Open Letter to Shareholders Demands Proper Corporate Governance from SNT's Management
Safe Harbor Advocates its Plan for Change
TOKYO, May 16 /Xinhua-PRNewswire/ -- Safe Harbor Master Fund L.P. ("Safe Harbor Fund"), a fund managed by Safe Harbor Investment Ltd. (hereafter "Safe Harbor"), the largest shareholder of SNT Corporation (hereafter "SNT", TSE: 6319), today issued an open letter to all SNT shareholders expressing its concern that SNT is not being run for the long-term success of the company and in the best interests of the shareholders.
In the open letter, Safe Harbor highlighted SNT's obligation to its shareholders to manage the company in a responsible way by adhering to established principles of good corporate governance to increase SNT's corporate value. Safe Harbor believes SNT shares could trade at a significantly higher share price if it followed these principles.
Safe Harbor also summarized in the open letter the following key points of a plan proposed to SNT's management that are in the best interests of SNT's customers, employees and shareholders:
-- Improve SNT's Capital Structure. SNT has an inefficient capital
structure with an estimated Y12 billion in total or 411 yen per share
(a) of liquefiable assets on its balance sheet. This represents 51%
of book value so the company's return on equity (ROE) is very low.
This could be improved by a larger dividend payout or a share
repurchase.
-- Refocus the Company on the Core Auto Parts Business and Away from Non-
Core Activities. SNT has used the shareholder's cash balance to
engage in a zaitec ("financial speculation") real estate investment
and in high risk lending activities that, according to the Company's
accountants, are not related to the operating business.
-- Improve Corporate Governance and Communication. SNT has not publicly
announced a succession plan and has seen several experienced
employees leave the Company. Furthermore, communication with
shareholders is significantly less than best practices among other
Japanese companies.
-- Produce a Reasonable Business Plan. SNT has not publicly released a
clearly defined three to five year business plan, which is essential
for SNT to sustain its competitiveness in the rapidly evolving auto
parts industry.
Safe Harbor initiated its investment in SNT in August 2005. Since then, it has been patiently counseling SNT's President on ways to improve corporate value and the company's share price. Safe Harbor has also made every attempt to engage in meaningful dialogue on ways to improve shareholder value and still wishes to work in cooperation with SNT's management. Safe Harbor believes SNT is a high quality company and has a high opinion of its employees and its businesses.
Safe Harbor will furnish further information to SNT's shareholders as the shareholder meeting date approaches. The materials will describe how Safe Harbor's plan could significantly increase SNT's share price for the benefit of all shareholders.
Encl: copy of the Safe Harbor open letter to SNT Corp. shareholders
For further information and updates, please visit the website: http://www.safeharbor-investment.com .
About Safe Harbor Investment, Ltd
The funds managed by Safe Harbor Investment Ltd. invest primarily in the securities of Japanese companies. Safe Harbor Investment Ltd, is the investment manager for Safe Harbor Master Fund L.P., an entity that beneficially owns shares of SNT's common stock.
IMPORTANT NOTE: This press release (hereafter "Release") is not an offer to acquire shares nor an invitation to tender shares in SNT Corporation and is not intended to solicit any shareholder to retain the fund or any party related thereto or any other third party as its/his proxy in exercising its/his voting rights at any general meeting of the shareholders of SNT Corporation, nor to provide any advice in connection with the exercising of the voting rights by any shareholder. This Release is based on information available to Safe Harbor Investment as of May 11, 2007. While Safe Harbor Investment has exercised reasonable care as to the information in this Release, Safe Harbor Investment makes no representation or warranty as to the accuracy or completeness of the information contained herein. This Release is not intended to have an effect on the share price of SNT Corporation. Safe Harbor Investment and the Safe Harbor Fund assume no responsibility as to any reaction from the market in relation to this Release.
INFORMATION STATEMENT TO SNT SHAREHOLDERS
Safe Harbor Master Fund L.P. ("Safe Harbor Fund") a fund managed by Safe Harbor Investment Ltd. "(Safe Harbor") owns 2,033,700 shares or 7% of SNT Corp. ("SNT" or the "Company") and is currently the largest shareholder of the Company. We are sending this open letter to the shareholders of SNT because we believe the Company is not currently being run in the best interests of its shareholders.
