK announced that the medium-term management plan is under review on 9.6.2023 (company presentation, Only Japanese is available.)

Annexe 17: Estimating equity capital and operating profit required to realise 5% ROE

Under the assumption of an operating profit of JPY 850 million, the ROE would only be around 3%.

(Remark: ROE is calculated as net income = operating profit x (1 - effective tax rate of 30%). For example, an operating profit of JPY 850 million multiplied by (1-0.3) gives a net income of JPY 595 million, which, when divided by equity capital of JPY 19 billion, gives an ROE of 3.1%. YSK plans to invest JPY 4 billion in growth during the mid-term plan. Still, even if it is implemented, equity capital does not decrease).

Annexe 18: Q&A at the FY22 H1 results briefing

The ROE target was set on the assumption that the profit target would be exceeded.

Nanahoshi Management

Assuming you will post an operating profit of JPY 850 million, approximately JPY 12 billion in equity capital would be sufficient to achieve the 5% ROE target. Still, YSK's equity capital is around JPY 19 billion, a significant discrepancy. The calculation does not add up, even considering a shareholder return of JPY 2 billion for the three years of the mid-term plan. Do you consider, for example, the recording of extraordinary profits?

President Yamada

The numerator(1) is also considered to be beaten. The idea of dissolving(2) the cross-shareholdings in terms of capital efficiency and putting it into investment in growth is understandable. We will improve such capital efficiency. If we are to record an extraordinary profit, we will announce it.

(1) note: As this is the numerator in the ROE calculation, it is considered to refer to profit.

(2) note: As of 31 March 2010, YSK held policy shares amounting to 1.4 billion yen.

Reconsideration of the purpose of a company and whether to be listed

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).

If YSK does not adopt a management policy to increase shareholders' value, YSK should be delisted
If not de-listed, President Yamada should resign from the board and replace with a director who can manage YSK to increase shareholders' value