Asset Value Investors (“AVI”) today publicly released a letter to NS Solutions Corp (TYO 2327) (“NSSOL”) responding to NSSOL’s rejection of AVI’s shareholder proposals which were submitted in April and can be found on www.takingNSSOLtothenextlevel.com.
AVI has proposed:
(1) a final-year dividend of ¥62 per share, for a total dividend of ¥87, in reaction to NSSOL’s proposal to reduce the dividend from ¥65 last year to ¥52.5 this year, the first dividend decline since 2009;
(2) a share buyback, to be funded by disposition of excessive “strategic shares”, to reduce the share ratio of NSSOL’s controlling 63.4% shareholder Nippon Steel Corporation to 61.1%, a level that will help to meet the Tokyo Stock Exchange’s new 35% free float requirement; and
(3) the introduction of stock-based compensation for directors.
While, AVI is pleased that NSSOL has taken on board its suggestions to introduce a mid-term plan and change its board structure to one with an audit committee, it is disappointed that NSSOL has rejected AVI’s modest shareholder proposals.
NSSOL’s failure to quantify key performance and financial indicators conspicuously stands out in its discussion of planned investment of DX. While implying that planned future investment in DX precludes payment of a higher dividend, a closer look at NSSOL’s Mid-Term Business Strategy reveals that NSSOL plans to spend ¥2 – 3 billion per year on DX investment, only about 1% of annual revenues.
AVI believes that NSSOL should instead invest up to ¥50 billion in DX over the next five years. NSSOL has ample cash reserves to fund this level of investment while also paying the dividend and executing the share buyback AVI is proposing.
NSSOL’s failure to analyze key performance and financial parameters with greater precision and discipline, AVI believes, could be a symptom of a management culture under the influence of a dominant shareholder whose interests are not aligned with those of minority shareholders. AVI appreciates the open and constructive dialogue it has had with the Company, which we hope to continue in the future. AVI encourages shareholders who see merit in its modest shareholder proposals to vote in support.