2020 Annual Meeting

CHAIRMAN’S ADDRESS TO THE 102
nd
ANNUAL MEETING

Ladies and Gentlemen,

Results
It has been a challenging year. Revenue for the first eight months was down on the previous
year, but it was part of a longer term trend, there were no surprises. There were numerous
dark clouds on the horizon, all with the potential to impact on the trading conditions, but they
had not materialised and had been there for some time. Meantime, it was business as
usual.
In March, business as usual ended. Covid quickly moved from someone else’s problem to a
real threat. The impact was sudden, starting before lockdown, in mid-March, as consumer
confidence fell. March Group revenue was down 37% on the previous year, an indication of
what to expect when lockdown was announced at the end of the month.
Lockdown had a dramatic impact, especially on the car dealerships. Suddenly all of the
dealerships were to go into hibernation at the same time. There would be very little income
for the duration of the lockdown, and probably very weak consumer demand after that. The
Company had money in the bank and unused credit lines, but how long would it last. The
immediate focus was cash control. That was the context of the decision to cancel the
previously announced dividend.
At dealership level, cash control is a combination of operating expenses and managing
inventory. Both were managed exceptionally well.
The dealerships management, all of them, faced unprecedented problems, pressures, and
huge uncertainty. In addition, as individuals, they had to cope with the numerous personal
pressures that arose. They managed exceptionally well. I want to acknowledge and thank
them for that effort. Past experiences, such as the Christchurch earthquakes in 2010 and
2011, the GFC in 2009 and 2010, and the market upheavals in the 1990’s all helped shape
awareness of what needed to be done.
Cash was retained, employees were retained, customers were retained.
Some numbers. Revenue for the second half of the year was down 24%, 17% for the full
year, with the worst month, April, down 82% on the previous year. Despite the revenue
drop, employment was retained, total employees at the end of June was 965, only 3% down
on the same time 12 months earlier. Total remuneration paid for the full year, including the
wage subsidy, was actually up, from $75.9 m to $76.1m. The wage subsidy received during
lockdown contributed around 40% of the actual remuneration costs for the period.

The revenue bounce after lockdown ended started unevenly, but soon was stronger than
expected. Revenue in March, April, and May were all materially down, but June revenue
was only down 2% on the previous year. Revenue in the first quarter this year, covering
July, August and September, is down by the same 2%. We have bounced back to a level of
revenue that is similar to last year. But we have not recovered the revenue lost during
lockdown or the periods immediately before and after. The significant revenue lost in March,
April and May has not been recovered.
The market post-Covid is different to the immediate past. There are very few new rental
cars, so total industry numbers, comparing this year with last year, give a confusing picture.
Near new used vehicle sales are strong, the complete reversal to predictions back in April. It
all adds up to good numbers, but it could all suddenly slow down if consumer confidence is
hit again. But for now, to use a concept that is familiar to salesmen, buyers are buying, not
just looking. Its day-by-day trading, but it adds up.
There are two key strengths that helped the Company through the last six months. One is
the strong balance sheet and the other is the depth and experience of its management.
The Company has two major asset groups on its balance sheet, inventory and property.
There is very little goodwill or long term right of use leases. Borrowing is short term, used to
fund current inventory. Our balance sheet does not lock us into yesterday’s trading patterns.
Our assets are all marketable. We can expand or reduce as conditions dictate. A national
lockdown was never on anyone’s list of foreseeable risks, but hibernation for a period of time
caused by a lockdown is possible when there is strong balance sheet.
The second strength is the experienced management. The Company has a very small
Wellington office, only 6 employees. Most operational decisions are made at the individual
dealership level, by experienced managers who understand their responsibilities and thrive
on the autonomy. It’s not easy balancing the often conflicting demands of customers,
employees, and franchisors, all while staying profitable. But the challenges build
experience, and employment stability leads to depth.
This management structure has evolved over time reflecting the specific circumstances that
have shaped the Company for the last 100 years. The shareholding has been stable, and
with that there has been stability at Director and at CEO level. Over the past 100 years there
have only been 4 CEO’s and 9 Chairmen. Another contributing factor is the long term nature
of the franchise relationships, especially, but not restricted to Ford. The senior level stability
filters down to the individual dealership managements. The result is a stable core of people
with huge experience.
However change does come, and as announced earlier, the CEO, Graeme Gibbons, will be
turning 65 in a year’s time, and will be retiring from his role as CEO next year. He will
however continue in his role as a director. Graeme has been CEO since 1990, 30 years.
Succession is a gradual transition to a new leadership team in the CMC Office consisting of
Alex Gibbons, June Gibbons, and Paul Stephenson. Not surprisingly with a small office and
long tenure, job descriptions reflect the personalities and personal skill sets of the people
involved. Succession will not be a replacement of like with like.

