sign in sign up
<<
Home , Bill Rowling, KiwiSaver

The Scrip MANY INVESTORS, ONE VOICE

ISSN 1179-4275 FEBRUARY 2021

Return of Natural Fibre?

A VOICE FOR RETAILpage 1 INVESTORS Back to contents page THIS ISSUE

Contents Leader THANK YOU TO ALL Capital Markets 2029: What is Happening? 3 WHO HAVE ASSIGNED

General THEIR STANDING PROXY February’s Quotable Character: 5 TO THE ASSOCIATION. Introducing Frank Stewart 6

Companies Cavalier 6 Geo 7 Hallenstein Glasson 8 Sanford 9 Scott Technology 10 Westpac 11

Commentary The Old Boy’s Network Must Go 12 Beefing About NZX and Market Registry Websites 14 External Management: Friend or Foe? 15

Brickbats & Bouquets 17

Branches Auckland, Turners 18

Upcoming Events 20

NEW ZEALAND SHAREHOLDERS ASSOCIATION INC. Cathedral House, Level 5, Office 2, 48-52 Wyndham Street, Auckland. Phone 0800 6972 7478 Email – [email protected] Website – www.nzshareholders.co.nz

page 2 page 3 LEADER

But progress is less clear-cut on other outcomes, including growing the number of companies on listed markets and funding NZ’s infrastructure deficit via capital markets. To be fair, it is less than two years since the report was adopted. The outcomes were supported by 18 actions for central government, FMA, NZX, and other industry participants to complete. Tellingly, the word “accountability” is only used twice in the 104-page report, both times within the same action (‘Implement an online financial capability and literacy course for young people as part of NCEA including Oliver Mander, clear accountability for its implementation’). CEO Unfortunately, that implies no overall and formal structure for implementing or governing the recommendations in Capital Markets 2029: the report. I wish this was different: NZ’s capital markets What is Happening? are too interconnected between various stakeholders for a hands-off approach to deliver the report’s outcomes at Over the past week, we have witnessed the power of Tony Mitchell retail investors in global capital markets. Whatever one’s the pace required. opinion, there is no denying that traditional institutional NZX has the most to gain, so unsurprisingly has been shareholders received a bloody nose for short-selling at the forefront of leading a ‘coalition of the willing’ to Gamestop (NYSE: GME), thanks to the powerful follow through on the report’s recommendations. NZX combination of an orchestrated social media campaign and has also internalised the key work programmes associated some angry new-generation investors. with the report. “We’ve baked the recommendations of the report into our annual business plans, including The wisdom of purchasing Gamestop shares at inflated developing alternative pathways for companies to list on prices is a more vexed question, determined by each the exchange”, says NZX’s Hamish Macdonald. investor’s situation. Clearly, financial rationality is not the only driver. Further Change The Gamestop experience highlights that investors Whatever the current progress on CM2029, there is new incorporate a wide range of factors in determining their learning for NZX and its listed issuers from the Gamestop investment choices. Financial performance, strategy, social experience. pressure, personal recommendations, environmental Additionally, the recent release of a report by FMA into factors, ethical considerations, and diversity all feed the technology platform at NZX highlighted a lack of a collective melting pot; the exact balance of those preparedness on behalf of NZX when it came to anticipating ingredients remains unique to individuals. cybersecurity threats. Gaps in NZX technology capability Perhaps in the Gamestop example, ‘social pressure’ has meant that “the performance of NZX’s systems did not meet regulatory requirements or expectations for fair, played a unique role. Nonetheless, it highlights that the orderly and transparent markets”. Damning stuff. game is changing as investors’ ease of access to equity markets has improved. There is always opportunity from crisis. At NZSA, we have been clear in our response to the FMA report. An aligned Growing NZ Capital Markets 2029: Outcomes plan co-created with NZX financial markets stakeholders and Recommendations is critical to maintaining and enhancing investor confidence The Gamestop experience is not the only learning point in NZ’s financial markets. We would like to see quarterly in the recent evolution of NZ’s capital markets. In early public reporting of progress against that plan. 2019, the industry-led capital markets review (CM2029), NZX has started well by announcing the formation of a sponsored by the Financial Markets Authority (FMA) and cross-industry technology working group late last year. NZX, promised much. NZX CEO Mark Peterson explains that “We see the Interestingly, one of the key outcomes promoted by the working group as helping improve collaboration around recommendations was to “raise the level of individual technology planning and development, systems integration participation and engagement in capital markets”. Whether and industry-wide communication and processes, aimed at driven by CM2029 or not, that particular outcome looks strengthening and supporting the evolution of NZ’s capital well on the way to being achieved. markets.”

page 3 Back to contents page LEADER

I’m a ‘glass half full’ kind of person. The opportunity for NZX is likely to report on its actions later in February, NZX is to combine the learning associated with CM2029, although the timeline for a wider review of CM2029 the disruptive effect of retail trading and the fallout from outcomes and recommendations is uncertain. At NZSA, we’ll be watching with interest. the FMA’s report, coupled with transparent and frequent reporting of progress to stakeholders. We predict that delivery against the recommendations held within CM2029 is relatively underwhelming. Some of Progress, Accountability and Transparency the recommendations, particularly related to KiwiSaver, are Progress on CM2029 is due to be assessed in March likely to be politically unachievable (even though the report was written to span government ideologies) while many of 2021. It’s unclear exactly what form that review will the reviews associated with other recommendations have take. Although NZX can report on the elements that not started. it can directly control, it cannot be accountable for The reality is that without and recommendations such as those focused on KiwiSaver or accountability transparency, whether provided from the private or change to regulations. public sector, progress will continue to lag. Furthermore, in NZX’s Hamish McDonald remains keen to be involved. the constantly changing world of financial markets, events like the Gamestop experience should result in ongoing “NZX can’t control delivery of all elements, but we’re keen reviews, the evolution of actions and recommendations. to advocate and contribute to the process. We’ve already seen the recommendations create some alignment across Perhaps the key action that isn’t stated in the report is around providing leadership for its implementation, a broader industry stakeholders.” sorry oversight indeed.

Summary of Recommendations For completeness, the key actions in the report are shown below. Topic Recommended Action Allow members to self-direct and invest with multiple providers. Mandate employers’ contributions and a stepped contribution rate option for low-income earners. KiwiSaver Withdraw KiwiSaver default provider status and replace with default funds. Reinstate a kickstart payment for members over 18 years old and link with an active choice on fund. Financial Implement an online financial capability and literacy course for young people as part of NCEA, including clear Capability accountability for its implementation. Simplify disclosure requirements for regulated offers. Remove requirement to provide prospective financial information for first regulated offers (IPOs). Undertake a review of continuous disclosure liability settings. Regulation Exclude listed bodies corporate from the definition of “overseas person” if no one overseas person (and any associate) holds more than 25% of the New Zealand listed entity’s shares. Establish a centralised process for compliance on anti-money laundering which market participants can rely on across Australasian capital markets. Review Crown contribution to capital markets which balances Crown control with the opportunity for broader ownership. Public sector Consider local government reform by central government to ensure local councils assess all funding options assets and for necessary infrastructure. infrastructure Encourage the Infrastructure Commission upon its formation to engage in proactive dialogue to accelerate solutions for funding infrastructure projects in New Zealand. Market Increase development of growth capital industry in New Zealand. Development Greater promotion and education of the alternative pathways to the listed market supported by a range of New Listings secondary recommendations. Move New Zealand’s KiwiSaver regime from a TTE (taxed when earned) to an EET (taxed when withdrawn) Tax approach, providing impetus to improve our saving culture. Apply the PIE taxation regime rates and exemption from tax on trading to all direct listed share investments. Technology Develop a collaborative capital markets ICT (information and communications technology) plan.

