CHAIRMANS ADDRESS TURNERS LIMITED ANNUAL MEETING 14 September 2016 SLIDE 2: AGENDA Ladies and Gentlemen, welcome and thank you for being here today at the 2016 annual meeting of shareholders of Turners Limited. My name is Grant Baker and I am the chairman of the board. Today is an opportunity for you to hear from both myself and our CEO, Todd Hunter, on the positive progress we are making at Turners and new initiatives we have underway to further boost our company s growth. Following our presentations, there will be an opportunity for discussion and any questions you may have in regards to the presentations. We will answer questions on the resolutions at the time they are proposed and there will be a further opportunity at the end of the meeting for you to ask any other general questions about the company and our operations. SLIDE 3: DIRECTORS Before we start, I d like to introduce you to my fellow directors Paul Byrnes, who stepped down as CEO last year and remains as an executive director, focused on M&A activity; Matthew Harrison, Alistair Petrie, John Roberts and Antony Vriens. As has been notified to the NZX, John Gosney was up for re-election this year but has decided to retire at today s meeting. John has been a director since May 2008, initially as an independent director and more recently as a representative of the Hugh Green Investments, which is one of Turners largest shareholders. John has been an important contributor to the company s restructure and reemergence following the GFC, and his experience in property transactions and development has been particularly valuable during that time.
Hugh Green Investments is not seeking a replacement and at this stage, and we are not looking to appoint another director to the board. It was also very sad to lose director Michael Dossor earlier this year. Michael had been associated with the Turners brand for over 50 years. He had been a director of Turners Auctions since it listed in 2002 and chairman of that board from 2003. He joined the Turners Limited board in January 2015, and was an active and positive contributor. Alistair Petrie was appointed to fill the vacancy left by Michael s death and will be standing for election by shareholders today. A number of our directors either have their own shareholdings or represent third parties who have significant holdings in our company. We believe this creates further alignment with all our shareholders, with everyone benefitting as we deliver increasing value. As our company evolves, we regularly review board composition, and the skills and experience needed to add value as we continue to grow. In the last two years, we have appointed three new directors, two of whom are independent. Alistair Petrie and myself are both up for election or re-election today and are happy to answer any questions you have later in the meeting. SLIDE 4: LEADERSHIP TEAM Our leadership team has also grown in the past two years, and a number of our senior managers and staff are here with us today. Welcome to all of you. I am particularly pleased to welcome Todd Hunter to his first annual meeting as our new CEO. Todd was previously CEO of Turners Auctions before it de-listed and is now both CEO of the Turners Automotive business and also of the wider Turners Limited. He succeeded Paul Byrnes in June this year. Also in attendance today are the company s auditors, Staples Rodway and other advisors. Thank you to all these firms that provide valuable services to Turners.
SLIDE 5: CHAIRMAN S ADDRESS The Notice of Meeting and the 2016 Annual Report and financial statements have been circulated or made available to shareholders. A quorum is present and I therefore declare the meeting open. SLIDE 6: INTEGRATED AUTOMOTIVE FINANCIAL SERVICES GROUP We have a clear vision to build an integrated automotive financial services organisation, where we not only provide valuable finance, insurance and debt management services, but also have access to a highly targeted group of customers. Turners continues to grow and our focus is primarily in the Automotive sector, where we operate in both the transactional market as well as offering automotive and other non-automotive finance and insurance products. We also have a strength in debt management, building on our capability in the financial services sector. While each of our businesses is profitable on a stand-alone basis, there is also a nice synergy between all three of our operating areas Automotive Retail provides opportunities to cross sell our finance and insurance products; and while our bad debt levels are very low, at about 1%, our debt management business provides credit management services that can aid our businesses if needed. SLIDE 7: GROWTH STRATEGY Our strategy remains very much focused on growth. Each of our businesses has specific opportunities to grow in their own market and we are always identifying and assessing accretive mergers and acquisitions. Cross-selling within our businesses is also aiding our growth. As an example well over 50% of our automotive insurance products are generated from within the group. Our people are key to our growth strategy and we now have over 560 employees, many of them long term staff members. This is up from 42 staff just six years ago! We encourage them to continually seek new and better ways to service their customers, which will in turn deliver growing returns to our company.
