Annual meeting

CHAIRMAN’S ADDRESS TO THE 101
st
ANNUAL MEETING
Ladies and Gentlemen,
Results
The year to June 2019 was a successful year. The trading profit after tax was down 10.9% on the
previous year but it was also the second best year on record. The financial year June 2018 was
exceptional as the Company benefited from a very favourable economic environment, with strong
consumer and business confidence. In the last year there was a gradual change of sentiment in the
face of more uncertainty. It was not a dramatic change, but it impacted on our results. In the
circumstances, the directors are very pleased with the result.
The total new vehicle industry for calendar year 2019 is expected to be down on 2018. The total decline
is not great and the mid-term projections are for the industry numbers to level off at the current level,
not continue to decline. It comes after many years of continuous increase. Headline numbers at this
time of the year are heavily influenced by the seasonal purchasing of rental cars, which are not
transacted through dealerships. The extra heavy truck segment of the market is expected to be
minimally up on last year.
Developments
This last year has been a busy one for the company, with a number of long-term projects making
progress or being completed. Some projects come together quickly; others are slow. With property
there can be a delay while waiting for an existing lease to expire, or for resource consents to be
approved.
The developments can be grouped into three headings. Growth, Upgrading, and Repositioning.
Growth
Centring around Queenstown we have:
1. Opened a new dealership in Queenstown, Southern Lakes Motors, to sell Nissan and Mitsubishi
new vehicles in the Central Otago area. It is using the refurbished Company-owned site on
Glenda Drive, Frankton, previously occupied by Macaulay Motors.
2. Purchased a property in Wanaka to be developed into a service centre for the four brands that
are now represented in that area, Ford, Mazda, Nissan and Mitsubishi.
3. Purchased a property at Cromwell to be developed for Agricentre South’s Case IH brand of
tractors and agricultural equipment.
4. Completed a two year project to build a new facility for Macaulay Motors Ford and Mazda on a
Company owned site on Grant Road, Frankton.
New developments are not restricted to Queenstown. Others include
1. A new parts depot for Southpac Trucks at Palmerston North in a leased facility.
2. A new dealership, South Auckland Honda, to represent the Honda brand based at Pukekohe.
3. Southern Autos Manukau will be expanding into Botany with Suzuki cars, Peugeot and Citroen
following the purchase of a property in the area. Development will begin in the new year after an
existing lease expires.
Refurbishment
Over the long term significant investment goes into ensuring that the dealerships operate from
properties that are fresh and fit for purpose. They need to be refurbished, upgraded and modernised.
Distributors also periodically refresh their branding which requires considerable investment on new
signage and brand identification.
In Christchurch there are two large projects that will refresh and modernise both dealerships in the city.
Team Hutchinson Ford’s refurbishment completes the long sequence of events that began with the
Christchurch earthquake. Avon City Ford’s refurbishment was triggered by the need to introduce the
new Ford branding and was extended to encompass the upgrade of an old building.
Other locations that are also being upgraded as part of the Ford rebranding are South Auckland Motors
at Manukau and MS Motors at Nelson. Others will follow in the next few years.
Repositioning
In Wellington a major repositioning of the Ford and Mazda facilities is under way. The company is
responding to the changing demands to successfully operate a dealership in the central city. The hub

