English | Improve Tosho’s shareholders’ value Strategic Capital, Inc.
What we hope Tosho to improve the shareholders’ value as a shareholder are 1) improvement of its extremely low operating profit margin through reconsidering mid-term management plan and investment plan and 2) Special dividend funded by disposal of RECRUIT shares to optimize excess net assets.

Please note that this website is no longer being updated as of 30/7/2019

Improve Tosho’s shareholders’ value

Strategic Capital and our fund are shareholders of Tosho Printing Company,
Limited (hereinafter referred to as “Tosho”).

On May 13th, 2019, Tosho announced that it will be a wholly owned subsidiary of Toppan Printing Co., Ltd.(hereinafter referred to as “Toppan Printing”) through a share exchange. (link)

Although we have executed our shareholders’ right to make proposals at the AGM held in the coming June, considering the announcement, we withdrew our proposal. Please find details here.

<Our proposals which have been withdrawn>
  1. Disclosure of WACC and its basis of calculation for more effective dialogues.
  2. Increase in independent outside directors in the board to protect the interests of minority shareholders.
  3. Reconsideration of the mid-term management plan and implementation of special dividend to optimize excess net assets.
  4. Increase the shareholders’ value through further disposal of RECRUIT shares and improvement of its extremely low operating profit margin.

The challenges and our solutions are followings.

1. Low valuation left by the managements lacking the sense of cost of capital

The profitability of Tosho is extremely low (LINK)and its capital efficiency is low as well (ROE continues to stay less than 1%).
Besides, Tosho invested in acquisition which provides only poor return because Tosho persists in completion of its mid-term management plan that states 20 bil investment in expansion of its new business area.
Tosho impairs its shareholders’ value as stated above because the managements are not aware of the major premise of investment that investment return must exceed its cost of capital. We hope the managements of Tosho raise their awareness about cost of capital. Also, through the effective dialogue with shareholders, Tosho can increase its shareholders’ value. Therefore, we would like Tosho to improve its valuation by disclosing WACC and its basis of calculation.

2. Board structure to protect the interests of minority shareholders

Among the 13 members of the board of Tosho, there is no “truly” independent outside director. As discussed in the meeting of the Council on Investments for the Future at the Prime Minister’s Office in March 2019 regarding parent-subsidiary listings, it is highly expected for independent directors of listed subsidiary to participate in the decision making process of the board, representing the interests of minority shareholders. Therefore, we would like Tosho to organize the board of directors of which the majority shall be independent outside directors, in order to protect the interests of minority shareholders.

3. The proceed gained by sale of RECRUIT shares on its balance sheet

Tosho disposed some of its shares of Recruit Holdings Co., Ltd (hereinafter referred to as “RECRUIT”) in 2016 and gained ca. 12 bil after tax. This makes Tosho’s net assets increased and leads to low capital efficiency. Almost all of the proceeds are segregated as general reserve of retained earnings but we cannot ignore that Tosho holds such huge cash aimlessly that it cannot explain when and how they are used. Therefore, we would like Tosho to distribute JPY280 special dividend per share in addition to the dividend proposed by Tosho through reduction of the general reserve to ensure the appropriate level of net asset on its balance sheet.

4. Excessive cross shareholdings such as RECRUIT shares

As of the end of December 2018, Tosho holds cross shareholdings of 42,205mil. We would like Tosho to promptly dispose of all the cross shareholdings it holds within 3 fiscal years and shall utilize the proceeds to increase its shareholders’ value, such as increase in return to shareholders and improvement in the profit margin of its existing business after giving explanation of risk and return.

Please find the details of our proposals here
Our shareholder proposals

Comparison of Tosho’s situation, now and 15 years ago

Op.margin Adj.ROE Net assets Cash & investment sec. Market cap.
15yr.Ago 4.5%
Now 0.1%
(Q3 of FY2018)
(Q3 of FY2018)

Comparison of Tosho’s situation, now and 15 years ago

15yr.Ago Now
Op.margin 4.5% 0.1%
Adj.ROE 5.4% 0.6%
Net assets 29bil 75bil
(Q3 of FY2018)
investment sec.
7bil 65bil
(Q3 of FY2018)
Market cap. 23bil 41bil
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