AMA : 2021 AGM - Chairman and Group CEO Address

AMA Group Limited

130 Bundall Road, Bundall QLD 4217 ABN 50 113 883 560 (07) 5628 3272 info@amagroupltd.com amagroupltd.com

Chairman's Address to Shareholders

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Despite these COVID-19 related disruptions, we took several steps during the year to focus on, and expand, our core businesses, with a number of operational achievements.

We are very proud that, through the continued focus of the entire AMA Group Team, we delivered a 50% reduction in Lost Time Injury Frequency Rate during the year. We are committed to the safety of our employees and ensuring that AMA Group provides a safe place to work, and this represents a significant improvement across all our operations.

During the first half of Financial Year 2021, the Group divested the ACAD and Fully Equipped businesses. Doing so ensured a greater focus on the collision repair and associated parts supply operations.

In line with our increased focus on the associated parts supply business, we completed the acquisition of Perth Parts Solutions in the first half of Financial Year 2021, expanding the geographic reach of our recycled auto parts supply into Western Australia.

Our Heavy Motor division is a strong contributor to our collision repair business. We continued to expand our national network of Heavy Motor sites, to better service our insurer customers and their policyholders. During the financial year, we completed the acquisition of Western Trucks in Williamstown, Victoria and National Trucks in Newcastle, New South Wales.

For the 2021 Financial Year, the AMA Group reported Normalised Earnings Before Interest, Tax, Amortisation, and Impairments of $71.5 million, which was an increase of 35% on the prior year. Revenue and other income from continuing operations was $919.9 million an increase of 11% on the prior year. This improved result is largely attributable to a full 12 months of trading in respect of the Capital S.M.A.R.T and ACM Parts acquisitions, and the operational turnaround of ACM Parts.

The Group received, and fully passed onto staff, wage subsidies from the Australian and New Zealand governments, which ended in the first quarter of the 2021 Financial Year. These subsidies, combined with the ongoing support and engagement of impacted staff, supported employee retention, and enabled the resumption of trading as restrictions lifted and repair volumes began to recover.

The Group reported a net loss after tax of $99.1 million for the 2021 Financial Year. This result was significantly impacted by the $90.6 million non‑cash impairment of goodwill related to the Capital S.M.A.R.T acquisition. This impairment reflected the risk and uncertainty associated with COVID-19 and related allowances in respect of revenue and earnings projections.

The Group also reduced net debt by $53.8 million during the 2021 financial year, mainly from the proceeds from the sale of the ACAD and Fully Equipped businesses. This asset sale related debt reduction saw us close the financial year with net debt of $173.3 million and $57.7 million in undrawn debt facilities.

With a portion of our debt soon to become current and ongoing uncertainty regarding the impacts of the COVID-19 pandemic on operations, in September 2021 we launched a capital raising and bank facility amendment process, to ensure that the Company was appropriately financed for both the short and medium terms. By early October 2021, the AMA Group had successfully completed a $100 million accelerated 1 for 2.8 pro rata non-renounceable share entitlement offer at an offer price of $0.375 per share and issued $50 million of convertible notes.

We chose this structure to ensure a raising of an appropriate size to achieve the enhanced banking structure, and to have sufficient funds for working capital, liquidity (including for COVID-19 related disruption) and to support growth initiatives. A significant entitlement offer component was chosen, to ensure that our existing shareholders, many of whom are long-term, were able to participate. There was a particular focus on enabling as many of our shareholders to participate as possible, including those in the United States who are usually excluded from doing so.

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Both the Institutional and Retail Entitlement Offers attracted strong demand, and we thank our shareholders for their ongoing support. We were also humbled by the demand for the convertible notes and thank the investors who participated in that process.

Net proceeds from the capital raising were used to repay $72.5 million in bank debt. The amended banking structure has no bank facilities maturing before October 2024. Further, the first covenant test is in June 2022, with testing in June and September based on an annualisation of financial results from January 2022. Covenant testing will then revert to a standard last twelve months basis from December 2022.

AMA Group recently released its first quarterly activities and cash flow report to the ASX, with total available funding of $71 million at the close of the first quarter for Financial Year 2022. Based on the first quarter's cash used in operations of around $13 million, the Group has six quarters of funding, prior to the inclusion of $46 million related to the Retail Entitlement Offer that was received in early October, and assuming the continuation of trading conditions experienced during the first quarter. While the second quarter so far has still been significantly impacted by COVID-19 related restrictions, we expect an improvement in trading conditions as lockdowns cease and the world returns to normal. We saw when the lockdown previously eased in Victoria in early 2021, repair volumes rebounded very strongly. We can already see an increase in traffic in New South Wales and Victoria, so are confident the repair volumes will also rebound strongly.

Turning now to the AMA Group remuneration framework. Since I joined the Board, we have been working to improve both the remuneration framework and disclosure.

The objective of our remuneration framework is to attract, motivate and retain key personnel within our business. It is also designed to align their interests with the interests of shareholders by matching long-term rewards with the long-term performance of the Group.

Following an extensive review process, we have made changes to the 2022 Financial Year long-term incentives, or LTIs, to enhance the alignment between executive remuneration and the shareholder experience during a period of uncertainty for the Group. Additional information is included in the Notice of Meeting, and I will cover off on some key points now.

First, the LTI includes re-weighting executive remuneration to reduce the maximum LTI opportunity for the year for the Group CEO from 150% to 100% of fixed remuneration.

The Earnings per Share Compound Annual Growth vesting condition will be replaced with an absolute Compound Annual Growth Total Shareholder Return vesting condition, with the condition applicable to 50% of the Performance Rights. The purpose of this change is to focus executives on shareholder returns.

The relative Total Shareholder Return vesting condition is now applicable to 50% of the Performance Rights, an increase from 20%, and the Comparator Group has been changed to measure performance against a broader group of companies, with which the Group competes for equity capital.

We have also made changes to the short-term incentive, or STI, arrangements for executives to drive a sense of business urgency. The new STI structure introduces a 50% award deferral into equity to provide executives, particularly those who have recently joined the business, with more connection to shareholders.

We will continue to consider and revise the terms of the remuneration framework to ensure they remain appropriate.

With an enhanced banking structure, the successful capital raising, and a refreshed remuneration framework, we are well positioned for the future.

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On behalf of the Board, I would like to thank the Management team and all our people for their tremendous effort and hard work over what was a challenging year. I'd also like to thank our business partners and customers for their ongoing support. Most importantly, thank you to you, our shareholders, for your ongoing support of AMA Group.

With that, I would like to hand over to Carl Bizon, who will talk more to the future of AMA Group.