As always, if you ever have a topic or an issue you think NZSA should be looking at, drop me a line at ceo@nzshareholders. co.nz or give me a ring on 021 190-5343. Oliver Mander, CEO

Back to contents page page 4 page 5 GENERAL

February’s Quotable Character: David Lange

David Lange (1942-2005) was born in Otahuhu, In 1983, resigned, and David Lange became Auckland. His father was a general practitioner and the Labour party leader in opposition. A year later, a Labour party supporter; his mother, a conservative; prime minister Muldoon called a . The the family, active Methodists. In 1965, David Lange New Zealand party (Bob Jones) spilt the conservative graduated LLB and was admitted to the bar two years vote, David Lange ran an excellent campaign and won later. He travelled the world for two years before a landslide victory. At age 41, he became NZ’s youngest finishing in London where he met and married Naomi prime minister in the 20th century. Crampton. Key events in the Lange administration include the On returning to NZ, David Lange took over a law strong stand NZ took against nuclear weapons and practice in Kaikohe, then returned to university as subsequent fallout with the US and ANZUS, the French a tutor and gained an LLM with first-class honours. military’s involvement in sinking Greenpeace’s Rainbow He took over a law practice in central Auckland and Warrior in NZ waters, and the dramatic deregulation of became a criminal defence counsel at the court. the NZ economy. Although these were traumatic events for many New Zealanders, the Lange government won David Lange was a Labour party member for 11 years a second term with an increased majority. before entering politics. At the behest of his cousin, , he stood without success as a Labour It all fell apart when prime minister Lange and his senior candidate for the Auckland city council (1974). The ministers announced further reforms that included a following year, David Lange contested the Hobson seat, flat income tax of 23%. But David Lange had second a National party stronghold, in the general election, thoughts on the pace of reforms and unilaterally pulled and was again unsuccessful. Two years later, he won the the plug on the flat tax proposal. This fallout ignited an safe Labour Mangere seat in a by-election and held the internecine war between David Lange and his former seat until retirement from politics in 1996. ‘fish and chips’ brigade colleagues and ended in his resignation as Prime Minister. From the outset, David Lange was critical of Bill Rowling’s leadership of the Labour party in opposition. Labour lost the subsequent election, and David Lange He became part of the ‘fish and chip’ brigade, a coterie served one last term as MP for Mangere before resigning of , , Michael Bassett from parliament. Subsequently, he divorced and married and Mike Moore that advocated innovative economic a second time, wrote two memoirs, Nuclear Free: The New policies. After two years in parliament, David Lange Zealand Way and My Life; had speaking engagements in became deputy leader of the opposition and fell one NZ and overseas and entertained on stage with comic vote short in replacing Bill Rowling as the leader. His Gary McCormick. He died at age 63 after many years of rapid rise to prominence was primarily due to his suffering obesity-related diseases, but fond memories of debating skills which were more than a match for the his humour and humanity remain with us. formidable prime minister Muldoon. Editor

page 5 Back to contents page GENERAL COMPANY MEETINGS

Our members attend company annual shareholder meetings (ASM) and special shareholder meetings (SSM) as NZSA proxy holders. They also file detailed reports on these company meetings that include the tenor of the meeting, shareholder questions and, where possible, some after-match chatter. Many of the companies that we report on are not covered by the mainstream media and this gives our members a broader view of the listed companies. Please note that comments in these reports are those of the writer, who may or may not be a shareholder in the company, and do not necessarily reflect NZSA policy.

Cavalier Corporation ASM, 23 December Introducing Market capitalisation $26m Frank Stewart NPAT ($21.5m) Tell Us a Little About Yourself Substantial shareholders A.C. Timpson 14%, I am a retired economist. I graduated with a BSc (Hons) G.C. Biel 12% in economics in 1973 and subsequently worked for central and local government and the private sector as Number of shareholders 3068 a transport economist and policy advisor. I am a fellow Chair George Adams opened the meeting, farewelling of the Chartered Institute of Transport and Logistics, retiring director Alan Clarke and welcoming newly a board member of the Pacific Leprosy Foundation appointed director, Paul Izzard. Covid-19 materially and chair of NZSA South Island branch. I am a keen impacted FY20 with almost no sales in NZ during the freshwater fisherman, a contract bridge player, and a lockdown and limited sales in Australia. The extended member of Hornby Rotary. lockdown in Victoria added to the problems. However, Why did you join NZSA? pent-up demand post-lockdown increased sales with I manage a family investment portfolio with NZ and spending on renovations instead of overseas travel. In international stocks and touched base with NZSA addition, retailers stocked up on synthetic carpets in while attending company ASMs. The local branch chair advance of the transition to all-wool carpets. approached me, and as the branch met in the same street as my home, I decided to join. FY20 revenue was down 13% with EBIT at $2.3m and a net loss after tax of $21.5m. The operating cash flow What else should NZSA be doing? of $6.8m benefitted from increased sales of synthetic As branch chair, I receive numerous enquiries from carpets and a favourable $1.6m IFRS-16 adjustment. The newbie investors about how to get started in the share retail distribution network was expanded, particularly in market and choose investments from a bewildering array Australia, in line with the strategy to move to all-wool of offerings. I do my best to respond and can point to products. Cavalier reduced its debt to $14.5m at FY20 information sources. I believe NZSA should prioritise balance date and repaid all debt by November 2020. this area. The new strategy of moving to all-wool products is to What are your investment goals? grow the wool flooring market and market share and As I am almost 70, my investment goal should theoretically expand its presence with more stores, especially in be to preserve capital. However, I am still focussed on increasing wealth and prepared to invest aggressively to Australia. Cavalier will also investigate the China and US achieve this. markets, and look for opportunities for adjacent interior products. Sales revenue will reduce in FY21 with the What is the one thing you cannot live without? exit of synthetic carpets. The company will downsize its The internet, as it is my principal source of investing Auckland manufacturing facility whilst increasing Napier information. and Whanganui’s capacity as part of the transition to all- Frank Stewart wool products.

