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Ascender Capital's Call for Change at Algorithm Graphics

In a recent statement, Ascender Capital Limited, an investment firm based in Hong Kong, has made a compelling case for enhancing capital allocation and governance at Algorithm Graphics, a significant player in the software and system integration sector. With a focus on broadening shareholder value, Ascender Capital is pushing for the full return of approximately 11 billion yen received from SCSK stock sales to shareholders.

The firm has highlighted that the company's dividend payout ratio remains at 31%, despite a substantial level of excess capital that continues to pose concerns. After the announced dividend, Ascender noted that Algorithm Graphics still holds net cash of 31.7 billion yen, which accounts for 26% of the company's market capitalization. Furthermore, there are non-core investment securities remaining at around 13.2 billion yen, showcasing the necessity for a more disciplined capital allocation strategy.

Proposed Changes

Ascender Capital's proposal includes a special dividend of 125 yen per share in addition to a significant reduction of 80% of the company's treasury shares. This measures not only aim at improving capital efficiency but also emphasize the importance of a disciplined capital policy going forward. By reallocating these funds, Ascender argues, Algorithm Graphics can create a more effective balance sheet management strategy.

As Algorithm Graphics approaches its shareholder meeting in June 2026, Ascender emphasizes the need for strengthened governance and financial leadership. The firm believes the integrity of the company's operations will increasingly depend on disciplined capital distribution, balance sheet management, and robust governance practices.

Historically, the company has not had a CFO, which becomes surprisingly evident as it pursues a path of independent operation. The retirement of the previous CFO, who had a significant role in managing financial oversight and investor communications, has induced further calls for external support in financial leadership. Ascender is urging the board to engage in executive search for a new CFO ahead of the upcoming shareholder meeting and to present a clear succession plan.

Rationale Behind the Proposals

Ascender Capital has been a long-term shareholder of Algorithm Graphics and has maintained active dialogue concerning capital policy and governance for over two years. The firm has submitted a detailed written analysis and made shareholder proposals during past annual meetings. Their consistent aim is to see disciplined capital allocation that aligns with the company’s solid business quality, financial base, and operational results.

With operations in the technology industry often moving at a rapid pace, Ascender underscores that future value creation for Algorithm Graphics will require more than operational leverage. Serious governance and financial oversight are essential to navigating this growth phase effectively.

Over the past decade, Algorithm Graphics has increased its operating profit margin remarkably, yet sustaining this growth will be challenging without addressing these fundamental governance issues. The firm is encouraging the board to heed lessons from peers, as other listed IT companies in Japan have seen benefits from enhancing their financial leadership, leading to improved capital discipline and communication with investors.

In conclusion, Ascender Capital urges Algorithm Graphics to adopt these proposals to enhance governance and financial oversight, ensuring alignment with the company's operational quality and adaptability in a fast-evolving industry. The investment firm remains committed to constructive dialogue with the board and looks forward to offering further insights concerning corporate governance in the weeks to come.

About Ascender Capital

Established in December 2012, Ascender Capital is a value investment firm based in Hong Kong. The firm places a strong emphasis on investment opportunities in Asia, including Japan, and focuses on outstanding companies with a proven track record of profit and growth.

Contact Details

• - Jean-Charles Tisserand
• - Edouard Mercier
• - Email: [email protected]
• - Tel: +852 3758 2608

Disclaimer: Ascender Capital holds shares in Algorithm Graphics. The views expressed are meant for informational purposes, allowing other shareholders to monitor how the board and management respond to these concerns.