Bridge Report:（2884）Yoshimura Food Second quarter of Fiscal Year ending February 2022

Representative director and CEO Motohisa Yoshimura	Yoshimura Food Holdings K.K. (2884)

Corporate Information

Stock Information

*The share price is the closing price on October 28, 2021. Share Outstanding, DPS and EPS are taken from the brief report on results of the second quarter of fiscal year ending Feb. 2022. ROE and BPS are from the previous term.

Earnings Trends

*Unit: Million yen. The estimated values were provided by the company.

This Bridge Report presents Yoshimura Food Holdings K.K.’s earnings results for the second quarter of Fiscal Year ending February 2022 and earnings forecasts.

Table of Contents

Key Points
1.Company Overview
2. Second quarter of Fiscal Year ending February 2022 Earnings Results
3.Fiscal Year ending February 2022 Earnings Estimates
4.Conclusions
<Reference 1: Business Strategy>
<Reference 2: Regarding Corporate Governance>

Key Points

• The company has developed an original business model in the food industry and pursues growth with two engines: “the increase in the number of group companies by M&A” and “the expansion of business of existing group companies.”

   

• In the second quarter of the term ending February 2022, sales were unchanged year on year, but profit increased thanks to the recovery of overseas business. Sales were 14,790 million yen. Sales decreased in the domestic business due to the impact of the novel coronavirus. Overseas business sales grew. Operating income increased 66.0% year on year to 410 million yen. The domestic business saw a year on year decrease of 49 million yen in profit, but the overseas business recovered mainly in high-margin fields, resulting in an increase of 152 million yen year on year in profit. Ordinary income increased 91.1% year on year to 565 million yen. The foreign exchange loss of 62 million yen in the same period of the previous year turned into a foreign exchange gain of 89 million yen. EBITDA increased 6.1% year on year to 873 million yen.

   

• There is no change in the earnings estimates. For the term ending February 2022, the company is forecasting a 4.5% year on year increase in sales to 30.6 billion yen and a 64.9% year on year increase in operating income to 0.8 billion yen, with stable growth in the domestic business and a gradual recovery in the overseas business from the latter half of the year as the recent situation continues. Growth through new mergers and acquisitions is not included.

   

• In terms of sales business, one of the most promising areas for the Yoshimura Food Holdings Group in the alliance with Kokubu, sales to Kokubu's customers are steadily progressing. Cost reduction, including that for logistics, is also underway. The two companies are currently building a joint structure for M&A. Of Kokubu's approximately 10,000 business partners, dozens of companies undergo shareholder changes and business succession every term, and they will jointly promote due diligence, PMI, and value enhancement. Coordination between the two companies has become smoother since July with the acceptance of resident workers from Kokubu.

   

• The overseas business, which was severely affected by the novel coronavirus in the previous term, is now on a recovery trend, with profit increasing despite a decrease in sales, as the company curtailed low-margin overseas export sales and focused on sales of high-value-added products to supermarkets and other retailers. Although Singapore has one of the highest novel coronavirus vaccination completion ratios in the world, the number of infected people has been increasing rapidly due to the delta strain. As the government has a clear policy of coexisting with the novel coronavirus, the company believes that sales to hotels, airline-related companies, and restaurants will gradually recover once quarantine ends and borders are opened. The impact on the domestic business, where sales and profits declined, is expected to gradually subside, and we will be closely watching developments in the second half of the year.

   

• The alliance with the Kokubu Group is beginning to show steady results in sales, purchasing, and other areas, and we look forward to seeing the results of this alliance in the full term.

   

   

1.Company Overview

Yoshimura Food Holdings acquires small and medium-sized food products makers, facing various issues such as the difficulty in finding successors, through M&A at the same time as they possess excellent products and technologies. It also facilitates the growth of the entire corporate group by solving problems with their core skill, “a platform for supporting small and medium-sized enterprises (SME Support Platform),” and energizing each group company. Its strengths are the overwhelming advantage toward investment funds and large companies and the high barrier to entry. The company aims to accelerate growth through alliances. As of the end of February 2021, there are 20 major consolidated subsidiaries.

