The Kirby boys had a bit of explaining to do at the Village Roadshow AGM and we had a man on the scene to take in the action – and to contribute to the fireworks himself.

James McCullough wrote in the Curious Snail of our man on the spot:

“One shareholder at the annual general meeting pointed out that Boral, with a turnover of $5 billion, had one executive paid more than $2 million and one paid more than $1 million whereas Village, with lower turnover, had significantly more corporate expense.

“Boral paid its executives $16.1 million in salaries last year while Village Roadshow paid $26 million on a significantly smaller turnover,” the shareholder said.

“Chairman Robert Kirby responded that Village was not a typical company and relied on talented international executives to propel the business with substantial remuneration required.

“We are an international company and film production requires that we pay market prices,” Mr Kirby said.”

Here is Barry’s account of the meeting in all the glitz, glamour, Hawaiian shirts, board shorts and white shoes of the Gold Coast:

A slightly different AGM

This wasn’t your ordinary run of the mill AGM in a staid old conference venue with crusty old shareholders tottering in on their walking frames.

For starters, the meeting was held in a theatre at Movie World just outside the Gold Coast.

In my rush to ensure I was on time, I nearly bowled over Cat-Woman in the street outside. It wouldn’t have been a problem because Wonder-Woman was standing nearby, no doubt ready to save the day.

The theme park insouciance seemed to over flow into the AGM, judging by the thongs and board shorts worn by many people and also the fact that – throwing the AGM protocol book right out the window – there were lots of children in attendance.

Undoubtedly they were there to see the movie trailers that were shown mid meeting – no kidding! The meeting was adjourned then restarted so that Village Roadshow could tease us with some of their tastier offerings.

The trailers hardly made the effort worth it:

“Two Weeks Notice” (Sandra Bullock, Hugh Grant) – in my opinion, it looked like crap.

“Analyse That” (De Niro, Crystal) – yawn.

“Dreamcatcher” – based on Steven King novel. Next movie, Ghostship – I think I might see that one.

“Matrix Reloaded” – “strictly for fans of the original”.

Apologies were received from two directors who couldn’t make it: Barry Reardon and John Kirby.

It was mentioned later in the session that John Kirby was in the US stitching up some new deal.

[CRIKEY: We reckon it’s pretty poor form for any director to miss the AGM – it’s not as though they don’t have a year’s notice. But for two directors to miss is an outrage.]

The chairman’s address covered the recent scrapping of the dividend and the recent 20% salary cut for executives. I thought the chairman made plausible and well presented cases (though I’m easily swayed, not being a VRL shareholder). The basic reasoning was the company has moved its focus to film production and in that industry the cash flows are much more volatile.

The questions that I asked were:

QUESTION: It is not all that common for companies to be subject to adverse audit adjustments by the Australian Taxation Office, but in this case numerous issues are noted, with the total tax effect of the three amounts identified being $251.8 million (110.1 + 56.6 + 85.1). There seem to be other issues outstanding but in respect of which we can’t identify an appropriate dollar amount at this stage. So “grossed up”, the total amount of the reported amounts is around three-quarters of a million dollars (depending on what tax rate is applied – 251.8 / 0.36 = $699k, 251.8 / 0.30 = $839 million). These are significant and worrying, leading to the obvious concern that the company is playing “fast and loose” with its interpretation of taxation law. Is this a fair observation?

ANSWER: They didn’t agree with the “fast and loose” comment. They broke down the component parts in answering the question. $56million: They assured shareholders this amount was about to be settled for ZERO. $85million and $110million: they said these were actually for “the same thing” so even if the ATO proves to be right only one of them would need to be paid and they presented reasons why it would be the 1994 assessment of $85million. In any case, they explained that they had “advice from a QC” (Brian Shaw) that VRL were in the right, in which case this would turn out to be ZERO also.

After the meeting Peter Foo (Director) sought me out at the coffee/biscuits to make sure I had all the details straight with that question. That impressed me, particularly since my hand waving Crikey’s proxy card was the only vote against him in his re-election.

