28TH ANNUAL
CONFERENCE
2011
Financial literacy (and other considerations)
Lessons from Centro
Andrew McRobert SF FIN GAICD MA
Andrew McRobert & Associates
www.amcrobertandassocs.com.au
1
Opinions vary
Professor Bob Baxt1
Elizabeth Johnstone1
“Much ado about nothing”
“ 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
narrowed
David 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
2
In The Director magazine
In The Australian Financial Review
© Andrew McRobert & Associates (2011)
2
The numbers (in $mn)
Centro property Group consolidated (2007)
Preliminary
annual 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
263.3
0
393.2
656.6
263.3
1,096.9
393.2
1,753.5
3603.5
339.9
3,943.4
3,565.1
Current liabilities:
Payables
Interest bearing liabilities
Others
Total current liabilities
Non current liabilities:
Interest bearing liabilities
Other
Total non current liabilities
Net assets
© Andrew McRobert & Associates (2011)
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0.0
8,649.0
+1,096.9
263.3
2,611.0
877.3
3,751.6
2,506.8
339.6
2,846.4
-1,096.7
-0.3
-1,097.0
992.7
339.6
1,332.3
3,565.1
0.0
3,565.1
+1,096.9
What did the 2007 report disclose on
guarantees?
© Andrew McRobert & Associates (2011)
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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!
© Andrew McRobert & Associates (2011)
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What issues did the judge raise?
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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)
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7
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)
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Implications for directors
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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)
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Leverage – by Christopher Skase & Qintex
Skase family
interests
Shareholders’ funds
at 7/88 (in AUD):
Secured debt
at 7/88 (in AUD):
100%
Kahmea
Holdings Ltd
$52.5 mn
46%
Qintex Ltd
$59.0 mn
$149.1 mn
53
%
$518.0 mn
Mirage Resorts
Ltd
© Andrew McRobert & Associates (2011)
51%
Qintex
Australia Ltd
10
$1,100.0 mn
51%
Princeville
Resorts Ltd
Leverage-Centro Properties Group
(all figures in AUD mn)
Centro properties group consolidated revenue
Derived from:
Syndicates
Centro properties group consolidated
profit/(loss) before tax
After:
Share of net profits / (losses) of associates
& joint
venture
accounted
for
© Andrew
McRobert
& Associatespartnerships
(2011)
11
6/08
687.4
6/07
365.8
Property management82.9
17.7
Development & leasing30.8
5.9
Funds management139.2
100.8
Total
252.9
124.4
36.8%
34.0%
(2,068.8)
470.2
Is this what you do to your Board?
© Andrew McRobert & Associates (2011)
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Who else?
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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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