【1-1 Corporate History】

One day, a food company that was facing financial difficulties and could not find a buyer was introduced to Mr. Yoshimura, who was managing the listed companies’ fundraising and M&A in the corporate business division at Daiwa Securities Co. Ltd. and Morgan Stanley Securities Co., Ltd.
Mr. Yoshimura took on this food company and established L Partners Co., Ltd. on his own in March 2008, which was the predecessor of Yoshimura Food Holdings K.K. because he strongly felt that Japan could be more appreciated through its “food” since his MBA days in the USA while working for Daiwa Securities. Through his efforts to revitalize the company using his experience and network, he succeeded in turning a profit.
Many food SMEs started seeking help from Mr. Yoshimura upon learning about his reputation. He thought that it was possible to efficiently achieve results if the companies complemented each other in various functions, such as product development, production, and sales under a holding company system, instead of working on each company individually. Hence, he named the corporate Yoshimura Food Holdings K.K. in August 2009.

Since then, the company has continued acquiring companies facing problems with business succession or failing to handle management on their own. Due to the high reputation of the company for its unique position of not competing with major food companies and investment funds and its policy of not selling the companies it acquired, it received financing from Japan Tobacco (JT) and expanded its business. In March 2016, it was listed on the Mothers of Tokyo Stock Exchange, and in March 2017, it was listed in the first section of Tokyo Stock Exchange.
The company is pursuing further growth by acquiring not only Japanese companies, but also overseas companies in Singapore, Malaysia, etc.

【1-2 Target Social Image】

As the social meaning of its existence as an enterprise, the company decided to pursue the mission: “working towards a society where we can enjoy this ‘delicious taste’ forever—achieving affluence that allows consumers to enjoy diverse food cultures,” and set its vision (roles to be fulfilled) and values (values they cherish).

【1-3 Market Environment and the Background of the Company’s Establishment】

As a company aiming for supporting and revitalizing SMEs throughout Japan, Yoshimura Food Holdings explained the conditions of the food SMEs as follows:
(Investment Bridge extracted, summarized and edited the information from Yoshimura Food Holdings’ annual securities reports and reference material)

(The Conditions of the Food SMEs)
*Japanese cuisine has been highly appreciated worldwide and is attracting attention. Also, on the national level, the food manufacturing industry has been one of the largest industries based on its number of business establishments, number of employees and GDP since the 1990s and it is one of the key industries that Japan is proud of.
*99% of the companies are SMEs where each one of them has strong products and technical skills.
*However, the domestic market scale is shrinking and some of the food SMEs find it hard to survive on their own as the business environment remains stringent due to the falling birthrate and aging population.
*Therefore, many companies give up on continuing their businesses and end up choosing to close down or suspend their business.

(Conditions of the SMEs’ Business Succession)
*The average age of managers is 60.1, and it is expected that around 50% of the managers will reach the average retirement age in the upcoming 10 years as the average retirement age of managers is around 70.
*Meanwhile, 65.1%, nearly two thirds of domestic enterprises are suffering the lack of successors, and the ratio of enterprises that plan to conduct business succession is only 34% in all industries. Namely, the preparations for business succession have not progressed.
*Moreover, in 2020, the number of SMEs that suspended or discontinued business reached 49,698, and have increased rapidly for 13 years in comparison with in 2007 where that number was around 21,000.
(According to SME Agency “White Paper on Small and Medium Enterprises” (2021 Edition), Teikoku Databank, Ltd. “Analysis of the age of company presidents in Japan (2021),” Teikoku Databank, Ltd. “Survey of Trends on ‘Companies without a Successor’ in Japan” (2020), Teikoku Databank, Ltd., and small and Medium Enterprise Agency “Basic Survey on the Actual Situation of SMEs” (Report in FY 2019 [Financial results in FY 2018]）

(Conditions of Business Succession of Food SMEs through Acquisition)
*Although there are increasing needs for business succession from food SMEs, the number of companies and organizations that would acquire them is small.
*The scale of many food SMEs is too small for major companies to acquire, and for investment funds’ whose primary aim is to rapidly grow independent companies and sell them off within a few years, the mature market of food SMEs tends not to be one of their investment targets.
*Under these conditions, there is a tremendous shortage in the bearers of the responsibility of taking on the business of the SMEs.