Both Alex and June are Gibbons family shareholders, but Paul is not. Alex and June are in
the 35 to 40 year age group.
Paul has a financial background and is currently the Finance Manager at the CMC office.
Before coming to the CMC two years ago, he was the CFO at an aged care provider,
Heritage Life Care. Alex started with Southpac trucks in 2015, later moving to the CMC office
initially specialising in information technology and more recently as General Manager. Alex
did a double major in Marketing and Economics at Otago University followed by a Masters
Degree in Marketing Management. June started at Stevens Motors in 2016 and is currently
the CFO for Capital City Motors where she has been heavily involved with the integration of
Stevens and Capital City Motors. She will be transferring to the CMC office in mid-
November. June has both a Bachelor of Arts and a Bachelor of Science degree from
Victoria Wellington, and a Master of Science in Resource Management from TUM University
in Munich, Germany.
There is depth of experience surrounding the new team, above at Board level, and below at
dealership CEO level. There will be a gradual phased change with Graeme remaining
available.
Property
The Company had an unusually large number of property developments and upgrades
under construction or just completed during the year. Most have been in the planning stage
for some time, the longest, Tuam Street in Christchurch goes back to the 2011 earthquakes.
Covid has delayed the completion of many, some significantly. All projects that were under
construction before lockdown will be completed, some others that had not physically started
have been deferred (to next year).
In central Otago, Agricentre South’s new Case Tractor service centre in Cromwell was
opened in September. This is a new purpose built, company owned facility, replacing an
older leased facility.
Nearby at Wanaka a new Company- owned service centre has just been opened. This is a
new concept, one half of the building branded Macaulay for Ford and Mazda, the other half
branded Southern Lakes for Mitsubishi and Nissan. Individually, none of them could justify
being in Wanaka, but a cluster of four can.
At Christchurch work is underway to put the city’s planned greenway through Team
Hutchinson Ford’s workshop. This is a major project, involving demolishing part of the
1930’s era workshop and rebuilding the administration and sales buildings, with the
greenway running through the middle of the property. The project is expected to be
completed early in 2021.
Lower Hutt. This is another large project. Following the purchase of properties alongside
the existing Stevens Motors site on High Street in Lower Hutt, work is underway to build
separate Ford and Mazda showrooms and workshops. This project has had significant
Covid delays and is not ready in time for the previously committed exit from Taranaki Street
in Wellington City. Merging two dealerships into one is difficult enough, more so with the
complications of working around the shifting requirements of a building site.