Back to contents page page 6 page 7 COMPANY MEETINGS COMPANY MEETINGS

The original sale of the Auckland property approved Geo ASM, at the special shareholders’ meeting in September did not proceed as the purchaser could not complete the 16 December transaction. A new agreement that will yield an additional Market capitalisation $8.9m $900k was entered into and required shareholder NPAT ($2m) approval at this meeting. The board delayed the ASM to Substantial shareholders Roger Sharp 31%, give shareholders time to consider the new proposal. Lindsay Trust 8.4% Cavalier will retain its Napier and Whanganui properties, but the directors will consider the need for future capital Number of shareholders 733 raising. Chair Roger Sharp opened the meeting outlining the financial results for FY20. Whilst the company had experienced a false dawn, he was optimistic for the future. Covid-19 had presented significant problems, which the company had overcome. CEO Tim Molloy, who joined the company in February, outlined the changes to the business with a smaller team delivering more. The strategy now focusses on the important segments, simplifying pricing, and the disposal of non-core products. Metrics now drive everything the company does. The cash burn of $120k to $140k per month is in line with targets. There are an estimated 250,000 businesses in Australia with around 800,000 trade professionals generating $A85b of activity. The core focus is businesses with three to fifteen employees in trades that are growing. At present, 65% of these businesses are using Whilst current all-wool carpet comprises 87% natural pen and paper; thus, are good prospects to move to a products, the company is looking at scientific solutions digital world. Every 1% of this market will generate annual to increase this to 100%, fully sustainable. Cavalier’s recurring revenue of $4.9m. managers believe a natural product supplanting the In FY21 to date (July to November), Geo has improved plastics contained in synthetic carpets is the future. all business areas. The company reduced the marketing Guidance for H1 FY21 EBITDA is $4m to $5m compared spend during Covid-19 but, now the capital raise has to $3m in FY19. This guidance excludes the one-off gain been completed, will increase it 100% to capture from the sale of the Auckland property. The launch of a new customers and retain existing customers. A new marketing team is in place. Three years of 30% annual new marketing campaign and the continued rollout of the growth will increase revenue by $5.5m and 40% growth ‘Lifestyle’ product range is scheduled for H2 FY21. will increase it by $8.3m. There were questions on whether hemp-wool mix carpets A vote with 99% support approved the four resolutions had been considered: they had. A request for comment relating to options, two tranches of new shares, and the on the government’s climate change emergency elicited auditor’s reappointment. the reply that the transition from synthetic to natural products aligns with current climate change policy. Were Grant Diggle directors sure the Auckland property deal is the best obtainable? Yes. “ HAS The four resolutions to re-elect Dianne Williams, elect BEEN DELAYED BY A Paul Izzard, approve the directors setting the auditor’s FULL-LENGTH MIRROR.” remuneration and approve the sale of the Auckland property were all passed. DAVID LANGE

Grant Diggle

page 7 Back to contents page COMPANY MEETINGS

Hallenstein Glasson ASM, targets the 18 to 30 age group. Australia has a broader range of climatic conditions, and this influences what 9 December people wear. Market capitalisation $393m I questioned the wisdom of HGL’s decision to pay a NPAT $27.7m dividend after receiving the wage subsidies. The board were unrepentant. Hallensteins and Glassons gratefully Substantial shareholders Timothy Glasson 20% received the wage subsidy. PwC confirmed HLG’s Number of shareholders 5887 eligibility for the assistance, and this is subject to audit at Hallenstein Glasson (HLG) retails men’s and women’s any time. HLG’s menswear chain suffered, especially in H2 clothing in NZ and Australia. The company operates 114 FY20. The dividend decision is in the best interests of the stores, including 43 Hallenstein Brothers’ (Hallensteins) company and its shareholders. Many HLG shareholders stores in NZ and four in Australia, and 36 Glassons’ are on fixed incomes and have supported the company stores in NZ and 32 in Australia. It also sells its products for decades. The board delayed payment of the interim online. dividend as a precautionary measure and when conditions had stabilised paid the dividend at a lower rate than the HLG’s ASM held in was a physical meeting previous year. The answer closed with a pre-emptive only. The chair and MD’s presentations for the ASM are rejoinder “if your next question is, are we going to pay it on the NZX website as are the voting results. back, the answer is no.” Chair Warren Bell highlighted the impact of Covid-19 My next question asked if the payment of such a high on the company. He said that the Covid-19 closedowns dividend would constrain future growth. In reply, this were disruptive and costly for the business, both in NZ brought the retort that I should look at the cash number and Australia. However, group sales were maintained, on the balance sheet. “There is $49m in the bank.” This with online sales from April 2020 onwards increasing response elicited support from attending shareholders markedly in NZ and Australia. While the interim dividend but was qualified with the revelation that HLG’s offshore was delayed and reduced by 25%, the final dividend of supply base had provided deferred settlement terms, 24cps was maintained. He said that all HLG stores had which HLG is reinstating to normal (the cash had a reopened and are trading ahead of last year. MD Mary home). Devine gave more detail on the challenges faced but was pleased with the trading year to date. In a related question, Frank Stewart asked if the Australian government had similar Covid-19 “corporate While the meeting passed all resolutions with 93% to welfare schemes.” Yes, Australia had a job seeker scheme almost 100% support, only 36% of eligible votes were targeted at the under-30s. But neither NZ’s nor Australia’s cast. NZSA proxies were equivalent to the third-largest government assisted during the second lockdowns in shareholder. August (Auckland) and September-October (Victoria). To follow is a record of the questions and answers arising “On balance, we have been pretty fair.” from the presentations. Like most companies, HLG does A shareholder asked where online selling is heading not report on or record the questions and answers at its relative to physical shop sales. This elicited a don’t know shareholder meetings. response with some caveats. One was the need to keep A shareholder asked if HLG had a long-term, ten years the company’s shop leases “extremely flexible....Bricks or so, vision and if so, what is it. This drew an ambiguous and mortar [shops] are not necessarily king anymore.” response: the company has a long-term vision to get The chair reinforced this with the announcement that bigger and brighter but refused to disclose the details to HLG’s new app has attracted 100,000 customers since shareholders. its launch in late October. Another shareholder asked how HLG planned to differentiate itself from similar entities. The answer was product, product, product and brand. The company is already differentiated on product but acknowledged a need to better understand its customers and present sustainable products. Hallenstein Brothers has operated in NZ for 95 years, but Glassons has been in Australia for only 20 years and doesn’t have the legacy customer base that Hallensteins enjoys in NZ. In Australia, Glassons

Back to contents page page 8 page 9 COMPANY MEETINGS

The next question started with an effusive statement about HLG’s tremendous offering of good quality and environmentally sustainable products and asked what the company had learnt about establishing retail outlets in Australia. HLG sees the main potential in the eastern states. Sydney and Melbourne have a population of 6.5 million people. Yet, HLG does not have a store in Sydney’s CBD, but a promising prospect is nearby with the caveat that HLG’s offering does not connect with CBD office workers. There was the usual palaver about well-managed shops, customer experience, positive relationships with landlords and sustainable growth. And a positive statement about how the growing online segment brings customers into the stores with ‘click and collect’. An eagle-eyed shareholder gleaned a US bent in the Glassons’ website and asked if HLG had plans for a US presence. HLG will sell anywhere, but customers outside HLG’s distribution outlets in Australasia pay more freight. Fiona McLeod

