Executive Director, Metrical Inc

Aki Matsumoto

Executive Director

Independent Leading Corporate Governance Research

Metrical Inc

METRICAL INC. is an independent leading Corporate Governance research firm in Japan where Corporate Governance is increasingly recognized as an important element on corporate management in these days. Thus, CG research and solutions would become an essential component of global capital markets and play important to contribute to transparency of the markets and maximize shareholders’ value in Japan. 

METRICAL INC. provides Corporate Governance research and analysis including rating services, and  also offers investment research and IR services with solutions and customized profound research on CG and IR issues.

<ul>
<li>The problem with cross-held shares is that management facing shareholders tends to be neglected if they remain protected by a defensive wall rather than a lower return on capital.</li>
<li>The start of mandatory disclosure of policy shareholding policies from FY3/2025 will also help reduce policy shareholdings, which are expected to decrease gradually, but may remain as deemed shareholdings.</li>
<li>To improve capital profitability, profit margins must increase, so restructuring the business portfolio and investing for growth are key. Management changes are required to implement these changes.</li>
</ul>


The problem with cross-held shares is that management facing shareholders tends to be neglected if they remain protected by a defensive wall rather than a lower return on capital.
The start of mandatory disclosure of policy shareholding policies from FY3/2025 will also help reduce policy shareholdings, which are expected to decrease gradually, but may remain as deemed shareholdings.
To improve capital profitability, profit margins must increase, so restructuring the business portfolio and investing for growth are key. Management changes are required to implement these changes.


Reducing Cross-Held Shares Is Precisely What Is Needed to Promote Management Change

Asia L/S Equity PM/Macro/Thematic Idea Generation

Rikki Malik

Commodities

<ul>
<li>A review of recent events/data impacting our investment themes and outlook</li>
<li>We highlight a  commodity sector with  a strong risk-reward ratio</li>
<li>Precious metals have likely just completed Wave B of their correction</li>
</ul>


A review of recent events/data impacting our investment themes and outlook
We highlight a  commodity sector with  a strong risk-reward ratio
Precious metals have likely just completed Wave B of their correction


Overview #41 – Securing Supply, Unlocking Value: Global Themes in Equities and Commodities

<ul>
<li>The phenomenon of declining numbers of listed shares due to share buybacks and declining numbers of listed companies in US/Europe starting in 1990s began in Japan 30 years later.</li>
<li>On TSE, where there are many companies with parent-subsidiary listings and large shareholders like founder families and parent companies, more companies will choose to go private because of listing costs.</li>
<li>Private equity investments in Japanese companies will further increase in the future, as it is easier to find investment opportunities in Japan, where stock valuations are relatively low.</li>
</ul>


The phenomenon of declining numbers of listed shares due to share buybacks and declining numbers of listed companies in US/Europe starting in 1990s began in Japan 30 years later.
On TSE, where there are many companies with parent-subsidiary listings and large shareholders like founder families and parent companies, more companies will choose to go private because of listing costs.
Private equity investments in Japanese companies will further increase in the future, as it is easier to find investment opportunities in Japan, where stock valuations are relatively low.


Japan Market Attractive for PE Investment Despite Low Profit Growth

<ul>
<li>An assurance system will be established to ensure the quality of assurance. The assurance provider is expected to be a profession-agnostic system that is not limited to auditing firms.</li>
<li>The assurance will be limited to Scope 1 and 2, and only Scope 1 and 2, which most large companies already disclose, will be initially required to be disclosed.</li>
<li>Scope 3 disclosures have not progressed at this time, but Scope 3 disclosures are expected to progress after the safe harbor is included and the disclosure guidelines are revised.</li>
</ul>


An assurance system will be established to ensure the quality of assurance. The assurance provider is expected to be a profession-agnostic system that is not limited to auditing firms.
The assurance will be limited to Scope 1 and 2, and only Scope 1 and 2, which most large companies already disclose, will be initially required to be disclosed.
Scope 3 disclosures have not progressed at this time, but Scope 3 disclosures are expected to progress after the safe harbor is included and the disclosure guidelines are revised.


FSA Roadmap Is Realistic, but Progress on Scope 3 Disclosures Will Follow the Revision of Guidelines

<ul>
<li>The most common example of poor disclosure is “Disclosure is merely a list of initiatives. The timing of achievement, numerical targets, necessary resources, etc. should be explained.</li>
<li>Poor disclosure examples that “do not analyze issues or consider additional actions in a flexible manner” may not have a well-reasoned plan to disclose at this stage.</li>
<li>It is clear that many companies are not sufficiently considering the reduction or withdrawal of unprofitable businesses, as evidenced by their low return on sales and return on capital.</li>
</ul>


The most common example of poor disclosure is “Disclosure is merely a list of initiatives. The timing of achievement, numerical targets, necessary resources, etc. should be explained.
Poor disclosure examples that “do not analyze issues or consider additional actions in a flexible manner” may not have a well-reasoned plan to disclose at this stage.
It is clear that many companies are not sufficiently considering the reduction or withdrawal of unprofitable businesses, as evidenced by their low return on sales and return on capital.


Can TSE's “Examples of Bad Disclosures” Help Companies Shift to Shareholder-Oriented Management?

Japan

The TOPIX, also known as the Tokyo Stock Price Index, is a capitalization-weighted index of all companies listed on the First Section of the Tokyo Stock Exchange. The index is supplemented by the subindices of the 33 industry sectors. The index calculation excludes temporary issues and preferred stocks, and has a base value of 100 as of January 4, 1968.

TSE Tokyo Price Index TOPIX (TPX INDEX)

Reducing Cross-Held Shares Is Precisely What Is Needed to Promote Management Change

I would like to discuss the issues on the December 1 Nikkei Shimbun article, “Nippon Kabushiki Kaisha, Holding Company Prevents Capital Utilization.”

Metrical Inc

Overview #41 – Securing Supply, Unlocking Value: Global Themes in Equities and Commodities

A review of recent events/data impacting our investment themes and outlook. Lithium, Japan, precious Metals and the Oil and Gas sector

Rikki Malik

Japan Market Attractive for PE Investment Despite Low Profit Growth

I would like to discuss the issues on the November 28 Nikkei article, “Private Equity Funds, Investments Quadruple in 20 Years, Capture Corporate...

Metrical Inc

FSA Roadmap Is Realistic, but Progress on Scope 3 Disclosures Will Follow the Revision of Guidelines

I would like to discuss the Nikkei Shimbun article on December 2 “Sustainability Disclosure, Financial Services Agency to Make Non-Audit Firms Act...

Metrical Inc

Can TSE's “Examples of Bad Disclosures” Help Companies Shift to Shareholder-Oriented Management?

I would like to discuss the issues on the TSE's disclosure “Cases of Gaps with Investors' Perspectives” published on November 21.

Metrical Inc