【1-4 Business Description】

Having Yoshimura Food Holdings as its holding company, the corporate group consists of 20 group companies in August 2021.
Yoshimura Food Holdings aims to support and revitalize SMEs that manufacture and sell food products by creating a corporate group, composed of the food SMEs that are facing problems in securing a successor, through M&A. Yoshimura Food Holdings is responsible for business strategies’ design and implementation, as well as the business management of each company in the group. It also supports and supervises their sales and marketing, production management, procurement and manufacturing, procurement, distribution, product development, quality control, and business management.

① Business Model
The company developed a unique business model in the food industry and is pursuing growth based on two engines.

One of them is the increase in the number of group companies through M&A.
Since its establishment in 2008, the company prevented food SMEs that had business succession and financial problems from shutting down or facing business suspension by acquiring them. Thus, it has managed to solve their problems.
As of August, 2021, the company had 20 group companies. It is recently focusing on adding not only Japanese companies to the group, but also overseas ones.
Target companies are found by mainly M&A mediating companies, local financial institutions such as regional banks, lawyers and accountants. The company plans to improve its own function for finding target companies from the aspect of costs as well.
The company has used the “indirect approach” to find business opportunities through the introductions from M&A brokerage firms, local financial institutions, such as local banks, lawyers, and accountants, but from now on, the company will enhance the “direct approach,” by producing a list of targets, approaching them to foster relationships, and utilizing the network of KOKUBU GROUP, which is an alliance partner, in order to speed up the business. The company plans to find business opportunities more voluntarily and actively.

The other one is the expansion of business of existing group companies.
Yoshimura Food Holdings supports the expansion of business operations of each company and solves problems by supervising each function of these companies, which have excellent products and technologies but could not achieve growth for reasons such as the lack of sales channels, labor shortage or poor business management, through the “SME Support Platform.”

(Taken from the reference material of the company)

What is the SME Support Platform?
The core of this unique business model is the “SME Support Platform,” a product of the company’s accumulation of know-how and achievements through its specializing in food manufacturing and sales.

As a holding company, Yoshimura Food Holdings is responsible for business strategies’ design and implementation, as well as the business management of each subsidiary in the group. It also aims to strengthen the business foundation of each subsidiary through the company supervisor’s horizontal supervision of its functions (sales and marketing, production management, procurement and manufacturing, procurement, distribution, product development, quality control, business management, and securing personnel) in a manner that goes beyond the company barriers and through his support for the business by building organic relations between subsidiary companies.

For example, Company A which has an excellent product but is worried about sales growth can use the sales channels and sales know-how of Company B that has a nationwide sales network. Also, it can achieve a stable financial position by using the creditworthiness of Yoshimura Food Holdings which is listed in the stock market to raise funds.
This cooperation is made to be more effective through appointing the personnel in the group with the highest levels of expertise as supervisors.

Hence, the “SME Support Platform” is a system in which each company’s “strengths” such as strong products and technologies, sales channels, and manufacturing know-how are shared across the group and their “weaknesses” such as a shortage in personnel, funds, or sales channels are supplemented.

“The platform for supporting SMEs” functions effectively and produces effects with the current structure, but as subsidiaries will increase further, their know-how will be added as a new strength, and the managerial resources of the corporate group will be accumulated, bringing out a new synergy so that existing subsidiaries will be able to seize opportunities to grow business and acquire the know-how to streamline production processes.
Such scalability of the platform will fortify the business foundation of Yoshimura Food Holdings.

(Taken from the reference material of the company)

② Segments
The company has two segments: “manufacturing business segment” and “sales business segment.”

◎ Manufacturing Business Segment
Each company develops and manufactures its original products, domestic enterprises sell products to supermarkets, convenience stores, and drugstores around Japan via mainly wholesalers, and overseas enterprises sell products to hotels, restaurants, supermarkets, etc. in Singapore and Malaysia. As of the end of August 2021, there are 17 group companies as tabulated below.