Sanford ASM, 16 December Kuntzsch’s leadership and that there would be no change Market capitalisation $442m to strategy. Mr Kuntzsch had continued involvement in NPAT $7.8m an advisory capacity, and there were strong candidates to replace him. Just three working days later, Sir Rob Substantial shareholders Amalgamated Dairies 12%, announced the appointment of Peter Reidie as the new Tasman Equity 9%, CEO. Masfen Securities 6.3% Mr Reidie said he was delighted to have secured the role Number of shareholders 2989 and the responsibility to lead the business into its next How appropriate, with the Waitemata Harbour in pre– stage. “I have fresh perspectives to bring to Sanford, and America’s Cup regatta configuration and all shipping I am clear on my mission. I welcome the challenge of having to give way for race activity, Sanford gave way to navigating the business and its people through the current spectator activity and moved this meeting from its usual volatile conditions while working towards a long-term waterfront locality to Eden Park. With more space and vision to grow sustainable shareholder returns.” At least easy parking, surely a plus for attending shareholders. in the near term, Mr Reidie will have his work cut out. For those attending online, the venue would have been Sir Rob noted the effect Covid-19 had on the business. immaterial. Net profit was down 41%, and the final dividend cancelled. Sanford’s annual reports are hefty tomes. Probably few The pandemic emphasised the importance of identifying shareholders worked their way through the trimmed opportunities for more effective diversification. Sanford down 160 pages (I heard there would be further sells its products primarily to restaurants, so the closure trimming in the future). Certainly, the question asked of restaurants and other hospitality venues has squashed at this meeting would suggest so. Despite the company demand. The challenge is to pivot demand towards home catchcry of ‘transparency’, and the title and theme of this consumption. year’s annual report being ‘Navigate’, in my opinion, the Mr Gargiulo pointed out that salmon and mussels are inherent company culture is to obfuscate. exposed to the foodservice market. Although the wild Neither the report nor the addresses by chair Sir Rob fish catch was down only 3% in sales volume, it was down McLeod and acting CEO Andre Gargiulo offered useful 45% in profit contribution; a story of lower demand information on the sudden departure of CEO Volker leading to lower prices. The good news from a miserable Kuntzsch. There were the usual platitudes about Mr year is that the recorded injury rate was down 41% and

page 9 Back to contents page COMPANY MEETINGS there were no recorded Covid-19 cases in any of the Scott Technology ASM, company’s sites. 3 December The first question sought an update of the company’s performance since balance date. The answer, so-so. Market capitalisation $184m A slow recovery: the toothfish season was starting, NPAT ($17.3m) and there was less ice in the fishing ground. Increased Substantial shareholders JBS Australia 52%, inventory will be released slowly, similarly to Fonterra’s Oakwood Securities 7% strategy. Despite efforts to recruit locals for fishing boat crew, there is a reluctance to take up the occupation so Number of shareholders 2840 reliance on foreign crews will unfortunately continue. Scott Technology (Scott) is a designer and manufacturer The increase in product complaints came from one of automated production, robotic, and process incident of ‘yellow belly’ in snapper, not discernible at the machinery for the mining, material handling and logistics, processing stage and not confined to Sanford product. meat processing, appliances, and industrial automation The updated plant at Stewart Island now processes industries. salmon fillets for the NZ retail market. There were the usual questions/comments from shareholders offering long-winded product and marketing suggestions. These shareholders will be encouraged by Fiona Mackenzie’s appointment to the board. Ms Mackenzie told me that she had been given board responsibility for overseeing retail marketing, and was receiving great buy-in and support from management. Ms Mackenzie was elected with 99%+ of the votes cast, as was Peter Goodfellow, who was up for re-election. Mr Goodfellow announced that once his replacement is found and the new CEO settled, he would step down. Shareholders voted just 49% of the shares on issue. Are shareholders so satisfied? Or were they distracted by the myriad of other end-of-year activities calling out for our attention? Scott derives 32% of its revenues from North and South Bruce Parkes America, Europe 41%, Australia 18%, China 5%, and NZ 4%. Meat processing accounts for 15% revenue, mining “GEORGE W. BUSH: A PERSON 18%, appliances 11%, industrial automation 28%, and materials handling and logistics 28%. JBS, the world’s WHO IS THE ULTIMATE second-largest food company, acquired a 51% stake in OUTCOME OF THE AMERICAN Scott in 2016. In October, the company won the contract CONDITION. SOMEONE to build NZ’s most advanced lamb processing system PROMOTED ABOVE ABILITY for the Alliance Group’s meat plant at Lorneville near Invercargill. BECAUSE OF CIRCUMSTANCE AND ORGANISATION AND The company held its annual shareholders’ meeting in Dunedin and online. I attended online as NZSA EMPATHY. YOU DON’T HAVE proxyholder. Chair Stuart McLauchlan welcomed me by TO BE INTELLIGENT. A MORON name, as attending online for NZSA. IN A HURRY COULD KNOW The main presentation at the meeting was from the new THAT YOU DON’T PREVENT A CEO, John Kippenberger. He said that the Covid-19 WAR BY HAVING A WAR.” pandemic had a significant impact on the business. Revenue of $186.1m was down 17% on the prior DAVID LANGE year, and the company reported a net loss after tax of $17.3m (attributable to shareholders). This included non-

Back to contents page page 10 page 11 COMPANY MEETINGS trading adjustments of $15.3m related to restructuring, project impairments and a positive contribution from wage subsidies. However, excluding these impairments, earnings were a positive $3.7m. He said the company had spent a considerable amount of energy and activity during the past year on moving several challenging Australasian projects which involved inherently high levels of development risk, to either acceptable outcomes for Scott and its customers, or an exit. Mr Kippenberger outlined Scott’s new five-year strategy. He said that the company had moved to more streamlined regionally-focused platforms with local teams across four regional business units in Australasia, China, Europe and North America, providing product expertise, sales and Westpac Banking ASM, customer support. He said that Scott would continue to 11 December expand in the US with qualified people on the ground to support Scott’s US appliance customers and a growing Market capitalisation $78.7b meat processing business. NPAT $A2.3b The CEO said that other changes included the relocation Substantial shareholders BlackRock 6.1%, of appliance manufacturing from Germany to China Vanguard 6% and NZ; consolidation of seven sites to five in NZ and Number of shareholders 671,057 the planned divestment of its high-temperature super- The meeting differed from NZX company ASMs. conductor business in NZ. He said that while R&D The chair and CEO each spoke for 10 to 15 minutes remained a part of Scott’s fabric, a higher proportion of and concentrated on three themes: bushfires, storms, sales would come from its developed and proven systems, and Covid-19; the impact of the AUSTRAC and APRA products, and services over the next five years. (Australian Prudential Regulation Authority) actions The meeting passed almost unanimously all resolutions against the bank as a result of the Royal Commission of to re-elect directors and fix auditor fees. Inquiry into Banking; the reduction in dividend. Unlike NZX companies, the chair or CEO did not refer to the A shareholder asked if moving manufacturing to China financial results for the year. Most of their statements would compromise the company’s technology, and was were mea culpas around the commission’s findings assured it would not. When challenged on the diversity and the resulting $A1.3b penalty imposed on the bank. issue, the all-male board stated that the company as a The bank was able to recover $A20 million from the whole is diverse in terms of age, gender, and ethnicity. A responsible executives. Both speakers referred to claim that the board of eight was overly large for a small measures taken to prevent a recurrence. APRA has company was met with the argument that Scott was a since issued an ‘enforceable undertaking’ against the large company in terms of its geographic spread. Prospects bank, which indicates that APRA is not yet satisfied with in the US, given a Biden presidency and possible anti-trust Westpac’s remedial actions. legislation focused on meat processing, were questioned. By contrast, questions on financial reports (item 1 of the The reply was that the US is a large market with the agenda) took over 100 minutes. NZX company boards prospect of significant growth in meat processing and would be surprised at the quantity and depth of the associated automation. questions, some going into the fine detail in the annual Frank Stewart report. The main themes of the questions were the AUSTRAC and APRA actions against the company, climate change and the Paris Climate Agreement, and the dividend for the year. Shareholders questioned the sanctions taken against the 38 individuals involved in the AUSTRAC and APRA actions. Some shareholder comments about prior culture, governance, and management of the company were scathing.