We will continue to invest into building a strong team and providing a workplace that rewards their efforts. On behalf of the board and management, I would like to acknowledge and thank all our employees for their contributions in the last year. SLIDE 8: A GROWING NATIONAL FOOTPRINT Our growth is not just commercial, it s also physical and our footprint has continued to expand. We now have a national network of 27 branded automotive retail sites.and our online retail presence continues to grow. We have a referral network for our financial and insurance services of approximately 500 sites across the country, and our debt management business has offices in New Zealand and Australia. SLIDE 9: GROWTH STRATEGY DELIVERING INCREASING RESULTS We have a continuing track record of year on year improvements. Earnings are growing and we are gaining market share while shareholder value is increasing. In the past five years, operating revenue has increased from just under $10 million to $172 million and our tax paid profit has grown from a loss to over $15 million. Importantly, our shareholders funds have also increased, up 437% in the past five years to $130 million. This is a reflection of both organic growth and smart acquisitions which are adding value to our group. We continue to set ourselves challenging profit targets and to date, we have exceeded every guidance and budget target set. SLIDE 10: EARNINGS PER SHARE AND DIVIDEND We are proud to be able to translate these returns into value for our shareholders through the commencement of dividend payments in 2014. For FY16, we paid a full year dividend of 13 cents per share. As announced, we are moving to quarterly dividend payments, which we believe will deliver a more regular earnings stream to our shareholders. We expect future dividends to be fully imputed, and our policy remains a payout of between 50% and 55% of net profit after tax.
SLIDE 11: ADDRESSING THE VALUE GAP While we have delivered significant year on year improvements in our financial results, more than doubled the size of our company and developed a clear vision and strategy, we don t believe this has been recognised in our market value. Our share price has not kept pace with our successful track record, growing by only 10% in the past four years. The board is very aware of this and has identified a number of strategies to improve market awareness of Turners Limited as a positive and valuable investment opportunity. Along with a focus on improving financial performance, we are looking for more opportunities to tell our story. We re committed to keep the market updated on our progress and will be looking to increase our communications and provide more information on the current and future opportunities open to us. We are undertaking more frequent engagement with the investment community in both institutional and retail markets. We have strengthened our share register and are encouraging investment from a wider shareholder base, particularly retail shareholders. In addition, our shareholders will be rewarded with more regular, quarterly dividend payments. Finally, and pleasingly, both First NZ Capital and Craigs Investment Partners have confirmed they will be commencing analyst coverage of Turners. Another good opportunity to share our story. SLIDE 12: FUNDING FOR GROWTH We have a diversified debt and capital funding base. Where appropriate, we use shares as part payment for acquisitions, as we have done recently for the Buy Right Cars acquisition. During FY16, we also undertook a buyback of small shareholdings and a 1:10 share consolidation to strengthen our share register. Our borrowings are to fund our loan book growth and acquisitions, and we are pleased to have a long term and supportive banking partner. We have headroom to fund potential opportunities, a number of which are currently under review.
We re currently implementing a securitisation funding model, which will reduce our cost of funds, create further growth headroom and strengthen our funding base for our finance business. Our bond programme also provides additional funding for our acquisition programme. As you will all know our current bond programme is due to mature at the end of September and a new programme is to be offered, conditional on shareholder approval at today s meeting. SLIDE 13: BOND PROGRAMME Bonds have proven to be a cost-effective and successful funding channel and we have had strong support from our shareholders. 75% of current bondholders have exercised the option to receive their returns worth nearly $17.5 million - in Turners shares rather than cash, which is a great outcome for our company and reflects the bondholders confidence in our strategy. We are proposing a new two year, $25 million bond programme at an annual interest rate of 6.5%. This is a similar structure to the 2014 programme and existing bondholders will be given preference. We have received positive feedback from the market on this program. SLIDE 14: FY16 HIGHLIGHT EVENTS The 2016 financial year was another one of positive progress for Turners. We acquired two new businesses Greenwich Life and Southern Finance, and increased our investment in Motor Trade Finance to 8%. Acquisition growth has continued into the current financial year, with Pacific Life and Buy Right Cars joining our group. We welcomed Alistair Petrie to the board, and Todd Hunter was announced as the new CEO for Turners Limited. As mentioned, we also strengthened the share register, completing the buyback of small shareholdings and a 1:10 share consolidation. SLIDE 15: STRONG PLATFORM FOR CONTINUED GROWTH Turners Limited is in excellent shape, and we have an exciting future ahead of us.
