Transcript of 2000 Lend Lease AGM


July 9, 2008

Here is an edited transcript of our exchanges at the 2000 Lend Lease AGM held at Sydney's Fox Studios.

Stephen Mayne: Thanks, Mr Chairman. I am just here as a proxy holder for my father. Just one small point of clarification on this. I am not too supportive of the re election given the overall performance of the Board. I just wonder if Mr Longes isn't a member of the long term non executive directors' retirement plan, but all of the other Directors seem to have very large and accruing entitlements, but he doesn't have any. Can you tell me why we are not rewarding him in this regard, like we are rewarding the others?

And then I guess on the other page, page 102, he is entitled to $227,000 additional compensation this year, which brings his total pay to $315,000. Again, not wishing to be critical, given the overall performance, that is certainly on the high side for a non executive Deputy Chairman in the Australian context I do believe. Obviously you are in a global connection. Could you just clarify why that payment is so high and why he is not in the other scheme please?

Chairman Stuart Hornery: I will let Richard make the first pass at that.

Director Richard Longes: I am not in the retirement scheme because when I retired as executive I received a superannuation payment in the normal sense and I felt it was inappropriate to join the other scheme while it was a retirement scheme, so I elected not to participate. As to the remuneration we get paid, all the Board gets paid in the same way, for both the Board's fees, the Deputy Chairman gets one and a half times the fee, and then in addition we get per diem consulting fee for the time spent.

In my particular case, as I was Chairman of the MLC and Chairman of the General Property Trust, I was paid Directors' fees for those, but because they were associated companies, the law requires those all to be aggregated in and dealt with as if not as if, they are payments from Lend Lease.

Managing Director David Higgins: If I could just add to that comment, in addition to Directors' fees, there are some consulting fees that are agreed. In fact, it is my responsibility to agree those service requirements with the Non Executive Directors. In Richard's case, as well as the roles of chairing businesses such as the GPT that are critical to us, he is the unsung hero behind things such as the Prospect Walter Treatment plant, those sort of crises that hit the organisation and can knock it sideways, the person who always comes to solve them. Along with our executives, Phil Crewes and Richard, the Thredbo Inquiry, an enormous amount of work and effort in that. You will find Richard's hand in much of the work that is going on there.Those are agreed services that we sign off on and agree what their responsibilities are, but you will find Richard in many of those cases in with his sleeves rolled up to work out those issues.

Stephen Mayne: Chairman, I would like to speak in favour of this resolution and just make a couple of quick comments. The really refreshing thing about coming to the Lend Lease AGM is actually seeing and hearing from the Board that isn't just the usual Australian old boys network, and it is terrific to hear from people of the calibre of Mr Goldmark and Mr Edington.

If you look at where the company is positioned and what is being outlined tonight, clearly we have an international ambition in the real estate game and we need to assemble the best calibre directors with experience in those fields, and it likes looks like we have done that. It is not the fault of the likes of Mr Goldmark or Mr Edington that the Australian dollar has fallen out of bed and therefore we probably should not pay in US dollars.

I support the motion in that regard. I think that previously we probably made overly generous payouts to non executive directors for their retirement benefits. It is very very high to be seeing the likes of Don Sanders or Peter Wilcox, Australian based Directors, receiving lump sums of $800,000 for a period of five or six years as a non executive Director.

I think it is good that we are moving away from that system, and it would probably be worth maybe explaining why those higher retirement payments weren't included in these set of annual figures. If we had approved you paying a million dollars a year to the directors, I don't think those figures actually include that accruing lump sum retirement benefits which in the end has come out at some 800,000 or a million dollars in the case of some Directors.

Stuart Hornery: Thanks, Stephen. Jill?

Chairman Elect Mrs Jill Ker Conway: Yes. What we are proposing to do tonight, of course, in a later resolution is to change the structure of accruals for retirement, so that Directors would be compensated simply, or the retirement benefits would accrue simply based on .25 times the Directors' fee and there would be no component to the retirement benefits derived from earnings based on consulting.

So that would mean that in aggregate a Director's accumulation of benefits would be considerably below the level we have seen in recent years and that again is an effort to move in line with best international practice, and the proposal, which will come up very shortly, is one in which Directors would only see those benefits increase markedly were shareholders also to see their holdings increase in value, and they would likewise decrease markedly were shareholders' value to be reduced. So the whole aim is to tie whatever is accrued on that formula, linked only to Directors' compensation for Board service, to the best interests of shareholders.

Stuart Hornery: Thank you, Jill.

Stephen Mayne: Thanks, Chairman. I must admit I have mixed feelings about speaking against this resolution. I came here with a fairly firm view but, having heard tonight's presentations, I'm sort of now wavering a bit, but I still will, I guess, put the argument forward. As it has been said, it is a matter for the shareholders to decide on. I guess the principal concern that I had as a proxy for my father was the quantum. 10 million was quite a large amount and, while it is very noble and important that we do this, the quantum is very large and I guess, given that it is a Board driven resolution, maybe it would have been more appropriate if there had also been some visible contribution from the Board's fairly adequate financial resources as well.