(Group Companies within the Manufacturing Business Segment)

◎ Sales Business Segment
Its strengths are sales capability and planning skills. Domestic enterprises sell products to mainly industrial catering companies, consumer cooperatives, etc., while overseas enterprises sell products to mainly supermarkets, hotels, restaurants, etc. As of the end of August 2021, group companies are the following three.

(Group Companies within the Sales Business Segment)

【1-5 Characteristics and Strengths】

①The Advantage in Business Succession through Acquisition
There are influential players in the M&A, such as major food companies and investment funds; however, this company has three main points that form strong competitive advantages, which are explained below.

*Ability to Acquire Companies of Various Scales
The company does not aim to sell the companies it acquired. It aims to not only achieve short term business recovery, but also achieve sustainable growth from a medium to long term perspective. Therefore, the company can acquire a variety of SMEs, including those with a small business scale that would take time to achieve growth and those that lack management resources for growth. This point creates a huge difference between the company and other major food companies and investment funds that need the companies they will acquire to be of a certain scale. Moreover, it is not easy for investment funds aiming to generate capital gains from selling companies to gain the trust of owners and managers of food SMEs. Regarding this point, this company operating company groups with the aim of achieving sustainable growth from a medium-term perspective also has a huge advantage.

*Advanced Capability of M&A
Since its establishment, the company has worked on creating many company groups out of food-related SMEs and later has achieved re-growth of these companies. Thus, it has thorough knowledge of the market environment of the food industry, business practices and risks that are peculiar to food SMEs, and strong assessment abilities, which enable the company to choose companies that have strengths from a large number of SMEs.
Also, the company has an extremely high capability of M&A since it has great expertise and accumulated knowledge in due diligence and negotiations.

*Rich and High-Quality M&A Data through its Wide Network
The company can gather plenty of M&A data on the food SMEs since it has a wide network of financial institutions, such as city banks, regional banks, credit associations, securities companies and companies that provide M&A advisory services.
Furthermore, “the company’s specialization in the food industry” and “the reassurance that the company is not aiming to sell” are the two factors allowing the company to access not only to a huge amount of data, but also high-quality data that meets its needs.

②Core Skill: SME Support Platform
The company revitalizes the group companies through the “SME Support Platform” in which each group company’s “strengths” such as strong products and technologies, sales channels, and manufacturing know-how are shared across the group and their “weaknesses” such as a shortage in personnel, funds or sales channels are supplemented. These achievements are highly evaluated.

③Contribution to regional vitalization
The company has actively implemented the business succession, etc. of local small and medium-sized food enterprises, including Sakuragao Shuzo K. K. (Iwate Prefecture), Shiroishi Kosan Co., Ltd. (Miyagi Prefecture), and Ohbun Co., Ltd. (Ehime Prefecture), which are subsidiaries.
By utilizing the platform for supporting SMEs, it is possible to distribute attractive products that have been available only in some regions to all around Japan (and overseas) and invest in new equipment by using the funds of the corporate group. Through this, the company contributes to the regrowth of local small and medium-sized food enterprises and the vitalization of local economies.

【1-6 Dividend Policy and Shareholders’ Benefit System】

(Dividend Policy)
Although payout to shareholders is one of the important business challenges, it is thought that allocating the cash to investment in the facilities to actively expand the business and to strengthen the business foundation by expanding the platform is what would lead to the highest payout to the shareholders because the company is considered to be within the growth process.
Therefore, the company has not provided dividend payout to its shareholders since its establishment and as of the time being, it plans to continue on using the cash to invest in business expansion and as necessary operating capital for the existing companies. The company is planning to look into providing dividend payouts to its shareholders while considering the operating performance and financial conditions for each business year.

(Shareholders’ Benefit System)
The company offers special benefits to the shareholders mentioned below according to the number of shares they hold.

【1-7 ESG Management】

The company is working on its ESG management based on the goal mentioned above, “working towards a society where we can enjoy this ‘delicious taste’ forever—achieving affluence that allows consumers to enjoy diverse food cultures.”