We have a clearly defined strategy and a portfolio of strong businesses delivering sustainable profits and increasing cashflows. We operate in a growth sector automotive sales are increasing and with that comes a corresponding uplift in demand for automotive finance and insurance products. Our growth strategy is bearing fruit, with a number of opportunities to continue building our business through smart acquisitions, cross-selling and organic growth. We have a strong capital structure and a relatively conservative balance sheet, with plenty of capacity to continue funding our growth. The experience, knowledge and skills of our leadership team are essential elements in our success, and their activities are overseen by a professional and engaged board. We are focused on continuing to deliver increasing value for our shareholders. Thank you for your support for our company. SLIDE 16: CEO S ADDRESS I will now pass you over to Todd Hunter to provide more detail on each of our businesses and our performance in the past year. SLIDE 17: THE TURNERS BUSINESS The Turners group is made up of businesses operating in three different but integrated sectors. We primarily operate in the automotive sector, with approximately 80% of our revenue and operating profit derived from either automotive sales or related finance and insurance products. Automotive retail delivers two thirds of our revenue but at lower margins. Finance and insurance revenue generation is lower, but it provides a high percentage of our profit. We also have a strong capability in debt management services, for both automotive and non-automotive businesses.
SLIDE 18: FY16 RESULTS AT A GLANCE The 2016 year was one of which we are very proud. Revenue and earnings were both up on the previous year, including a full 12-month contribution from Turners Group and eight months from Southern Finance. Net profit before tax was up 13% to $21.6 million, and if you exclude $7.0 million of one off gains in the previous year, it was 50% higher. Net profit after tax of $15.6 million, was fully taxed and exceeded our guidance. Pleasingly, all our operating businesses delivered an improved trading result you can see the evolution of our business over the past five years, reflected in the chart at the bottom. SLIDE 19: AUTOMOTIVE RETAIL, OUR BUSINESS Automotive Retail is the main engine of our group. We have a multi-channel strategy in place and are focused on providing more and better ways for retail customers, in particular, to buy and sell vehicles from us. The industry is highly fragmented and despite holding the number one market position, Turners has less than a 10% share. We have started to build on this, and recently acquired Buy Right Cars, a group of successful car dealerships in Auckland. Turners is a household name with strong brand qualities and recognition. There is an enormous opportunity for us to leverage the value in this brand. SLIDE 20: AUTOMOTIVE RETAIL, CUSTOMER ORIGINATION AND CROSS SELL The Automotive Retail business not only delivers a transactional margin on each sale, it also provides opportunities to cross sell our automotive finance and insurance products to these customers. We are investing in all steps of the customer process better engagement and marketing to attract customers, more channels and opportunities to make it easy for customers to buy and sell from us; and improving how we interact with customers and cross sell our finance and insurance products.
