ESG

• Government ministries, agencies and the TSE want to raise the value of the Tokyo market, even if it means using the opinions of overseas investors, including activist investors.
• Companies with high foreign ownership and large market capitalization are proactive in corporate governance efforts, while many other companies are passive, indicating that differences in efforts among companies are significant.
• Thanks to the revision of the Corporate Governance Code, corporate governance practices have improved mainly in terms of formal criteria, and now substantive improvements are required.

• It’s no surprise that some companies consider the dissolution of parent-subsidiary listings as a swift and effective measure to raise ROE. However, not every listed subsidiary will be TOB.
• TOB of a high-profitability subsidiary can have significant impact on both the denominator and numerator of the parent company’s ROE because it uses more cash and will improve profit margins.
• Even if the “significance of parent-subsidiary listings” is disclosed, few investors believe that the listed subsidiary’s independence is fully ensured, and the dissolution of parent-subsidiary listings will eventually follow.

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).

We view Travelodge’s ESG as “Adequate”, in line with its Environmental, Social and Governance scores. Controversies are “Immaterial” and Disclosure is “Adequate”.

Travelodge is the second-largest hotel chain in the UK, based on the number of hotels and rooms operated.

• While disclosure of committee activities in annual securities report provides clues to the independence of committee, this might create higher hurdle for moving to Company with US type 3 Committees.
• Based on the premise that disclosure of committee activities can change management’s mindset and enable committees to function, more specific details should need to be disclosed to all listed companies.
• Many companies have nominating committees that meet 1-2 times a year before the AGM. Few companies have a Succession Plan, which is of great interest to investors.

• Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
• We assess Axactor’s ESG as “Adequate”, in line with its “Adequate” Social and Governance scores. The company has a “Weak” score for the Environmental pillar. Controversies are “Material” and Disclosure is “Weak”. 
• Axactor is a Norway-headquartered debt purchaser and servicer founded in 2015. Its core business is the purchase of non-performing debt in the Nordics, Spain, Germany and Italy.

• Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
• We assess Upfield’s ESG as “Adequate”, in line with its Environmental, Social and Governance scores. Controversies are “Immaterial” and Disclosure is “Adequate”.
• Upfield (formerly Flora Food Group) is the world’s leading producer of margarine and other spreads.

• Reforms Drive Improvement: Japan’s corporate reforms, catalyzed by governance codes and TSE pressure, are fostering capital efficiency, shareholder value, and long-term equity gains.
• “Name and Shame” Initiative Impact: TSE’s disclosure initiative reveals 54% of Topix 500 companies enhancing capital efficiency, with early indications suggesting positive longer-term performance trends.
• Future Alpha Opportunities: Expectation of increased disclosure in the coming months, particularly from proactive companies; potential for market surprises from obstructive firms trading below book value.

• Axis Capital is a 100% subsidiary of Axis Bank Ltd (AXSB IN) and one of its businesses is structured finance
• The Sojo Infotel is a high-risk transaction undertaken by Axis Capital which was underwritten by the company with the implicit support of the bank as per the credit rating agency
• When the transaction was done it was 50% of Axis Capital’s equity and default risk is high as the redemption date is on March 25, 2024

• Although there’s range in the cost of capital, a sense of level is shared among investors, so even if a company estimates lower, it will be found to be incorrect.
• The essential problem isn’t scrutiny of the cost of capital, but rather that many companies produce low returns. Investors are skeptical that companies produce returns above their cost of capital.
• If stock prices do not rise, investors will continue to demand that companies improve their management, attributing this to the negative gap between the cost of capital and return.

• The TSE’s new efforts to encourage companies to disclose measures to improve their capital efficiency and stock prices correlate closely with general indicators of good governance.
• Over 60% of companies that we classify as “Proactive” have already disclosed their status, while only around one third of “Obstructive” companies have done so.
• Companies with higher levels of Board Independence and that are more aligned with shareholders are more likely to be better allocators of capital for long-term growth.

• Wouldn’t the shareholders of Mitsubishi Chemical want to either TOB for the growth of the subsidiary or invest the cash from the sale of shares in a value-generating business?
• It’s difficult to exclude the influence of the parent company in business decisions that impact significantly on the parent’s earnings and shareholding. Is continued parent-subsidiary listing desirable for subsidiary’s shareholders?
• The management of Nippon Sanso wants to continue the parent-subsidiary listing, but their small shareholding may make it difficult to manage the company from the same perspective as the shareholders.

• Parent-Subsidiary listings present several problems: the disadvantages to parent company’s shareholders that drain subsidiary’s profits, the distortion of market capitalization between subsidiary and parent company, and independence of subsidiary’s management.
• While it’s an improvement for TSE to ask companies to disclose their purpose and policy of listing subsidiaries and affiliates, it doesn’t ensure the complete independence of subsidiaries and affiliates.
• More than 30% of listed companies are listed subsidiaries or affiliates. Investors are forced to look for investment targets while worrying about management independence in 70% of the companies.

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We assess West China Cement’s ESG as “Adequate”, in line with its “Adequate” Environmental and Governance scores. That said, the company’s Social pillar is “Weak”. Controversies are “Immaterial” and Disclosure is “Adequate”.

• It is desirable for stakeholders other than shareholders for the company to be profitable. The problem lies in holding excess cash without making sufficient returns from the business.
• Cash flow should be used for reinvestment and shareholder returns, but in fact many companies didn’t grow their allocations to investment and shareholder returns, but instead accumulated cash on hand.
• There is a big difference in corporate value between a company with growing cash flow and increasing shareholder returns and a company with stagnant cash flow but raising shareholder returns.

• Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
• We assess TalkTalk’s ESG as “Adequate”, in line with its Environmental and Governance scores, while the Social score is “Weak”. Controversies are “Immaterial” and Disclosure is “Weak”.
• TalkTalk is the UK’s leading non-traditional telecom service provider. It offers fixed-line telecom and pay-TV services (3.8 k on-net subscribers as of August 2023), as well as wholesale telecom services.

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
CBR Fashion’s ESG is “Adequate” in our view, in line with its Governance score. The company has “Weak” scores for the Environmental and Social pillars. Controversies are “Immaterial”, but Disclosure is “Weak”.

• Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
• We assess Renk’s ESG as “Adequate”, driven by the “Adequate” scores for the Environmental, Social and Governance pillars. Controversies are “Immaterial” and Disclosure is “Adequate”.
• Renk AG is a global manufacturer of high-quality automatic transmissions, gear units, slide bearings, suspension systems, couplings and test systems.

• It is an expected option for a parent company to make a profitable subsidiary wholly owned by the parent company, an environment that demands improved ROE.
• It is natural that the market would receive a stock offering by a large shareholder with more information than others as the stock price is higher than its fair value.
• It’s not unrelated to the fact that few shareholder proposals are approved and company proposals are rejected at AGMs, and that most domestic investment managers affiliates of major financial institutions.