The company recognizes that taking over companies that have no successors and revitalizing it as their group companies is ESG management itself.
Also, the company believes that contributing to local communities and providing value to consumers by promoting ESG management, as well as increasing the number of good companies that sympathize with the group and want to participate, and the companies and consumers that sympathize with the group and support them as shareholders, will lead to the realization of sustainable growth.

(Taken from the reference material of the company)

2. Second quarter of Fiscal Year ending February 2022 Earnings Results

(1) Consolidated results

*Unit: Million yen. Net income is profit attributable to owners of the parent. EBITDA is calculated by adding amortization (depreciation, goodwill), Covid-19-related subsidy income and acquisition costs associated with M&A to operating income.

Sales were unchanged year on year but profit increased due to the recovery in overseas business.
In the second quarter of the term ending February 2022, sales were unchanged year on year, but profit increased thanks to the recovery of overseas business. Sales were 14,790 million yen. Sales decreased in the domestic business due to the impact of the novel coronavirus. Overseas business sales grew. Operating income increased 66.0% year on year to 410 million yen. The domestic business saw a year on year decrease of 49 million yen in profit, but the overseas business recovered mainly in high-margin fields, resulting in an increase of 152 million yen year on year in profit. Ordinary income increased 91.1% year on year to 565 million yen. The foreign exchange loss of 62 million yen in the same period of the previous year turned into a foreign exchange gain of 89 million yen. EBITDA increased 6.1% year on year to 873 million yen.

*Status of Domestic and Overseas business

*Unit: Million yen.

(Domestic business)
Sales and profit decreased. Sales for restaurants and tourism dropped due to the declaration of the state of emergency.

(Overseas business)
Sales and profit increased. Sales to supermarkets, etc. grew, and sales to some restaurants and hotels recovered.

(2) Results of each segment

*Unit: Million yen. The composition ratio of operating income means the ratio of operating income to sales.

*Manufacturing business segment
Sales and profit increased.
Domestic manufacturing subsidiaries saw a decrease in sales to food supermarkets, drugstores, and other retail stores due to the recoil from the special demand from people staying home in the previous term. Sales and profit dropped due to a decline in sales to the restaurant and tourism industries as a result of the declaration of the state of emergency following the rapid increase of people infected with the novel coronavirus.
Both sales and profit grew at overseas manufacturing subsidiaries due to strong sales to supermarkets and other retailers.

*Sales business segment
Sales decreased, but profit increased.
Both sales and profit increased at domestic sales subsidiaries due to continued growth in sales to home delivery services such as Co-op.
Overseas sales subsidiaries reduced low-margin overseas export sales and focused on sales of high value-added products to supermarkets and other retail stores, resulting in lower sales, but higher profits.

(3) Financial conditions and cash flow

◎Main balance sheet

*Unit: Million yen
Total assets decreased by 1.1 billion yen from the end of the previous fiscal year to 22.5 billion yen due to decreases in cash and deposits, notes and accounts receivable-trade, inventories, and investments and other assets.
Total liabilities decreased 1.7 billion yen to 14billion yen due to a decrease in interest-bearing debt.
Net assets increased 0.6 billion yen to 8.4 billion yen due to an increase in retained earnings and foreign currency exchange adjustments.
The equity ratio increased by 3.4 points from the previous fiscal year to 22.7%.

◎Cash flows

*Unit: Million yen

Positive range of operating CF and free CF narrowed.
Cash position increased.

【2-4　Topics】

(1) Selecting the Prime Market in the new market segmentation
In September 2021, the company applied to the Tokyo Stock Exchange to select the Prime Market as its new market segment, after confirming that it met the criteria for maintaining a listing on the Prime Market.

(2) Progress of alliance with Kunibu Group Corp.
The progress of the alliance with Kokubu Group Corp. made in February 2021 is as follows.

As for sales business, which is one of the most promising areas for the Yoshimura Food Holdings Group, sales to Kokubu's business partners are steadily progressing.
The two companies are currently building a joint structure for M&A. Of Kokubu's approximately 10,000 business partners, dozens of companies undergo shareholder changes and business succession every term, and they will jointly promote due diligence, PMI, and value enhancement.
Coordination between the two companies has become smoother since July with the acceptance of resident workers from Kokubu.