Specifically:
-- Safe Harbor believes that SNT's decision to keep an estimated Y12
billion in total or 411 yen per share (a) of liquefiable assets on its
balance sheet is inefficient, raises SNT's cost of capital and has
resulted in a low share price for SNT's shareholders.
-- We are concerned by the Company's diversification into non-core
lending and real estate activities.
-- SNT should be run in a manner that adheres to the principles of good
corporate governance, which we believe will lead to an increase in the
Company's corporate value. Based on comparable company analysis, Safe
Harbor believes SNT shares could trade at a higher share price if it
were properly governed.
Safe Harbor believes that SNT is a high quality company and we have a high opinion of its employees and its businesses.
Safe Harbor and Its Involvement with SNT
Safe Harbor seeks to invest in undervalued, publicly traded companies in Asia, primarily in Japan, and provide management with ideas and suggestions that can improve corporate value for the common interests of all shareholders. We believe that good corporate governance is necessary to increase corporate value and improve share price performance.
Safe Harbor has owned shares in SNT since August 2005 and we have been patiently consulting with SNT's President regularly. During numerous meetings and phone conversations and in multiple letters and presentations, we have discussed ways to improve corporate value and SNT's share price. We have encouraged management to engage with us in meaningful dialogue on ways to improve shareholder value. We still wish to work in cooperation with SNT's management.
Safe Harbor was attracted to SNT because of the relatively high margins created by its exposure to niche markets and value-added products. We agree with SNT's diversification away from being a Nissan captive supplier by developing relationships with other manufacturers in the auto and construction machinery industries. Safe Harbor also believes SNT's expansion into Thailand was prudent and that this subsidiary has become a valuable asset for the Company. We are proud to be an investor in such a high quality company. Unfortunately, this value is not reflected in SNT's current share price.
In November 2006, after an extensive study of SNT's business, Safe Harbor's advisors presented a detailed plan for SNT, which we believe is in the best interests of the Company's customers, employees and shareholders. Safe Harbor believes that if its recommendations are implemented, SNT's corporate value and share price could increase significantly. Safe Harbor's Plan
Our plan to SNT's management can be broadly summarized as follows:
-- Improve SNT's Capital Structure. SNT has an inefficient capital
structure with an estimated Y12 billion in total or 411 yen per share
(a) of liquefiable assets on its balance sheet. This represents 51%
of book value so the company's return on equity (ROE) is very low.
This could be improved by a larger dividend payout or a share
repurchase.
-- Refocus the Company on the Core Auto Parts Business and Away from Non-
Core Activities. SNT has used the shareholder's cash balance to
engage in a zaitec ("financial speculation") real estate investment
and in high risk lending activities that, according to the Company's
accountants, are not related to the operating business.
-- Improve Corporate Governance and Communication. SNT has not publicly
announced a succession plan and has seen several experienced employees
leave the Company. Furthermore, communication with shareholders is
significantly less than best practices among other Japanese companies.
-- Produce a Reasonable Business Plan. SNT has not publicly released a
clearly defined three to five year business plan, which is essential
for SNT to sustain its competitiveness in the rapidly evolving auto
parts industry.
In future materials, Safe Harbor will describe its plan in more detail, but we believe that implementation of our plan will greatly increase corporate value and SNT's share price.
Safe Harbor's Motivations are Aligned with All Shareholders
We would like to be clear that Safe Harbor's interests and motivations are aligned with the shareholders of SNT.
Safe Harbor's recommendations focus on making changes for SNT's LONG TERM success.
Safe Harbor has never asked SNT to selectively buy our shares and we have no plans to do so.
Safe Harbor has not made any tender offer proposal (TOB) to SNT and does not intend to make a TOB. Our proposals to management have had to do with improving capital efficiency and corporate governance.
Safe Harbor believes our interests are aligned with all shareholders: namely a significant increase in SNT's LONG TERM corporate value and a RISING SHARE PRICE.
