Scentre Group (SCG) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by and welcome to the Scentre Group 2020 Annual General Meeting. [Operator Instructions] Please note that this conference is being recorded today, Wednesday, the 8th of April 2020 at 10:00 a.m. I would now like to hand the conference over to your host today, Mr. Brian Schwartz. Thank you, sir. Please go ahead.

Thank you, and good morning, ladies and gentlemen, and welcome to the Annual General Meeting of Scentre Group Limited. My name is Brian Schwartz, and I'm the Chairman of Scentre Group. The Company Secretary has informed me that a quorum is present, and I therefore declare the meeting open. In doing so, I'd like to acknowledge the Gadigal people of the Eora Nation as the traditional custodians of the land I am on. Recognizing that many of us are on different lands of different traditional custodians, I'd like to pay my respects to each of their elders past and present. I would like to welcome you all to our AGM, which we are conducting in a new format brought about by the restrictions placed on us as a result of the COVID-19 pandemic. We are conducting the meeting by way of webcast, which will enable securityholders to listen to the meeting, view slides and vote. Securityholders will also have the opportunity to call in and ask questions. Before I discuss housekeeping matters, I would like to welcome my fellow nonexecutive directors who are participating by webcast. We have with us Aliza Knox, Carolyn Kay, Margie Seale and Steven Leigh, and we're joined on this line by Mike Ihlein, the Chair of the Audit and Risk Committee; as well as Andrew Harmos, who is standing for reelection today and, I should say, is also celebrating his birthday. So Andrew, happy birthday. And also, welcome to Mike Wilkins, who is standing for election. Ms. Megan Wilson, representing the group's auditors, Ernst & Young, is also on the line. In the room with me is our CEO, Peter Allen; our CFO, Elliott Rusanow; and our Company Secretary, Maureen McGrath. And I should hasten to assure you that we're all suitably distant from each other in accordance with the requirements of distancing. Finally, I'd also like to welcome all our securityholders participating by webcast. Before we move to the formalities, there are several housekeeping matters I need to mention with the format of our meeting being very different from that which we are -- with which we are familiar. Securityholders have been provided instructions as to how to participate and vote at the AGM in our ASX announcement on the 31st of March 2020, which is available on our website, along with guide for how to participate online through your desktop or mobile device or ask questions by telephone. Voting on all resolutions will be by poll. Once I declare the polls open, a voting icon that looks like a bar graph will appear on your device screen or navigation bar. Once you click this, the resolutions will appear on your screen and you can select the voting option. You can vote or change your vote at any time during the meeting until I declare the polls closed. I will give you a clear prompt later in the meeting to let you know when the polls will close. We've received a number of questions from securityholders in advance of the meeting, which I will address during the course of the meeting. Questions sent via the online meeting platform will also be moderated to avoid repetition. And if questions are particularly lengthy, we may need to summarize them in the interest of time. Questions from securityholders dialing into the meeting will be queued and will be addressed following consideration of the written questions received before the meeting. I would encourage that you wait to dial in until the written questions have been addressed as your question may have already been answered and also so that you're not waiting to be admitted to the meeting. Following questions and discussion, I will then declare the poll for all resolutions closed. The indicative combined results, comprising the proxy votes received before the meeting and the votes cast today, will then be read out by me. Barry Azzopardi of Computershare has been appointed as the returning officer. Following confirmation by Computershare, final proxy and voting results will be announced to the ASX later today. The Notice of Meeting has been sent to securityholders and is available on the group's website, and I will take the Notice of Meeting as having been read. I will now deliver my formal address. On behalf of the Board, I want to thank you for participating in today's online Annual General Meeting. I hope you and your families remain safe and well. We appreciate your understanding as we adapt the format to address the meeting restrictions and social distancing measures that are in place in response to the coronavirus pandemic. We intend to keep this meeting as succinct as possible given the revised format and the materially different operating environment. I will make some opening remarks to provide context for today's meeting. Our