page 11 Back to contents page COMPANY MEETINGS COMMENTARY

There were questions and comments over Westpac’s The Old Boy’s lending to fossil fuel energy companies. The bank has committed to cease lending to this industry by 2030 Network and supports the Australian government’s policy of Must Go transitioning to renewable energy resources. There were Over the years, I have been a also questions around what the bank is doing to meet its director and an active investor. obligations under the Paris Climate Agreement and other During this period, I have agreements it has signed. The tenor of the questions and had many discussions with comments were that the bank is not doing enough and chairpersons, directors, and could do better. fund managers. I was involved The reduced dividend drew the ire of many shareholders. in setting up the Future The chair explained that Australian regulations prohibit Directors Programme with Des Hunt banks from paying more than 50% of statutory profit, and Sir Stephen Tindall and Michael the bank has complied. Some of the comments referred Stiassny. We saw the need to develop the younger to the $1.3b penalty and the impact on profits and generation who are experienced and energetic and, in dividend. The shareholders have also suffered from the many cases, extraordinarily talented and up to date with board’s and senior management’s lack of oversight and the latest technology. poor management. We are still seeing the old boy network in place. Item 2 was the ‘grant of equity’ to the MD/CEO. This Directors are appointed with little regard to experience resolution referred to the incentive plan and garnered or knowledge of the company, and the industry it 98.5% support. services. An obvious and recent example is Fletcher Building. Its financial performance has been appalling Item 3 was the remuneration report which ASX even though its directors and CEOs are amongst the companies are required to provide to shareholders. highest paid. A questioner asked if the recent problems would prompt a change in executive remuneration. The chair We should ask why do we not have more world-leading declared a preference for long-term incentives and companies like Fisher & Paykel Healthcare? I put this that the remuneration committee has commenced down to the way companies are managed because our work on executive compensation and will consult with boards are very conservative and lack the necessary skills and experience to operate in a competitive stakeholders. Shareholders voted 97.7% in favour of the environment. Many of our younger people have worked report. and gained experience overseas, so we should be Item 4 (a) was the re-election of Peter Nash. Like the other exploring this talent and appoint them to our boards. directors up for election or re-election, he explained why Most company boards are well-populated with lawyers, shareholders should vote for him. The 87% vote in favour accountants, auditors, and consultants, but few have reflected shareholders’ concerns over the performance science or engineering graduates with knowledge in of current directors. the market the company services. This misalignment of Item 4 (b) was the re-election of the chair John McFarlane. talent is not the case in countries like USA, Germany, Mr McFarlane received 94.7% support. He is a recently and Sweden. It is why NZ’s productivity growth is so appointed chair so shareholders will be looking for low and will not improve without significant changes. improvement. To build a successful company, we need to change the way we pay all employees and make the system fairer. Item 4 (c&d) was the election of directors Chris Lynch The gap between CEOs and the average employee and Michael Hawker. Each received 99%+ support. has widened without any relationship to performance. Whilst the board supported Chris Lynch’s and Michael Unless we make changes, we will see our living standard Hawker’s nomination, this support did not extend to continue to fall relative to other developed countries. Noel Davis and Paul Whitehead, both self-nominated. The Two companies that seem to have got it right are recent problems prompted both to stand because they Mainfreight and Fisher & Paykel Healthcare. considered the board needed renewal to deal with the Sky City chair Rob Campbell raised this issue recently issues and improve Westpac’s governance culture. They in the NZ Herald. The winner-take-all attitude in received less than 2% support. business must change. His greatest frustration with Grant Diggle business is that influential people refuse to give up

Back to contents page page 12 page 13 COMMENTARY COMMENTARY

passing over home-grown talent is they go and work for the opposition. Boards should be looking at what all employees are paid to ensure fairness. A company succeeds because of its people, and not just the CEO. When setting CEO and senior executive salaries, too much attention is on what others earn in other companies. That is why I prefer long-term incentives to encourage the CEO and employees to stay and succeed. There is plenty of evidence that overpaying a CEO has no bearing on financial results. In many cases, it has privilege, even when it is the right thing to do. an adverse effect as overlooked employees become Let us look at some examples. When a cost-of-living disenchanted and unmotivated. (COL) adjustment is implemented, it should be the To sum up, it is disappointing and frustrating to see same dollar amount for everyone. This stops the gap many listed NZX companies appointing directors whose widening between employees. Why should the average skill sets do not match the company’s requirements; a employee who is earning say $50k receive a $1000 or practice that results in poor profit performance. 2% COL increase while an executive on $300k gets a $6k increase? A CEO paid $1m would receive a It is time to recognise the old boy’s network failures $20k increase. It has nothing to do with performance, and implement immediate change to benefit companies so why the difference? Any increase should be based and stakeholders alike. on increased responsibility, productivity, or other measurable goals. Des Hunt Another area of concern is the way we set bonuses, options and other incentives. Many are based on what used to be part of the job; very few have sufficient focus on the company’s financial performance. Generally, CEOs and senior managers are the only “OUR NUCLEAR-FREE employees to receive incentive payments. Some short- STATUS IS A STATEMENT term bonuses are far too high relative to the basic pay. I OF OUR BELIEF THAT WE have seen some set around 100%, which is outrageous. AND OUR FELLOW HUMAN We should emphasise long-term performance (three to five years), and include all employees where possible. BEINGS CAN BUILD THE We should be careful in setting options and incentives INSTITUTIONS THAT WILL to ensure they reflect financial performance rather than ONE DAY ALLOW US ALL TO the share price. RENOUNCE THE WEAPONS I am opposed to options that are granted far too OF MASS DESTRUCTION. WE generously with little downside for those receiving them. Another concern is setting options, bonuses, and ARE IN A SMALL COUNTRY other incentives when the share market is suffering a AND WHAT WE DO IS correction. If the share market recovers, the recipients LIMITED. BUT IN THIS AND of these incentives gain considerable benefits unrelated IN EVERY OTHER GREAT to company performance. ISSUE, WE HAVE TO START We have seen the dangers of appointing new CEOs from outside the company. Often, they are overpaid and SOMEWHERE.” seldom achieve the results promised. Recent examples DAVID LANGE include Fletcher Building, The Warehouse and Fonterra. Companies should develop and promote their home- grown talent before looking elsewhere. The danger of

page 13 Back to contents page COMMENTARY

Announcements for new payments are emailed to clients and accessed by postcode. I worry. If, by mischance, the email intended for me gets hacked, can they enter my postcode and access my financial data? Highly unlikely, but feasible. I was unaware of some share consolidations because Computershare relays this information in the middle of an email like a letter from aunty. We should receive notification in the form of a contract note. Transposing the electronic age on to a paper-based system without testing how it works for investors appears to be Computershare’s modus operandi.

