The Warehouse Group 2017 Interim Results Announcement
The Warehouse Group Limited
26 The Warehouse Way
Northcote, Auckland 0627
PO Box 33470, Takapuna
Auckland 0740, New Zealand
phone +64 9 489 7000
fax +64 9 489 7444
web www.twg.co.nz
9 March 2017
Listed Company Relations
New Zealand Exchange Limited
The Warehouse Group Limited
Unaudited results for the 26 weeks ended 29 January 2017
Attached financial information as required by NZX Listing Rule 10.4.2
1. Appendix 1 disclosures for the 26 weeks ended 29 January 2017, Summary
Income Statement for the 26 weeks ended 29 January 2017 together with
second quarter sales
2. 2017 Interim Result Presentation
3. Media Release
4. Appendix 7 detailing a distribution of ordinary dividend of 10.0 cps to be paid on
13 April 2017 to those shareholders on the company’s share register as at
5.00pm NZT 3 April 2017
5. Interim Consolidated Unaudited Financial Statements for the 26 weeks ended
29 January 2017
6. Auditors Independent Review Report
Kerry Nickels
Company Secretary
---
Reporting Period
Previous Reporting Period
REPORTED Amount (NZ$ 000s) Percentage change
Revenue from ordinary activities NZ$ 1,622,183 up 3.4 %
Profit from ordinary activities after tax attributable to
shareholders
NZ$ 13,555 down (76.3)%
Net profit attributable to shareholders NZ$ 13,555 down (76.3)%
ADJUSTED Amount (NZ$ 000s) Percentage change
Adjusted profit from ordinary activities after tax attributable to
shareholders
NZ$ 39,677 down (12.9)%
Adjusted net profit attributable to shareholders NZ$ 39,677 down (12.9)%
Distributions Amount per share Imputed amount per share
Interim dividend 10.00 cents 3.8889 cents
Record date - Interim dividend 03 April 2017
Payment date - Interim dividend 13 April 2017
Comments
Asset Backing January 2017 January 2016
Net tangible asset backing per ordinary share 109.2 cents 117.1 cents
Basis of Report
Accounting Standards
This market announcement is based on financial statements which have been the subject of a review by the Group's auditor.
The auditor's review report and the financial statements are provided with this preliminary final report.
The information below supplements the information disclosed in the attached financial statements and management
commentary. All figures are NZ$ unless otherwise stated.
The interim financial statements of the Group have been prepared in accordance with the requirements of the Financial
Reporting Act 2013, the Companies Act 1993 and the New Zealand Stock Exchange (NZX). The Warehouse Group Limited is
registered under the Companies Act 1993 and is an FMC Reporting Entity under Part 7 of the Financial Markets Conduct Act
2013.
THE WAREHOUSE GROUP LIMITED
Results for announcement to the market
1 August 2016 to 29 January 2017
3 August 2015 to 31 January 2016
Refer to media release.
Reporting Period 1 August 2016 to 29 January 2017
Previous Reporting Period 3 August 2015 to 31 January 2016
GLOSSARY OF TERMS USED IN THIS RELEASE
"Reported" information is per the audited financial statements
"Gross Profit" equates to Retail sales less retail cost of goods sold
"EBIT" refers to Earnings before interest and tax from continuing operations
"Operating Profit" refers to EBIT from continuing operations less unusual items
"CODB" refers to costs of doing business and equates to the difference between gross profit and operating profit
"NPAT" refers to Net Profit after tax and minority interests
"Retail operating profit" refers to operating profit excluding the financial services business
"Adjusted NPAT or Adjusted Profit" refers to NPAT adjusted for the after tax effect of unusual items.