SLIDE 21: AUTOMOTIVE RETAIL, THE OPPORTUNITY The Automotive Retail sector is growing and is at its highest level since the GFC, with nearly 1.4 million transactions last year. We expect to see this growth continue particularly as the large number of vehicles imported in the mid-90s reach the end of their life. Just a quick insight into this there are over 700,000 vehicles registered on NZ roads that are more than 20 years old. Turners is well placed for growth and we have a number of initiatives underway to increase our market share, including building our online presence, creation of new mobile technologies to make it easier for our customers to transact with us, developing partnerships with other retail businesses, and M&A opportunities. SLIDE 22: AUTOMOTIVE RETAIL, FINANCIAL TRACK RECORD Revenue from the Automotive Retail business has continued to grow. The balance date was changed in FY15 following its acquisition by Turners Limited, so we have normalised the figures for that year as if it had been a 12-month period. Revenue increased by 9% in 2016, consistent with the five-year growth rate, while operating profit was up 45% reflecting an increase in higher margin retail sales, and improvements in attach rates of finance and insurance products. Our decision to separate trucks and machinery from our car business, and invest into two standalone sales yards has proved successful, with a 26% increase in trucks and machinery sales in the past year. SLIDE 23: BUY RIGHT CARS Buy Right Cars is an example of smart investment into growth for our Automotive Retail business. It is a leading Auckland-based motor vehicle importer and dealership network. The acquisition expands our Auckland footprint, which was underweight compared to other regions, and adds capability through its compliance and service centre. A large percentage of their sales are financed, which provides cross sell opportunities for our finance and insurance business.
The business is generating strong profits and is expected to deliver in excess of $4 million in operating profit in the first year. We believe we can realise additional synergies and back office efficiencies which will also drive up returns from this acquisition. SLIDE 24: FINANCE AND INSURANCE Finance and Insurance is our biggest profit generator. We own a number of brands and businesses and offer flexible finance and insurance products, mostly for automotive customers, but also for small businesses and personal customers. Our products are sold both directly and through a network of 500 dealers and brokers. Having a direct link to the origination transaction, through Turners Automotive, is beneficial for us as it means less competition and more control over our relationship with the customer. Our finance book increased 17% to $168 million in FY16 and is funded by a mix of bank debt and shareholder funding. As Grant has mentioned, we are implementing a new securitisation funding model, which will require us to hold less capital and will be more cost effective. SLIDE 25: FINANCE AND INSURANCE, THE OPPORTUNITY Approximately 80% of used car purchases utilise some form of financing and we estimate there are approximately 350,000 transactions per year. To put that in context, currently we finance approximately 11,000 transactions per year so there is huge opportunity for growth. The market is highly fragmented and very competitive and third party lending, through dealerships, plays a large part. We have very strong relationships with dealers across New Zealand and continue to invest into these and ensuring we have a competitive offer. We have continued to develop our relationship with MTF since building our shareholding up to 8% over the last 12 months. We are currently working with MTF on a partnership arrangement to help them extend their product offering in the finance and insurance space.
SLIDE 26: FINANCE AND INSURANCE, FINANCIAL TRACK RECORD Financially, this group of businesses is a really strong performer, despite the increasing competition. Interest income was up 26% in the last year and other revenue, mostly insurance revenue, was up 43%. The number of loans and new insurance policies continues to grow, and we are consistently achieving new milestones in motor vehicle breakdown and insurance policies sold per month. In August we sold over 1,400 general insurance policies up from 760 policies sold a year ago. We acquired Greenwich Life during the year, and added Pacific Life to our portfolio following year end. While these are smaller acquisitions, they provide new distribution channels for the life products. SLIDE 27: DEBT MANAGEMENT We have one business in the debt management sector, EC Credit, which provides a total debt management solution for New Zealand and Australian customers. It has a growing reputation in Australia and is recognised as a major player for corporate collections in New Zealand. This is reflected in the revenue split with 60% being generated in New Zealand. The business is highly cash generative and requires very little capital to run. It is a great solid earner for our company. SLIDE 28: DEBT MANAGEMENT, THE OPPORTUNITY There is still plenty of room for growth and we have identified a couple of sectors, where we have a strong offer and can build our customer base. These include the SME market in both New Zealand and Australia, where we can offer a one stop shop solution, and the corporate debt market, particularly in the banking sector. We are getting close to landing a banking client in Australia the sales cycles are long and a test of our fortitude, however we are getting closer. Technology is changing how credit management services are delivered and we are monitoring this trend and identifying ways that we can use this to our advantage. The use of data is an area of particular interest. Projects like using data to build a
