SPECIAL MEETING FOR SHAREHOLDERS AWF GROUP 2.30pm 18 November 2013, at Quality Hotel, Parnell, Auckland

Transcription

1 SPECIAL MEETING FOR SHAREHOLDERS AWF GROUP 2.30pm 18 November 2013, at Quality Hotel, Parnell, Auckland CHAIRMANS INTRODUCTION Good afternoon Shareholders, Guests, Advisors, Staff, interested attendees My name is Ross Keenan I currently Chair of AWF Group and so it is my pleasure to Chair this shareholders meeting. As appropriate I would like to introduce my fellow Directors Simon Hull - Founder Managing Director Ted van Arkel - Independent Director Julia Hoare Independent Director Mike Huddleston Chief Executive Officer And David Sutherland Chief Financial Officer You will be aware that there is only one resolution to be dealt with today, but we want to take the opportunity to talk a little about the AWF Group journey as it is the 25 th Anniversary of the birth of AWF Group Mike Huddleston will update you on his vision for the Group; We are mindful of our release on Friday that painted for the first time in many years a decline in earnings for the first 6 months. Although we were pleased to advise an interim dividend of 6.4 cents (same as previous year). We are finding the New Zealand business environment at the moment both confusing and disappointing and undoubtedly somewhat different than the seemingly hyped up comments about the economy throughout the country being on a roll, and desperately short both now and forecast for skilled resources. Maybe so in prospect but not for AWF now. We have invested heavily in skills development (including importing by assisted immigration/visa etc., electrical, construction, plumbing and specialist trade staff) but we have not yet seen a match of the costs of our investment, to the revenue

2 opportunity. We think that resources we invested (too soon) in both skilled resources and in Regional areas and we continue to carry the cost of that but the activity is not occurring. When we segment that, (and I won t repeat the slow uptake in Christchurch detail), but the fact is with the Gold price well down and with consents still awaited in some other mining areas there is logic in the decline at the moment in our mining resource provision. Whilst a number of our previously strong rural supply contractors are experiencing contraction in their own activity it is a somewhat different experience for us that the shortage of skills calls occurring elsewhere. As you must expect we have challenged Management about maintenance of market share. As has been said in the years after we listed in 2005, Shareholders often asked about expansion plans and often we commented about examining opportunities. Most recently we noted a commitment to enter the Health Sector where we saw an increasing call for temporary and specialised resourcing in that sector. In 2010 we did enter that sector but in the end found that there were no available synergies with the core AWF Business and further that the revenue sources were few, complex and able to be manipulated by large state Agencies. And so when we received the opportunity to exit profitably from a Group who were looking to improve their competitive position to be able to influence their revenue strength we took the opportunity. So that Sale and a very strong AWF core performance is how we started the new financial year with zero debt, whilst managing to lift dividends consistently in recent years. It is worth reflecting the core AWF Group has very strong cash flow and a debtor s book superbly managed which does enable the Group to maintain dividend levels as we have just announced even where there is a dip in underlying earnings for a period. So I thought I might just cover off the considerations that the Directors made in reaching the position of recommending the proposed acquisition of Madison Group AWF must grow and continue to deliver strong returns to shareholders With a well-established national footprint geographical expansion was insufficient as a goal Our considerations re: growth were only around NZ We had zero debt and therefore were capable of a significant acquisition

3 We had been in discussion with MADISON for 18 months and had determined that now the motivations of vendor and purchaser were aligned The acquisition was affordable Madison had a history of earnings growth Madison had set reasonable targets for sustainable growth within a business mix which would complement AWF Madison had a strong balance sheet and cash flow-which would therefore not require AWF to invest further capital-or be diverted by financial crises of any sort Madison was well led-had a very focused depth of management which/whom we would incentivize to continue within the wider group Madison was in a sector which would complement AWF-and enable the group to offer wider/full service-and thus be more attractive to corporate NZ Madison had a broad revenue base which did not overlay AWF in any way Madison was a well recognised and respected brand with a high quality client base attractive to AWF And so with outlining why Madison Group fits AWF Group goals I would now like to invite Mike Huddleston to reflect and comment about the Group as it is and as it will be should the acquisition proceed. CEO Presentation to Shareholders Good afternoon to our shareholders and thank you for attending today. I am sure you will be interested in knowing more about Madison Group, the business which AWF hope to acquire on 2 nd December, and AWF s rationale and plan for the future with Madison on board. For some years now we have been advising shareholders that we were looking to expand the scope of the AWF business. If we step back 5 years, AWF was a strong company with 20 years of development under its belt and with concentration of its business in providing blue collar temporary staff to construction, roading and general labouring. Our challenge at that time was to gain greater recognition and expand further into the other sectors of blue collar temporary staffing such as manufacturing, food production and transport and logistics. These sectors of the business were dominated by our international competitors. In recent years we have continued to concentrate on expansion within the core blue collar sector by development of our Trades brand to ensure we are able to provide not just unskilled and semi-skilled temporary staff but also skilled trades people to industry. All along the way, we have been searching for the right opportunity to expand our temporary staff offering outside of the blue collar sector and into white collar recruitment. This was the natural progression and our clients were telling us that

