- Ascender Capital urges Argo Graphics to fully return the ¥11bn SCSK windfall, highlighting the Company’s low 31% payout ratio and persistent over‑capitalization, noting that “the Company will retain ¥31.7bn of net cash” after the announced dividend.
- The firm requests an additional ¥125 per‑share special dividend and cancellation of 80% of treasury shares to enhance capital efficiency and reinforce disciplined capital allocation.
- Ascender calls for strengthened financial leadership ahead of the June 2026 AGM, including hiring an external CFO and publishing a credible succession plan, arguing that “value creation will increasingly depend on disciplined capital allocation, balance‑sheet management, and governance.”
TOKYO–(BUSINESS WIRE)–#ActivistInvesting–Ascender Capital Limited (“Ascender Capital”), a Hong Kong-based investment firm focused on high-quality businesses across Asia, is a long-term investor in Japan’s software and system integration sector, where it has allocated over half of its assets in recent years. The firm actively monitors more than 100 publicly listed companies in the space and has met with the management teams of over 50 since 2015.
Open Letter to the Board of Directors of Argo Graphics Co., Ltd.
We are long-term shareholders of Argo Graphics (the “Company”) and have been actively engaged with the Company on capital allocation and governance matters for more than two years. This engagement has included detailed written analysis and the submission of shareholder proposals at the June 2025 Annual General Meeting (see related disclosure).
Our objective has been consistent: to ensure that Argo Graphics deploys capital in a disciplined and shareholder-aligned manner and adopts governance standards commensurate with a listed company of its quality, balance-sheet strength, and operating history.
1. The SCSK Transaction and Resulting Cash Windfall
In May 2025, Argo Graphics repurchased the 19.1% controlling stake previously held by SCSK at an attractive valuation of 12.8x earnings, including a negotiated 10% discount to market price. This transaction was clearly value-accretive for remaining shareholders.
Following this buyback, we requested that all treasury shares be cancelled. Only half of these shares were cancelled, leaving approximately 12% of outstanding shares held as treasury stock.
We also formally requested that the Company then dispose of its long-standing cross-shareholding in SCSK and return the proceeds to shareholders. While this request was not implemented at the time, subsequent events led to the same economic outcome. The acquisition of SCSK in December 2025 by its parent, Sumitomo Corporation, resulted in a tender offer for SCSK shares. Argo Graphics had no practical alternative but to tender its shares, resulting in a net cash inflow of approximately ¥11bn (c. US$73m), which the Company received in December 2025.
As a result of this exceptional gain, the Company just announced a dividend per share of ¥80 for the current fiscal year, presented as the combination of an ordinary dividend per share of ¥40 and an exceptional dividend per share of ¥40.
While we appreciate the increase vs. last year dividend per share of ¥27.5 (adjusted for 4:1 split in October 2025), the resulting dividend payout is only 31%, in contradiction with the management plan to gradually raise payout to 40% as disclosed in the mid-term plan released in May 2025.
More importantly, it does not address the unnecessary overcapitalization of the Company, which will retain ¥31.7bn of net cash after such dividend payment, accounting for 26% of the current market capitalization, together with an additional ¥13.2bn in remaining non-core long-term investments.
2. Capital Allocation: Special Dividend and Treasury Share Cancellation
In light of this exceptional cash inflow and the long history of strong free cash flow generation, we believe further action is appropriate.
We therefore request that the Company:
- Declare an additional special dividend of ¥125 per share, bringing total dividends for the year to ¥205 per share. While the resulting cash balance would still amount to ¥23bn, this would clearly signal that the SCSK-related windfall is being fully returned to shareholders, stabilise the cash on balance sheet, and prevent further compression of return on equity.
- Cancel at least 80% of the existing treasury shares, leaving a limited residual balance (approximately 3.2%) available exclusively for future management incentive programmes as maintaining an excessive treasury share balance serves no strategic purpose and undermines capital discipline.
These actions would materially improve capital efficiency while preserving ample financial flexibility.
3. Governance and Financial Leadership Ahead of the June 2026 AGM
Over the past decade, Argo Graphics has increased operating margins from approximately 7% to 15%, an impressive operational achievement. However, further margin expansion at a similar pace is unlikely.
As the Company enters its next phase as an independent company with no major shareholders, value creation will increasingly depend on disciplined capital allocation, balance-sheet management, and governance rather than operational leverage alone.
Historically, Argo Graphics has not had a Chief Financial Officer, a rarity among listed company of its size. Following the departure of Fukunaga-san, the long-term CFO of SCSK who served as their representative on the Board, from the Company in June 2025, financial oversight and investor communication have weakened further.
We therefore strongly encourage the Board to:
- Launch an executive search for an external Chief Financial Officer — with the experience, authority and mandate to shape financial strategy, capital allocation, and investor relations;
- Publish a clear and credible management succession plan well in advance of the June 2026 AGM, including a plan to reinforce the Board’s financial, governance and strategic expertise.
Several Japanese listed IT companies in which we are shareholders — including B-EN-G, NCS&A, CRESCO, and ITFOR — have taken similar steps in recent years. In each case, improved financial leadership has led to improved capital discipline, better investor communication, and benefits for all stakeholders, including employees.
4. Conclusion
Argo Graphics is a high-quality business with an exceptional operating history. We raise these matters to ensure that the Company’s next phase as an independent company in a fast-moving, innovative sector is supported by the governance framework and financial leadership expected of a listed company of its scale and quality in 2026.
We remain open to constructive and direct dialogue with the Board and will follow-up over the next few weeks with our comments on corporate governance issues.
About Ascender Capital
Founded in December 2012, Ascender Capital is a Hong Kong-based value orientated investment firm concentrated on opportunities in Asia including Japan. The fund focuses on high-quality companies with a track record of profitability and earnings growth.
DISCLAIMER
Ascender Capital is the investment manager of private funds (the “Ascender Capitals Funds”) that own shares in Argo Graphics. Ascender Capital has created this communication to enable fellow shareholders to carefully monitor how sincerely the board of directors and management of Argo Graphics address our concerns, listen to shareholders’ views and endeavor to increase the value of Argo Graphics shares in the best interest of all shareholders.
Ascender Capital is not and should not be regarded or deemed in any way whatsoever to be (i) soliciting or requesting other shareholders of Argo Graphics to exercise their shareholders’ rights (including, but not limited to, voting rights) jointly or together with Ascender Capital, (ii) making an offer, a solicitation of an offer, or any advice, invitation or inducement to enter into or conclude any transaction or (iii) any advice, invitation or inducement to take or refrain from taking any other course of action (whether on the terms shown therein or otherwise).
Further, this communication and information to be found on its Website do not purport to recommend the purchase or sale of any security nor do they contain an offer to sell or a solicitation of an offer to buy any security. Nothing in this communication or on the Website is intended to be, nor should it be construed or used as, investment, tax or legal advice.
This communication and the Website exclusively represent the opinions, interpretations, and estimates of Ascender Capital in relation to Argo Graphics’ business and governance structure. Ascender Capital is expressing such opinions solely in its capacity as an investment adviser of the Ascender Capital Funds.
Contacts
For enquiries please contact:
Jean-Charles Tisserand
Edouard Mercier
[email protected]
+852 3758 2608
