Working Together for A Better Katakura
Cutting Costs + Closing Businesses + Focus on Relevant KPIs = A Better Kat
Katakura has made great strides in closing loss-making businesses and restructuring other businesses in the past year under President Sano and Senior Managing Director Joko. In the past few months, Katakura has withdrawn from four business units, and is in the process of restructuring others.
Oasis has been engaging with Katakura Industries (“Katakura”) since 2014. We initially engaged with Katakura because of its substantial business underperformance and resulting equity undervaluation. Oasis believed the Company’s performance could be dramatically improved through dialogue and engagement per our duties under the Stewardship Code.
We are encouraged by the recent actions by President Sano and Senior Managing Director Joko, the rest of the board, and management. We believe these actions reflect their improved adherence to the Corporate Governance Code, their engagement with Oasis and other shareholders, and an increased focus on improving corporate value, including improving the company’s ROE. We hope and expect that focus to continue.
Currently, Katakura expects to lose ¥650 million in the textiles, machinery and new business segments in fiscal year 2018. By reducing these losses, Katakura could increase its operating profit by 40%. The Company is also planning on cutting its HQ costs, which could also significantly increase profits going forward.
The Company had previously only focused on operating margin as a key performance indicator for business operations and the only criteria for investment in new businesses. Now, however, Katakura has begun to judge the resource allocation or whether to withdraw businesses by assessing several performance indicators like EBITDA, ROA, NOI yield and ROIC which, as we suggested to the Company, will lead to greater profitability in the future.
In response to the Oasis proposals for additional independent directors, Katakura hired Mr. Koichi Omuro, a real estate development expert as a consultant. We believe that his expertise will be invaluable in the future redevelopment of Cocoon City and the surrounding real estate, where substantial additional value can be extracted.
Working together with Oasis, we believe Katakura will finally achieve its potential and remedy its undervaluation through its improved corporate governance and strategy for the future. We look forward to continuing to work with management to improve Katakura’s performance. As a result, we expect Katakura’s stock price to re-rate and we expect an upside of over 200%.