4 they wanted providers who could offer a one stop shop solution. Let me give you an example: In 2010 we lost the business of a substantial national Government SOE to whom we had been providing blue collar staff across the entire country for many years. We lost this business not because of our service delivery but because we could not also provide this business with customer service focused staff; with call centre staff and with white collar recruitment services, together with our existing offering. This loss reinforced for us the need for this expansion. I can tell you today that since we announced our intention to acquire Madison there has been a significant level of excitement within our clients and prospects about the opportunities the one stop shop will create. We have already been asked to jointly present to one of the country s major businesses. We have been discussing and negotiating with Madison for two years. We always felt that Madison was the only company that perfectly fitted our expansion plans. It offers a complementary range of predominantly white collar temporary staff services which fit perfectly with AWF s offering. Our client bases do not cross over but instead provide a significant expansion. The size of the acquisition is well within the scope and ability of AWF whilst Madison is substantial enough to substantially strengthen our market leadership. The best thing we have seen in Madison is that the company is well established and well respected with a well-run team of very exciting professional people. In a short time, and even before we have completed any acquisition we have been able to create a strong rapport, become comfortable that we can work together and that we can create significant benefits for our shareholders by enhancing the level of business we offer and widening our client base. The cultures of AWF and Madison are not the same. The difference between delivering blue collar and delivering white collar are quite pronounced. For this reason we have no intention of merging the operations of Madison and AWF. In our evaluation of the business and of the price we should pay we never saw the acquisition as one which would create synergies and generate quick gains. We saw it instead as a strongly performing business and a leader in its market with substantial opportunity for growth. Having said this we do see opportunities in the future for expansion of Madison outside of the metropolitan areas and into some of the larger cities and towns where AWF is already strongly represented. The Madison business is to a degree counter cyclical to AWF in that as the economy strengthens the temporary labour sector becomes more challenging whilst permanent recruitment takes the fore. Madison spans white collar temp, contracting and permanent placement as is therefore well placed to benefit. We are already witnessing this scenario where AWF is facing a market with a

5 tightening supply of labour whilst Madison is exceeding its budgets with strong revenues from contracting and permanent placement. The acquisition of Madison by AWF will create a Group generating revenues of approximately $200million, almost 3 times the size of any of our competition in New Zealand. Underlying earnings for the first full year of the consolidated group are expected to lift to $8million. As we have said in our recent notice to shareholders underlying earnings per share could increase from approximately 20cps to 30cps for the 2015 financial year. We have received many comments over the last few years regarding AWF s lazy balance sheet. We have operated with very strong cash flow and a pretty much ungeared balance sheet. The acquisition of Madison will clearly change this position. In the first year after acquisition we will carry $30million of new debt on the balance sheet and this has the potential to increase to $36million after November 2014 assuming Madison hits its target expectations. As a business in the same field as AWF, Madison enhances the cash flow of the Group. Whilst we are perfectly comfortable with this new debt level we do have decisions to make over the next year as to whether we simply pay down this debt or whether we seek new equity from our existing and new shareholders. We will not make this decision until we have bedded in Madison and the Group is operating at optimum performance. I hope I have given you a clear picture of Madison as a business and of our rationale for wishing to acquire this business, Thanks you Mike Huddleston Chief Executive Officer o And then to the Resolution I would just like to reflect on the key elements of the resolution and the approvals we are seeking from you this was covered off in the explanatory in more detail:- The purchase price is an initial payment of $30 million to be settled on Monday 2 nd December 2013 Settlement shall be achieved by the AWF Group drawing down the above funds through a facility agreed by the Groups current Bankers ANZ. It should be noted that this facility also includes the provision for a further $6 million to fully meet the earnout provisions The facility is interest only until 1 December 2015

6 Madison is currently tracking to meet all financial objectives contained in the Sale & Purchase Agreement If that continues then in the 2014/15 financial year the combined Group would lift AWF E.P.S. by around 50% And so to the resolution which is: That the shareholders confirm and approve, including for the purposes of section 129 of the Companies Act 1993: (a) the acquisition by the Company of all of the shares of Madison Recruitment Limited and Madison Force Limited ( Madison Acquisition ); and (b) the Company obtaining financing from ANZ Bank New Zealand Limited to fund all or part of the purchase price payable in respect of the Madison Acquisition on, in the Board s opinion, arms length commercial terms ( Financing Arrangements ) Ross B Keenan Chairman