Our Shareholder Proposals for SeikitokyuStrategic Capital, Inc.

Strategic Capital and our fund are shareholders of SEIKITOKYU KOGYO CO., LTD. (hereinafter referred to as “Seikitokyu”).
We have executed our shareholders’ right to make proposals at the AGM held in the coming June as followings.

1. Disclosure of WACC and its basis of calculation for more effective dialogues.
   　　　 　　　　 　　　　　　 　　　　・・・・・・・Proposal.1
2. Increase of dividend to achieve 100% payout ratio.
   　　　 　　　　 　　　　　　 　　　　・・・・・・・Proposal.2
3. Establishment of Independent Investigation Committee in the event of scandals
   　　　 　　　　 　　　　　　 　　　　・・・・・・・Proposal.3

The challenges and our solutions are followings.

1. Cheap valuation left by the management
   Seikitokyu’s ROIC / ROE is lower than its WACC / cost of equity capital respectively. This resulted in its low valuation. The managements should be more aware of the gap between capital efficiencies and funding costs. Through the effective dialogue with shareholders, Seikitokyu can increase its shareholders’ value. Therefore, we would like Seikitokyu to improve its valuation by disclosing WACC and its basis of calculation.
2. Capital allocation policy which leads to accumulation of equity capital and future decline of ROE
   Seikitokyu’s target of total return ratio is 30%. If such current policy regarding shareholders return continues, it is inevitable to cause decline of ROE in the future. To prevent this, we would like Seikitokyu to achieve 100% payout ratio.
3. Inadequate reactions for scandals such as antitrust violations which are at the risk of recurrence
   On March 2019, Seikitokyu announced that it may be going to pay 4.3 bil surcharge for the antitrust violation. Seikitokyu has committed antitrust violations several times before and set the recurrence prevention measures. As such measures had not worked, Seikitokyu could not apply for the leniency program of the Japan Fair Trade Commission whereby companies that provide information about a cartel in which they participated might receive full immunity from surcharge. Therefore, we would like Seikitokyu to establish an independent investigation committee in order to reduce the recurrence risk and lower the cost of capital.

Please find the details of our proposals here
Link

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