Andrew McRobert SF FIN GAICD MAAndrew McRobert & Associateswww.amcrobertandassocs.com.au

Financial literacy (and other considerations)Lessons from Centro

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28TH ANNUAL

CONFERENCE

2011

28TH ANNUAL

CONFERENCE

2011

Opinions varyProfessor Bob Baxt1 “Much ado about nothing”Elizabeth Johnstone1 “ The Centro judgment should not alarm

hard-working directors who take their responsibilities seriously

Bill Mountford & Chris Thomas (Egon Zehnder)2 “Where the Centro result fails” John M. Green1 “Why the Centro judgment made bad law”Professor Bob Baxt (again)1 NED’s ability to delegate considerably

narrowedDavid Rowan White (Zentricity) 1 “Directors must

read accounts”Patrick Durkin2 “Firm but fair, judgment raises the bar”Chanticleer2 “Goalposts move for directors’Graham Bradley1 “In conclusion, there is much to be

welcomed in the articulation of governance principles in this case, but no cause for overreaction”1 In The Director magazine

2 In The Australian Financial Review

2© Andrew McRobert & Associates (2011)

The numbers (in $mn)Centro property Group consolidated (2007)

Preliminaryannual report

Final annual report

Differences 2007 comparables in

2008 annual report

Current assets 1,338.0 1,338.0 1,821.9

Non current assets 6,827.1 6,827.1 6,827.1

Total assets 8,165.1 8,165.1 0.0 8,649.0

Current liabilities:PayablesInterest bearing liabilitiesOthersTotal current liabilities

263.30

393.2656.6

263.31,096.9

393.21,753.5

+1,096.9

+1,096.9

263.32,611.0

877.33,751.6

Non current liabilities:Interest bearing liabilitiesOtherTotal non current liabilities

3603.5339.9

3,943.4

2,506.8339.6

2,846.4

-1,096.7-0.3

-1,097.0

992.7339.6

1,332.3

Net assets 3,565.1 3,565.1 0.0 3,565.1

3© Andrew McRobert & Associates (2011)

What did the 2007 report disclose on guarantees?

4© Andrew McRobert & Associates (2011)

What else?Extract from Note 26 of the 2008 annual report:Guarantees• Guarantee of US$1,862 million in respect of Super LLC debt. Pursuant to the Super LLC Agreement, US$664 million of this debt is allocated to Centro Retail Group (CER).• Guarantee of US$350 million revolver debt, in respect of Centro NP LLC, a subsidiary of Super LLC. Pursuant to the Super LLC Agreement, US$252 million of this debt is allocated to CER.• Limited Guarantee of US$424 million, in respect of the $424 million loan to US subsidiaries of Super LLC, limited to amounts necessary to bring the loan into compliance with certain specified debt service coverage ratios under specified circumstances.• Bank guarantees of $5 million each have been arranged by the Group in the name of CPT Manager Limited, Centro MCS Manager Limited and Centro Funds Management•Limited to guarantee obligations under Australian Financial Services Licence and responsible entity requirements.

THIS TOTALS ABOUT $2.5 BILLION, NOT DISCLOSED IN THE 2007 ANNUAL REPORT!

5© Andrew McRobert & Associates (2011)

What issues did the judge raise?

• Role of a director• Directors’ ability to understand financial statements• Delegation and responsibility• Reality check• Financial statements need to represent reality• Areas of enquiry

© Andrew McRobert & Associates (2011) 6

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The directors – what they did & what they might have done• Compare the preliminary to the final report• Relate the report to the real world• Ask what were the prospects for refinancing the bridging

loan• Read the annual report before signing it• Ask the dumb questions• Do some ‘what if’ hypotheticals• Talk to insolvency specialists• You were put there because of your corporate

experience – use it• Don’t drop your risk awareness – don’t become

complacent• Heroes have feet of clay

© Andrew McRobert & Associates (2011) 8

Implications for directors

• Debt structure• Income vulnerability• Impact of the business environment• “What if?”• Communication overload-crystals, not

cartloads• Be aware of the causes of corporate

collapse

© Andrew McRobert & Associates (2011) 9

Leverage – by Christopher Skase & Qintex

Mirage Resorts Ltd

Qintex Australia Ltd

Princeville Resorts Ltd

Qintex Ltd

Kahmea Holdings Ltd

Skase family interests

100%

46%

53%

51% 51%

Shareholders’ fundsat 7/88 (in AUD):

Secured debtat 7/88 (in AUD):

$52.5 mn

$149.1 mn$59.0 mn

$518.0 mn $1,100.0 mn

10© Andrew McRobert & Associates (2011)

Leverage-Centro Properties Group

(all figures in AUD mn) 6/08 6/07Centro properties group consolidated revenue 687.4 365.8

Derived from:Syndicates Property management82.9

17.7Development & leasing30.8

5.9Funds management139.2

100.8Total 252.9124.4

36.8%34.0%

Centro properties group consolidated profit/(loss) before tax (2,068.8) 470.2After:Share of net profits / (losses) of associates& joint venture partnerships accounted forusing the equity method (693.0) 317.5

33.5% 67.5%

11© Andrew McRobert & Associates (2011)

Is this what you do to your Board?

12© Andrew McRobert & Associates (2011)

Who else?

• Management• Lenders• Finance teams & accounting policies• Auditors• ? Secretaries (not mentioned by the Judge or

in my book!)

DO CSA MEMBERS HAVE ANY CHANGED RESPONSIBILITIES AS A RESULT OF

CENTRO?

© Andrew McRobert & Associates (2011)

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