MIGO Opportunities Trust PLC GBP · LSE:MIGO
MIGO Opportunities Trust PLC GBP — NC Holdings — Proxy Contest (May 2023)
52 slides from MIGO Opportunities Trust PLC GBP's proxy contest presentation, May 18, 2023
Slide 1: Explanatory Materials for Shareholder Proposals
NC Holdings Co., Ltd. Explanatory Materials for Shareholder Proposals Asset Value Investors 18 May 2023
Slide 2: AVI at a Glance
AVI at a Glance ▪ AVI is an investment management company established in London, United Kingdom, in 1985, and AVI has invested in global equities for more than 35 years. ▪ AVI has been investing in overlooked, undervalued Japanese equities for more than 20 years as a long-term investor. AVI currentl
Slide 3: Agenda
1 Background of the Shareholder Proposals Agenda 2 Contents of and Reasons for Each Proposal 3
Slide 4: Background
Decarbonisation in Japan1 Background 100%=1,024 930 (kWh bn) Renewables etc. 184 Nuclear 72 61 344-363 +92% ▪ The current business environment +218% Oil etc. 379 surrounding NCHD is highly uncertain. 186-205 -74% LNG 19 186 -51% ▪ The conveyor belt market, in which NCHD’s Coal 328 177 -46% main busi
Slide 5: Background: ROIC trajectory and comparison with WACC
Background ROIC trajectory and comparison with WACC1 ▪ Under these circumstances, as part of its ROIC responsibilities as a listed company, NCHD is expected to explain to shareholders and WACC: c. 7%2 investors what measures it will take, and over what time frame, to recover its performance and rega
Slide 6: Background
Background 1 2 ▪ Especially given the difficult environment, Earnings call n/a NCHD should provide clear explanations on NCHD’s medium- to long-term management vision, what types of Mid-term plan n/a investments it will make, and how it will enhance its corporate value and the common interests of sh
Slide 7: Background
Background Oct 2021 Feb 2022 Sep 2022 Apr 2023 ▪ Since becoming a shareholder in 2021, AVI has, in accordance with the aim of Japan’s Stewardship Code, conducted private Letter Presentation Letter Shareholder dialogue with the directors and ▪ Suggestion to ▪ Discussion to ▪ To affirmed our Proposal
Slide 8: Background
Background AVI’s major suggestions to date Implementation by NCHD Establish portfolio management Operations strategy based on capital efficiency of No improvement ▪ However, while some of the initiatives have each business domain been implemented which AVI appreciates Capital Disclose qualitative sh
Slide 9: Background
Background ▪ For 16 principles of the Corporate Governance Code, NCHD is not compliant nor has it explained convincing reasons for non-compliance in its Corporate Governance Report, highlighting that there is significant room for improvement in its governance policies. 9 Source: Corporate Governance
Slide 10: Background
Background ▪ Peers have been proactive in communicating information to the capital markets, such as business portfolio management using ROIC, business restructuring, cost of capital/hurdle rates, shareholder return policies, medium-term plans and long-term visions. As well as financial soundness, ef
Slide 11: Background
Background ▪ Due to the lack of disclosure and in the face of continued underperformance, NCHD’s market valuation is around 60% below that of industry peers. Valuation comparison with peers FY1 Fwd. EV/EBIT1 13.1x 11.9x 10.7x -60% 4.7x IHI ShinMaywa NCHD Note 1: Calculated based on share price as of
Slide 12: Background: Capital efficiency comparison with peers
Background Capital efficiency comparison with peers (LTM) ：“Companies with excessive financial assets” in the voting criteria of a major domestic asset management company1 ▪ Given that NCHD has net cash 23.3% equivalents and after-tax investment 13.7% securities amounting to almost 70% of its market
Slide 13: Background
Background ▪ While NCHD has “excessive financial assets” sitting as surplus assets on its balance sheet, the dividend payout ratio is well below peers and shareholder returns remain extremely low (excluding the buy-back through a tender offer from a then-conflicting shareholder in 2021). Pay-out rat
Slide 14: Background
Background ▪ NCHD’s CAPEX is only about half that of its peers. ▪ With low shareholder returns, this has led to the accumulation of financial assets. Distribution of net profits1, 2 (4-yr average） Net financial assets trajectory (JPY mm) 5 100 13 CAGR: 5,356 12.1% Non-operating 77 financial assets 3
Slide 15: Background
Background ▪ If NCHD continues to fail to adequately NCHD Business Portfolio fulfil the responsibilities expected of a listed company, it may not be best for ROIC（%）1 xx : EVA3 NCHD to continue its stock market listing. The management and the Board 12.3% of Directors should examine various strategic
Slide 16: Background
Background Comparison of intrinsic value against market value ▪ The share price of NCHD trades below Value per share, JPY our estimated intrinsic value. This c. -40% reflects a conglomerate discount due to ~3,000 NCHD’s diversified business portfolio, the 357 uncertainty regarding NCHD’s future perf
Slide 17: Background
Background ▪ AVI hopes to maintain friendly and constructive relations with the management and the directors of NCHD in private. However, the lack of progress and speed of the improvements made so far are significantly below our expectations. We do not think that NCHD’s management and Board are acti
