Company Announcements

5 June 2024

London

AVI Submits Shareholder Proposals to SK Kaken for the Fourth Year in a Row as the Founding Family Continues to Ignore Support from Shareholders for Change

London, 5 June 2024 - Asset Value Investors ("AVI") announces today that it has submitted shareholder proposals to SK Kaken Co., Ltd. (TSE 4628) ("SK Kaken" or the "Company") addressing two issues contributing to the Company's poor share price performance, low valuation, and potential delisting from the Tokyo Stock Exchange ("TSE").

A presentation outlining AVI's rationale for changes and full details of the shareholder proposals is available on AVI's dedicated website www.paintingabetterSKKaken.com.

Despite a high-quality business model and having a dominant share of the domestic construction paint market, SK Kaken trades with a negative enterprise value and a price-to-book ratio of just 0.7x[1]. Over the last five years, SK Kaken's share price has fallen -8%, while its domestic peers'[2] share prices have risen +15% and the TOPIX has gained +91%. With 420 shareholders, SK Kaken only narrowly 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, symptoms often encountered at companies with a controlling shareholder. Over 40% of SK Kaken's shares are owned by, and several key senior executive positions held by, members of the founding Fujii family."

"The average tenure of the SK Kaken board is 15 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."

"We submitted shareholder proposals for the last three years, and despite receiving strong support from non-Fujii family shareholders, SK Kaken has failed to reduce its excess treasury shares nor address its overcapitalised balance sheet."

AVI has been a large minority shareholder and owner of SK Kaken for over five years. Due to a lack of progress and the Fujii family's refusal to engage in strategic discussion, AVI is again seeking to enhance SK Kaken's corporate value through submitting shareholder proposals. Although more radical reform is needed than can be addressed through shareholder proposals alone, we have identified two easily addressable issues, aimed at sustainably enhancing SK Kaken's corporate value.

(1)  The cancellation of 90% of the 2,192,425 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 to complete M&A or improve executive compensation. Holding excess treasury shares creates a reissuance risk, which at the current share price would be value destructive, and it is best practice to cancel excess treasury shares.

(2)  Increase the dividend from Y135 per share to Y290, representing a 50% payout ratio. SK Kaken has hoarded earnings on its balance sheet, with cash and equivalents accounting for 71% of balance sheet assets.

Two directors of AVI Japan Opportunity Trust plan to attend the AGM to directly challenge the Fujii family's fiduciary failure and neglect of minority shareholders.

AVI is calling on its fellow shareholders to continue to express their disapproval of poor management policies, which are negatively influenced by a controlling shareholder who has repeatedly neglected minority shareholder interests.

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AVI at a glance

AVI is an investment management company, established in 1985 in London, United Kingdom, that has been invested in Japanese equities for more than 30 years. In addition to managing other funds, AVI namely manages the AVI Global Trust (AGT) and the AVI Japan Opportunities Trust, which, as of 31 March 2024, have total gross assets of JPY250bn (£1.3bn) and JPY40bn (£0.21bn) respectively. AGT and AJOT are publicly listed and trade on the London Stock Exchange's Main Market.

AVI has signified its commitment to the "Principles for Responsible Institutional Investors: Japan's Stewardship Code". In accordance with this commitment, AVI engages in constructive "purposeful dialogue" with management and board members, to objectively contribute to the enhancement of corporate value and achieve sustainable growth for its portfolio companies.

Contact:

Asset Value Investors Limited

Daniel Lee

daniel.lee@assetvalueinvestors.com

LEI: 894500IJ5QQD7FPT3J73