33% pay
rise sought as ASA points out their failings and calls for board
to be censured

Are they
really that silly at Fosters Group board ? It would seem so, judging by the
Notice of Meeting for the 2004 annual meeting issued Thursday.

After the
Australian Shareholders Association succeeded in forcing the board to
include a statement highly critical of the company’s recent performance in
the notice of meeting (http://imagesignal.comsec.com.au/asxdata/20040916/pdf/00460985.pdf) the
same document reveals directors want a 33% pay rise to more than a million
dollars a year..

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forced Fosters to include the statement after obtaining the required
100 signatures from Fosters Group shareholders, which starts

“Foster’s has
performed poorly over the three years ended 2003. Performance figures are not
available for 2004 at the date of this statement, but total shareholder return
was -0.3% over the three years ended 2003 compared with an ASX sector return of
6.5%. Basic EPS was 24 cps in 2000 and fell to 22.3 cps in 2003. The .board
must be held accountable for this poor performance.’

And to back this call, the
ASA wants shareholders to reject the two directors standing for re-election at
the Annual Meeting, David Crawford and Brian Healey.

What’s more
astounding is that Crawford and Healey are members of the same board which
turns around and holds its hand out for more.

botching the wine strategy and writing off $300 million or
thereabouts, being responsible for the debacle that’s called
the Australian Leisure and Hospitality float and the loss of millions
in value to shareholders, and producing an indifferent profit, the board
wants unimpressed shareholders for a lift in pay, from $900,000 to $1.2
million a year.

“The resolution set out below will be proposed as an
ordinary resolution: ‘That the Company approve the increase in the total amount
of directors’ fees that may be received by the Company’s non-executive
Directors from $900,000 to $1,200,000,. ” the Notice of Meeting said.

Its more
than rich, its pretty outrageous.A 33% lift in the ceiling for non executive
directors, when the share price remains weak and earnings per share and profits
have risen by modest amounts in the past year! But many of the key indicators,
such as profit margins, return on equity and return on capital are either less
than or no better than what they were in the year 2000.

And they
have the hide to set performance hjurdles for the CEO and other executives!

In the
explanatory notes the company says that fees were last set in 1995 and that
duties of directors have increased. But the company’s performance hasn’t set
the world on fire.

This is the
same bunch who allowed former CEO, Ted Kunkel to stay past his useby date
and then allowed him to retire on July 1 this year and take the best part of
$13 to $14 million with him.

While much
of that was superannuation, it certainly didn’t impress people when the company
produces a reworked approach to wine and the huge write-off and then a result
which again shows the dependency on beer.

And as the
ASA says, this is the same bunch of directors who forced shareholders to pay
for an asset they already owned in the controversial float of Australian
Leisure and Hospitality last year.

David Crawford is retiring and offers himself for re-election. One other
director, Mr B Healey is also retiring and offers himself for re-election.
Shareholders should consider the company’s underperformance in the past
year, and suggest that both retire gracefully.

In contrast
over at BHP Billiton Dave Crawford is also retiring and offering himself for
re-election. He should consider his position there. He’s been there 10
years, through the mad days of the Magna copper adventure in the US, the huge
write-off of that disaster and the expensive comedy that is the hot
briquetted iron plant.

He also was
there for the Brian Gilbertson experiment.

Crawford is
the lead director for Melbourne Inc, with his Presbyterian educated background,
and as the ASA says, his corporate responsibilities exceed the ASA
guidelines, which are generous.

statement continues “The ASA believes that the directors of
Foster’s ignored their shareholders when the float of the

Australian Leisure and Hospitality business (ALH) was made in late 2003.
This business was wholly owned by Foster’s shareholders and they should have
received a pro-rata entitlement in a float. Instead they were invited to
subscribe for shares at $2.40 each and had their application scaled back to
1,000 shares. Only thirty million shares, 8.5% of the ALH total number, were
allotted under the shareholder offer.

It appears the board was persuaded by Macquarie Bank to allow
institutions and broker clients to purchase the business via a share float. In
a final gesture of disdain to Foster’s shareholders 115 million shares, 32% of
the total, were offered to institutional shareholders at $2.00 per share. This
price was 16% below the

price Foster’s shareholders were forced to pay.

It also appears that the board did not approach some potential trade
purchasers for the ALH business because this could upset some of Foster’s
customers. The board should have realised that once ALH was floated it was open
to any customer to make a takeover offer for ALH. The real beneficiaries of the
ALH float were Macquarie Bank (by way of fees) and institutional shareholders.

An independent report has valued ALH at a minimum of $3.19 per share,
considerably more than the price received by Foster’s of approximately $2.33
per share only eight months ago.

This additional value, over $300 million in total, should have been
realised by Foster’s shareholders and the board must be held accountable for
this significant loss in value.

Directors, Brian Healey and David Crawford, will seek re-election at the
annual general meeting on 25 October. Both directors have been in place during
the ALH transaction. Further, David Crawford has a workload in excess of ASA
guidelines, with additional directorships at BHP Billiton, National Foods and
Westpac and as chairman at Lend Lease. The only way shareholders can hold
directors accountable for poor performance and loss of shareholder value is to
vote against directors standing for re-election. They do not deserve
shareholders support.”

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Peter Fray
Peter Fray
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