and spoke model, which has already been successfully put in place in South Auckland, will be
introduced. This involves a central hub which includes all of the main departments of the dealership
along with regional spokes which concentrate on local service departments. The Wellington regional
hub will be at Lower Hutt where additional land bordering the existing Stevens Motors site has been
acquired. The expanded site will include separate showrooms and retail service for Ford and for Mazda,
as well as combined used cars, parts and administration.
In Wellington City a new large service workshop has been opened at 258 Taranaki Street. Brand stores
for Ford and Mazda have been opened on the waterfront to connect with retail and fleet customers in
the central city.
These new facilities will complement the continuing service centre at Porirua and full sales and service
in Kapiti.
In the 2019 annual report we outlined our strategic direction. CMC has a strong balance sheet and our
intention is to maintain that strength. CMC pays dividends of 60-70% of the tax-paid trading profit after
tax. Dividends carry imputation credits for New Zealand resident taxpayers which adds further value to
many shareholders. The remaining 30-40% is reinvested in the business.
Clearly the developments listed earlier exceed the 30-40% of profit retained in the last year. Some
projects are spread over multiple years due to their complexity or scale. Sometimes the timing is within
the control of the Company, but often it’s not. Opportunities occur when they present themselves.
However, when looking at this over a medium term, profit retention and capital expenditure are similar.
For the period from 2015 to 2019 our capital expenditure has been around 100% of our retained profit
after tax, but over a longer period, ten years, it has been around 50%.
Queenstown fire
The new dealership for Macaulay Motors in Queenstown opened in January 2019. Only five months
later in May there was a petrol fire in the workshop. The building was quickly evacuated, one person
required medical assistance but was not hospitalised. The fire was contained in the workshop, it did
not spread to the sales area of the building. The damage was fully covered by our insurance. A new
roof has been fitted and the interior reinstated. The fire was serious but could have been a lot worse.
Electric vehicles
Electric vehicles are receiving significant media attention at present. We sell electric vehicles where
we have a franchise that supplies them. Nissan in Hastings and Queenstown, Hyundai in New
Plymouth, and Kia in Nelson. Sales are slow. Dealerships report significant interest but that does not
continue into transactions. At around $60,000 to $75,000 the price to value is a major objection. Our
volume brands, Ford and Mazda, do not at present supply fully electric vehicles. Mazda is building a
fully electric vehicle that is expected to be available in NZ next year. Ford in NZ are putting more
emphasis on hybrids, including plug in hybrids, with hybrid Escape, Mondeo and Transit van due next
year.
At the media and political level there is huge interest in electric vehicles but this has not translated into
sales. In part, it is due to unrealistic expectations. The price gap between an equivalent petrol vehicle
and a new battery electric is material; higher than most customers are prepared to pay. New models
come out with vastly superior range, making the previous model obsolete. What will be the impact of
cheaper but short distance Chinese electric vehicles? Are full hybrids, mild hybrids, or plug in hybrids
good enough? Only one thing is certain, the new technology will cost more to purchase. The cost is
exacerbated when the alternative is a cheap second hand import.
Only two or three years ago the media was very enthusiastic about autonomous cars; road accidents
would be eliminated, private ownership of cars would disappear and old US rustbelt car companies
would be superseded by technology start-ups. Today there is a quieter acknowledgement that full level
5 autonomy may never occur. Meantime some of that technology is appearing in modern cars but not
the full revolution predicted only a few year ago.
Directors
At the conclusion of this meeting Denis Wood will be retiring as a director of The Colonial Motor
Company. Denis joined the board in 2011. Before joining the board, Denis had a background in
merchant banking and was used to looking at the bigger financial environment and The Colonial Motor
Company’s place in it. When he started The Colonial Motor Company was just coming out of the global
financial crisis with a share price of $2.65. Today it is around $8.90. On top of that, $3.00 of dividends
have been paid out over the 8 years that he has been a director. The average gross return to
shareholders during Denis’s time on the board, capturing share price movements and dividends, has
been 18.50% per annum. I would like to thank Denis for his contribution to the Company, not just as a
director in the last 8 years, but over the much longer time that he has had an active interest in the
Company.

