Interviews with Listed Companies Regarding English Disclosure
KOHOKU KOGYO CO.,LTD.
Headquartered in Shiga Prefecture, Kohoku Kogyo Co., Ltd., a Global Niche Top Company, manufactures and sells optical components for submarine cables, which play an important role in the world's communications infrastructure, and lead terminals for aluminum electrolytic capacitors, which are essential for various electronic products. The company, which is expanding its bases in Asia and its sales network globally, began its English-language disclosure efforts upon its initial public offering (IPO) in 2021.
We interviewed Hiroyuki Kunitomo (Director and Corporate Officer), Kohei Nozato (Head of the Investor Relations & Public Relations Department), and Atsuki Sugimoto (Investor Relations & Public Relations Department) about how the company beefed up its English-language disclosure and the specific methods it used.
The Deciding Factor for English-Language Disclosure Was Our High Percentage of Overseas Investors
What prompted you to start English-language disclosure and overseas IR?
Kunitomo: At the time of our IPO, the lead underwriter securities company advised us to make public and secondary offerings to overseas investors due to the amount of financing being raised, which totaled approximately JPY 9 billion, and the high percentage of overseas sales in our core business of optical components and devices for fiber optic communication networks. This led us to prepare English-language roadshow materials. Although we had an English-language website from before mainly to introduce our products, the English-language IR materials it contained even after the IPO were limited to ones that had been improvised by those in charge.
You have used FinCity.Tokyo's individual support program (see Note) in your efforts to beef up your English-language disclosure and overseas IR. What led you to receive their support?
Nozato: Since a relatively high percentage of our company's shares have been held by overseas investors following our IPO, about half of our investor meetings (we have held about 350 of them in the first year and a half after our IPO) were with overseas investors. IR meetings are often held in English, and it was imperative for us to have all of the English-language documents ready in order for them to go smoothly. It was then that we got a notice from FinCity.Tokyo and applied for FinCity.Tokyo's individual support program.
(note)
- ･The Organization of Global Financial City Tokyo (FinCity.Tokyo) has been offering an English-language disclosure support program subsidized by the Tokyo Metropolitan Government since FY2021. The program provides assistance for companies listed on the Growth and Standard Markets (one of the application requirements is that the company must have had its IPO within the last five years), including support for equity story development, advice on the preparation of earnings reports and financial results briefing materials and support for their translation into English, and advice on communication with overseas investors. The company was selected for individual support in FY2022.
What specifically did you do while under FinCity.Tokyo's support?
Kunitomo: First, we standardized our product and technical terms in both Japanese and English and created a manual. For accounting terms, we decided to conform to the EDINET taxonomy and shared it with the translation company to standardize English expressions.
What improvements have you made as you continue making English-language disclosures?
Sugimoto: By researching other companies' IR materials as we were creating our English-language IR documents, we were able to notice the differences in Japanese and English expressions, and I think this helped the team up its game. I also believe that the standardization of terms and other efforts are also improving the quality of our Japanese-language documents.
What are some of the issues that you are currently facing in terms of IR for overseas investors?
Kunitomo: Basically, we acknowledge that all IR materials that we disclose in Japanese need to be translated into English. Due to the lengthiness of annual securities reports, we have not yet translated ours into English as of September 2023, but we hope to work on that in the near future.
Nozato: Ideally, we would like to make simultaneous Japanese-language and English-language disclosures, but we have not yet accomplished this. While we disclose consolidated financial highlights and investors' guides, which are produced in-house in a proprietary format that contains such key information as a summary of financial results and key management indicators, simultaneously in both languages, we do not disclose the full English versions of our earnings reports and presentation materials, which are rather text heavy, until some time after the Japanese versions. Currently, we prepare English-language disclosure materials by using the wording from other materials in the preparation of standardized content and asking a translation company to translate any new content into English after the Japanese-language disclosure. With an eye toward simultaneous disclosure, we are currently discussing whether to use AI translation or to enter into a nondisclosure agreement with a translation company and give it the drafts of the Japanese-language disclosure materials ahead of time.
English-Language Materials Are a Must at Meetings with Overseas Investors, and ESG Disclosure Will Also Be Necessary Down the Road
What are the attributes of your overseas investors and who handles the meetings?
Kunitomo: The overseas investors that we meet include long-term investors and investors that have a wide range of investment styles such as hedge fund investing and alternative investing. The person who handles the individual IR meetings that we frequently conduct varies from case to case but is often someone from the department in charge. The president and the heads of the business divisions attend the financial results briefings and small meetings with institutional investors and analysts to explain the results.
What are the advantages of English-language disclosure?
Kunitomo: I believe it would be hard to conduct overseas IR without English-language IR materials. Many investors perform a very basic analysis of a company by checking its quarterly performance and researching its IR, but it is hard to do something as basic as that if the materials are not disclosed in English in a timely manner. I think companies that do not put out information in English are unlikely to attract overseas investment. Overseas institutional investors are likely to have internal discussions among themselves in English when making investment decisions, even if they can converse in Japanese during an IR meeting. In this respect, I think having English-language IR materials is essential.
Are there any challenges with the content that you put out?
Kunitomo: The two pillars of our business are the "lead terminal business" and the "optical components and devices business." We are currently researching which next-generation business to make the third pillar of our business. Although it is hard to put out information even in Japanese due to its technical nature, we are making positive efforts to broaden people's understanding of our next-generation business and to explain it in order to generate inquiries from other companies.
Do you receive requests from meeting participants regarding the information that you put out?
Sugimoto: In our meetings with overseas investors, we have received requests for more ESG disclosure on our website and by other means.
Kunitomo: Recently, we are starting to get more opportunities to hold ESG meetings with investors. In the future, we would also like to actively disclose non-financial information and establish a system for ESG dialogue with the stock market. At the same time, we would like our activities to be understood from a wide range of perspectives.
Cultivating Overseas Investors Is Challenging, and We Hope to Attract a Diverse Range of Investors
What are your future plans?
Nozato: Our first priorities are to take steps toward making simultaneous disclosures in Japanese and English, and to disclose our annual securities reports in English. Once we have those two bases covered, we will be able to produce all of our IR documents in the same condition in both Japanese and English. We then intend to use these English-language disclosure materials when approaching global investors. There are overseas investors who are interested in investing in small-cap companies with growth potential like ours. We would like to increase others' awareness of our company while expanding our contact route with investors both inside and outside of Japan.
What do you hope to achieve by broadening your overseas investor base through overseas IR?
Kunitomo: We believe that striving to gain as broad an awareness of our company as possible and conducting IR activities that encourage investment from a diverse range of shareholders will lead to a more reasonable share price formation.
Do you have any advice for companies that are considering expanding their English-language disclosure?
Nozato: Preparing English-language disclosure materials takes a fair amount of work and requires resources. I think it is necessary to decide on a combination of IR documents for your company and create a road map to construct a system for making ongoing English-language disclosures accordingly. In our case, with the support of FinCity.Tokyo, we were able to tackle this issue in one go during the second half of FY2022. However, it is still necessary to construct a system for making ongoing and timely English-language disclosures.
I think it is extremely important for companies, even ones in the Standard and Growth Markets, to conduct English-language disclosure if they have a high percentage of overseas investors or are trying to attract overseas investment. While I believe there are many companies on the Prime Market that have published analyst reports in English, there are few on the Standard and Growth Markets that get any analyst coverage. Therefore, I think it would be very effective for listed companies to put more information out there in order to increase the amount that overseas investors are exposed to.
(Interview on September 15, 2023)
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