Turning to the NZX, I have many questions • Why is there no portfolio dashboard for Smartshares? Beefing About NZX and • When comparing two companies, why is the legend default plastered over the relevant part of the Market Registry Websites graph? I would like to blame the difficulties I have accessing • Why isn’t the relevant registry for a company put the financial world online on being a relative newcomer. on the front-page info for that company? If I want However, as I have blundered about for years, that some details of my holdings, I have to search which would not be true. I will admit to being an average registry they use boomer who likes websites to be user-friendly and • Why is the 200-day moving average unable to straightforward. So, I am ‘beefing’ about the service display simultaneously to the 50-day moving offered by our NZ registries and the NZX. average? Since the relative juxtaposition of these Having drowned in Link’s number of envelopes, I finally two lines is a crucial quotient, it is frustrating succumbed to getting payment details electronically. I • Why don’t column titles lock? When I’m looking discovered that, although there has been a strong push down a column, I want to be able to research data to get clients onto digital comms, Link feels like an without having to scroll back up to the top to find analogue business in a digital world. the column titles Link asks clients to enter their FIN via an email link • Given a column of percentages, what is it a to log into the website to get interest and dividend percentage of, and over what period? payments. How dodgy is that? I do not want to enter my FIN into an email link. One’s FIN is like a banking • Can we have scales on both axes of graphs? PIN, with possibly more at stake. • Can we have a key to all the TLAs (three-letter So, rather than follow a hyperlink on an email, I visit acronyms)? the Link website for the ‘paper’ trail. There is now a Oh well, all first-world problems and worse things ‘recent payments’ page to collate interest and dividend happen at sea. statements, which is a relief, and by clicking the heading, one can even arrange by column. Hoorah! However, it is Jean Gorman still unstable. I have been thrown off the site more times than a teenager from a bar. While we are on the subject of ‘difficult’, the text is dark grey on paler grey. Which “ONE MINUTE, I WAS A young designer with 20/20 vision thought that was a CLAPPED-OUT, TWO-GUINEA, good idea? LEGAL-AID LAWYER, AND Turning to Computershare, one has no way of viewing THE NEXT MINUTE I WAS IN in one place all the portfolios for which one has PARLIAMENT.” responsibility. Portfolios for aged parents, trusts and the cuzzies have to be logged into separately. One also has DAVID LANGE to avoid being routed to the Aussie site.

Back to contents page page 14 page 15 COMMENTARY

External Management: The property companies average return (unweighted) is even lower at 10.3%. The underperforming Asset Plus is Friend or Foe? the smallest company; thus, it has minimal effect on the While I don’t hold shares in any property companies, weighted return. I have noticed the criticism directed at property Falling interest rates have reduced debt servicing companies/trusts that outsource their management to costs, and inflated property values (residential and external property management entities. As most of the commercial) as the markets adjust to lower returns on comment has been negative, I decided to check it out. capital. When coupled with a modest increase in rents, At first glance, I don’t see anything intrinsically wrong these benign conditions should have caused property with outsourcing management, especially for the smaller companies to outperform. I’m not sure why they property companies. But the management fees seem haven’t. relatively high and termination difficult. In brief, the externally managed property companies On the other hand, I also note that the externally have outperformed their internally managed peers by managed utility investment company Infratil largely 14.9% to 9.7% on a weighted basis and 14.3% to 10.9% escapes criticism for its management structure, unweighted. This outperformance boosts the case for despite eye-watering fees. I suspect this is because external management, but there are issues with this Infratil shareholders have been well rewarded. Given type of analysis. this, I thought it appropriate to measure externally The first is the exclusion of the externally managed managed property companies against their internally Asset Plus (APL) from the equation. In 2018, managed peers. I did this by comparing the five-year institutional shareholders ousted APL’s board and total shareholder return (TSR) of the nine NZX-listed management after receiving an external management property companies. Conveniently, there are four with proposal from Augusta. Of note, the principal internal management and four with an external manager shareholders were dissatisfied with the company’s and Asset Plus, which changed from internal to external performance. However, much of the underperformance management midway through the five-year timeframe. has occurred since the change to external management. Market Cap, 5-year TSR, Company Management APL underwent a capital raise following the ($000s) pa management change, but when Covid-19 struck APL’s Argosy Internal 1,309,741 12.2% share price fell sharply, as did other property company Internal 1,883,243 2.8% stocks. Unfortunately, APL’s share price fell below the Property new equity offer price, terminating the capital raise. Six Property for Internal 1,448,765 17.3% months later, APL completed a smaller capital raise at a Industry much lower price and, unlike other property companies, Stride Internal 1,125,331 11.4% the APL share price has not recovered. Essentially, Goodman External 3,144,175 17.6% including APL in the external management data on a Investore External 809,897 12.1% weighted basis changes very little but on an unweighted Precinct External 2,187,417 11.6% basis, the average return falls below the internally Vital managed entities. External 1,681,015 16.1% Healthcare Then there is the problem of outliers. In this case, Asset Plus Mixed 123,324 (8.0%) the internally managed Kiwi Property (KPG) with an almost invisible TSR of 2.8% pa appears to be an I sourced the data for the above table from Yahoo Finance (historical data). These returns account for dividends paid and share splits/consolidations. The methodology is the same for each company bar Investore, which was listed mid-2016 and has a 4.5-year TSR. Out of curiosity, I applied the same measure to the S&P/ NZX 50 Gross Index (NZX-50). And to my surprise, the NZX-50 return of 16.03% pa was considerably above the 12.27% weighted return of the nine listed property companies (the NZX-50 is a weighted index).

page 15 Back to contents page COMMENTARY outlier. If removed, the returns from the internally an unhealthy degree of control, this is limited by managed entities improve markedly, and on a the Financial Markets Conduct Act which precludes weighted basis, almost equals that of the externally managers or associated persons voting if they have managed entities. KPG was tracking quite well until an interest in the resolution other than that as a Covid-19 struck. The share price fell in line with the shareholder. Recently, Northwest could not vote on the other property companies but has not recovered. proposal to split VHP’s NZ and Australian properties This static share price may be due to the perception into separate trusts. VHP’s board unanimously that the company is overweight in retail, which is a supported the resolution, but the unitholders defeated management decision. The company has always been it. Conversely, these substantial shareholdings give internally managed; thus, there is no reason to exclude additional incentive for external managers to ensure the it from this analysis. company they manage outperforms. The primary problem with this type of analysis is My take on the internal or external management issue is that only a small number of companies are involved. that it doesn’t matter. As can be seen in the table above, The law of averages does not apply to small numbers. there are good performers in both camps. My focus The outperformance by the four externally managed would be on the performance, and if I had to choose property entities does not prove the superiority of with all other factors being equal, I would toss a coin. outsourcing management. But it does even less to Don Kinnell validate the merits of internally managed property companies. From what I can see, there are four bugbears with external management. The first is the fees. Invariably, these are high and accompanied by extra payments for NTA increases but no penalties for decreases. But the same applies to internally managed companies. CEO and senior management salaries are similarly generous and come with bonuses for outperformance and no AT A TELEVISED OXFORD penalties for underperformance. If external managers UNION DEBATE, are more expensive, then the externally managed DAVID LANGE AFFIRMED property entities would underperform their internally managed peers. The data above suggests otherwise. THE PROPOSITION, ‘NUCLEAR WEAPONS ARE The second issue is termination. From what I can discern, it is difficult and expensive to terminate an MORALLY INDEFENSIBLE’, external management contract. But it can also be AND ANSWERED AN difficult and costly to shed underperforming CEOs: INTERJECTION WITH to wit, Theo Spierings (Fonterra) and Mark Adamson (Fletcher Building). “I’M GOING TO GIVE IT TO YOU IF YOU HOLD YOUR Another bugbear is that external managers’ interests do not necessarily align with those of the owners BREATH JUST FOR (shareholders/unitholders). Generally, external A MOMENT… managers’ remuneration is related to the net or gross I CAN SMELL THE assets, which incentivises the managers to grow the property portfolio even when the returns are doubtful. URANIUM ON IT CEOs have that same imperative to grow the company. AS YOU LEAN Invariably, the bigger the company, the higher the CEO’s TOWARDS ME.” remuneration package. DAVID LANGE Finally, external managers are generally substantial shareholders of the companies they manage. Of the companies listed above, a 19.9% holding is the norm and Vital Healthcare’s (VHP) manager, Northwest, is the exception with a 25.8% holding. While it appears that substantial shareholdings give external managers