3.Fiscal Year ending February 2022 Earnings Estimates

【3-1 Full-year earnings forecasts】

*Unit: Million yen. Net income is net income attributable to shareholders of the parent company. EBITDA is calculated by adding amortization expenses (depreciation and amortization, goodwill) and acquisition costs related to M&A to operating income.

There is no change in the earnings forecasts. Both sales and profit increased.
There is no change in the earnings estimates. For the term ending February 2022, the company is forecasting a 4.5% year on year increase in sales to 30.6 billion yen and a 64.9% year on year increase in operating income to 0.8 billion yen, with stable growth in the domestic business and a gradual recovery in the overseas business from the latter half of the year as the recent situation continues. Growth through new mergers and acquisitions is not included.

【3-2　Impact of novel coronavirus】

①Domestic
Sales to supermarkets and mass merchandisers are expected to show little change or impact as demand has weakened due to the lingering effects of the novel coronavirus in addition to a reactionary decline from the demand from people staying at home in the previous term.
Sales to restaurants and tourism may turn to an upward trend due to the improvement in the infection situation of the novel coronavirus, but it remains uncertain.
In the future, sales of domestic subsidiaries to restaurants and tourism may gradually recover, while sales to supermarkets may become stagnant.

②Overseas
Despite Singapore having one of the highest vaccination completion rates for the novel coronavirus in the world, the number of infected people has spiked due to the delta strain. On the other hand, the government has clarified its policy to coexist with the novel coronavirus, and as it exempts travelers from quarantine and opens the borders, sales to hotels, airline-related companies, and restaurants may gradually recover and start an upward trend.
A gradual recovery is expected if the infection subsides, but at this point there is no clear indication of when the infection control measures will be completely lifted, and a full-scale recovery will depend on the global containment of the novel coronavirus, which remains uncertain.

4. Conclusions

The overseas business, which was severely affected by the novel coronavirus in the previous term, is now on a recovery trend, with profit increasing despite a decrease in sales, as the company curtailed low-margin overseas export sales and focused on sales of high-value-added products to supermarkets and other retailers. Although Singapore has one of the highest novel coronavirus vaccination completion ratios in the world, the number of infected people has been increasing rapidly due to the delta strain. As the government has a clear policy of coexisting with the novel coronavirus, the company believes that sales to hotels, airline-related companies, and restaurants will gradually recover once quarantine ends and borders are opened. The impact on the domestic business, where sales and profits declined, is expected to gradually subside, and we will be closely watching developments in the second half of the year.
The alliance with the Kokubu Group is beginning to show steady results in sales, purchasing, and other areas, and we look forward to seeing the results of this alliance in the full term.

<Reference 1: Business Strategy>

The company has established an original business model in the food industry based on a “platform for supporting small and medium-sized enterprises” and pursues growth with two engines: “growth based on the increase of the number of group companies through M&A” and “growth based on the expansion of business of existing group companies.”

While the basic strategy and road map remain unchanged, the following four strategies were anew brought up in order to further accelerate the growth speed based on M&A enhancement and business model improvement: “Strategy 1: Creation of new core businesses through M&A,” “Strategy 2: Reinforcement of the business model,” “Strategy 3: Growth based on cooperation with business partners, and “Strategy 4: Establishment of overseas sales channels.”

The company aims for the realization of their vision and the achievement of their mission by organically linking strategies.

(Taken from the reference material of the company)

【1-1　Strategy 1: Creation of new core businesses through M&A】

(1) Basic policy
From this term, the company will further boost the basic policy of “discovering companies which will form the new pillar of the group and companies which manufacture local niche products, and speeding up M&A through proactive approach and negotiation.”

The company has mostly considered business opportunities in a passive way until now, due to the limitations of their resources, but from now on they will also proactively propose business opportunities.
Furthermore, while business revitalization and transfer used to be the main reasons for M&A, from now on the company will expand the target to include carve-out business opportunities which have sufficient profitability, such as the subsidiaries of major corporations. In step with this, it will also broaden the range of target companies to encompass middle- and large-sized corporations.
In regard to the type of industry as well, instead of being limited to food manufacturing and wholesale, they will also target upper-class primary industry.

