Apollo Asia Fund

Scientex Packaging: the 2022 AGM
- fellow shareholders, please vote!

An update on the company formerly known as Daibochi. Following the failed 2021 attempt at squeeze-out privatisation by its parent, Scientex, the company name was changed to the cumbersome and peculiarly parochial Scientex Packaging (Ayer Keroh) Berhad at an unsatisfactory Christmastide AGM described at length here. Investor briefings have been discontinued, so this year's AGM (scheduled for 7 December) is a rare opportunity to ask questions, and we hope that our fellow investors will join us in doing so. Please also vote.

The AGM will again be virtual-only, with many of the arrangements similar to last year - including questions by chat-box. Meanwhile, five out of six directors have changed, the excellent independent candidates whom we nominated for consideration were not even contacted, and there is no sign that the net was cast widely or imaginatively to find those selected. All five newly-appointed directors will be up for re-election.

The new chairman, Mr Choo Seng Hong, is not independent. He is the executive director and COO of the Scientex Packaging division owned by the parent company and now operating under the identical brand name of Scientex Packaging, so regular conflicts of interest will arise.

Mr Cham Chean Fong @ Sian Chean Fong has been appointed as an "independent" director. He was an "independent" director of Scientex Berhad for sixteen years until 2018. Retiring after the exhaustion of term limits and then accepting appointment to other group companies as "independent" is surely not within the spirit of the regulations?

The other new "independent" directors are Mr Lim Kah Fan and Madam Koh Huey Min. Mr Lim was formerly a tax partner in a "leading international accounting firm in Malaysia", strangely unnamed, and now a director of Tricor Tax. Manufacturing companies do not normally need complicated tax advice, and Tricor as registrar of Scientex Packaging has been unimpressive: it took ten days to report the result of warrant exercise by three shareholders, and administers the online AGMs which have been so frustrating. Madam Koh is an accountant associated with the Berjaya group and Frontken.

We have no personal knowledge of these three "independent" directors, but none appear to have any experience relevant to the company's international markets, to the FMCG customer base, or to the R&D required in a fast-changing industry. We are disappointed by the lack of transparency in the recruitment process, and will on this basis vote against all of the "independent" directors.

We will also vote against the share issue and repurchase mandate, as we usually do: the former because it is better for any specific need for share issuance to be explained and voted upon by shareholders, and the latter because it is appropriate only for much larger companies with an open register.

We will be voting for two resolutions which we submitted, to adopt best practice rather than the minimum in corporate governance, and to resume the past practice of quarterly investor briefings. Adoption and effective implementation would restore the confidence of investors. In the view of regulators, good governance and investor engagement also strengthen businesses. Individual managers may be shy about engaging with shareholders, but surely Scientex Berhad should support the well-founded recommendations of the Malaysian Code on Corporate Governance and Bursa Malaysia's Corporate Governance Guide. We hope that both Scientex and minority shareholders will support these resolutions.

In this constructive spirit, we'd be happy to discuss any of these issues with the directors, with our fellow-shareholders, and with anyone interested. Contact details here.

Claire Barnes, 28 November 2022

Advance questions submitted for AGM

These are the initial questions that we have submitted to the board by email, and will also try to submit through the cumbersome Tricor platform https://tiih.online/ once that correctly shows Apollo Asia Fund's holding.

In case we are locked out of this virtual-only meeting as we were in 2020, or experience other difficulties as in 2021, we would be grateful to our fellow shareholders for ensuring an active Q&A session and full discussion.

Claire Barnes, 4 December 2022

AGM outcome & unanswered questions

Thanks to our fellow-shareholders for participating in the AGM: the turnout of minority investors was 81%, and some excellent questions were asked, despite the limitations of restricting these to a chatbox.

Not all of the questions were answered, and some were not shown to participants. We will have more to say later on the conduct of the meeting, which in our view fell well short of the requirements for meaningful engagement and interactive participation, but the first important point is that Scientex Berhad voted against adopting best practice in corporate governance and investor relations, despite overwhelming support for these from the minority shareholders. Voters other than Scientex were 77,939,622 in favour of these two resolutions, and 1,961 against. In advance of the vote, the board spokesman issued platitudes about accepting the wishes of the shareholders, but Scientex chose to vote its own controlling block against the strong preference of the minorities. This signals a remarkable defiance of the Malaysian Code on Corporate Governance, the Corporate Governance Guide of Bursa Malaysia, the guidance of the Minority Shareholders Watch Group, and simple common sense as to the benefits of constructive relationships and open dialogue.

Listed subsidiaries are subject to the same standards as their parent companies, so investors in Scientex Berhad (who have an AGM tomorrow, 8 Dec) may wish to consider how this war on good governance may affect their interests.

Having forced upon us the unwieldy name of Scientex Packaging (Ayer Keroh) Berhad, Scientex is referring to it by the even uglier acronym SPAK, presumably part of a campaign to suppress investor interest and the share rating even as a cyclical upturn gets under way. Whether our business is being optimally managed to take advantage of all the tailwinds is a good question. If we had the best board for the job, they would surely be more interested in discussing the challenges and the opportunities? We are happy to discuss the business with ALL fellow shareholders, and prefer the Bloomberg acronym SCIPACK. Our business, formerly highly rated for its potential and excellent IR, is the value-adding champion of Scientex Packaging. It deserves to be grown to its full potential, not undermined in the interests of one shareholder. Respect, please.

Claire Barnes, 7 December 2022

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