The Mid-Term Plan & President Uchiyama’s failure of leadership and accountability

President Uchiyama disclaims any responsibility for any failure of Fujitec’s new mid-term plan entitled Vision 24.

While market participants were excited by the new and ambitious plan, we think the plan is bound for failure. Upon explicit and multiple questions about this from Oasis, President Uchiyama repeatedly denied his accountability for any failure of the plan, because the plan is built from the bottom-up, and therefore he should not be held accountable.

We believe leadership is required for a company to succeed. That is what the board hires a President to do. When the most senior executive officer, in Fujitec’s case, President  Uchiyama, explicitly and repeatedly denies accountability for any failure of the new mid-term plan, we believe it is time to remove him as a director. Oasis believes good directors take responsibility for executing the strategy of the company. What else is a President for?

It is a given in the Corporate Governance Code that the Board of Directors has a fiduciary responsibility and is accountable to shareholders. It is shocking that the Chairman and President of Fujitec does not believe that he should be held accountable for the Company’s performance and satisfactory execution of the strategic plan.

Oasis has many questions about the new mid-term plan, which we strongly believe was designed in part in an attempt to mollify shareholders’ concerns about capital allocation and the company’s lack of growth plans. President Uchiyama has said that this mid-term plan will be achievable, citing his track record of leading Fujitec to achieve its mid-term plans in the past. There are, however, substantial flaws in the new mid-term plan that raise questions over management’s ability to execute it. We also question his track record with respect to achieving targets set in plans in the past.

For example, the revenue and EBIT targets set in the FY2020-2022 mid-term plan were achieved; however, this is because Fujitec reduced the revenue targets for China and India to levels already easily achievable in FY2017. Meanwhile, other elevator makers saw stable growth in both markets.

President Uchiyama has previously set more aggressive revenue and EBIT goals for the mid-term plan just twice -- for FY2008-FY2010 and for FY2017-FY2019 -- in both cases, due to increased pressure from shareholders. However, in both cases, Fujitec failed to achieve these targets, and then set easily-achievable targets for the following term.

This brings us to today. Fujitec has now announced a new aggressive mid-term plan for FY2023-FY2025 as various shareholders have pressured Fujitec management. We have seen this pattern from President Uchiyama before. This is the reason Oasis suspects the new mid-term plan was announced in an effort to mollify shareholders.

For example, for a company that has made one acquisition for JPY1.7 billion in the last three years, it is surprising that management has set a target of spending JPY35 billion over the next three years. This raises concerns that management has an unrealistic view of their abilities to both execute on M&A, and then to credibly conduct a successful post-merger integration. The same applies to their capital expenditure plan amounting to JPY33 billion, which is far higher than what Fujitec has previously invested. And, despite of higher ratio of Capex to revenue so far, its CAGR of revenue has seriously lagged compared to competitors. The allocation of spending is also concerning. For example, instead of building production facilities in China, the Company should instead be outsourcing this production to lower costs and improve margins.

President Uchiyama’s unrealistic plan to invest a total JPY68 billion and deny any accountability for any failures should concern every Fujitec shareholder. He has had two decades to run Fujitec, lead from the front, and keep up with competitors, but he has failed. With a shocking history of poor governance and poor strategy, we see no reason to believe that this time is different. We see no reason to allow President Uchiyama to hold his position.

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It is time for Fujitec to break its ties with the Uchiyama family and its poor governance. Fujitec should identify a new chairman and a new president who will take responsibility and welcome accountability. With President Uchiyama’s son, Yusuke Uchiyama, being swiftly promoted through the ranks, Oasis is concerned that nepotism will continue to reign supreme at Fujitec, and that the Company will remain under Uchiyama family control.

Fujitec deserves the best of management, not only those who simply bear Uchiyama’s last name.

This AGM is a perfect time for shareholders to send a clear message to Fujitec that the era of family control and unacceptable governance is over by voting against the appointment of Takakazu Uchiyama as a director of Fujitec.

President Uchiyama has held the Company back for too long, and his presence has been detrimental to the Company. After the era of family control is put to an end, the Company and its shareholders will finally be able to appoint a new president with domestic and international experience who can sustainably increase corporate value over the long-term and enhance its competitive edge.

Fujitec has the right technologies, great employees, and strong prospects, but has lacked the right leadership for twenty years. Fujitec deserves a President that can lead the growth over the next decades.

We are seeing encouraging corporate governance changes across Japan. Fujitec deserves nothing less.

Vote AGAINST the director appointment of Takakazu Uchiyama at the upcoming AGM.

For more information, please contact info@protectfujitec.com.

For details, see presentation here.