Chief Executive, Peter Allen, who is also Chairman of the Shopping Centre Council of Australia, a position that is extremely relevant to our business at this point in time, will then provide an update on our current situation. I'd like to acknowledge Peter for his unwavering industry leadership especially over the last few weeks as Small to -- as a Small to Medium Sized Retailer Leasing Code of Conduct was negotiated and agreed between the National Retailers Association, the Australian Retailers Association, the Pharmacy Guild and the Shopping Centre Council. This was submitted to National Cabinet. And yesterday, our Prime Minister, the Hon. Scott Morrison MP, announced a Commercial Tenancy Code to be legislated by the states and territories. Peter will talk more about this in his address, but suffice to say, we and other industry operators are grateful for his initiative and steady and committed leadership. There is no precedent for the situation we find ourselves in as we respond as an industry and as a company to the pandemic. Following our 2019 full year results presentation on the 18th of February, our CEO and CFO embarked on investor meetings. And separately, I with the Chairman of our Human Resources Committee undertook investor meetings as part of our typical preparation for today's Annual General Meeting. Those traditional meeting agendas and conversations quickly became less relevant as the focus was on the rapidly changing global situation and unprecedented health and economic response to the pandemic. On the 10th of March, we informed the market we had paused our security buyback given the market volatility. And on the 20th of March, we informed the market that the group's operations performed in line with expectations during the early part of 2020. However, in light of the COVID-19 pandemic and continued volatility in markets globally, we suspended the outlook for 2020 that was previously announced. Throughout the month of March, governments in Australia and New Zealand announced a range of health and economic measures to restrict further transmission of the virus. Our business has quickly implemented what has been required. The Board and management have worked closely throughout this period to stay abreast of the rapidly evolving situation with daily communication and engagement and regular updates from our team. Our approach as a group has remained constant throughout. We've implemented a range of precautions to balance the health and well-being of our people, customers and retail partners with the important role of supporting business continuity and economic activity to the extent we possibly can. On the 1st of April, we were able to provide a liquidity update to the market. Despite the volatility and upheaval in markets, the financial strength of the group was demonstrated with our ability to arrange additional facilities that increased the group's available liquidity position by $1.9 billion to $3.1 billion. We continue to engage with debt investors globally with a view to entering to long-term bonds at the appropriate time. We will continue to focus our efforts on maintaining our business operations and continuity within government guidelines. This includes reviewing the level of all our operating costs, including Board and senior management remuneration. An announcement will be made at the appropriate time when this review is complete. On behalf of the Board, I'd like to extend my thanks to Peter and the management team for their ongoing efforts to work through this exceptional and difficult period to get us to the other side. At this point and given the uncertainty regarding the economic impact of the pandemic, it would not be appropriate or indeed possible to provide any further comment on our earnings or distributions. Board renewal and succession planning remains a central component of the Board's role and the group's overall governance program. The Board has continued to review the ongoing skills required for our company and is committed to diversity of Board composition, including in gender, skills, experience and diversity of thought. In defining the Board's requirements for new directors, consideration is given to the skills, experience and background of existing board members, the group's strategy and any identified new skills required to supplement the Board's capability. Aliza Knox is retiring from the Board today. Aliza has been a Director since April 2015, not after -- not long after the inception of Scentre Group. And on behalf of the Board and management team, I would like to express our sincere thanks for her contribution during such a pivotal time for our organization. Aliza, we wish you well in your future endeavors, and I hope you will continue to provide us with your varied insights wherever you may be around the globe. Today, we have Andrew Harmos standing for reelection and Mike Wilkins standing for election, both with the full support of the Board. With those few words, I'd now like to introduce our CEO, Peter Allen, to deliver his address. Peter?