Slide 18: List of AVI's Shareholder Proposals
List of AVI’s Shareholder Proposals Agendas Summary Strengthen supervisory Partial Amendment to the Articles of Increase the maximum number of function of the Board 1 p.21 Incorporation (Number of Directors) directors by one Election of Two (2) Directors (Excluding Elect two additional outside 2 Dir
Slide 19: Agenda
1 Background of the Shareholder Proposals Agenda 2 Contents of and Reasons for Each Proposal 19
Slide 20: Strengthening Supervisory Function
Strengthening Supervisory Function 20
Slide 21: Incorporation (Number of Directors)
Proposal 1 Partial Amendment to the Articles of Incorporation (Number of Directors) Increase the maximum number of directors by one to enable the election of two outside directors with knowledge and experience of capital markets outlined in Proposal 2. Board of Directors Director Experience / Knowle
Slide 22: Election of Two Directors (1/4)
Proposal 2 Election of Two Directors (Excluding Directors Who are Audit and Supervisory Committee Members) (1/4) Elect two outside directors with abundant capital markets knowledge and experience to strengthen the Board of Director’s supervisory function from the perspective of the common interests
Slide 23: Election of Two Directors (2/4): Jiro Yasu
Proposal 2 Election of Two (2) Directors (Excluding Directors Who are Audit and Supervisory Committee Members) (2/4) Jiro Yasu Biography Experience 1996 Daiwa Securities America Inc. (NY) • Involved in buy side public equity investments for more than 20 1998 First Eagle Investment Management, LLC (F
Slide 24: Election of Two Directors (3/4): Philip Partnow
Proposal 2 Election of Two (2) Directors (Excluding Directors Who are Audit and Supervisory Committee Members) (3/4) Philip Partnow Biography Experience 1995 Joined Sullivan & Cromwell LLP (NY, HK, Tokyo) • Involved in M&A and strategic investment advisory work for more 1999 Senior Vice President &
Slide 25: Election of Two Directors (4/4)
Proposal 2 Election of Two (2) Directors (Excluding Directors Who are Audit and Supervisory Committee Members) (4/4) Mr. Yasu and Mr. Partnow are completely independent of AVI and will not represent the interests of any particular shareholder. They are expected to supervise the management from the p
Slide 26: Evaluate Strategic Alternatives
Evaluate Strategic Alternatives 26
Slide 27: Strategic Review Committee (1/5)
Proposal 3 Partial Amendment to the Articles of Incorporation (Strategic Review Committee) (1/5) The Board should evaluate the best strategic options from the perspective of the common interests of shareholders. However, AVI believes that the Board may not have adequately considered all options, and
Slide 28: Strategic Review Committee (2/5)
Proposal 3 Partial Amendment to the Articles of Incorporation (Strategic Review Committee) (2/5) The Strategic Review Committee shall examine strategic alternatives broadly and recommend the best option. The Board of Directors shall formulate an Implementation Plan, and the directors shall implement
Slide 29: Strategic Review Committee (3/5)
Proposal 3 Partial Amendment to the Articles of Incorporation (Strategic Review Committee) (3/5) In the 1st phase, the SRC examines and recommends strategic alternatives. In the 2nd phase, the Board and the directors formulate the plan and implement procedures, which the SRC supervises. Phase Strate
Slide 30: Strategic Review Committee (4/5)
Proposal 3 Partial Amendment to the Articles of Incorporation (Strategic Review Committee) (4/5) Composition and authorities to ensure the effectiveness of the SRC. Item Purpose Matters to stipulate in Articles of Incorporation ▪ Establishment: After AGM without delay SRC should be ad hoc to ▪ Discl
Slide 31: Strategic Review Committee (5/5)
Proposal 3 Partial Amendment to the Articles of Incorporation (Strategic Review Committee) (5/5) The Articles of Incorporation guarantees that outside directors lead the SRC and that its duties are performed from the perspective of the common interests of shareholders. It is impossible that the duti
Slide 32: Ensure Discipline over Management
Ensure Discipline over Management 32
Slide 33: Policy against Large-Scale Purchases (1/5)
Proposal 4 Partial Amendment to the Articles of Incorporation (Policy against Large-Scale Purchases of Share Certificates, etc., of the Company) (1/5) Hostile acquisitions and the existence of their possibility play a significant role in improving the efficiency of NCHD’s management. Economic signif
Slide 34: Policy against Large-Scale Purchases (2/5)
Proposal 4 Partial Amendment to the Articles of Incorporation (Policy against Large-Scale Purchases of Share Certificates, etc., of the Company) (2/5) The benefit of better management performance when there is a possibility of a hostile acquisition is weakened when countermeasures are misused, altho
Slide 35: Policy against Large-Scale Purchases (3/5)
Proposal 4 Partial Amendment to the Articles of Incorporation (Policy against Large-Scale Purchases of Share Certificates, etc., of the Company) (3/5) Set minimum requirements when adopting or triggering a poison pill so that the benefit from the possibility of hostile acquisitions is not weakened.
