Today Tom Gaffney, Chairman of the Board of Cambridge Capital Management (CCM) issues the following statement in response to David Reuben's (Trans World Metals Group) press statement on Friday July 18, 1997.
"We read Mr. Reuben's comments on the Norilsk Nickel tender with great interest and were intrigued by the positive words about principles of fairness coming from Trans World Group. CCM is in a unique position to respond to Trans Worlds claims to be an example of good management in the Russian metals industry.
CCM is a member of a group of shareholders owning over 50% of Novolipetsk Metallurgical Combine (NLMK), Russia's leading steel producer. We have been seeking to appoint directors to the board of NLMK for over two years. Our right to board representation has been confirmed in no less than 4 separate legal cases, two appeals and one commission of inquiry. Nevertheless, the management of NLMK has continually refused to allow the appointment of anyone from our group to the board. At the annual shareholders meeting held on July 12, 1997, the board of NLMK simply removed the vote for an election of a new board from the agenda, in continued flagrant violation of both Russian law and independent conduct business.
How is it possible that a board of directors can simply run the plan without accountability, to such an extent that they can hijack one of Russia's largest businesses and place the company in legal limbo, without the support of their shareholders? In fact, the board does have the support of one minority shareholder. Trans World group, who claim to own 37% of MLMK are the only shareholder to have representatives on the board of directors. The board is led by two Trans World representatives, comprising the chairman of the board Vladimir Skorozodov and Vladimir Lisin.
Since the arrival of Trans World's representatives, Trans World have thrown a 'bear hug' around NLMK and the US$2billion business of trading NLMK's output. The result of their labours at NLMK has been a collapse in pre-tax profits from Rb2,187bn (US$479 million) in 1995 to a mere Rv207bn (US$40 million) in 1996 - this represents a staggering decrease of RB1,980bn (US$439 million), or 90% of the company's profits!
No plausible explanation has been given for this "evaporation" of profits, especially against the backdrop of a strengthening global steel market. However, it is notable that this decline in profitability has coincided with the arrival of Trans World on the board and the development of extensive tolling arrangement between the company and Tran World. Exports have now reached 72% of the company's production, making possible the transfer of hundreds of millions of dollars in profits "offshore" annually, via the tolling operation.
In any transparent company it ought to be very simple to explain and verify where over US$400 million in profits went in 1996, compared to 1995. However the Trans World-led board of NLMK have refused to appoint an independent international auditor or in any way to open their operations to scrutiny. This in despite the fact the CCM has been proposing the appointment of auditors and the creation of transparency at every shareholder meeting since 1994.
If Trans World wish to portray themselves as a supporter of shareholder rights in Russia, the road lies open to them to start in their own home. It would be a simple thing for Tran World's representatives on NLMK's board to respect the court's repeated orders instructing them to call a shareholders meeting to elect a valid board and then to vote with us for the appointment of independent auditors. If not, then David Reuben and the rest of Trans World group owe a public apology to Mr Yeltsin, the Russian public and the workers and shareholders of NLMK for the hypocrisy and arrogance of holding themselves out as any sort of desirable model of management."
Thomas F. Gaffney, Chairman of the Board,
Cambridge Capital Management Limited
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