THE WAREHOUSE GROUP LIMITED
Supplementary Information
"Unusual items" refers to any profits or losses from the disposal of properties or investments, goodwill impairment, direct costs
and adjustments relating to business acquisitions or disposals and costs connected with restructuring the Group
"Trading EBITDA" refers to Earnings before interest, tax, depreciation and amortisation from both continuing and discontinued
operations
- 2 -
Reporting Period 1 August 2016 to 29 January 2017
Previous Reporting Period 3 August 2015 to 31 January 2016
SUMMARY INCOME STATEMENT
(NZ $000)2017 2016 % Change
The Warehouse975,097 973,081 + 0.2%
Warehouse Stationery 138,775 137,789 + 0.7%
Noel Leeming422,149 379,844 + 11.1%
Torpedo786,402 76,126 + 13.5%
Other group operations5,436 10,114 - 46.3%
Inter-segment eliminations(15,997)(16,505)
RETAIL SALES1,611,862 1,560,449 + 3.3%
Finance business10,321 8,080
TOTAL REVENUE1,622,183 1,568,529 + 3.4%
The Warehouse59,508 65,486 - 9.1%
Warehouse Stationery 6,455 6,009 + 7.4%
Noel Leeming9,207 6,390 + 44.1%
Torpedo72,424 1,712 + 41.6%
Other group operations(7,670)(3,801)
RETAIL OPERATING PROFIT69,924 75,796 - 7.7%
Finance business(5,155)(2,679)
TOTAL OPERATING PROFIT64,769 73,117 - 11.4%
Gain/(Loss) on disposal of property(812)5,391
Gain on business disposals- 9,950
Operating model restructuring costs(3,961)-
Goodwill impairment (Financial Services Group)(22,714)-
Contingent consideration- 675
Direct costs relating to acquisitions- (479)
Equity earnings of associate- 723
EBIT (Earnings Before Interest and Tax)37,282 89,377 - 58.3%
Net interest expense(8,878)(9,402)- 5.6%
Income tax expense(14,766)(18,881)
TAX PAID PROFIT13,638 61,094 - 77.7%
Minority interests(83)(3,893)
TAX PAID PROFIT13,555 57,201 - 76.3%
ADJUSTED PROFIT39,677 45,553 - 12.9%
OPERATING MARGIN
The Warehouse6.1 % 6.7 % - 60 bp
Warehouse Stationery 4.7 % 4.4 % + 30 bp
Noel Leeming2.2 % 1.7 % + 50 bp
Torpedo72.8 % 2.2 % + 60 bp
Retail Group4.3 % 4.9 % - 60 bp
TAX PAID PROFIT MARGIN0.8 % 3.7 % - 290 bp
THE WAREHOUSE GROUP LIMITED
Supplementary Information
- 3 -
Reporting Period 1 August 2016 to 29 January 2017
Previous Reporting Period 3 August 2015 to 31 January 2016
ADJUSTED NET PROFIT RECONCILIATION
(NZ $000)2017 2016
ADJUSTED NET PROFIT39,677 45,553
Add back: Unusual items
Gain on business disposals- 9,950
Direct costs relating to acquisitions- (479)
Operating model restructuring costs(3,961)-
Goodwill impairment (Financial Services Group)(22,714)-
Contingent consideration- 675
Gain/(Loss) on disposal of property(812)5,391
(27,487)15,537
Less: Taxation
Income tax relating to unusual items1,336 (1,509)
Income tax expense related to depreciation recovered on building disposals29 1,234
Unusual items after tax(26,122)15,262
Minority interest- (3,614)
NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT13,555 57,201
Operating model restructuring costs - refer Financial Statements note: 14
Financial Services Group goodwill impairment - refer Financial Statements note: 10
Property disposals - refer Financial Statements note: 9
Business disposals - refer Financial Statements note: 15
Directly attributable acquisition costs - refer Financial Statements note: 16
Contingent consideration
During the previous half year period the Group settled the final instalment of contingent consideration payable on the Insight Traders
acquisition (September 2012) for $0.675 million less than the amount previously estimated.
During the current half year the Group sold two store properties, and a parcel of land for a combined net consideration of $14.904 million
realising a pre-tax loss of $0.812 million. During the first half of the comparative year the Group sold one store property and a parcel of
surplus land which realised a pre-tax profit of $5.391 million.
THE WAREHOUSE GROUP LIMITED
Supplementary Information
Certain transactions can make the comparison of profits between years difficult. The Group uses adjusted net profit as a key indicator of
performance and consider it provides a better understanding of underlying business performance and the Group also uses it as the basis for
determining dividend payments (after adjusting for losses from the Financial Services Group). Adjusted net profit makes allowance for the
after tax effect of unusual items which are not directly connected with the Group’s normal trading activities. The Group defines unusual items
as any profits or losses from the disposal of properties or investments, goodwill impairment, direct costs and adjustments relating to business
acquisitions or disposals and costs connected with restructuring the Group.
Directly attributable acquisition costs relate to the costs associated with increasing the Groups TWFSL shareholding from 49% to 100% in
September 2015.
Business disposals represents the sale of the Group’s Pet.co.nz business and also a notional business disposal of the Group’s associate
investment in The Warehouse Financial Services Limited (TWFSL).
The Group is making a series of changes to its business operating model. The changes are designed to drive an improvement in financial
performance, reduce costs and generate greater customer relevance. One-time restructuring costs of changing the business operating model
are estimated to be between $10 million to $13 million of which $3.961 million were incurred prior to balance date with the remaining costs
associated with the transition expected to be incurred in the second half of the current financial year.
The goodwill associated with the Groups investment in the Financial Services Group has been fully written off after a period where the
trading performance has been below expectations and a strategy review has indicated that it will take longer for the loan book to achieve the
desired scale with a breakeven date for the business forecast in 2021 rather than 2018 as previously expected.