Over the last decade the board has varied between six and seven members. Currently it’s seven but
following Denis’s retirement, it will revert to six. There will not be a direct replacement.
Government Clean Car plans
In August the Ministry of Transport published its discussion paper on two schemes, the clean car
standard and the clean car discount. In broad terms they both taxed light vehicles coming into the
country according to their CO
2
emissions. The first scheme required the importer to balance their
imports, and at the end of the year to pay a penalty based on their average CO
2
emissions against a
target that quickly tightened over 5 years. The second scheme is better understood as a feebate
scheme, where higher emitting vehicles are taxed and lower emitting vehicles receive a rebate.
If only it were so simple, but the problems are in the details.
The penalty on a new vehicle importer is set at $100 per gram over the target, but used vehicles would
be half this rate, $50 per gram, and private imports will pay no tax. If there is going to be a tax on
emissions, why should second hand imports be taxed at half the rate? Private imports would flourish.
The importer would have to pay the tax at the end of a year and it could be significant. The Motor Trade
Association estimate that, on the current mix of vehicles, it would raise $1.4 billion through to 2025, or
$650m under the best achievable pathways.
The tax would have to be passed onto the consumer, simply as a general price increase. It will not be
clear how much tax applies to a given vehicle. Smaller, lower-priced new vehicles are generally very
price sensitive and perversely it is those smaller, lower-emitting vehicles that will probably become
uneconomic to bring into New Zealand.
The proposed scheme is a transplant from a jurisdiction that does not have second hand imports or
private imports; that for a long time has had supporting policies such as high fuel taxes and high annual
registration costs. Thirty years ago, New Zealand had high taxes on vehicles, to support local assembly,
to save overseas funds, to restrict demand; all very laudable purposes back then. But the regulatory
framework emphasis for the last thirty years has been to enable the supply of cars as cheaply as
possible to every adult in the country.
The feebate scheme also has numerous flaws. For example, some vehicles will carry a tax levy under
the clean car scheme and get a rebate under the second scheme. It has problems with commercial
vehicles, or with how to refund the vehicles that qualify for a rebate. There are numerous problems,
but they are indicative of a poorly structured proposal, not the core of the proposal itself.
The proposals are poorly thought out, with little understanding of the vehicle market in New Zealand.
But deep down, we do have to look at how we can reduce New Zealand’s transport emissions. There
will have to be changes, but the changes have to be effective.
CMC made a submission towards a cleaner, greener, safer vehicle fleet.
It started with the significant growth of the NZ fleet. Since 1990, the population of NZ has grown 41%,
but our light vehicle fleet has grown by 85%. Our national fleet has grown from 2.5 million vehicles to
4.3 million today. It’s also one of the oldest, with an average vehicle age of close to 15 years. The
average age of second hand imports is 10 years on arrival in New Zealand. Changing the mix of the
fleet in New Zealand will take a long time, or a significant and currently unthinkable change in the
public’s expectations.
CMC submitted that a tax on vehicles needs to be transparent and understandable. There should be a
public education campaign to influence and change demand.
New technology that has lower emissions needs to be encouraged. New lower-emission technology is
wider than just electric vehicles. The average emissions from new vehicle arrivals with internal
combustion engines is currently 180 grams of CO
2
per kilometre and falling. The potential supply of
zero emission electric vehicles is limited.
A well designed feebate scheme can be part of a package to influence demand to lower emissions. All
policy options in this area involve increasing the cost of buying, owning, or using a vehicle.
CMC recommended a feebate proposal where a vehicle is assessed when it is imported and that tax is
shown on the compulsory Consumer Identification Notice at point of sale. New, Used and Private
imports should be taxed at the same rate per gram of CO
2
per kilometre. CMC recommended that the
average is set at a level that is neutral towards small light cars with efficient petrol or diesel engines, so
that the scheme in total is tax neutral, i.e. higher emitters subsidise lower emitters.
Trucks
Southpac Trucks will be introducing a new line of DAF trucks early in the new year. This will be a
significant change, with new cabs and engines, across all derivatives. The engines will all be Euro6
compliant. Heavy commercial Euro6 emission standards have been compulsory in Europe since 2015

but not compulsory in New Zealand. The new Euro6 engines offer more horsepower than the existing
Euro5 engines; burn less fuel and, of course, have lower emissions. The new trucks offer more safety
features and, as part of the introduction of the new model, Southpac has launched a driver training
program to educate drivers on how to get the most efficiency from the new technology available to them.
Outlook
In my opening paragraph I referred to the gradual change of sentiment in the face of more uncertainty.
That uncertainty continues and has impacted on our results for the first quarter of this year. The first
quarter profit was down on the same period last year, shared equally between the car dealerships and
heavy trucks. There is no predictable seasonal pattern. One poor quarter does not necessarily mean
that the next will be similar. The result for the six months to December 2019 will be down on last year.
We live in a commercial world of risk, uncertainty and change. For this Company, that is normal. It is
one of the reasons why we put so much emphasis on ensuring we have a strong balance sheet and
that our property assets are fit for purpose into the future. We can adapt. Our capital structure, our
property assets and very importantly our focus on operational profitability, all mean we can meet the
challenges that are out there.

15 November 2019

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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






2019 ANNUAL MEETING OF SHAREHOLDERS


The 101
st
annual meeting of shareholders of The Colonial Motor Company Limited
was held in Wellington today, 15 November 2019.
All four resolutions put to the meeting were passed by shareholders. The results of
the polls are set out below
Resolution
Votes in
favour
Votes
against
Percent
in favour
1. To re-elect James Picot Gibbons as a
director of the company.
18,381,721 469,687 97.5%
2. To re-elect Matthew James Newman as a
director of the company
19,207,408 399,687 97.9%
3. To elect John William Michael Journee as
a director of the company.
19,605,604 1,491 100.0%
4. 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.
19,607,095 0 100.0%
Denis Michael Wood retired as a director with effect from the end of the meeting.
By order of the board of
The Colonial Motor Company Limited




N K Bartle
Company Secretary
15 November 2019