Collections Scorecard which allow us to rank debtors on a propensity to collect basis could significantly improve our collections performance and our cost to collect. SLIDE 29: DEBT MANAGEMENT, FINANCIAL TRACK RECORD This was a record year for our debt management business despite the economic slowdown in Australia, where approx. 40% of revenues are derived. The increase was mainly driven by demand from New Zealand banks and institutional clients. The focus in FY16 was on improving business efficiencies, and strengthening the management team. SLIDE 30: GROWTH OPPORTUNITIES So, where to next for our company? There are significant opportunities for growth and we are focused on both M&A, led by Paul Byrnes, organic growth within each of our businesses and cross-selling opportunities. Automotive Retail and Finance and Insurance are our targeted growth areas. In Automotive Retail, we will continue to seek both organic growth and acquisition opportunities. We ll continue to build on our successful multi-channel retail strategy and target retail customers. The opportunity in the second hand Trucks & Machinery market is proving attractive and we will look to keep building our presence in this area. Acquisitions of strategic property sites are becoming an increasingly important part of the growth strategy for Turners Group to allow for further footprint expansion as the business grows, and to achieve stronger control over property overheads. In August, we announced the purchase of a third property, in South Auckland, to accommodate our growing Trucks & Machinery business, and we are working on another deal in Wellington at the moment. In Finance and Insurance, we are looking to build sales, both through direct channels as well as our dealer and broker networks. Motor Trade Finance has a growing network and offers a new channel for our business. We are progressing the securitisation programme, which will allow us to reduce funding costs, and will also look to consolidate our brands and back office. Acquisition of quality bolt-on businesses will also be considered.
Technology offers opportunities for our business and we will continue to identify ways to connect with a wider audience, making it easier for our customers to transact with us, and improve efficiencies. SLIDE 31: CARTOPIA Cartopia is an exciting new initiative that we are currently launching. It is New Zealand s first online-only car store, designed to deliver a premium experience for customers. Extensive research amongst the thousands of customers in our database allowed us to identify the things that they were looking for and incorporate them into our new online store no pressure browsing, convenience, transparency and compelling pricing. Along with this, we ve introduced a 7 day right of return and delivery to your door. Cartopia takes advantage of the growing popularity of online-only car purchases in the United States for example, some of the largest car retailers are now online only. It leverages Turners Group s existing infrastructure, processes and capability, and extends its nationwide bricks and mortar presence into the online world. We are very excited about this new channel and following a soft launch, we will be investing into marketing and advertising to build awareness from late September and over the next 12 months. SLIDE 32: AUTO APP Auto App is another new initiative utilising technology. This is a new online loan approval platform, designed inhouse, which provides fast turn around on loan approvals for dealers and brokers. We have received great feedback since a limited launch in May this year and will be rolling it out across the rest of our finance businesses over the next 12 months. SLIDE 33: FY17 OUTLOOK For the five months to 31 August 2016, results are ahead of budget and well ahead of the same time last year.
We expect to report an interim profit after tax of around $11.6 million for the six months to 30 September 2016. We would expect around 10% year-on-year organic growth from our existing businesses with contributions from any M & A activity in addition to this. Thank you for listening, and please take the time to walk around the warehouse after the meeting to see the business in action. I will now pass you back to Grant Baker. SLIDE 34: QUESTIONS AND DISCUSSION I would now like to invite questions in relation to the annual report or today s presentations. There will be an opportunity later on to ask questions about each formal resolution as they are put to shareholders. If you have a question, could you please clearly state your name if you are a shareholder, or, if you are a proxy holder or corporate representative, please state the interests you represent. SLIDE 35: RESOLUTIONS AUDITORS REMUNERATION I would now like to move to the formal resolutions notified in the Notice of Meeting. Voting on each of the resolutions will be by poll. Staples Rodway, the company s auditors, will act as scrutineers. Please use the voting paper you received in the mail or were given when you registered for this meeting. If you do not have a voting paper, you will be able to request one when the voting takes place. Only shareholders, proxy holders or corporate representatives of a shareholder may vote on the resolutions.
