This document has been translated from the Japanese original for reference purpose only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail. The Company assumes no responsibility for this translation or for direct, indirect or any other forms of damages arising from the translation.
May 13, 2025
To whom it may concern:
Company name: Yakult Honsha Co., Ltd. Representative: Hiroshi Narita,
President and Representative Director (Securities code: 2267, TSE Prime Market)
Notice of Receipt of Shareholder Proposal Documents and Yakult Board of Directors' OpinionYakult Honsha Co., Ltd. (the "Company" or "Yakult") received a document (the "Shareholder Proposal Document") from our shareholder DALTON KIZUNA (MASTER) FUND LP (the "Proposing Shareholder") indicating its intent to make shareholder proposals (the "Shareholder Proposal") at the 73rd Ordinary General Meeting of Shareholders (the "Shareholders Meeting") to be held on June 25, 2025. We hereby notify that the Board of Directors unanimously resolved to oppose all Proposals in the Shareholder Proposal at its meeting held today.
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Proposing Shareholder
DALTON KIZUNA (MASTER) FUND LP
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Contents of the Shareholder Proposal
Items
Amendment of the Articles of Incorporation regarding measures to realize management that is conscious of the cost of capital and stock price
Share repurchase
Amendment of the Articles of Incorporation concerning the cancellation of treasury shares
Cancellation of treasury shares
Approval of the compensation amount regarding the restricted stock unit plan
Amendment of the Articles of Incorporation concerning the structure of outside directors
Summary and reasons for the Proposals
As stated in the attached "Contents of the Shareholder Proposal."
Please note that the attached "Contents of the Shareholder Proposal" presents the original text of the relevant sections of the Shareholder Proposal Document submitted by the Proposing Shareholder.
- Opinion of the Yakult Board of Directors regarding the Shareholder Proposal
Opinion of the Yakult Board of Directors
The Yakult Board of Directors opposes all Proposals in the Shareholder Proposal.
Reasons for opposition
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Amendment of the Articles of Incorporation regarding measures to realize management that is conscious of the cost of capital and stock price
This Proposal requests the addition of the clause on the disclosure of our initiatives based on the request by the Tokyo Stock Exchange, Inc. ("TSE") for all Prime and Standard listed companies to take "Action to Implement Management that is Conscious of Cost of Capital and Stock Price" dated March 31, 2023 (the "TSE Request") and the "Key Points and Examples Considering The Investor's Point of View in Regard to Management Conscious of Cost of Capital and Stock Price" dated February 1, 2024 (the "Key Points and Examples") in our Corporate Governance Report and website.
The Company's ROE has consistently exceeded our cost of capital, and our ROE and PBR have also consistently surpassed the levels of ROE and PBR mentioned in the TSE Request as indicating profitability and growth issues. In addition, the Company makes necessary disclosures in accordance with the TSE Request, such as disclosure of our cost of capital and profitability, including in the Corporate Governance Report.
Furthermore, based on our corporate philosophy, "We contribute to the health and happiness of people around the world through pursuit of excellence in life science in general and our research and experience in microorganisms in particular," Yakult Group aims to be an enterprise that develops together with local communities by helping to create lifestyles where people can feel healthy and happy, and have a sense of purpose in life. To realize this, we conducted an analysis and evaluation of the current situation regarding our cost of capital, profitability, and market value based on the TSE Request and the Key Points and Examples among other things and prepared a new Medium-term Management Plan covering six years from FY2025 to FY2030 (the "New Medium-term Management Plan"). This plan was announced on May 13, 2025.
The New Medium-term Management Plan will establish a positive cycle of funds through operating cash flow generated by investments that prioritize business growth while aiming for balance sheet control to ensure proper capital allocation. Our approach to cash allocation and
balance sheet management includes enhancing shareholder returns by reducing short-term liquidity by approximately 130 billion yen, implementing share repurchases in the amount of 100 billion yen or more, and distributing around 150 billion yen in dividends.
We will steadily implement the measures outlined in the New Medium-term Management Plan and continue to analyze and evaluate our cost of capital, profitability, and market value. We will strive to achieve profitability that exceeds the cost of capital by maintaining dialogue with the stock market and utilizing our assets and liabilities.
As stated above, the Company diligently promotes management that is conscious of the cost of capital and stock price based on the TSE Request and continuously makes necessary and sufficient disclosures regarding our initiatives. Therefore, we believe the Proposing Shareholder's suggestion of "insufficient consideration and disclosure" is unwarranted.
The details of the mandatory disclosure defined in the Articles of Incorporation suggested by the Proposing Shareholder in this Proposal are matters that should be determined by the Company with certain flexibility and agility based on our management strategy and business environment. Making the disclosure mandatory in the Articles of Incorporation may restrict our flexible business strategy and capital policy; therefore, we believe it is inappropriate to include this matter in the Articles of Incorporation, which represents the fundamental norms of our corporate operation.
Due to the reasons stated above, the Yakult Board of Directors opposes this Proposal.
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Shares repurchase
The Company aims to enhance shareholder returns and increase its corporate value by maintaining a stable financial foundation through active growth investments for business expansion. Based on this approach, we have established KPIs for the New Medium-term Management Plan to achieve a 10% ROE, a 60% equity ratio, and a 70% total payout ratio by FY2030.
Prior to the announcement of the New Medium-term Management Plan, we decided to revise our shareholder return policy to improve capital efficiency and further enhance shareholder returns through the repurchase of shares conducted in line with our management strategy and the business environment, in addition to the progressive dividend payments to shareholders. As announced in the "Notification Regarding the Changes to Shareholder Return Policy, Determination of Matters Pertaining to Share Repurchase, and Cancellation of Shares Held as Treasury Stock" dated February 14, 2025 (the "February 14 News Release"), we will flexibly conduct share repurchase with a total payout ratio of 70% as a guideline, considering the market environment, cash flow, and other factors.
