REG - AVI Global Trust PLC - AVI Submits Shareholder Proposals to SK Kaken

AVI Global TrustAnnouncement

19/05/2022 07:00

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RNS Number : 0161M  AVI Global Trust PLC  19 May 2022

AVI Submits Shareholder Proposals to SK Kaken to Address Issues Caused by the
Founding Family's Ambivalence Toward Minority Shareholders

 

 

SK Kaken's poor valuation and share price performance reflect the Board's
ambivalence toward minority shareholders and their failing responsibilities as
a listed company

 

SK Kaken barely meets the requirements to be listed on the Tokyo Stock
Exchange

 

The founding family, who has control of the Board, seems to disregard minority
shareholder's modest proposals to enhance corporate value

 

Poor governance is affecting SK Kaken's wider stakeholders with no
environmental policy or target to reduce emissions

 

London, 19 May 2022 - Asset Value Investors ("AVI") announces today that it
has submitted shareholder proposals to SK Kaken Co., Ltd. (TYO 4628) ("SK
Kaken" or the "Company") addressing six issues contributing to the Company's
poor share price performance, low valuation, and potential delisting from the
Tokyo Stock Exchange ("TSE").

 

Despite a high-quality business model and a dominant share of the domestic
construction paint market, SK Kaken trades on an EV/EBIT ratio of less than 0x
with net cash covering 103% of its market cap (all as of 30 April 2022).
Furthermore, over the last five years, SK Kaken's share price underperformed
the TOPIX Index by -69% and its peers'( 1 ) by -32% while profits dropped by
-9%. With 409 shareholders, SK Kaken only just meets the requirements for
listing on the TSE Standard market.

 

Joe Bauernfreund, CEO of AVI, comments: "SK Kaken's issues reflect a lack of
urgency and weak management discipline, a symptom often encountered at a
company with a controlling shareholder. Approximately 40% of SK Kaken's shares
are owned by, and key senior executive positions are held by, members of the
founding family.

 

"The average tenure of the SK Kaken board is 21 years and the Founder has a
major influence on the decision-making process. This leads to a culture of
intransigence and traditionalism, starving the Company of progress including
on environmental concerns that impacts wider stakeholders.

 

 "We submitted shareholder proposals last year, seeking a 10-for-1 stock
split and to cancel 90% of the outstanding treasury shares. Although general
shareholders strongly endorsed both our proposals (55% and 57% respectively),
it has fallen on deaf ears."

 

In response to AVI's proposals, SK Kaken announced a shareholder benefit
program in December 2021, a nonsensical attempt to attract more shareholders
and retain its TSE listing. For the privilege of holding more than 100 shares,
worth Y3,550,000 as of 30 April 2022, shareholders qualify for a voucher card
worth Y5,000 - an effective 0.14% return on investment.

 

AVI has been a large minority shareholder and owner of SK Kaken for five
years. Due to a lack of progress and both President and Chairman's refusal to
meet, AVI has submitted shareholder proposals to address six issues aimed at
sustainably enhancing SK Kaken's corporate value and retaining the Company's
TSE listing.

 

(1)  A 10-for-1 stock split to reduce the prohibitively high minimum trading
lot from ¥3,550,000 (the eightieth-highest trading value among TSE-listed
companies) to ¥355,000. This should improve liquidity and attract individual
shareholders.

 

(2)  The cancellation of 90% of the 438,400 shares held in treasury. SK Kaken
currently holds 14% of outstanding shares in treasury and has not put forward
any plans to use the shares such as M&A or executive compensation.

 

(3)  Increase the dividend from Y400 per share to Y800, for a 30% payout
ratio. SK Kaken has hoarded earnings on its balance sheet, with cash and cash
equivalents accounting for almost 70% of balance sheet assets.

 

(4)  Shorten the Board of Directors' term to one year. Against a background
of increased awareness of the need to strengthen corporate governance in
Japan, there has been a trend of reducing director terms from two to one year.

 

(5)  Appoint a minimum of two independent directors. SK Kaken's board of
directors only consists of one external director, despite the Corporate
Governance Code stipulating that for a company with a controlling shareholder,
in SK Kaken's case the Family, at least one-third of directors should be
independent.

 

(6)  Disclose Scope 1 and Scope 2 greenhouse gas (GHG) emissions. Although
the Corporate Governance Code stipulates that companies should promote
positive and proactive responses to sustainability issues, SK Kaken lacks a
sustainability policy.

 

AVI is calling on fellow general shareholders to continue to express their
disapproval of management policies under the influence of a controlling
shareholder who has neglected the interests of minority shareholders for too
long by voting in favour of the shareholder proposals.

 

A presentation outlining AVI's arguments and the full shareholder proposals
are available at AVI's dedicated website www.paintingabetterSKKaken
(http://www.paintingabetterSKKaken) .com.

 

***

AVI at a glance

 

AVI is a London-based investment management company that has been investing in
Japanese equities for more than 20 years. AVI was established in 1985 and has
been investing in the equity markets for more than 35 years. AVI's investment
team is committed to contributing to sustainable improvements in corporate
value by engaging with the management teams of its portfolio companies, with
approximately ¥78bn invested in Japanese equities.

 

 

 

 

Contact

 

Daniel Lee

daniel.lee@assetvalueinvestors.com (mailto:daniel.lee@assetvalueinvestors.com)

 

 

 

( 1 ) Nippon Paint (4612) and Kansai Paint (4613). TOPIX total return.
Source, CapitalIQ.

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