The first resolution is to record the reappointment of Staples Rodway as auditors of the Company and authorise the directors to fix the auditors remuneration. Are there any matters for discussion or questions from the floor? I would like to put this resolution. Please mark your voting paper Thank you. SLIDE 36: RESOLUTION 2 TO 4: DIRECTOR APPOINTMENTS The next two resolutions relate to Director appointments. Since the Notice of Meeting was issued, John Gosney, who was due to retire by rotation, has advised that he will not be seeing re-election. Resolution 2 relates to to my own re-election so I will ask Paul Byrnes to lead discussion on this resolution. First, I would like to say a few words in support of my re-election. Thank you. I ll now hand over to Paul. [hand over] The resolution is to re-elect Grant Baker as a Director. Do shareholders have any questions for Grant? I would like to put this resolution. Please mark your voting paper. Thank you. I would now like to pass the Chair back to Grant. Resolution 4 is the election of Alistair Petrie as a director. Alistair was appointed by the Board in January 2015. Alistair has over 15 years of senior management experience in private and listed companies and extensive sales and marketing knowledge. Alistair represents Bartel Holdings, which has just under 7% shareholding in Turners. I will ask Alistair to say a few words in support of his election. I would like to put this resolution. Please mark your voting paper.
SLIDE 37: RESOLUTION 5 AND 6: ISSUE OF SHARES The next two resolutions relate to the issue of shares to the vendors of Buy Right Cars, under the sale and purchase agreement. Resolution 5 is to approve and ratify the issue of 612,000 shares on 29 July 2016 at an issue price of $3.00 each. Under the NZX Listing Rules, the company is allowed to issue up to 20% of its issued share capital in any 12 month period without prior shareholder approval. The Company can refresh that capacity, when part or all of it has been utilised, by obtaining shareholder ratification. The ratification would then provide us with more flexibility to issue shares as consideration for further potential acquisitions in the current 12 month period. Are there any questions for discussion? I would like to put this resolution. Please mark your voting paper Resolution 6 is to approve the further issue of shares at an issue price of $3.00 each, to the vendors of Buy Right Cars, for the first of two earn out periods for the year ending 29 July 2017. The number of shares will be determined by the business performance of Buy Right Cars during that earn out period. Are there any questions? I would like to put this resolution. Please mark your voting paper SLIDE 38: RESOLUTION 7: BOND ISSUE The final resolution relates to the issue of two year Bonds and the potential issue of shares on any future conversion of those Bonds into shares of the Company. The bond programme is similar structure to the 2014 issue. The details have been outlined in the explanatory notes for the Meeting.
The proceeds from the Bond issue is to be applied towards repaying existing financing for Turners including redemption of existing bonds; and providing additional funding for Turners ongoing acquisition strategy. A number of our larger shareholders have indicated that they will participate in the further Bond issue. An independent appraisal report states that the offer of Bonds to the related parties identified in the Notice of Meeting is fair to shareholders not associated with those persons and is in the best interests of the Company. Are there any questions or discussion in regards to this resolution? I would like to put this resolution. Please mark your voting paper. Thank you, that concludes the formal voting. SLIDE 39: VOTING Many shareholders, who are not attending this meeting, have voted by proxy. Proxies were received for 37 million shares, being 58% of total shares on issue. If you have any difficulty completing your voting paper, or do not have one, please raise your hand and someone will assist you. Once everyone has finished voting, the scrutineers will collect the voting papers. << 3 minute pause>> Scrutineers will now collect the voting papers. Could shareholders please pass their voting papers to the scrutineers as they pass. The results of today s voting will be posted to the NZX as soon as practicable. SLIDE 40: OTHER BUSINESS AND CLOSE OF MEETING That brings the formal part of the meeting to a close. Is there any other business shareholders would like to discuss in regards to today s presentations or Turners progress?
I therefore call the 2016 annual meeting of shareholders closed. Thank you all for your attendance today. I would like to invite you to join Board and management for refreshments.