31 October 2007
AGM Shareholder Questions
Frequently Asked Questions
Shareholders were invited to submit questions in advance of the Annual General Meeting. The following represent responses to the most frequently asked questions.
Q: Why are you increasing the limit for directors’ fees again?
The aggregate fee limit for non-executive directors is increasing by around 17%, from $1.5 to $1.75 million.
Individual Director’s fees, however, will only increase by 3.6% from 1 January 2008 to align our fees with the market.
The increase in aggregate fee limit provides capacity to appoint additional directors if it becomes appropriate to do so, although our immediate priority will be to replace departing directors.
It also allows fees to grow in line with the market for Directors over coming years, without requiring the Company to re-present the matter to shareholders each year.
Our fees are set to ensure we can attract and retain the best non-executive directors. In determining these levels, we look at the responsibility and time commitments imposed on directors generally, but also at the fees paid to non-executive directors in comparable major Australian listed companies.
Q: Why are executives paid so much?
Executive remuneration is structured as a mixture of salary and incentives to ensure that a significant part of potential reward depends on the achievement of business objectives and generating returns for shareholders.
If individual executives, or the company, do not perform, total rewards for executives will be considerably less than for many of their peers in comparable companies. Conversely, it is appropriate that executives should receive more when individual or company performance is good.
In September this year, Foster’s CEO Trevor O’Hoy received an increase in fixed remuneration of 3.7%; most other executives received comparable increases.
Trevor’s total remuneration as shown in the Annual Report, including his ‘at risk components’, increased 3% over the 2006 financial year. This is in the context of a fiercely competitive market for senior talent and in a year in which Foster’s earnings increased almost 17%.
Executive remuneration is reviewed annually against similarly sized roles in both local and international peer companies. The Board believes they are consistent with the marketplace and strike an effective balance between risk, reward and the ability to attract and retain the best people.
Q: Do Foster’s directors have too many other large corporate commitments?
Striking a balance between existing commitments, expertise and experience is always a challenge for the board.
Qualified and capable non-executive directors are at a premium and we believe that the current Foster’s Board retains a very appropriate balance between expertise and external commitments.
A review of sub-committee and board meeting attendance shows that current Directors are applying the appropriate application and commitment and I believe will continue to do so under new Chairman, David Crawford.
Indeed David Crawford, in taking up the Chairman’s role, has resigned from existing commitments at WESTPAC to free up time for the expanded commitment as Foster’s Chairman.
Q: Why has Foster’s share price underperformed the market in recent years?
In the three years ended 26 October 2007 Foster’s Share Price increased 23%, from $5.08 to $6.27.
Foster’s total shareholder return, or TSR, over this period was 37.4%.
In Australia, the performance of the beverage sector generally has been below the broader market which has been driven by an exceptionally strong resource and finance sector share price growth.
Over the past 3 financial years dividends have increased 19% from 20.0¢ per share in 2005 to 23.75¢ in 2007.
Over the same period, net profit and earnings per share increased by a compound Annual Growth Rate of 16% and earnings before interest, tax and SGARA margins have expanded 100 basis points to 25.4%.
The past three years have also seen a significant transformation of Foster’s. We have realized substantial value for low growth or low returning assets and we have developed global wine, positioning the business for sustainable long-term growth.
Q: What is Foster’s doing to mitigate drought impacts?
After significant investment in recent years, Foster’s breweries are now amongst the world’s most water efficient.
In our wineries and vineyards, we have introduced water saving technologies including extensive mulching and night irrigation to better conserve precious groundwater resources.
We are also increasingly focussing our vineyard holdings in premium dryland regions – those least impacted by the current drought.
Finally, our extensive vineyard management knowledge and demand planning systems ensure that we are aware and able to take action earlier than others to secure increasingly scarce grape supply.
We are at an early stage in the 2008 vintage and Foster’s, like the rest of the industry, is praying for rain.
We are, however, well down the track to securing the best possible position in the Australian market, and are exploring sourcing options in other regions to fill emerging gaps.
Q: Why did Foster’s choose to conduct two off-market buy-back tenders
We believe that the $650 million of capital returned to shareholders via two off-market share buy-backs this year is consistent with our disciplined approach to capital management. The buy-backs represent part of Foster’s capital management program, which assist in managing gearing levels and our capital structure, and are consistent with our investment grade credit rating.
As well as enabling Foster’s to buy back Shares at a discount to their traded price, the Buy-Back has enabled Foster’s to return capital with a strong degree of certainty and in a short timeframe.
Under the buy-back tender, all eligible shareholders have an equal opportunity to participate. All shareholders, whether participating or non-participating benefit from the buy-back.
While the Buy-Back has resulted in a reduction of Foster’s franking account balance, the size of the Buy-Backs were consistent with the Board's intention to remain in a position to fully frank Foster's dividends for the foreseeable future.