Transurban risks backlash over CEO pay

TRANSURBAN risks infuriating shareholders again after it was revealed that its former chief executive, Chris Lynch, received a total salary package of $7.36 million for his last year in the job.

The release of his pay details came as Australia’s largest listed toll road operator took a cautious approach to dividend guidance for this financial year due, partly, to volatile economic conditions.

Executive pay at Transurban was a bone of contention among shareholders for most of Mr Lynch’s four years in the top job. The pay report shows his total package of $7.36 million included $1.76 million in short-term cash bonuses and $3.08 million in share-based benefits.

Although Transurban appeased investors last year by changing the way it rewards management, Mr Lynch’s pay risks raising the ire of investors at Transurban’s annual meeting later this year. His total pay for 2011-12 was 9 per cent higher than the $6.75 million he received the previous year. It amounted to about 8 per cent of Transurban’s total employee expenses.

Transurban yesterday reported a 9 per cent rise in proportionate pre-tax earnings to $784 million for the year to June, which was better than analysts had expected. But the company, which operates CityLink in Melbourne and the Hills M2 and Westlink M7 in Sydney, disappointed investors with its distribution guidance of 31¢ per security for 2012-13.

Shares in Transurban closed down 9¢ at $5.94 following its cautious outlook statement.

Transurban’s new chief executive, Scott Charlton, said the board had decided to take a more cautious approach because it was a ”transition year” for the company and due to volatile economic conditions.

Although not all of the distribution forecast for this financial year will be paid out of free cash flow, Mr Charlton said it should not be taken as a sign that Transurban would return to the days when it adopted the so-called Macquarie model of using borrowings to fund dividends.

Transurban has experienced slight weakness in traffic volumes on some of its motorways, including CityLink, which comprises more than half of its toll revenue.

Mr Charlton, who took over from Mr Lynch last month, said it was difficult to ascertain whether the weakness was due to economic conditions or construction works on some of the roadways.

Transurban also warned that the completion of an upgrade to the M2 could be delayed because of wet weather. It had been due to be completed by the middle of next year.

The company posted a 50 per cent fall in net profit to $58.6 million, which was largely the result of a $138 million write-down in the value of its investment in the Pocahontas roadway in the US.

Transurban spent $US611 million on the Virginia toll road in 2006. The company said it was considering the future of the roadway, which could include selling its interest in the asset. The company will pay a final distribution of 15¢ per security on August 14, which takes the payout for last financial year to 29.5¢. It compares with a total payout of 27¢ in 2010-11.

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