(2) Strategy
① The base of the M&A strategy
It is based on two strategies: “business unit strategy” and “community-based product/niche market strategy.”

“Business unit strategy”
The company will merge and acquire companies that will become a new pillar (core) of the group and conduct M&A of companies in the same field/same category (roll-up strategy).
They will improve the profit margin by establishing several business units centered around the core company and thus bringing out an even greater synergy.

“Community-based product/niche market strategy”
The company will form a group through M&A of companies which manufacture local specialties, famous regional products and products liked in the local community, and utilize the group’s sales channels to deliver the products to the whole country as well as overseas. Through this, they will contribute to the local economy as well as job retention, and furthermore to countryside revitalization.

（Taken from the reference material of the company）

② Finding business opportunities: Independent discovery of business opportunities
From now on, the company will discover business opportunities by using both indirect and direct approaches.

As for the indirect approach, target companies have been introduced predominantly by M&A mediating companies and financial institutions. However, from now on, the company will reinforce the approach by finding prominent M&A mediating companies and regional banks and cementing relationships with them, and utilizing the network of P&E DIRECTIONS, INC., the company’s business partner.

As for the direct approach, the company has mainly contacted the targets by building relationships with buyers and suppliers, establishing an enquiry form on their website and through M&A mediating companies. However, from now on, the company will form a group of companies which will become the group’s new mainstay through M&A based on the independent discovery of business opportunities by approaching target companies on the target list created by the company itself and establishing medium- to long-term relations, and also through an approach utilizing the network of the KOKUBU GROUP CORP., etc.

As the restructuring of major corporations keeps progressing in addition to the absence of successors, it is estimated that the number of M&A targets will further increase. Therefore, the company assumes that engaging in active and independent discovery of business opportunities instead of only considering business opportunities “passively” as they did until now, will lead to the acceleration of the growth speed.
③ PMI consolidation
With regard to M&A, how to maximize synergy after the acquisition is more important than the acquisition itself, and the quality of the integration after the acquisition called “PMI: Post Merger Integration” holds the key.
In order to secure a smooth progress of PMI and improve the profit of the acquired companies, specialized human resources with abundant experience and knowledge regarding not only business, but also management such as personnel affairs and accounting, are required. The company hired human resources from trading companies, food-related companies and marketing companies.
Through this, the company will improve PMI and realize an early integration in approximately 100 days (100 Day Plan), working toward achieving an even swifter synergy maximization after M&A.

【1-2　Strategy 2: Restrengthening of the business model】

(1) Basic policy
The company aims to improve their performance with a new support system based on the recruitment of specialized human resources and organizational reform.

The company has worked toward the growth of the group companies and enhancement of corporate value based on multifaceted support through its platform for supporting small and medium-sized enterprises.
While this mechanism itself remains unchanged, the company reflects on the fact that there were rather ambiguous points in regard to numerical value management of each group company and locus of responsibility pertaining to it. They therefore newly established four business headquarters which will support the management of the subsidiaries, and clarified that the management ranks of each company and the business headquarters to which the company belongs will be responsible for the numerical values of each group company. On the other hand, the general headquarters will keep providing support in order to create synergy in the group.
Furthermore, while the company provided efficient support with a few people until now, both specialized and efficient support is now possible due to the above-mentioned recruitment of specialized human resources. In addition, while the management personnel of each company were appointed from full-time employees of each subsidiary until now, from the viewpoint of improving development speed, the company will proactively consider the employment of personnel from outside the company in addition to in-house development, and thus enhance the development of management personnel even further.

(2) Business model
The company will implement an even greater number of M&A and engage in supporting growth by increasing the speed of the sourcing of M&A opportunities, M&A implementation and the procedure up to PMI based on the recruitment of specialized human resources and organizational reform.

(Taken from the reference material of the company)

【1-3　Strategy 3: Growth based on cooperation with alliance partners】

(1) Basic policy
The company will speed up growth through cooperation with alliance partners that will contribute to enhancing corporate value.
While the company has focused on its growth by itself until now, they will proactively promote the alliance with P&E DIRECTIONS, INC. and KOKUBU GROUP CORP., and work toward growth while also utilizing resources outside the company.
Furthermore, they will strive to find new alliance partners that will play a part in enhancing corporate value.