As announced in the February 14 News Release, in addition to repurchasing shares in the amount of 100 billion yen or more by FY2030, the Board of Directors resolved to repurchase up to 14
million shares, amounting to a total of 30.0 billion yen, between February 17, 2025, and June 19, 2025, in accordance with our shareholder return policy as mentioned above. Per the resolution, the Company repurchased a total of 6,439,300 shares for 19,198,054,950 yen between February 17, 2025, and April 30, 2025. We will continue to implement balance sheet control, including share repurchases, to achieve an optimal capital structure based on our management strategy and the business environment. The Company's total payout ratio for the fiscal period ended March 2025, which includes the total annual dividend of 64 yen, is 75.2%.
This Proposal requests the repurchase of 30 million shares of the Company's common stock for a total of 100 billion yen within one year from the conclusion of this Shareholders Meeting. If the share repurchase requested in this Proposal by the Proposing Shareholder is executed, the total payout ratio using the fiscal period ended March 2025 will reach 295%, or 4.2 times the 70% KPI for the Company's total payout ratio set forth in the New Medium-term Management Plan. Additionally, considering that the Company's profit attributable to owners of the parent for the fiscal period ended March 2025 was 45.5 billion yen, the aggregate share repurchase price presented in the Proposal, which is 2.2 times this figure, is excessive to achieve within the short period of one year from the conclusion of the Shareholders Meeting. This Proposal assumes a request for a share repurchase of 100 billion yen separate from the 100 billion yen share repurchase announced by the Company. Implementing the share repurchase requested in this Proposal together with the share repurchase announced by the Company would require a cash outflow of 200 billion yen, which is equivalent to 31.8% of our net assets, causing a significant impact on the Company's financial status.
Furthermore, the Company plans to continuously implement measures that include expanding overseas sales and enhancing research and development, which require a certain level of investment. If this Proposal is approved, the Company will lose a source of growth investment, causing the corporate activities aimed at sustainable growth and improving medium- to long-term corporate value to potentially stall, resulting in a negative impact on the shareholders' interests.
Due to the reasons stated above, the Yakult Board of Directors opposes this Proposal.
The Proposing Shareholder seems to assume that the Company will allocate funds obtained from the sale of strategic shareholdings to the share repurchase. However, according to the New Medium-Term Management Plan, the Company aims to gradually reduce the strategic shareholding to 5% of consolidated net assets by FY2030 as a guideline. We will review the rationale of each shareholding precisely, and decide whether to dispose of such shareholding based on the result of such review.
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Amendment of the Articles of Incorporation concerning the cancellation of treasury shares
The Company believes that the capital policy regarding its treasury shares, including the cancellation of the treasury shares, should be determined flexibly by the Board of Directors. This will be based on its management decisions, including the utilization of shares for future M&A and stock remuneration while comprehensively considering consistency with the capital policy
outlined by the Company as part of its medium- to long-term management strategy, changes in the business environment, and shareholder interests, among other factors.
The Proposal seeks to amend the Articles of Incorporation to make the cancellation of shares a matter for resolution at the Shareholders' Meeting. If approved, along with "(d) Cancellation of treasury shares" proposed by the Proposing Shareholder, all of the Company's treasury shares will be cancelled (except for the number of shares deemed necessary for the implementation of stock remuneration by the Yakult Board of Directors). In this case, the Company will be unable to flexibly utilize its treasury shares as a method of capital policy being considered based on the medium- to long-term management strategy. Accordingly, this will restrict the options available to the Yakult Board of Directors for management decisions and may impair the shareholders' interests.
Therefore, we believe that allowing the Board of Directors to resolve the cancellation of the treasury shares in accordance with Article 178 of the Companies Act, rather than having this decision made by the shareholders' meeting, will facilitate flexible and agile utilization of the treasury shares as a method of capital policy aligned with our medium- to long-term management strategy, which will contribute to enhancing our corporate value.
Furthermore, as announced in the February 14 News Release, the Board of Directors meeting held on February 14, 2025, resolved to repurchase up to 14 million shares, amounting to a total of 30.0 billion yen, between February 17, 2025, and June 19, 2025. This move aims to improve capital efficiency and further enhance shareholder returns through the repurchase of shares, conducted in line with the business environment, and to cancel all repurchased shares. According to the resolution, the Company repurchased a total of 6,439,300 shares between February 17, 2025, and April 30, 2025, all of which will be cancelled.
The Company will continue to explore methods for utilizing treasury shares as part of our capital policy, grounded in the medium- to long-term management strategy aimed at enhancing our corporate value.
Due to the reasons stated above, the Yakult Board of Directors opposes this Proposal.
- Cancellation of treasury shares
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Amendment of the Articles of Incorporation regarding measures to realize management that is conscious of the cost of capital and stock price
This Proposal seeks to cancel all treasury shares held by the Company (excluding the number of shares deemed necessary for the implementation of stock remuneration by the Yakult Board of Directors), subject to the approval of the above Proposal "(c) Amendment of the Articles of Incorporation concerning the cancellation of treasury shares".
As stated in the opinion of the Yakult Board of Directors against "(c) Amendment of the Articles of Incorporation concerning the cancellation of treasury shares," the Company will be unable to flexibly and agilely utilize its treasury shares as a method of its capital policy being considered based on the medium- to long-term management strategy. Accordingly, it will restrict the options