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Dear Fellow Shareholder,
Important resolutIons at the rhG annual General meetInG on 12 november
This document explains why certain shareholders, including those interests associated with
The Intelligent Investor
, strongly believe it is in the interests of all shareholders to remove David Coe from the Board of RHG Ltd
and appoint Steven Johnson and Gregory Homan. In short;1. These are modest but substanve and benecial improvements to the board.2. They are jused because;a. The RHG share price has fallen precipitously since lisng at $2.50 in July 2007;b. The board has not been responsive to minority shareholder interests;c. The proposed new directors have the skills, experience and desire to enhance the current board andassist in a return of capital to shareholders.3. RHG shareholders—the owners of this business—should decide these maers.What you decide to do will aect what happens to your Company and the value of your holding in RHG.
We strongly urge you to vote
For
a reformed board with the elecon of Steven Johnson (resoluon 3) and GregHoman (resoluon 4) and
aGaInst
the re-elecon of David Coe (resoluon 2).Further details are set out overleaf but if you have any quesons about this document or your investment in RHG,
please visit
.gd.
or call us toll free on
1800 620 414
.
Important noce to all RHG Group shareholders
Please head to
.gd.
/ for more informaon
resolutIon
For aGaInst abstaIn
1
— To adopt the Remuneraon Report for the year X
ended 30 June 2009
2
— To re-elect Mr David Coe as a Director X
3
— To elect Mr Steven Johnson as a Director X
4
— To elect Mr Gregory Homan as a Director X
1
Source: 14 August 2007 ASX announcement: Impact of global debt market on RHG funding.
2
Source: Explanatory Memorandum B released to the ASX 26 Oct 2007.
3
Source: RHG prot guidance provided to the ASX 24 August 2009, audited nancial statements for the year ended 30 June 2009, nancial statements for the half year ended 31 December 2007.
Requision of meeng
On 7 September 2009, RHG shareholders holding more than 5% of RHG’s issued shares, including interests
associated with
The Intelligent Investor
, requested RHG convene a general meeng. As a result of discussions withthe Company, the resoluons that were to be heard at a General Meeng will now be put to shareholders at theAnnual General Meeng on 12 November 2009.We are proposing to remove one of the current directors and replace him with two directors more representaveof the Company’s diverse shareholder base. If the proposal is successful, the two new directors intend towork with RHG’s three remaining directors to develop and communicate a clear plan for the maximisaon of shareholder value. This will include, where possible, the return of excess cash to shareholders in the form of fully-franked dividends.The proposed changes could have a signicant impact on the Company so you should give careful consideraon tothe merits of the proposal.
Background
When RHG (formerly RAMS Home Loans) originally listed in June 2007, the Company was a mortgage originaonbusiness. Less than a month aer lisng, the overseas debt markets from which the Company obtained themajority of its funding collapsed
1
. RHG was no longer able to source new funding, which meant it could no longerwrite new loans.In November 2007, RHG sold the RAMS brand to Westpac and RHG shareholders were le with a $15.0bnmortgage book
2
. These mortgages are held in special purpose vehicles (SPV) which are not owned by RHG. RHGhas a right (Future Servicing Right or FSR) to keep the dierence between what these vehicles collect from theircustomers and what they must pay to lenders who provide the funding to these SPVs.As it is in run-o mode, the mortgage book decreases as the loans are repaid and will, one day, cease to beprotable for RHG. In the interim, this FSR is a valuable asset. As at 30 June 2009, the mortgage porolio had beenpaid down to $7.7bn. But the prots generated have increased the net tangible assets on RHG’s balance sheetfrom less than zero as at 30 June 2007 to $233.5m as at 30 June 2009, the last reporng date. This represents72 cents per share based on the exisng capital structure of the Company. This does not aribute any addionalvalue to the $48m of franking credits that have also been accrued
3
.This increase in NTA as the mortgage book is run-o is illustrated in the following graph:
–1001020304050607080I30 Jun 09I31 Dec 08I30 Jun 08I31 Dec 07I30 Jun 07
RHG’s assets
NTA (cents per share)LHSLoan book ($bn)RHS
0246810121416
Source: RHG ASX announcements
During the next ve years, there is the potenal for a further $120m of value, not including any return on theexisng assets or aribung any value to franking credits. This calculaon is based on the directors’ forecast protof $55m–$65m for the 2010 nancial year, and correspondingly lower prots in future years as the loan bookamorses.
Our concerns with the exisng board
The board has not consistently communicated a strategy for returning this wealth to shareholders.
At the 2007 annual general meeng, just aer the announcement of the sale of the RAMS brand to Westpac,
Chairman John Kinghorn stated that
‘Aer meeng all liabilies and subject to its ability to renance some of all
of its warehouse and XCP programs, the directors intend to return all net income and surplus cash to shareholders
over me’
. Despite renancing all of its funding facilies (with the excepon of $1bn of loans sold to NAB in 2008)and generang a substanal amount of surplus cash, nothing has been returned to shareholders.As at 30 June 2009, the Company had $47.9m in franking credits and $133.8m in unencumbered cash. RHG hasenough resources to pay a $65m fully franked dividend (20 cents per share) and sll have almost $70m to meet itstax liabilies and support the remaining credit facilies.At the 2008 annual meeng, Kinghorn didn’t menon returning excess cash to shareholders but did indicate thatthe Company may re-enter the Australian home loan market aer November 2010.Since our meeng requision of meeng was put to the board on 7 September 2009, the directors haveprovided shareholders with more informaon. In his Chairman’s leer in the 2009 Annual Report, John Kinghornconrmed that the directors are denitely going to seek a ‘superior alternave investment opportunity’ butthat this opportunity would be ‘submied to shareholders for their consideraon’. He also said that ‘if, by 2011,the company has not idened a superior investment alternave, then your directors intend to distribute tocompany’s surplus funds to shareholders in a [sic] opmal manner.’
The exisng board is not representave of the company’s diverse shareholder base.
The RHG board only has four directors. Despite being paid a total of $403,500 in directors’ fees, the board onlyheld four (4) meengs in the 2009 nancial year. Only one director, John McGuigan, managed to aend all fourmeengs and David Coe made it to half - a total of two board meengs in a full nancial year.Details of aendances at RHG board meengs in the year ended 30 June 2009 are as follows:It is very rare for the board of a publicly listed company with a market capitalisaon of more than $200m to aendso few directors’ meengs; a crucial aspect of their dues as stewards of shareholders’ capital. David Coe was alsoon the board of Allco Finance Group, which is currently in liquidaon, and sold all of his shares in RHG in Januaryof this year.
DIrector no. oF meetInGs helD whIle a DIrector no. oF meetInGs attenDeD remuneratIon
JA Kinghorn 4 3 $163,500DR Coe 4 2 $80,000GK Jones 4 3 $80,000JV McGuigan 4 4 $80,000
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