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Painting a better SK Kaken

Our Letter        Our Shareholder Proposal

SK Kaken limited the length of the reasonings for shareholder proposals to 400 characters so a shortened version was resubmitted to the AGM. We have uploaded the full reasonings to this website to allow shareholders to make a more informed decision.

 

Dear Fellow shareholders, investors and other market participants,

Asset Value Investors (“AVI”) announced today that it has submitted shareholder proposals to SK Kaken Co., Ltd. (TYO 4628) to address, at no cost to the Company, some of the factors contributing to the company’s poor share performance and low valuation.

Since it became a shareholder in 2017, AVI has offered numerous constructive suggestions to SK Kaken on concrete actions that it can take to improve its underlying operating and financial performance. The SK Kaken board, controlled by the Fuji family, have shown little interest in any of these suggestions.

Over the last 12 months SK Kaken’s share price has underperformed against the TOPIX Index and its peer group of paint and coatings companies by -31% and -33%, respectively. SK Kaken now trades on an EV/EBIT ratio of less than 1x, a price-to-book ratio of 0.9x with net cash covering 93% of its market cap.

There are multiple causes for SK Kaken’s underperformance and undervaluation. Chief among these are poor operating results reflected in low profit growth, inefficient capital allocation, lack of board diversity and independence, woeful shareholder communication, excess treasury shares and a prohibitively high minimum trading lot size. In comparison to more aggressive and dynamic competitors in the industry, SK Kaken is falling behind.

These issues reflect a lack of urgency and weak management discipline, a symptom of 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 Fujii family.

With this as background, AVI has submitted shareholder proposals to call to the attention of fellow shareholders the company’s stubborn resistance to even the most reasonable proposals.

AVI’s proposals are modest and should be uncontroversial. They address two technical causes for SK Kaken’s low stock price that can be resolved at no cost.

The first is a 10-for-1 stock split to reduce the prohibitively high minimum trading lot from approximately ¥4,000,000 (the sixth highest trading value among TSE-listed companies) to ¥400,000.  This will create greater liquidity and open the company to investment by retail investors who are now effectively excluded.

The second is to cancel 90% of its treasury shares. 14% of outstanding shares are held in treasury, shares that have no business purpose such as possible future M&A or to fund an executive incentive stock plan – SK Kaken has no M&A plans or a stock-based compensation scheme – and serve only to depress the stock price.

These modest and costless proposals to enhance liquidity and SK Kaken’s stock price have been rejected outright by management as have all other proposals offered to date by AVI. AVI are not the only shareholder disappointed with the Company’s treatment of minority shareholders, with only 76% of shareholders supporting the re-election of SK Kaken’s Chairman in 2020, compared to 93% in 2016.

AVI calls on its fellow shareholders to continue to register 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 AVI’s proposals.

We have launched this website to provide information regarding SK Kaken’s neglect of shareholders and welcome dialogue with any stakeholder who would like to discuss our shareholder proposals further.

Yours sincerely,

20th May 2021
Joe Bauernfreund
CEO & CIO

AVI Japan Opportunity Trust

Key facts

  • Total assets:
    153 million*
  • Launch date:
    23 October 2018
  • Return since launch:
    20.6%**
  • Ongoing Charges:
    1.64%***

* As at 31 August 2021
** Source: Morningstar, performance period 23 October 2018 to 31 August 2021, TR net of fees, GBP
*** As at 30 September 2020, includes: management fee 1.0%, marketing and administration costs.

AVI Japan Opportunity Trust p.l.c is referred to as ‘AJOT’ throughout the website. AJOT’s investment managers, Asset Value Investors are referred to as ‘AVI’

AJOT currently conducts its affairs so that its shares can be recommended by Independent Financial Advisers (“IFAs”) in the UK to ordinary retail investors in accordance with the Financial Conduct Authority (“FCA”) rules in relation to non-mainstream investment products and intends to continue to do so. The shares are excluded from the FCA’s restrictions which apply to non-mainstream investment products because they are shares in an authorised investment trust. © AVI Japan Opportunity Trust plc. 2018 Registered in England No: 11487703. An investment company under Section 833 of the Companies Act 2006. Registered Office: Beaufort House, 51 New North Road, Exeter, EX4 4EP. Managed by Asset Value Investors Ltd. which is authorised and regulated by the Financial Conduct Authority. Past performance should not be seen as an indication of future performance. The price of investments and the income may fall as well as rise and investors may not get back the full amount invested. AJOT may use gearing techniques (leverage) which will exaggerate market movements both down and up which could mean sudden and large falls in market value. Please refer to the Key Features Document for further details of the risks affecting your investment. Performance figures are cumulative and based on Price total return and do not include Plan charges. For more information, please call 03458 500181. Tax treatment depends on the individual circumstances and may be subject to change in the future. Asset Value Investors Ltd do not offer Innovative Finance ISAs.

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