Our Activities in November 2023

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. 

HORIBA, Ltd. (6856)

HORIBA, Ltd. (“HORIBA”) is a measuring instrument manufacturer celebrating its 70th anniversary. The company has grown with automobile exhaust analyzers and expanded its business into the semiconductor field. Currently, the semiconductor business generates most of the company's profits. In recent years, the company has been strengthening the hydrogen business, which is a new field for them. Although this new segment still only accounts for over 2% of the company's total sales, sales are doubling due to increased demand in Europe, and further growth is expected with the expansion of production capacity.

Due to the nature of the measuring instrument business, HORIBA has always been committed to addressing social issues through its business activities. For example, an instrument that measures the condition of exhaust gases can be used to protect the environment. Another example is a device that measures the condition of blood, which can be used to promote good health. Although the quality of their business activities is high, the company has not been conscious of communicating this to external stakeholders. In a meeting with President Adachi about a year and a half ago, our CIO suggested that HORIBA expand its investor relations staff and strengthen its communication on sustainability, as there is much room for improvement in HORIBA's ability to disseminate information.

In a recent meeting with HORIBA, we confirmed that the company is discussing ways to strengthen its sustainability response in preparation for the development of its next mid-term plan, which is expected to be announced in early 2024. The company is also taking steps to strengthen communication with external stakeholders, such as increasing the number of staff in the investor relations and sustainability departments. We like the fact that the company is taking into account the opinions of investors and putting them into practice.

During the meeting, we also requested that the company improve their disclosure of KPIs related to the impacts they create as an additional measure of its commitment to sustainability. For example, the measuring instruments the company designs and manufactures play a role in maintaining air and water quality and supporting research and development that leads to technological innovation in society. Yet, they do not disclose this impact quantitatively. If the company can measure their impact internally and clearly communicate the social significance of their business, it will help improve the company's external reputation. This will play an important role in attracting people who fit the company's culture, especially when recruiting human resources. Since the quality of human resources is a lifeline for HORIBA as an R&D-oriented company, an easy-to-understand impact disclosure is also important in terms of long-term economic value creation.

We also exchanged views with HORIBA on financial matters, including investments to improve capital efficiency and enhance shareholder returns. Although HORIBA has an excellent business structure with high cash-generating capacity due to the fact that it does not require large capital investments, if the cash generated is not used effectively, there is a risk that capital efficiency will decline. Given this situation, it is positive that the company has become more proactive in listening to investors on the financial front.

Overall, HORIBA's IR staff seemed to have accepted our views with a sense of conviction, and we look forward to their future responses.

Prestige International Inc. (4290)

Prestige International Inc. (“Prestige”) is a company whose core business is business process outsourcing (BPO). Its consolidated revenue, operating profit, and net profit are ¥56.5 billion, ¥8.2 billion, and ¥5.5 billion, respectively (all based on the company’s forecast for the fiscal year ended March 2024).

The company’s strategy is to focus on niche areas within the BPO industry. For example, its core service—the automotive business, which handles responses to vehicle accidents and breakdowns—accounts for approximately 40% of both revenue and profit. In addition to call reception, the scope of services includes dispatching tow trucks, resulting in higher barriers to entry than those of a standard call center business. While accident-related cases, which account for roughly 10–15% of dispatches, may decline as vehicle collision-avoidance technologies improve, issues such as battery depletion and mechanical failures are increasing with vehicle electrification. Prestige has enhanced its response capabilities by equipping all of its approximately 60 owned tow trucks with charging functionality.

The company places its management philosophy of “listening to the problems of end users” at the center of its operations, and its agile responses to a changing environment suggest that this philosophy is being effectively translated into action. Such a philosophy is considered a differentiating factor versus its competitor, JAF (Japan Automobile Federation), a non-profit organization.

Another distinctive feature of Prestige is that it concentrates its BPO centers in the Tohoku and Hokuriku regions. Demand for roadside assistance increases during typhoons, and these regions were selected because they are relatively less affected by typhoon damage. In addition, as industrial development in these areas has lagged, population decline has progressed. Prestige has clearly demonstrated its intention to contribute to regional development by creating a comfortable working environment. Based on the belief that preventing population outflow requires not only job creation but also initiatives to strengthen community cohesion, the company has even established sports teams from scratch. In recent years, matches have attracted large audiences, and expectations from local governments have grown accordingly.

In its dialogue with the company, Cadira proposed that these initiatives be explicitly defined as KPIs. As the company has expressed a desire to discuss financial strategy with long-term investors, both sides have agreed to continue ongoing dialogue.

Benesse Holdings, Inc. (9783)

Benesse Holdings, Inc. is a holding company and Japan’s leading provider of correspondence education, best known for its “Shinken Zemi” programs for elementary, junior high, and high school students. While the domestic education business is its main earnings pillar, the company also offers educational materials for infants and toddlers overseas, including in China. Nursing care facilities, such as fee-based elderly care homes, account for approximately one-third of total revenue.

On November 10, the company announced that its founding family, in partnership with EQT Group, a Swedish private equity firm, would launch a tender offer for the company’s shares. The board of directors expressed its support for the tender offer and recommended that shareholders tender their shares. The tender offer is expected to be conducted at a premium of approximately 45% to the most recent closing price, and the company is expected to be delisted.

Based on this announcement, we carefully reviewed the details and assessed the appropriateness of the tender offer price. As a result, we decided to support the tender offer and sell all of our shareholdings.

We have long sympathized with the company’s corporate philosophy and have engaged with Benesse since 2013. In particular, we have discussed ways to enhance corporate value by promoting synergies, including the effective use of group resources, together with its listed subsidiary, Tokyo Individualized Educational Institute, Inc. (4745). More recently, in September of this year, we proposed considering the appointment of diverse external directors, including representatives from NPOs, and communicated our expectations regarding the leadership of founding family directors.

Following the MBO announcement, the company’s share price surged, making it the top contributor to the portfolio’s performance for the month. While it is regrettable that, as a minority shareholder, we will no longer be able to continue engagement or accompany the company in enhancing corporate value, we respect the company’s decision to go private in order to pursue transformation beyond the scope of the business reforms it has implemented or considered to date, and we hope to see meaningful structural reforms progress.

Since November, not only Benesse but also companies such as Taisho Pharmaceutical Holdings Co., Ltd. (4581) and SHIDAX CORPORATION (4837) have announced MBOs. We believe this trend is being driven by factors including the Tokyo Stock Exchange’s market reforms, which emphasize cost of capital and share price–conscious management, rising listing costs due to enhanced shareholder dialogue and disclosure requirements, increased activist activity, and the growth in assets under management at private equity funds.

Through our ongoing dialogue and information gathering with companies, we also sense a growing movement among listed firms to reassess the significance of remaining public. As a result, while we expect the number of listed companies determining that privatization is the optimal choice to continue to increase, careful attention must be paid to issues such as the fairness of tender offer prices and potential conflicts of interest with minority shareholders.