QUESTION: While the move to reduce executive remuneration by 20% is welcome, arguably the company still has a way to go. By way of comparison, Boral Ltd has one executive earning more than $2m per annum in total remuneration and one executive earning more than $1m. Yet VR has two executives earning more than $2m and six executives earning more than $1m per annum. Total remuneration for those executives on more than $100k: Boral – $16.1m, VR – $24m. Boral turns over more than $5 billion in revenue per annum, VR less than $800 million in 2002.

ANSWER: (Summarised by your correspondent) Compare it to the entertainment industry. [CRIKEY: See also the more detailed extract from the Courier Mail with the old chestnut of “market rates”.]

QUESTION: What is the company’s policy on political donations? Why isn’t this mentioned in the annual report – admittedly it is a voluntary declaration, but many companies make it (e.g. AMP, Lend Lease)? Why not eschew political donations altogether, as Lend Lease announced as of 1 July 2002 “in accordance with best practice corporate governance”?

ANSWER: (Summarised by your correspondent) We give to both sides. It is no secret and it is important we do so in an industry like movie making because of the government subsidies and other involvement. We thought about putting it in the Annual Report but in the end decided not to. We will look at it again for next year.

[CRIKEY: If our correspondent has this right, it seems that the company is admitting to political donations in the hope or expectation of government subsidies. That doesn’t seem right to us. Our correspondent stands by what he wrote, as he had the same thought as us at the AGM.]

QUESTION: Most accepted corporate governance “best practice” definitions (e.g. Macquarie Bank) prescribe that there should be at a minimum a majority of independent directors on the board – the very best practice would prescribe only the CEO being a non-independent director. However, Village Roadshow has a clear minority of independent directors – 3 out of 8 now that Julian Beale has resigned. What is the company doing to address this concern and at the very minimum have a majority of independent directors?

ANSWER: (Summarised by your correspondent) Yes we agree. We are looking for more independent directors.

[CRIKEY: This is an important concession. Village Roadshow seems from an outside observer’s point of view to have been a closed shop run by the Kirby boys, so hats off to them for undertaking to look at this. Most companies brush this complaint off.]

QUESTION: Also, generally an audit committee would meet at least quarterly, yet VR’s audit committee is only to meet “at least” twice and the annual report states that the audit committee is scheduled to meet with the auditor (in the absence of management) twice this year (2003). Some examples of companies whose audit committee meets at least quarterly – Boral, Commonwealth Bank (5 times), Leighton Holdings, Lend Lease. Will the company increase the frequency of audit committee meetings in line with what appears to be generally accepted best practice?

ANSWER: Answered by director Bill Conn. First, he pointed out that the audit committee is made up entirely of independent directors in keeping with corporate governance best practice. He went on to say that although they only met twice “as official minuted meetings” they actually met informally 6-10 times over the year in addition to those 2.

Then I gave up the microphone…

A guy representing ASA was next. He asked about the dividend revoking and the debt restructuring. I didn’t hear any answer about debt, but about the dividend the chairman said “the policy will be reviewed as VRL’s success unfolds”. But that seemed to be a comment for waaaaaaaay out into the future.

There were several more questions from the floor expressing anger at the dividend cessation.

One fellow asked “some years ago you said VRL would never move into film production”. Why the backflip?

ANSWER: Your recollection is wrong. Our first film was ALVIN PURPLE (they openly admit that!) 30 years ago.

Another shareholder observed that the company is still being run as a Kirby family company, but of course they answered “No it isn’t, we are happy to be an ASX listed company”.

[CRIKEY: From our outside observer’s point of view, we’d agree with the shareholder.]

There were some more questions about the dividend cessation, the discount booklet for theme parks, and the voting rights for the preference shares, then the meeting closed.

And for the final word – I met a shareholder who had flown in from WA specifically for this meeting. He was concerned because of the disappointing performance of the company, and the fact there had been no improvements in 3-4 years. The recent scrapping of the dividend was the last straw for him.

His view: “They didn’t really answer any of the questions put to the them”.

Peter Fray

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