- 4 -
Reporting Period 1 August 2016 to 29 January 2017
Previous Reporting Period 3 August 2015 to 31 January 2016
Quarterly Retail Sales information:
SalesSales
(1 August 2016 to 30 October 2016)
20172016
(NZ$ Million) (NZ$ Million)
The Warehouse 377.5 373.9 + 1.0 % + 1.7 %
Warehouse Stationery63.7 62.8 + 1.4 % + 2.3 %
Noel Leeming (NLG)183.6 163.9 + 12.0 % + 10.5 %
Torpedo737.8 33.9 + 11.5 %
SalesSales
(31 October 2016 to 29 January 2017)
20172016
(NZ$ Million) (NZ$ Million)
The Warehouse 597.6 599.2 - 0.3 %
+ 1.0 %
Warehouse Stationery75.1 75.0 + 0.1 % + 0.3 %
Noel Leeming (NLG)238.5 215.9 + 10.5 % + 9.5 %
Torpedo748.6 42.2 + 15.2 %
SalesSales
(1 August 2016 to 29 January 2017)
20172016
(NZ$ Million) (NZ$ Million)
The Warehouse 975.1 973.1 + 0.2 %
+ 1.3 %
Warehouse Stationery138.8 137.8 + 0.7 % + 1.2 %
Noel Leeming (NLG)422.1 379.8 + 11.1 % + 9.9 %
Torpedo786.4 76.1 + 13.5 %
Store Numbers
201720162017201620172016
Start Quarter 293 92 77 77 67 66
End Quarter 292 93 77 77 67 66
201720162017201620172016
Start Quarter 2504,551 497,702 73,472 70,549 71,959 71,222
End Quarter 2501,098 501,143 73,591 71,079 71,959 71,222
- - 1 -
- - - -
- 1 - -
First quarter sales
Change in
sales
Change in
same store
sales
Year to date sales
Store footprint (Square Metres)The Warehouse
THE WAREHOUSE GROUP LIMITED
Supplementary Information
Second quarter sales
Change in
sales
Change in
same store
sales
Noel LeemingWarehouse Stationery
Change in
sales
Change in
same store
sales
The WarehouseNoel LeemingWarehouse Stationery
Noel Leeming
Store changes during the quarterNew Store
Replacement
stores
Store Closure
Store
Extension/
Reduction
The Warehouse
Warehouse Stationery
-5-
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_________________________________________________________________________________
To: Market Information Services Section
NZX Limited
_________________________________________________________________________________
Auckland, 9 March 2017
The Warehouse Group (NZX.WHS) Interim Results for the 26 weeks ended 29 January 2017
A mixed first half performance across the portfolio
The Board of The Warehouse Group today announced an Adjusted
i
Net Profit After Tax result of $39.7M for the
half (HY17), down 12.9% compared to $45.6M in HY16, in line with recent guidance. Reported Net Profit After Tax
for the period was $13.6M compared to $57.2M in HY16. Group retail sales for the period were $1,611.9M, up
3.3% compared to HY16.
First half performance was mixed across the brands with a subdued peak seasonal trading period and intense
competition driving margin pressure. Weak performance in the core Warehouse (‘Red Sheds’) business coupled
with a larger year on year loss in Financial Services could only be partially offset by the strong results from Noel
Leeming.
Gross profit of $519.0M at Group level increased by 1.2 % compared to HY16 while costs of doing business of
$449.1M increased by 2.8% compared to HY16 with employee costs representing the largest component of the
increase.
The Group has recognised significant one-off costs in the period in the reported result (excluded from Adjusted Net
Profit) arising from Group operating model changes ($4.0M) and the full non-cash impairment of goodwill relating
to prior Financial Services ($22.7M) acquisitions. Further restructuring charges will be recognised in the second
half as the changes to the Group operating model are implemented.
Work has progressed on strategic initiatives in the first half including changes to the Group’s operating model that
are necessary to accelerate our strategy. The emphasis on range curation and EDLP (every day low prices) is
making steady progress. These are all important steps to position the business for the future to maintain relevance
to our customers, reduce complexity and drive operating efficiency.
The Warehouse
The Warehouse (‘Red Sheds’) reported sales of $975.1M for HY17, an increase of 0.2% or $2.0M compared to the
same period last year. Same store sales increased 1.3% in the half. Operating profit for the half was $59.5M, a
decrease of $6.0M or 9.1% on HY16.
Weaker demand in seasonal categories and promotional changes in the first quarter impacted sales momentum.
Transactions were slightly lower than HY16 but offset by increased basket values. An increase in the direct
sourcing mix in the period helped to counter some of the margin pressures including currency movements.
Warehouse Stationery
Warehouse Stationery (‘Blue Sheds’) reported sales of $138.8M for HY17, an increase of 0.7% or $1.0M compared
to the same period last year. Same store sales increased 1.2% in the half. Operating profit of $6.5M increased by
7.4% over the same period last year.