(2) Partnership strategy
The company will aim for further growth based on cooperation with optimal partners in each value chain.

(Taken from the reference material of the company)

The company thinks that they should focus on discovering alliance partners in the field of marketing, product development and e-commerce in the value chain in addition to P&E DIRECTIONS, INC. and KOKUBU GROUP CORP.

Furthermore, they engage in industry-academic cooperation.
In collaboration with Graduate School of Agricultural and Life Sciences, Faculty of Agriculture, The University of Tokyo (the Yagi Lab.) regarding the cultivation of ayu (sweetfish) at the Mori Yougyojou fish farm, they conducted an analysis based on data in regard to the relationship between the staff’s experience, know-how and cultivation technologies, and the actual number of cultivated fish. They are considering the introduction of a growth management system for improving the cultivation technologies and, in step with this, increasing the production through making the knowledge concerning “the cultivation of ayu (sweetfish)” explicit, not tacit.

(3) Cooperation with alliance partners
① KOKUBU GROUP CORP.
The growth of Yoshimura Food Holdings as well as group companies will be accelerated by utilizing tangible and intangible assets belonging to KOKUBU GROUP CORP., such as the know-how fostered through business spanning over more than 300 years in addition to 35,000 client companies, 10,000 partner manufacturers, 54 group companies and the product lineup including approximately 600,000 items.

As for KOKUBU GROUP CORP., they expect the increase of transactions with Yoshimura Food Holdings as well as the acquisition of know-how concerning the management of small and medium-sized food companies which Yoshimura Food Holdings has nurtured until now (business management, production streamlining, governance reinforcement, etc.), the acquisition of M&A opportunities and know-how, and the development of management personnel (the development of executive candidates and management personnel based on temporary employee placement).

In regard to M&A and business, following initiatives are in progress based on the alliance.
◎M&A

◎Business

② P&E DIRECTIONS, INC.
An alliance with P&E DIRECTIONS, INC. was formed in August 2020 and a management plan as well as M&A strategy were formulated through the cooperation with them until now.
From now on, the company will achieve growth by receiving support in implementing the formulated plan.

*See the previous report in regard to the alliance with P&E DIRECTIONS, INC.
Bridge report: (2884) Yoshimura Food Holdings; Financial results for the second quarter of the term ending February 2021
https://www.bridge-salon.jp/report_bridge/archives/eng/2884/20210127.html

【1-4　Strategy 4: To establish overseas sales channels】

(1) Basic policy
One of the functions of the platform for supporting SMEs is to promote the products of Japanese group companies via the subsidiary in Singapore in overseas markets.

Products have been sold mainly in Singapore, but the sales channels will be expanded also in Southeast Asia and China.
In addition, the company will pursue growth while utilizing the resources of alliance partners, such as KOKUBU GROUP.

(2) Actual cases
JSTT Singapore, which produces and sells sushi, etc. in Singapore, has enhanced the sale of products of Japanese group companies at the sushi section of each supermarket.

② Development of private brand products of jelly
Junwa Food developed private brand products for Bread Talk, which operates the bakery chain in Asia based in Singapore, and released them at about 46 Singaporean stores.

<Reference 2: Regarding Corporate Governance>

◎Organization type, and the composition of directors and auditors

◎Corporate Governance Report
The latest update: May 31, 2021

<Basic Policy>
Our company believes that our sustainable growth and creation of mid/long-term corporate value can be achieved especially through the trusting relationships and cooperation with our stakeholders, including shareholders, clients, business partners, employees, and local communities.
Accordingly, we consider that the most important mission in management is to keep tightening corporate governance as a base for securing the soundness, transparency, and efficiency of business administration. We will strive to secure the transparency and fairness of our company and timely disclose information to all stakeholders by streamlining the decision-making process, improving the supervisory function for business execution, strengthening the function to oversee directors, and developing an internal control system.

<Principles that have not been followed and the reasons>

<Disclosure Based on the Principles of the Corporate Governance Code (Excerpts)>