Our Plan is Supported by Established Principles of Good Corporate Governance
Hermes Pensions Management Limited, a UK pension fund, which has an alliance with Nissay Asset Management, recently issued a statement of ten corporate governance principles (the "Principles"). The aim of the Principles is to generate better communication between the directors of a company and its shareholders, "and so help boards manage their companies better". Safe Harbor supports the Principles outlined in the statement issued by Hermes (see www.hermes.co.uk for the complete statement) and believes the Principles form a good basis for which to evaluate whether SNT is following good corporate governance practices.
SNT Should Improve Its Capital Structure
"Companies should have an efficient capital structure which will minimize the long term cost of capital" (Principle 6).
SNT suffers from poor asset utilization which lowers Return on Equity (ROE)
The following table compares SNT to two of its Japan-based competitors:
（Asset Turn） 2001/3 2002/3 2003/3 2004/3 2005/3 2006/3
6319 SNT 0.48 0.45 0.51 0.53 0.52 0.53
5641 TDF 0.97 1.09 1.08 1.08 1.09 1.04
5644 Metalart 1.04 0.96 1.00 1.07 1.04 1.12
(RoA = NP/Asset) 2001/3 2002/3 2003/3 2004/3 2005/3 2006/3
6319 SNT 1.0% 0.9% 1.7% 2.2% 3.4% 3.9%
5641 TDF 2.3% 1.6% 5.9% 7.8% 5.9% 4.6%
5644 Metalart -1.1% -1.2% 1.3% 2.0% 3.2% 2.7%
(RoE = NP/Equity) 2001/3 2002/3 2003/3 2004/3 2005/3 2006/3
6319 SNT 1.4% 1.3% 2.4% 2.9% 5.0% 5.6%
5641 TDF 45.1% 23.4% 47.3% 38.6% 22.8% 16.1%
5644 Metalart -3.9% -4.1% 4.5% 6.7% 12.4% 10.6%
Relative to its peers, SNT has the lowest ROE statistics due to its heavily over-capitalized balance sheet.
SNT can dramatically improve the management of its working capital
（Receivable Days) vs
Sales 2001/3 2002/3 2003/3 2004/3 2005/3 2006/3
6319 SNT 130 131 124 99 98 91
5641 TDF 69 68 68 64 69 67
5644 Metalart 90 87 86 96 90 80
(Inventory Days) vs
CoGS 2001/3 2002/3 2003/3 2004/3 2005/3 2006/3
6319 SNT 152 159 134 130 115 108
5641 TDF 43 47 48 41 41 45
5644 Metalart 60 62 60 53 54 51
(SNT Ex Rental) 105 108 91 86 79 81
(Payable Days) vs
CoGS 2001/3 2002/3 2003/3 2004/3 2005/3 2006/3
6319 SNT 142 123 123 111 112 105
5641 TDF 115 109 110 100 105 115
5644 Metalart 87 86 93 100 108 108
Currently SNT has the longest receivables period of its peer group and carries inventory the longest. We believe that if SNT focused more rigorously on capital management, it could bring its ratios in line with its peers and generate even more cash for the benefit of the Company and its shareholders.
The long term investments are not strategically important and are an inefficient use of capital
As of December 31, 2006, SNT is carrying 3.6 billion yen or 125 yen per share of "long term investments" and the majority of its portfolio is cross shareholdings with former Nissan keiretsu suppliers. SNT has very little or no business with them. These investments could be liquidated for cash to be returned to shareholders.
SNT Should Get Out of Non-Core Activities
"Companies should allocate capital for investment by seeking fully and creatively to exploit opportunities for growth within their core businesses rather than seeking unrelated diversification.
This is particularly true when considering acquisitive growth" (Principle 4)
"Companies should ensure all investment plans have been honestly and critically tested in terms of their ability to deliver long term shareholder value" (Principle 3)
"Companies should have appropriate measures and systems in place to ensure that they know which activities and competencies contribute most to maximizing shareholder value" (Principle 2)
Safe Harbor believes that management's focus should be on the challenges facing the dynamically evolving auto-parts business. Instead the company now has 3.3 billion yen or 115 yen per share of short term loans to unknown third parties and a 2.0 billion yen or 70 yen per share zaitec real estate investment. SNT has not demonstrated to shareholders whether management has created an appropriate investment plan with regard to these activities. In addition, SNT has not released any return criteria (such as ROE or accretion to earnings) nor announced any risk management system to monitor the risks inherent in such dealings.