Auckland. South Auckland Motors has occupied its current site on Great South Road since
1986. Over that time the building has been modified many times to adjust to changing
requirements. This time, when adjusting the facility to the latest Ford and Mazda branding
requirements, it was decided to address the long term roof and gutter leaking problems with
the building. The fully upgraded showroom was officially opened two weeks ago.
At Botany, the Company purchased a site at 271 Botany Road and is developing this into a
Suzuki and Isuzu facility for Southern Autos Manukau. This is quite separate from the South
Auckland Motors Ford and Mazda Botany facility on Harris Road.
Finally at Nelson, the new separately leased facility for Nelson Kia in Rutherford Street was
occupied early this year.
Trucks
Southpac’s year started with planning for a major model change for the DAF truck line
featuring a Euro6 compliant range, new cabs and specifications, to be launched in the first
quarter of 2020. As part of this plan, additional inventory was ordered. Southpac entered
lockdown with a full inventory of the new model, and an interrupted launch program.
However, lockdown for Southpac was not as severe as it was for the car dealerships, as
many of the heavy truck customers were classified as essential. Parts, servicing and some
replacement trucks for those customers who were essential service providers, was able to
continue though under strict controls. Primary producers in particular continued working
through lockdown. Consequently Southpac did not get the dramatic revenue falls
experienced by the car dealerships, but nor did it get the dramatic rebound after lockdown.
Southpac’s two brands, Kenworth and DAF have different ordering cycles, with Kenworth
mainly built to specific customer requirements, while DAF are ordered as standard builds.
Australian assembly of Kenworth’s continued through the Victoria, Australia lockdowns, and
the pre-build of the new model DAF insulated Southpac from build shortages in Europe.
Southpac’s forward order position is improving month by month. Logs are being milled,
livestock is being moved, and goods transported around the country, and Southpac keeps
that side of the economy working.
Holden
General Motors decision to close down the Holden Brand in New Zealand and Australia is a
reality check on the small scale and international significance of the New Zealand new
vehicle market. At a world level, right hand drive is the minority. The big markets, North
America, Europe and China, are all left hand drive. Right hand drive is restricted to Japan,
Britain and the old British Commonwealth countries. Not only is right hand drive a minority,
but on a world level, it’s scattered and fragmented. General Motors do not have a presence
in Japan, and when they sold their British and European subsidiary, Opel, it was obvious that
Australia and New Zealand were not big enough to justify a full range of specially adapted
products. In a way it’s surprising that they did not exit immediately after selling Opel.
New Zealand is in the minority right hand drive market, and within that it has quite distinct
preferences. Unlike right hand drive Britain, we like automatics; unlike right hand drive
Japan, we like vehicles that can tow.

As the international car markets evolve and increasingly fragment into different technologies,
we cannot assume that our preferences will always be available.
Holden’s exit from New Zealand, is one less competitor, but it is not a cause of celebration.
Instead it creates problems for everyone. It upsets the balance between dealers and their
franchisors, as the old Holden dealers look to swap their empty sites into other brands and
some franchisors use the opportunity to change their dealers. The partnership, the tension,
between franchisor and franchisee is delicate; the exit of Holden exposes how delicate the
relationships are.
Outlook
This financial year has started on a positive note. Despite a 2% drop in overall revenue,
trading profit for the first quarter, July to September, is up on last year. This reflects ongoing
skilled management of details to ensure the best result from the available activity. It is not a
growing market, but it’s much stronger than earlier economic projections. There are some
forward orders, some supply shortages. If it carries on at the current level, then the half year
will be ahead of last year. But, it can all suddenly slow down again. Confidence is fragile, we
all live for today, and start again tomorrow.

J P Gibbons
CHAIRMAN

6 November 2020

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PO Box 6159
Wellington
New Zealand 6141
DX SP21009
Level 6
57 Courtenay Place
Wellington
Telephone 04 384-9734
Facsimile 04 801-7279
Email cmc@colmotor.co.nz
Website www.colmotor.co.nz





2020 ANNUAL MEETING OF SHAREHOLDERS



The 102
nd
annual meeting of Shareholders of The Colonial Motor Company Limited
was held in Wellington today, 6 November 2020.

The three resolutions put to the meeting were passed by the Shareholders and the
results of the polls are:

Resolution
Votes in
favour
Votes
against
Percent
in favour
1. To re-elect Stuart Barnes Gibbons as a
director of the company.
16,601,447 38,140 99.8%
2. To re-elect Graeme Durrad Gibbons as a
director of the company.
16,639,587 Nil 100%
3. To record the on-going appointment of
Grant Thornton as auditor of the company
and to authorise the directors to fix the
auditor’s remuneration.
16,638,587 Nil 100%

By order of the Board of
The Colonial Motor Company Limited

J G Tuohy
Acting Company Secretary

6 November 2020