I guess if the employees are putting up 10 million, they own 14 percent of the stock; the other shareholders who own 86 percent are putting up 10 million, maybe, given this environment where we've just given you a very significant payrise, if there had been some component of Board contribution it would have been a more palatable proposition overall.

I guess counterbalancing that there is the fact that in terms of long-term managing directors or chairmen in Australia you haven't got anyone else who parallels Stuart over the past twenty years who is a non-controlling manager, in a sense. You've got the Packers, the Murdochs and the Loweys, but in terms of just a manager who doesn't own the stock there isn't anyone anywhere who has delivered quite the performance that Stuart has over twenty years and I guess you have to take that into consideration when weighing it up.

I guess because I know that some institutions have voted against it, I know that the Shareholders Association has recommended against it, and because it is a special resolution requiring 75 percent, I guess there is also an important procedural issue here as to what you're doing with the open proxies. I guess if this is a resolution that lives or dies with how you, the Board, use the open proxies, I think we probably should be told that in advance and I think I personally would prefer to see the proxies, including the open proxies, before we all vote here tonight, if that's possible, and I also would be interested in knowing just what the employee voting procedure was whereby they endorsed their $10 million worth contribution.

David Higgins: I can answer the issue on the quantum. I mean think of the first thing, you've got a cash outlay every year of half a million dollars. Now you can deploy the capital amount very quickly if you start paying out the principal straight away, so you have to really invest this capital to get an income stream out of that to be able to then operate the business without destroying the capital amount, so in the end the Board considered the appropriate amount and then came to the conclusion that the combination of both the employee contribution and the shareholder contribution made for a principal amount from which the dividend or earning stream is sufficient to be able to run and sustain a reasonable business. In terms of the exec and non-exec directors, Jill, you can answer that and then I'll come to the issue of the proxy.

Jill Ker Conway: The non-executive directors are enthusiastic supporters of this proposal and once it is formally approved and established you can be sure that some of us will be very enthusiastic contributors.

David Higgins: On the issue of the proxy, what is the vote of the meeting? Do you want to know the vote of the proxies? I know on your issue on the opening statement, it is irrelevant to the issue. I can make that statement.

Jill Ker Conway: On the question of the process by which employees reached this decision, the Employee Foundation has a global representative group which is, in effect, the body which represents employee opinion around the globe to the Foundation's Board. There was extensive discussion of this proposal across the Foundation's networks with employees in every country and it's through those representatives that the recommendation has come back and been adopted by the Foundation.

David Higgins: In addition to that, all Lend Lease employees had the ability to vote their shares which were vested and allocated to them on all of the resolutions tonight if they wished to.

Stephen Mayne: Firstly, what happened with Wembley? We seemed to have a contract to redevelop Wembley Stadium, then suddenly we didn't have it, it went to Multiplex?

Secondly, we have seen companies like Woodside and Pasminco absolutely stuff up their hedging and literally cost their shareholders hundreds and hundreds of millions of dollars by making bad calls on the currency. I notice in the accounts there is a $12.8 million FX hedge loss for the year last year. Can you tell why the hedging position are we getting full benefit, have we taken positions, how much more would we have made if we didn't have that hedging? What is the position we have got?

David Higgins: I will answer. Yes, we did form a joint venture with Multiplex and were preferred to win Wembley. The client required a fixed price contract to complete Wembley. It is a very tight project to complete commercially. Our fixed price lump sum was reasonably in excess of the requirement that the consortium had to a fixed price contract. We did not want to engage in a fixed price contract with that level of risk. The previous experience in the UK by another contractor on the Cardiff Stadium, whilst a fantastic stadium, and of course was the subject for the World Cup earlier this year, the contractor lost a lot of money on completing. We judged the risk of doing that was too great. I am sure Multiplex will do an excellent job, but it is just not the sort of work that we want to do. We have got a lot of work and a lot and we took a very conscious decision not to proceed.

Director Robert Tsenin: On the question of our current position, you have got to look at it in the context of tax planning as well as what the valuation objectives were. What I mean by valuation objectives, we as a company have been typically highly rated, precisely because we have had predictability in our earnings. And so one of the concerns of course, one of the outcomes of not being hedged would be that we would have far more volatility in our earnings, which I would suggest would impact our valuation quite significantly, but the issue of tax is the important one, because that in turn also dictates where we make our borrowings.

It is efficient for us to pay tax in Australia. It is not efficient for us to pay tax overseas, and so what we have done, to both match the assets and liabilities of our overseas businesses, most of our borrowings in fact are against our overseas assets.

That has the effect of providing a currency hedge in terms of avoiding any currency mismatches but it also means that we actually generate quite low profits in our overseas locations, and that means that to the extent that we pay tax, the tax is actually paid in Australia, which generates franking credits. So that is what has driven our policies. It is to ensure as consistent a profit earning in Australian dollar terms as possible but also to be tax efficient.

Now, in terms of the quantum, were we to be totally unhedged, and as you know the Australian dollar has fallen, but it is just as likely to rise, in which case you have the opposite effect, but because of most of our borrowings are in fact against our overseas assets, the impact on our profit is minimal. On a full year basis, it would be significantly less than 5 percent of our reported earnings, significantly less than that. So because of these two considerations, it has really not had any material impact on our profitability.

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