SNT Should Improve Governance, Communication and Management Practices
"Companies should seek an honest, open and ongoing dialogue with shareholders. They should clearly communicate the plans they are pursuing and the likely financial and wider consequences of those plans. Ideally, goals, plans and progress should be discussed in the annual report and accounts." (Principle 1)
"Companies should have performance evaluation and incentive systems designed cost-effectively to incentivize managers to deliver long-term shareholder value" (Principle 5)
SNT has not stated a succession plan.
Having a succession plan is essential for any publicly traded company. "Even short interruptions in leadership can have a profound impact," says Patrick McGurn of Institutional Investor Services (ISS). SNT has not publicly announced any succession plan even though the President is now 80 years old.
There is no meaningful investor relations program.
SNT's former General Manager of Planning, who was in charge of investor relations, left the Company and no one has effectively handled the investor relations function since he left. An investor relations program is important because it can provide shareholders and potential investors with a better understanding of a company's business and allow the share price to accurately reflect the company's prospects.
Management turnover is high at SNT.
The recent management turnover is troubling to us. On the board level, Rikio Takahashi (Pallet & Construction); Satoshi Numajiri (Forging Sales and Marketing) and Teruo Okuyama (Construction Ladder Business) have all left SNT. Also the General Manager of Planning left SNT.
SNT has no employee stock option program at this time.
In an environment where it is getting harder to hire and retain talented engineers and employees, a stock option program could provide incentives for managers and employees to join and stay at the Company and would reward them in the event they are able to generate better share price performance.
SNT Should Plan for Its Long Term Future
"Companies should have and continue to develop coherent strategies for each business unit. These should be ideally expressed in terms of market prospects and of the competitive advantage the business has in exploiting these prospects. The company should understand the factors which drive market growth, and the particular strengths which underpin its competitive position" (Principle 7)
SNT has not stated a reasonable three to five year business plan.
Despite the rapid changes in the auto parts industry and supplier procurement policies, SNT has not stated a plan on how it will adhere to "Global Platform" or "Global Procurement" policies from automakers. In addition, steel makers are spending significant amounts on research and development to develop sophisticated forged auto parts to compete with SNT in the long term. SNT should develop and presents its plan to shareholders on how it will deal with these challenges.
Safe Harbor believes the implementation of our recommendations would enable SNT to meet these established corporate governance principles and could result in a HIGHER stock price
Call for SNT Shareholders to ACT Now
We will furnish further information to SNT's shareholders as the shareholder meeting date approaches. We intend to post the materials in Japanese and English on our website at www.safeharbor-investment.com and to mail them to you in the coming weeks. The materials will also describe how Safe Harbor's plan could significantly increase SNT's share price for the benefit of all shareholders.
This year's Annual General Meeting is the forum for shareholders to express their views on SNT's poor corporate governance and low share price. SNT's management and board need to listen to its shareholders.
(a) Figures based on 12/31/06 SNT Consolidated Balance Sheet and
financial statements. Cash is 6.1 billion yen; marketable
securities are 0.2 billion, real estate is at least 2.0 billion,
short term loans to unidentified parties are 3.3 billion, long term
investments are 3.6 billion, short term debt is 1.0 billion, long
term debt is 2.5 billion and adjusts shares outstanding number for
treasury stock.
IMPORTANT NOTE: This information memorandum (hereafter "IM") is not an offer to acquire shares nor an invitation to tender shares in SNT Corporation and is not intended to solicit any shareholder to retain the fund or any party related thereto or any other third party as its/his proxy in exercising its/his voting rights at any general meeting of the shareholders of SNT Corporation, nor to provide any advice in connection with the exercising of the voting rights by any shareholder. This IM is based on information available to Safe Harbor Investment as of May 11, 2007. While Safe Harbor Investment has exercised reasonable care as to the information in this IM, Safe Harbor Investment makes no representation or warranty as to the accuracy or completeness of the information contained herein. This IM is not intended to have an effect on the share price of SNT Corporation. Safe Harbor Investment and the Safe Harbor Fund assume no responsibility as to any reaction from the market in relation to this IM.
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