Thank you, Chairman, and good morning, everyone. I, too, would like to thank those securityholders for their flexibility as we manage our communication and engagement with you during this exceptional period. I'd also like to thank our team who have remained focused and resilient throughout what is still a very difficult period. As the Chairman noted, our 2019 financial performance was reported to the market on the 18th of February 2020. Our 2019 results demonstrated our customer-focused strategy was delivering results. Annual customer visits across our portfolio of 42 Westfield Living Centres in Australia and New Zealand was up 12 million to 548 million customer visits in 2019. In-store sales on our platform exceeded $25 billion and continued to grow during 2019. More than 7.5% of total retail sales in Australia in 2019 took place in our Westfield Living Centres. Despite strong operating results in January and February, our business context and operating environment has shifted as a result of the reactions to the COVID-19 pandemic. Importantly, all our 42 Westfield Living Centres remain open within government guidelines in Australia and New Zealand. Due to the health measures and business trading restrictions, our centers look and feel very different to what they did in early March. Some of our retailers have been required to close to meet government requirements, and unfortunately, some have voluntarily decided to close. We estimate across our Australian portfolio today, approximately 39% of stores are open, and in New Zealand, only designated essential retailers are open. As we stated in our recently released 2019 Responsible Business Report, which is available online, our centers are regarded as social infrastructure. The Australian government regards us as public transient places and essential activities. This is because our Westfield centers include supermarkets, grocery stores, food markets, retail stores and medical centers. We acknowledge it remains a very difficult period for our business and many of our retail partners. We continue to work our way through the economic shock with our retailers and their banks, in particular our small- to medium-sized retailers or mom-and-dad retailers who are most vulnerable. As the Chairman mentioned in his address, we as members of the Shopping Centre Council have been working cooperatively and constructively with national retail groups to put forward a government -- put forward to government a Small Business Retail Leasing Code of Conduct to help our industry respond with cash flow support with a targeted focus on the businesses who are most in need. I'm pleased to note that the code we negotiated with the national retail groups will be adopted in principle and is to be legislated by Australia's various states and territories. Importantly, the code retains our ability to negotiate commercial outcomes with our SME retail partners on a case-by-case basis whilst balancing a fair and proportionate response. It aligns with our objective to balance the needs and responsibilities we have to a range of stakeholder groups: our customers, our brand and retail partners and our people and, of course, our securityholders. Scentre Group will immediately adopt the code principles and look to implement similar arrangements in New Zealand for affected small business retailers. We're extremely conscious of our broader community responsibility as a leading Australian company and brand. It is going to take some time for us to work through our conversations with all our SME retail partners. But rest assured, we will do it with the empathy the community expects of us to come to a suitable commercial arrangement and continue to foster our relationships with our retail partners. We have communicated regularly with our stakeholders on how we are responding to the pandemic. Media statements are released onto our website to ensure our position is transparent and we contribute to a balanced conversation during this period. Our team receive regular updates. We are very proud of their resilience in the face of such challenging times. We are focused on maintaining to the greatest possible extent the employment of our people. I'd like to thank all members of the Scentre Group team for their efforts especially during these early months of 2020. In particular, I'd like to express my thanks to our people in leasing, customer relations and finance who are having very difficult and understandably emotional conversations with small retailers. I also want to express my thanks to our customer experience teams for their extraordinary capacity to adapt to health and hygiene precautions and support our customers and retailers through this period of social and physical distancing. I'd like to acknowledge our New Zealand teams who are required to adjust much more rapidly to stricter trading conditions as a result of the implementation of level 4 COVID-19 alert. Our center-based and support office teams who are in roles that can be performed from home are working remotely and will do so for the foreseeable future and in line with health advice and government measures. I'd like to acknowledge and thank the Board for their support and guidance to the senior management team during 2019 and in particular these current times. I'm very encouraged to see a collaborative effort across our team to bring the future forward by setting up a new drive-through click-and-collect service called Westfield Direct. We've launched this across all Australian Westfield centers, providing another opportunity for our retail partners to connect with the customer. Our team developed the technological and operational platforms in under 2 weeks, demonstrating business agility and innovation in the most challenging of times to deliver for our customers and retail partners. We are now supporting over 200 restaurants and cafe brands to get their product to customers in as easy and safe a manner as possible. A further 100 fresh food partners expect to join Westfield Direct in coming days, and we are working on expanding beyond food to other product categories. We're looking forward to this service developing further. And I would encourage you all to try this out and order and pick up from your local Westfield center. Details are on your local Westfield website. The last month has been an exceptional period in the life of our nation, our industry and group. It's worth noting it has followed a bushfire emergency, which impacted on significant parts of Australia during late 2019 and early 2020. Whilst the bushfires did not directly impact our assets, we are very pleased as a leading Australian company to support the Salvation Army during this period and donate $500,000 cash and provide significant in-kind support to them. We look forward to more engagement with the Salvos throughout 2020. We are a responsible, sustainable business and are continuing to approach these challenges and our business with our purpose front of mind: creating extraordinary places, connecting and enriching communities. I'll now hand back to the Chairman.