Back to contents page page 16 page 17 BRICKBATS & BOUQUETS

to the IRD for making tax it should have been before 1 April 2020 when the new simpler. On 1 April 2020, IRD system started, not eight months later. And why was introduced new rules for there no follow-up letter for those that did not respond? income investment reporting. Bad call Computershare! This means that if an entity pays dividends or interest, it must provide details of the gross payment, tax withheld, to Synlait Milk for its recent imputation credits and ratio, along with the recipient’s $200m equity raise. This (taxpayer) name, IRD number etc. The payer must submit comprised a $180m placement this data and pass all taxes withheld to the IRD on the and a $20m share purchase 20th of the following month. Ultimately, taxpayers with plan (SPP) with a maximum investment income will only need to review and confirm $50k per applicant and no the tax information furnished by the investment income provision for oversubscriptions. The relatively small SPP payers to the IRD. Well done IRD. looked bad for retail shareholders and even worse when shareholders applied for almost three times the shares reserved for the SPP. However, the results ticked all the to Computershare for boxes. failing to co-operate with All the placement shares went to existing Synlait the IRD’s new investment shareholders. The SPP was scaled relative to the number income reporting system. We of shares held by the applicant, and not the number noticed Computershare had applied for. All SPP applicants received sufficient shares to not furnished our dividend avoid dilution. In addition, the two principal shareholders payments and tax data to the IRD, whereas Link Market (Bright Dairy and a2Milk) committed to accepting the Services had. When asked why, Computershare replied new shares pro-rata to their existing shareholdings, that it had notified shareholders by letter that for joint which obviated the need to underwrite 57% of the new holdings of shares (eg trustees of a trust, partnerships), equity; a considerable saving in cost. no IRD number will be submitted to the IRD unless the IRD number or numbers are confirmed/updated with the registry. So, shareholders with joint holdings who have not done this will find Computershare dividends have not populated their IRD accounts. To us, the above-mentioned letter is a mystery. We have five entities with joint holdings of shares so we should have received five letters. Was the letter sent by email or post? By email because Computershare had our email “BASSETT WAS A MEMBER address. We have searched our emails without result. OF PARLIAMENT AND A So, we asked Computershare for a copy of the letter. COUSIN ON MY FATHER’S Initially, the reply was there is no copy. Really! We asked Computershare NZ managing director, and suddenly a SIDE OF THE FAMILY. copy of the mysterious letter appeared. But the letter was headed: ‘Mandatory Direct Credit for Dividend and MY FATHER DELIVERED HIM Interest Payments’. The preamble was about NZ banks phasing out cheques. Incredibly, Computershare had AND IT BECAME PLAIN IN buried the request for joint holders IRD numbers near LATER DAYS THAT HE MUST the end of the letter, and those who had long departed HAVE DROPPED HIM.” the world of cheques would be unlikely to read that far. DAVID LANGE We suspect that Computershare sent this letter only to investors who received dividend and interest payments by cheque. Computershare sent the letters in batches in November and December, when the banks announced cheques were on the way out. If Computershare sent the letter to comply with the new IRD requirements,

page 17 Back to contents page BRANCH REPORTS

We recognise that branch reports in our newsletter do not adequately represent the expertise and preparation of the presenter, and members are encouraged to refer to the individual company websites for the latest news and disclosures. The work of these professionals who give their time is appreciated by all who attend.

Auckland Branch Company A few attendees started pulling out ahead of the day. I’m used to organising these events with an attrition rate of up Visit: Turners Automotive to 20%. However, about 30 people turned up. There were I’ve been thinking about this report for a while. Whether 11 Turner’s executives at the meeting, including the head of to write some polite, innocuous piece or whether to write each department, plus a comprehensive handout booklet, what I think. And I’ve decided to write what I think. So especially for the event. I arrived early, and right up until just here goes. The visit itself was brilliant, absolutely brilliant. before the meeting started, the men in suits outnumbered I’ll explain why and how later, but let me, first of all, talk NZSA attendees. Our turnout was disappointing: Turners about something else. had gone to a lot of trouble to accommodate many more I began organising a company visit to Turners back attendees. in February 2020. Then Covid-19 interrupted, and I The following is the meeting agenda, taken from Turners’ maintained a sporadic communication with CEO Todd presentation booklet. Hunter to try and keep the idea of a visit in play. Following the national and Auckland lockdowns, I finally announced our visit date, and this generated lots of enthusiasm. I often don’t know how popular a visit will be, (bar Fisher & Paykel Healthcare and Milford, which are always wildly popular), but 52 people put their names down. So, I went back to Todd Hunter, who was accommodating and fantastic to liaise with and mentioned the numbers and the enthusiastic response. It turned out Turners was moving from its large premises at Penrose to new North Shore premises that could only accommodate 30 people, so Mr Hunter booked the Five Knots Event Centre at the Tamaki Yacht Club to accommodate our numbers. As per usual, I sent through final numbers and the names of all attendees to Mr Hunter.

Back to contents page page 18 page 19 BRANCH REPORTS

As you can see, very comprehensive. The visit was well The insurance earnings also partly de-risk the cash flow: organised, thorough, and dense with information; far too insurance premiums are paid upfront and provide an much information for this article. Turners is a diversified annuity-type cash flow. Turners utilises some of the capital business that includes auto retail, finance, insurance and reserves generated from this cash flow to extend its credit management. property portfolio of car-sales sites.

