Engaged with Fuji Seal on how the company is finding new ways to make its products more environmentally friendly and more appealing to its customers’ sustainability requirements.
Analyzed the pandemic initiatives of New Zealand-based holding Mainfreight by reviewing the company’s response to employee payroll and the government’s wage subsidy program.
Reviewed Japan Exchange Group’s role in working to improve corporate governance practices in Japan, including formulating Japan’s first Corporate Governance Code in 2015.
Fuji Seal is the leading supplier of shrink sleeve labels and labeling machines to global consumer packaged goods companies in Japan, the U.S., and Europe.
Shrink sleeve labels fit perfectly to PET (polyethylene terephthalate) containers of any shape or size without requiring the use of adhesives. The perforation on the label also makes it easy to remove the sleeves from the containers prior to recycling, making the technology attractive from an environmental perspective. That said, if the labels are not removed prior to recycling, the quality of the recycled PET (rPET) that is produced is diminished. Low-quality rPET is a barrier to the development of a circular economy for PET products, which is expected to play a critical role in reducing the negative impact of single-use plastic on the environment.
We have engaged directly with management on this topic, and our findings are encouraging. For example, in 2019, Fuji Seal successfully launched its RecShrink line of shrink labels in its Americas division. Since RecShrink labels use washable ink and materials with higher melting points than traditional shrink sleeves, they can be recycled alongside PET containers without diminishing the quality of the rPET.
Fuji Seal’s development and commercialization of RecShrink and other recyclable products will be critical to meeting its customers' sustainability requirements, its goal of achieving a 50% sales ratio from recyclable products by 2025 (versus 2% in 2021),1 and, ultimately, its ability to create shareholder value over the long term.
RecShrink labels use washable ink and materials with higher melting points than traditional shrink sleeves. They can be recycled alongside PET containers without diminishing the quality of the rPET.
Sales in 2021
Sales by 2025
Mainfreight is a leading third-party logistics service provider in New Zealand with operations in Australia, the U.S., Europe, and Asia.
Specializing in high-value-added less-than-container load shipments, the company has an attractive mix of customers operating in predictable and defensive end markets and a distinct corporate culture that is entrepreneurial, customer centric, and performance driven. Through our regular engagements with the company, we have learned that a critical factor supporting Mainfreight’s culture comes from management’s fundamental belief that happy and motivated employees lead to happy customers, and, ultimately, happy shareholders. The positive outcomes that can accrue from adhering to socially responsible principles such as this was put on full display in the first year of the global pandemic.
Between March and April of 2020, freight volumes in New Zealand were down 40%, and the future operating environment was highly uncertain. Management made the critical decision not to furlough any of its employees while accessing the government’s wage subsidy program to the tune of NZ$10.6 million as a safety net for the uncertain times ahead. When demand returned in relatively short order, the company was well-positioned to help its customers flexibly navigate the challenging freight environment, which is characterized by constrained capacity, surging demand, and elevated freight rates, while winning market share from weakened competitors. Unsurprisingly, Mainfreight paid back the wage subsidy in full, while providing its employees a cost-of-living increase and delivering on their well-earned profit-sharing bonuses at year-end.2
Japan Exchange Group (JPX) operates one of the largest cash equities markets in the world and is largely a monopoly with approximately 90% share of trading, clearing, and settling of Japanese equities.
JPX enjoys an entrenched market position, economies of scale, high regulatory barriers, a diversified stream of recurring revenues from its non-trading businesses (listing fees, data services), and attractive and resilient economics.
In recent years, JPX has played a crucial role working to improve corporate governance practices in Japan. In 2015, JPX formulated Japan’s first Corporate Governance Code, establishing fundamental principles for effective corporate governance practices at listed companies in Japan (e.g., guidelines for the responsibilities of boards, treatment of shareholders and other stakeholders, transparent information disclosures). Starting in April 2022, JPX began restructuring the Tokyo Stock Exchange’s (TSE’s) four market segments (First Section, Second Section, Mothers, and JASDAQ) into three market segments (Prime Market, Standard Market, and Growth Market).
The Corporate Governance Code was revised in 2021 to better align with the new market structure and promote a higher level of governance among Prime-Market-listed companies in particular."
Under this new market structure, companies have to meet certain initial and ongoing listing criteria related to liquidity, governance, and business performance. To increase the appeal of the Prime Market segment to global institutional investors, the listing criteria related to this market became the most stringent. The Corporate Governance Code was revised in 2021 to better align with the new market structure and promote a higher level of governance among Prime-Market-listed companies in particular. The revisions call for enhanced board competency and independence, promoting diversity among management and employees, and improved ESG practices and disclosures.
1 Fuji Seal 2021 Integrated Report 2 2020 10 19 and 2021 10 16 Mainfreight Management Call Notes
Sources: Fuji Seal 2021 Integrated Report, Japan Exchange Group 2021 Integrated Report and Corporate Website, Burgundy Research, Company filings
About the Author
Craig Pho, CFA
Senior Vice President,
Craig attributes his career success to his upbringing. He was born and raised in the Canadian Prairies where his family instilled in him many personal attributes that have been valuable in his career. After studying in Canada and the U.S., it was a work opportunity that brought him to Asia where he found a passion and an interest in investing. Craig joined Burgundy in 1998 to help build firm expertise in Asian equities and has been building knowledge, experience and judgment in those markets ever since.