1. Andrew McRobert SF FIN GAICD MA Andrew McRobert & Associates www.amcrobertandassocs.com.au Financial literacy (and other considerations) Lessons from Centro 1 28 TH ANNUAL CONFERENCE 2011

2. Opinions vary Professor Bob Baxt 1 “Much ado about nothing” Elizabeth Johnstone 1 “ 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. Green 1 “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 Durkin 2 “Firm but fair, judgment raises the bar” Chanticleer 2 “Goalposts move for directors’ Graham Bradley 1 “In conclusion, there is much to be welcomed in the articulation of governance principles in this case, but no cause for overreaction” 1In The Director magazine 2In The Australian Financial Review 2 © Andrew McRobert & Associates (2011)

3. The numbers (in $mn) Centro property Group consolidated (2007) Preliminary annual report Final annual report Differences2007 comparables in 2008 annual report Current assets1,338.0 1,821.9 Non current assets6,827.1 Total assets8,165.1 0.08,649.0 Current liabilities: Payables Interest bearing liabilities Others Total current liabilities 263.3 0 393.2 656.6 263.3 1,096.9 393.2 1,753.5 +1,096.9 263.3 2,611.0 877.3 3,751.6 Non current liabilities: Interest bearing liabilities Other Total non current liabilities 3603.5 339.9 3,943.4 2,506.8 339.6 2,846.4 -1,096.7 -0.3 -1,097.0 992.7 339.6 1,332.3 Net assets3,565.1 0.03,565.1 3 © Andrew McRobert & Associates (2011)

4. What did the 2007 report disclose on guarantees? 4 © Andrew McRobert & Associates (2011 )

5. 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 )

6. 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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8. 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

9. 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

10. 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% Shareholders’ funds at 7/88 (in AUD): Secured debt at 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)

11. Leverage-Centro Properties Group (all figures in AUD mn) 6/086/07 Centro properties group consolidated revenue 687.4365.8 Derived from: SyndicatesProperty management82.9 17.7 Development & leasing30.8 5.9 Funds management139.2 100.8 Total252.9 124.4 36.8% 34.0% Centro properties group consolidated profit/(loss) before tax(2,068.8)470.2 After: Share of net profits / (losses) of associates & joint venture partnerships accounted for using the equity method (693.0)317.5 33.5%67.5% 11 © Andrew McRobert & Associates (2011)

12. Is this what you do to your Board? 12 © Andrew McRobert & Associates (2011)

13. 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) 13