Excess of net assets and cash | 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.

Excess of net assets and cash

One of the reasons for excess of net assets and cash is the shares of Recruit Holdings Co., Ltd (hereinafter referred to as “RECRUIT shares”) which Tosho holds as investment security.
There is an item on the balance sheet called “Valuation difference on available-for-sale securities” which is unrealized gain on securities. This unrealized gain on RECRUIT shares is as huge as Tosho’s market capitalization as of the end of January 2019.

Breakdown of net assets and market capitalization

  • o/w unrealized gain on securities 26
    Net assets 76
  • 30
    Net assets 79
  • 37
    Net assets 85
  • 26
    Net assets 75
  • 41
  • FY2017
  • Q1 FY2018
  • Q2 FY2018
  • Q3 FY2018
  • Market capitalization as of Jan. 2019

(Source:YUHO (Japanese annual report), Quarterly reports and filing on 22/10/2014 regarding RECRUIT shares)

As Tosho does not incur interest bearing debts so much, you can call Tosho a practical “debt-free company”
Net cash, defined as “after-tax cash and cash equivalents minus interest bearing debt”, of Tosho reaches JPY 53.6 billion as of the end of December 2018. Tosho’s Market capitalization is 0.76 times of its net cash above. This clearly shows that Tosho is excessively cash-rich.
Please note that this cash-rich balance sheet has persisted “before” the IPO of RECRUIT shares in October 2014. For example, in financial year 2013 which was before RECRUIT shares’ IPO, Tosho held 5.3 billion yen of cash, 7.4 billion yen of short-term securities, 4.2 billion yen of long-term securities, while interest bearing debt was just 0.8 billion yen.

Comparison of net cash and market capitalization

  • Other non-current assets
    Long-term securities
    Other current assets
    Short-term securities
  • Net Assets
    Other non-current Liabilities
    Current Liabilities
    •   Cash
    • + ST. sec.
    • + LT. sec.
    • ー Int. bearing debt
    • ー exp. tax
    • 54
  • 41
  • Assets
  • Liabilities & Net assets
  • Net
  • Market capitalization as of Jan. 2019

(Source:Q3 quarterly report. Expected tax is calculated as following by Strategic Capital :ex. Tax 11 bil=Unrealized gain 26 bil×tax rate 30%÷(1-tax rate 30%) )

Interest bearing debt0.4

Below is the chart that shows the comparison of net assets as of December 2018, market capitalization as of January 2019 and net cash as of December 2018. Tosho’s Market capitalization is almost half of net assets or net cash. From this point of view, the value of Tosho’s share is deeply underestimated.

Accumulation of net assets and cash provides financing reserve and releases managers from management tension.
We, as a shareholder, however, would like the managers to have a certain level of sense of alertness and hope they would optimize the net assets and cash. It is more important to use capital efficiently, improve ROE and increase shareholders’ value than to accumulate useless assets.

Unusual B/S structure and Market capitalization

  • Net assets
  • Market capitalization
  • Net cash
  • Q3 FY2018
  • As of Jan. 2019
  • Q3 FY2018

(Source:Q3 quarterly report)


Tosho does not establish any targets relating balance sheets in its mid-term management plan except ROE target rate at 1.7% in FY 2019. We have proposed Tosho to sell RECRUIT shares to distribute special dividends so that it can improve its capital efficiency. Nevertheless, Tosho is stubborn to keep RECRUIT shares as financial resources in order to invest for further growth “after” the mid-term management plan, although it is time to reconsider its huge investments now. It is hard to understand why Tosho has to care about financial resources for the further investments in the future.

Reason for holding RECRUIT shares is hard to understand ~AGM in June 2018~


It is difficult to imagine that Recruit holdings would place an order with you just because you hold RECRUIT shares. The straightforward business manner is to get orders from customers because of the quality and added value of your service, and thus make your profit margin improved.
How long will you continue to hold almost 40 billion Cross-shareholdings shares such as RECRUIT shares?

  • Mr. Yano:RECRUIT shares are important asset for us. We have already funded for the investments in this mid-term management plan. However, we would like to reserve RECRUIT shares for further investments in case we decide it in the future.
  • Mr. Kawada:Recruit holdings’ business is expanding from physical printing to digital area. We want to hold RECRUIT shares as an asset.
  • *Mr. Kawada is the President of Tosho andMr. Yano is the Senior Managing Director of Tosho

Tosho is a listed company and its financial management is not that of a household. A listed company’s mission is to earn profit using capital that is entrusted by shareholders as efficiently as possible. You cannot hold RECRUIT shares for the reason that you “just want to hold it without specific use”. This is what brought Tosho’s terrible capital inefficiency, low ROE and accumulated net assets.We would like you to understand the principle that a listed company’s mission is to improve its capital efficiency.

  • 株式会社ストラテジックキャピタル
  • 株式会社ストラテジックキャピタル