Kobayashi Pharmaceutical Co. on Feb. 10 posted its first full-year profit decline since going public in 1999 as the health scare over its “benikoji” supplements hammered sales and the company’s reputation.

Revenue for the fiscal year that ended on Dec. 31 was 165.6 billion yen ($1.1 billion), down 4.5 percent from the previous year, according to its financial results.

Operating income was 24.8 billion yen, down 3.6 percent, while net profit plunged 50.5 percent from the previous year to 10 billion yen, the company said.

Health problems linked to the company’s benikoji supplements led to a suspension of advertisements and cancellations of mail order sales.

The company posted an extraordinary loss of 12.7 billion yen consisting of more than 4 billion yen each for three costs: recall of supplements for the general public; recall and compensation for benikoji raw materials for companies; and compensation for health damage.

The company said the recall of the supplements is almost complete.

Regarding the recall of raw materials and compensation, the company said it has discussed the matter with more than 300 companies, but it has reached agreement with less than half of them.

The company also said it has proceeded with payments to cover victims’ hospital examination fees and expenses.

However, full-scale compensation for the health damage and lost work time has not begun.

Kobayashi Pharmaceutical said about 1,200 people have inquired about compensation, and about 770 people have filed applications.

Akihiro Kobayashi, a former company president who currently serves a board director in charge of compensation, said it will take time to properly provide compensation.

“There are quite a few people undergoing treatment, and if they say, ‘I will undergo an examination in six months,’ we will not be able to calculate (the amount of money) until then,” he said.

In addition, the company has held 130 consultations with bereaved families who suspect the benikoji supplements caused the deaths of their loved ones.

The company said it has completed investigations in 125 deaths but has yet to find a case in which supplement intake was the cause.

Kobayashi Pharmaceutical has forecast revenue of 171 billion yen for the fiscal year ending on Dec. 31 this year, up 3.3 percent from the previous year.

The company expects operating income of 14 billion yen, down 43.7 percent from the previous year, and net income of 10.5 billion yen, up 4.3 percent.

The company plans to resume TV commercials and other advertising activities from April.

Even with additional extraordinary losses, the company intends to post a positive net profit through asset sales and other measures.

It also plans to present a new medium-term management plan for fiscal 2025 in August.

Norikazu Toyoda, who will soon replace Satoshi Yamane as president, attended a news conference on Feb. 10 for the first time and indicated he would review unprofitable businesses.

“We have regretted the fact that we were so focused on consecutive increases in profits that we delayed necessary investments,” Toyoda said. “We will also invest in order to achieve sustainable growth.”

The company will hold an extraordinary general meeting of shareholders on Feb. 19 at the request of Oasis Management, a Hong Kong-based investment fund and an activist shareholder that owns about 10 percent of Kobayashi Pharmaceutical’s stocks.

Oasis Management is demanding a re-examination of the benikoji issue and is seeking the appointment of three outside board directors.

Toyoda again urged shareholders to oppose Oasis Management’s proposal.

Takayuki Kimura, an executive officer of Kobayashi Pharmaceutical, said, “We have already conducted an investigation from various perspectives, and if we conduct another large-scale investigation, it will affect our measures to provide compensation and prevent a recurrence.”

Seth Fischer, founder and CIO of Oasis Management, held an online news conference on Feb. 6 to criticize Kobayashi Pharmaceutical’s attitude.

In particular, Fischer blasted the idea that former President Kobayashi, a member of the founding family of the company, has remained on the board of directors.

“(Kobayashi Pharmaceutical) has publicly stated that it is seeking to rid itself of the founding family, so this is not in line with what it has said,” Fischer said.

At the Feb. 10 news conference, Toyoda argued that Kobayashi did not stay on the board just because he is a founding family member.

Oasis Management plans to file a shareholder derivative lawsuit in the near future against seven people who were board directors of Kobayashi Pharmaceutical at the time the health hazard problem was discovered. The suit will seek more than 10 billion yen in compensation.

(This article was written by Satoshi Seii and Nanami Watanabe.)