Thank you, Peter. The meeting is going to probably take a slightly different format now to what we're used to, and we'll explain it as we go through. But suffice to say, you will and have already had the opportunity for questions and will have further options either online or by phone. So I'll now move each of the 5 resolutions in the Notice of Meeting and open the polls in respect of each of the resolutions to be considered today. Voting on all resolutions is now open. A slide with all resolutions is now on the screen. Item 1, a discussion of the group's 2019 financial statements and reports is not the subject of a vote. Before I move to the detail of the questions we've received to date, I would like to comment on the reelection of Andrew Harmos and the election of Mike Wilkins. Andrew is retiring in accordance with the company's constitution and, being eligible, offers himself for reelection, is reelected as a director of the company. The Board, with Andrew abstaining, supports and recommends that you vote in favor of the reelection of Andrew Harmos as a director. [Technical Difficulty] Operator, have we -- are we back online?

Yes, we are back online. Thank you.

Thank you. Just a little interlude there, right. We were still talking about Andrew. Andrew has been a Director of Scentre Group since its inception, and he is the Chair of our Human Resources Committee and a member of the Nominations Committee. Andrew's skills, qualifications and experience are detailed in the Notice of Meeting. Mike Wilkins, who is standing for election as director, is a highly experienced nonexecutive director recognized for his strategic risk management and operational skills. Mike's skills, qualifications and experience are detailed in the Notice of Meeting. The Board unanimously supports and recommends that you vote in favor of the election of Mike Wilkins as a director. What I'm now going to do is address the questions we've received before the meeting, which includes questions from the Australian Shareholders' Association with whom we did have a meeting to go through their issues and from a shareholder, Stephen Mayne. I do not propose to read individual questions, but we'll address common themes across the questions. We've received questions on the challenges faced by shopping centers with changing methods of shopping even before COVID-19, which were addressed by Peter in his earlier speech. We've received questions on distributions and valuations, which, as I said in my speech, given the uncertainty regarding the economic impact of the pandemic, it would not be appropriate or indeed possible to provide any further comments on our earnings or distributions at this point in time. We've also been asked if the group determines to raise equity, what form it will take. And the short answer is, I can confirm that we're not contemplating raising any equity. A comment was also made on Premier Investments' public statement on Westfield Carindale and the group's response to COVID-19. As we publicly responded at the time in writing in relation to Westfield Carindale, our retail partners and Scentre management followed the correct Queensland health protocols. The Queensland health advice was therefore, individuals -- was these individuals posed no risk to any customers, retailers or employees. As a precaution, the relevant retailers closed their stores temporarily for deep cleaning. Scentre management also conducted additional cleaning. We continue to follow the advice of health authorities. We've received several questions in relation to remuneration, including a comment that the remuneration report is difficult to read and too complex. We agree that the reporting requirements for remuneration reports are indeed complex, and we will continue to look at ways to make it easier for our investors to understand. We've also been asked if in light of other companies having reduced remuneration, what is our intention in relation to any reduction in remuneration for the Board and senior executives. As I have previously mentioned, we are reviewing the level of all our operating costs, including Board and senior management remuneration, and will make an announcement when that review is complete. We've also been asked if the Board plans to reduce the number of our CEO's performance rights to reflect the current share price. We don't plan to do so. And if I'm not mistaken, I think that they are issued as a number of shares rather than a dollar value. And I think we'll remain doing that. On Board skills, we received a comment on adding directors with specific retail skills. As mentioned in my address, Board succession planning is an ongoing process. The Board as well as the Nominations Committee continue to review Board composition and skills. And certainly, retail skills is one of the skills that we are considering, amongst others. That essentially covers all the questions that we were given before the meeting. I have on my screen at this point in time no questions from the floor. I'm just looking around me. No one's seen any, and no one in the system is aware of any questions. If that is the case, then operator, perhaps we can take questions from the investor line, please.

[Operator Instructions] It appears we are showing no phone questions at this time. I would like to hand the conference back to today's presenters. Please continue.

Thank you very much, Alexia. After all the preparation we did for all those questions, we did have the answers, but thank you for hearing the presentations that were made. And hopefully, the answers -- well, obviously, the answers that were given did meet the questions that people had. So with that, we will now disclose the proxy votes received for each resolution. I understand there'll be a slight delay as they come onto the screen, but we'll just wait for those, so people can see them, at which time I'll ask you to vote. There, they are there. They're all self-explanatory. I won't comment on them. But I will say that if you haven't already done so, and you may have, please cast your votes now by using the voting icon that looks like a bar graph on your device screen or navigation bar. Once you click this, the resolutions will appear on your screen and you can select a voting option. Please cast any final votes before I close the polls, which I will do shortly. [Voting]

The poll for each resolution is now closed, and it will take a short time for the results from today to be combined with the proxy results. I understand that will take not too long, good. Hopefully, we'll have that shortly, and they will appear on the screen. They won't. I'll read them, so you'll provide them. Thank you. Based on the indicative results, it appears that each resolution has been passed by the requisite majority. The remuneration report has been passed with 76.8%. The reelection of Andrew Harmos has been passed with 95.90%. Congratulations, Andrew. The election of Mike Wilkins has been passed with 99.92%. It's a big number, but congratulations, Mike, and welcome to the Board. The approval of grant of performance rights to the CEO has been passed with 77.5%. And the approval to change -- to the change of the 2019 performance rights to the CEO has been passed with 79.53%. Final results of the polls will be provided to the ASX shortly. On behalf of the Board, I want to thank you for participating in today's online AGM. I hope you and your families remain safe and well, and I look forward this time next year to meeting with you and being with you to a more normal AGM. In closing, can I thank the team that have coordinated this format today? It's been challenging in many ways. But as often happens when you work like they did, it looks easy. So thank you to all of the team for doing a great job. With that, ladies and gentlemen, the meeting is now closed. Thank you.

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now all disconnect.