Auto Retail, CEO Greg Hedgepeth EC Credit Control. Credit Division, CEO Dave Turners is NZ’s largest buyer and seller of vehicles. In Wilson FY20, the company sold 33,000 cars, 24,000 damaged This division focuses on debt collection for Turners’ vehicles on behalf of insurers, and $43m worth of trucks business, and also offers its expertise to other companies and machinery. It has geographic diversification, operates (any business type). EC Credit has over 3000 SME clients, 31 locations from Whangarei to Invercargill, and has 465 and it operates in Australia and NZ. employees in the auto retail business. The split of car sales The company has a close relationship with all the NZ to commercial sales (trucks etc) is 80/20. trading banks. For EC Credit’s SME customers who use Turners’ auto sales division initially focused on selling to Xero or MYOB, any invoice generated has the debt wholesalers. However, its business model has evolved to information automatically linked into EC Credit’s database include an increasing number of sales to public buyers. allowing them to closely monitor the required payments These retail sales have a higher margin and the flow-on and take any corrective action if needed. This business is benefit of enlarging the proportion of buyers that access capital-light, a strong cash generator and countercyclical. the group’s profitable financial services. An interesting point covered in Dave Wilson’s presentation Turners’ sales directly to the public accounts for is that the company will, if invited, survey the business to approximately 50% of total car sales and they are easily get a good understanding of its critical components then NZ’s largest car retailer. This scale has given Turners a offer to write up the business’ ‘terms and conditions’ to significant advantage in the NZ market, through the large maximise debt recovery. This survey can be an essential amount of data on the cars it sells and the buyers who tool in avoiding bad debts. purchase them. Turners now use data-driven analytics to Overview enhance the group’s performance. The presentation from Turners was outstanding with the One additional benefit of Turner’s dominant position in the manager of each business segment participating. Each NZ car market is access to the best quality repair service presenter invited questions and answered them in detail. at the best price for vehicles it is selling. This access gives Turners’ executives have a good grip on the business, Turners a significant advantage over smaller second-hand enhanced with a robust online presence and substantial car dealers. data analytics investment. As evident in the presentation booklet, Turners’ financials look sound. The inspection report Turners prepares for every car it sells has a high degree of integrity with buyers to the What struck home with many NZSA attendees was how extent that over the Covid-19 lockdown Turners sold 600 far ahead Turners are with data use. This advantage is due cars sight unseen to buyers. to its dominant sales position, and any existing or potential competitor would have difficulty catching up. Oxford Finance, Group CEO Todd Hunter This financial arm of Turners arranges finance for car buyers whether buying directly from Turners or another used- “WILL THE UNITED STATES car dealer, with the financial assistance package arranged PULL THE RUG ON through Oxford Finance. Finance is a growth business and is now the group’s largest revenue and operating profit NEW ZEALAND? earner. THE ANSWER IS NO. THEY MIGHT POLISH THE LINO Insurance Division, CEO James Searle Insurance is an obvious ‘add-on’ for the car and truck sales A BIT HARDER AND HOPE business. Turners offers an extensive range of insurances THAT I EXECUTE A RATHER related to the purchase and finance repayments for UNSEEMLY GLIDE ACROSS IT.” the vehicle sold, including vehicle insurance, payment protection insurance, mechanical breakdown insurance DAVID LANGE plus term life and funeral insurance.

page 19 Back to contents page BRANCH REPORTS

Dividend Yield One point that appealed was that Turners’ board and management own just under 30% of its shares; excellent UPCOMING alignment of interest with investors! The directors of Turners intend to continue paying 60% to 70% of NPAT EVENTS as a dividend. ALL EVENTS BELOW ARE SUBJECT TO COVID-19 MEASURES

AUCKLAND 16 FEBRUARY COMPANY VISIT: RYMAN 17 FEBRUARY MEETING: PIE FUNDS, CRAIGS 16 MARCH COMPANY VISIT: PRECINCT PROPERTIES DATE TBA COMPANY VISITS: MILFORD & AROA BAY OF PLENTY My husband Stuart was so impressed with the visit and 23 FEBRUARY CRAIGS the information presented that he came home and bought INVESTMENT shares in the company, and he’s a seasoned investor PARTNERS and pretty hard to impress. Not only that, at our last WELLINGTON Auckland branch meeting, quite a few of the members who had attended the Turners’ event said how much they 23 FEBRUARY SAM DICKIE, FISHER FUNDS appreciated the visit. Plus, to my surprise, quite a few also mentioned they had bought shares! I haven’t had that sort SOUTH ISLAND of feedback before. 16 FEBRUARY MARTIN HAWES, TRUSTS: WHAT’S So, about 30 people hugely appreciated an exceptionally NEW well organised and informative visit. On the day of our 18 MARCH MOTOR TRADE visit, the day that most would have gone home and bought FINANCE shares, the share price was $2.65, giving a gross dividend PRESENTATION yield of 7.3%. Turners’ share price at 21 January was $3.35, 16 DECEMBER ANZ BANK and I hope our faith in the company proves rewarding. PRESENTATION The loyal core of members who regularly put their names down as attendees on visits, and turn up on the day, plus companies and CEOs such as Turners and Todd Hunter, make the NZSA company visits worthwhile. “THEY COULDN’T, IN THE NATIONAL PARTY, Fiona and Stuart Gray RUN A BATH AND IF EITHER THE DEPUTY LEADER OR THE LEADER TRIED TO, SIR ROBERT WOULD RUN AWAY WITH THE PLUG.” DAVID LANGE

Back to contents page page 20page 20 page 21 NEW ZEALAND SHAREHOLDERS ASSOCIATION Office 2, Level 5, Cathedral House, 48-52 Wyndham Street, Auckland. 1010, Phone 0800 6972 7478 Email – [email protected] Website – www.nzshareholders.co.nz

EDITOR

Don Kinnell CHAIR [email protected] Andrew Reding [email protected] DESIGN

Bronwen Billinghurst DEPUTY CHAIR [email protected] Samantha Sharif [email protected] PRINTING Pages Design & Print Services Ltd, Auckland. SECRETARY/TREASURER Chris Curlett [email protected] CONTRIBUTORS 021 738 032 Grant Diggle, Jean Gorman, Fiona & Stuart Gray, Des Hunt, Don Kinnell, Oliver Mander, Fiona McLeod, Bruce LEGAL & REGULATORY Parkes, Frank Stewart. Matthew Underwood [email protected] Published six times per annum by Martin Watson [email protected] the New Zealand Shareholders Association. Martin Hawes [email protected] Copy deadline: 1st day of the month of Jerry He (Board Associate) [email protected] publication. Grayson Cobb (Board Associate) [email protected] Publication date: 10th day of February, April, June, August, October, CHIEF EXECUTIVE OFFICER December. Oliver Mander [email protected] Comments or information contained 021 190 5343 in this newsletter or other editions of the Scrip, or within courses conducted by the NZ Shareholders Association RESEARCH CONSULTANT & PROXY CO-ORDINATION including related course books, should Grant Diggle [email protected] not be construed as financial advice under the provisions of the Financial Advisors Act 2008. Our role is solely Branch contacts to provide information on financial South Island Frank Stewart [email protected] products and/or the relevant issuer so that you can make an informed Auckland Grant Diggle [email protected] decision whether to acquire or dispose of those financial products. Waikato John Simmons [email protected] ISSN: The National Library has Bay of Plenty Chris Brown [email protected] allocated the International Standard Serial Number 1179-4275 to the Scrip Taranaki Margaret Egarr [email protected] so that researchers will have access to Wellington Adrian Parkyn [email protected] our material. Barry Lindsay [email protected]

page 21 Back to contents page