Slide 36: Policy against Large-Scale Purchases (4/5)
Proposal 4 Partial Amendment to the Articles of Incorporation (Policy against Large-Scale Purchases of Share Certificates, etc., of the Company) (4/5) Explanation of proposed amendment to the Articles of Incorporation (Policy against Large-Scale Purchases of Share Certificates, etc., of the Company)
Slide 37: Policy against Large-Scale Purchases (5/5)
Proposal 4 Partial Amendment to the Articles of Incorporation (Policy against Large-Scale Purchases of Share Certificates, etc., of the Company) (5/5) Reasonable scope of shareholder influence, while respecting the professional judgment of the Board of Directors. Scope of proposal Whether adopt pill
Slide 38: Issuance of Shares, etc. (1/2)
Proposal 5 Partial Amendment to the Articles of Incorporation (Issuance of Shares, etc.) (1/2) The need for prompt financing on the stock market is limited in NCHD. An abusive third-party allocation of shares undermines discipline over company management and existing shareholders’ interests. Disadva
Slide 39: Issuance of Shares, etc. (2/2)
Proposal 5 Partial Amendment to the Articles of Incorporation (Issuance of Shares, etc.) (2/2) Require prior approval by a general meeting of shareholders for a third-party allocation of shares, etc., only in cases of high necessity in order to prevent discipline over company management and the inte
Slide 40: Enhance Capital Efficiency
Enhance Capital Efficiency 40
Slide 41: Dividends of Surplus, etc. (1/5)
Proposal 6 Partial Amendment to the Articles of Incorporation (Dividends of Surplus, etc.) (1/5) Profits generated from the business should first be utilised for investments to enhance corporate value. Any surplus thereafter should be returned to shareholders so long as financial soundness is ensure
Slide 42: Dividends of Surplus, etc. (2/5)
Proposal 6 Partial Amendment to the Articles of Incorporation (Dividends of Surplus, etc.) (2/5) The majority of profits have accumulated and have not been utilised to enhance corporate value or returned to shareholders for the past five years. As a result, cash equivalents amounting to approx. 61%
Slide 43: Dividends of Surplus, etc. (3/5)
Proposal 6 Partial Amendment to the Articles of Incorporation (Dividends of Surplus, etc.) (3/5) Low capital efficiency and poor shareholder returns contradict “promises” made voluntarily by management. “Please vote in favour of NCHD’s proposals.” Current management team contested management rights
Slide 44: Dividends of Surplus, etc. (4/5)
Proposal 6 Partial Amendment to the Articles of Incorporation (Dividends of Surplus, etc.) (4/5) AVI has lost trust in the Board of Directors having the exclusive authority to determine dividends. Shareholders should determine dividends as per the principle under the Companies Act. Principle under C
Slide 45: Dividends of Surplus, etc. (5/5)
Proposal 6 Partial Amendment to the Articles of Incorporation (Dividends of Surplus, etc.) (5/5) Explanation of proposed amendment to the Articles of Incorporation (Underlines indicate changes.) Current Articles of Incorporation (Dividends of surplus, etc.) Currently, shareholders Article 34 The Com
Slide 46: Appropriation of Surplus (1/2)
Proposal 7 Appropriation of Surplus (1/2) At least a 70% pay-out ratio is appropriate for NCHD. The year-end dividend should be JPY 65 per share. Distribution of net profits1,2 (4-yr average） 100 13 ▪ Even if the level of growth investment were to double, a dividend payout ratio of 70% would still b
Slide 47: Appropriation of Surplus (2/2)
Proposal 7 Appropriation of Surplus (2/2) NCHD’s past disclosure assures that the dividend of JPY 65 per share would not impair the financial soundness at all. Total amount of purchase price JPY 2,000,211,300 The funds required for the Tender Offer will be allocated entirely from cash on hand. In th
Slide 48: Strengthen Incentive
A Strengthen Incentive AV | Asset Value Investors 48
Slide 49: Performance-Based and Restricted Stock Compensation Plan (1/3)
Proposal 8 Determination of Compensation for Performance-Based Stock Compensation Plan and Restricted Stock Compensation Plan for Directors (1/3) The current compensation system does not provide for compensation that is linked to medium- to long-term business performance, which is necessary to incen
Slide 50: ROIC Target: Stock Compensation Plan (2/3)
Proposal 8 Determination of Compensation for Performance-Based Stock Compensation Plan and Restricted Stock Compensation Plan for Directors (2/3) Under the proposed performance-based stock compensation (PSU) plan for executive directors, the number of shares to be delivered shall be calculated based
Slide 51: Stock Compensation Plan for Outside Directors (3/3)
Proposal 8 Determination of Compensation for Performance-Based Stock Compensation Plan and Restricted Stock Compensation Plan for Directors (3/3) A stock compensation plan for outside directors should be introduced to provide them with appropriate incentives. Whether to grant shares under the plan s
Slide 52: Disclaimer
Disclaimer ▪ This document (including all information contained herein; hereinafter the same) was prepared solely for the purpose of providing information to shareholders of NC Holdings Co., Ltd. (the “Company”). Asset Value Investors Limited (“AVI”) is the investment manager of AVI Japan Opportunit