At Cadira Capital Management, our mission is "Connecting the Investment Chain and Beyond". Collaborative relationships with internal and external stakeholders are essential to achieving our mission. We therefore seek to deepen the relationship of trust with our stakeholders by disclosing specific details of our activities, including dialogue with the companies in which we invest.
This month, we'll report on the following activities.
Our Dialogue with Prestige International Inc.
Prestige International Inc. (hereinafter "PI") was founded by current President Shinichi Tamagami in 1986. Its core business is Business Process Outsourcing (BPO).
PI is unique in its policy of focusing on niche areas within BPO. For example, the company's main service is the automotive business which provides roadside assistance for car accidents and breakdowns. It accounts for about 40% of sales and profits. The company's scope of business includes not only receiving calls but also dispatching tow trucks, which creates a very high barrier to entry compared to general call center operations.
One of the characteristics of PI's business is the concentration of BPO centers on the Sea of Japan side (Tohoku and Hokuriku), where population density is lower. One reason for this is that during typhoons in Japan, there is an increase in requests for roadside assistance, so PI has chosen regions with less typhoon damage. Another reason is that it is easier for PI to recruit staff in these areas because there is less manufacturing expansion in these areas compared to the Pacific side due to a lack of developed transportation networks and other reasons. However, the ease with which PIs can recruit means that there are fewer employment opportunities in these regions, which is why they face the social challenge of a declining population. As population decline is an important issue for the future of PI's business, the company is working with local governments to address this issue by creating a comfortable work environment and implementing community development measures.
In addition, PI's business development is based on a philosophy of "listening to the problems of the end user," and a case in point is its response to electric vehicles (EVs). In fact, accidents account for 10-15% of the company's roadside service calls, with breakdowns, fuel shortages and other problems accounting for the remaining 85-90%. While the need for accident response is decreasing as vehicle safety features improve, breakdowns are increasing due to vehicle electrification, and there is also concern that the increasing use of electric vehicles will lead to more problems with dead batteries in the future. PI is therefore improving its ability to respond to problems by equipping all its tow trucks with a charging facility. Such agile management decisions from a user perspective are likely to be a differentiating factor from its competitor JAF (Japan Automobile Federation: a non-profit organization).
Cadira Capital Management maintains a regular dialogue with PI. At our last meeting, we discussed the financial strategy with President Tamagami. The company has a financial structure that generates stable revenues each year and steadily accumulates cash on its balance sheet. The company holds more than one-third of its total assets in cash, as it wants to maintain a high level of liquidity to finance investments in call center facilities and to fund settlements in its overseas operations. While a strong financial base is a good thing, there are concerns that too much cash can reduce financial efficiency. We expressed our view that it would be useful to deepen understanding with investors by presenting an optimal cash holding perspective and then making a rational decision to use excess funds, if any, for shareholder returns.
Our Dialogue with Financial Services Agency
Cadira Capital Management believes that the voice of the private sector must be heard by government authorities for the healthy development of the industry. As the Financial Services Authority is particularly relevant to our business, we pay close attention to their developments and communicate with them by submitting our views in response to their call for public comments.
In response to the recent announcement on March 15 of proposed amendments to the Financial Instruments and Exchange Act, Cadira had the opportunity to engage in a dialogue with FSA officials. As a measure to promote the sophistication and diversification of asset management, the amendment will relax the capital and personnel composition requirements for investment management companies, thereby facilitating the establishment of new investment management companies. Emerging managers (EMs) should be actively involved in these discussions, but only few EMs appear to be actively communicating with the FSA.
At Cadira, we will continue to work diligently to deepen the dialogue between the public and private sectors and to connect the FSA with EMs. We believe this is part of our mission to "Connect the Investment Chain and Beyond".
Learn More
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