Solid demand over the peak trading period contributed to a steady underlying performance and market share gain.
Sales mix provided some gross margin challenges, but were offset by cost management.
Noel Leeming
Noel Leeming reported sales of $422.1M for HY17, an 11.1% increase on the same period last year. Same store
sales increased by 9.9% in the half. Operating profit for the half was $9.2M, an increase of $2.8M or 44.1% on
HY16.
Market share gains supported by successful promotional events and offers, together with a focus on margin
management have contributed to a strong performance in the period. Most categories performed well and the main
challenge continues to be high mix of low margin cellular phone sales. Year on year growth is expected to soften
in the second half as the business cycles the anniversary of the exit of Dick Smith from the market.
Torpedo 7 Group
Torpedo7 Group reported sales of $86.4M for HY17, up 13.5% on the HY16. Operating profit of $2.4M increased
by 41.6% over the same period last year. The performance of the Torpedo7 retail stores continued to build in the
period and the 1-Day online daily deals business delivered profitable growth.
Financial Services
The Financial Services business reported an operating loss of $5.2M for H1 FY17, increased from $2.7M in HY16,
which was a period when the company was still in pre-launch for a time. The transition from the legacy Westpac
JV businesses delivered results weaker than expected and incurred costs of change. With card spend below
expectations these have contributed to the increased losses in the period. Following a detailed review of the
business by the Financial Services Board, a non-cash impairment of goodwill of $22.7M has been recognised in
the reported result. This reflects the difficulties of an early-stage business with developing cash flows supporting
the strategic value component of business acquisitions. Actions taken in the period have stabilised the performance
of the business ahead of the new CEO joining the business in March.
Online
Group online sales in NZ were $106.2M, up 25.1% compared to the same period last year. The Warehouse
business saw an increased mix from online sales which were supported by a variety of promotions over the
Christmas trading period.
The Warehouse Group Strategy and Outlook
The mixed first half performance emphasises the need for the business to accelerate change, and execute on the
retailing fundamentals with precision to restore sustainable profitable growth. The Group Strategy outlined at the
FY16 full year is now in implementation.
“The new operating model will drive greater operational synergies, particularly in the Red and Blue sheds, increase
our focus on e-commerce and digital capabilities, and allow Group to play a stronger and more objective role in
guiding the performance of the portfolio,” said Nick Grayston, Group CEO
“The second half of this financial year will therefore represent a period of transition as we prepare the organisation
for future success whilst at the same time ensuring we stabilise current performance trends.
“Our strategy is to get our retail fundamentals right in today’s changing retail environment and invest to remain
relevant for our customers. We must compete effectively and ensure the sustainability of our business in the long
term”, said Nick Grayston” The company must evolve and not doing so is the riskiest decision this company could
make”.
Consequently, subject to any material shifts in anticipated trading conditions, the Directors expect the second half
performance to be marginally below that of the second half of last financial year. The expected Adjusted Net Profit
After Tax for the year is between $54.0M and $58.0M, representing a 10% to 15% profit decline year on year.
The full year dividend is targeted to be 15 cents per share, comprising the 10 cents interim dividend and a final
dividend targeted to be 5 cents. This targeted 15 cents per share pay out for FY17 is subject to no significant
change in trading, ensuring we are meeting our obligations under our Bank and Bond covenants and providing
appropriate levels of funding for strategic initiatives.
ENDS
Background: The Warehouse Group Limited
The Warehouse Group Limited comprises 92 Warehouse stores, 72 Noel Leeming stores. 5 Lifestyle Appliance stores and 67
Warehouse Stationery stores in New Zealand and several online businesses. The company had turnover of $2.9 billion in FY16 and
employs over 12,000 people.
Contact details regarding this announcement:
Investors and Analysts: Mark Yeoman, Group Chief Financial Officer
To be contacted via Kim Russell +64 9 488 3285 or +64 21 452 860
Media: Nick Grayston, Group Chief Executive Officer
To be contacted via Tanya Henderson +64 21 718 953
i
A reconciliation of adjusted net profit to reported net profit is detailed on page 4 of the NZX release and in note 4 of the interim financial statements.
Certain transactions such as any profits or losses from the disposal of properties, goodwill impairment, direct costs and adjustments relating to
business acquisitions or disposals and costs connected with restructuring the Group can make the comparisons of profits between periods difficult.
The Group monitors adjusted net profit as a key indicator of performance and uses it as the basis for determining dividends and believe it helps
investors to understand how the underlying business in performing.
---
Appendix 7 of Listing Rules.
Number of pages including this one
(Please provide any other relevant
New Zealand Stock Exchange Listing Rule 7.12.2. For rights, Listing Rules 7.10.9 and 7.10.10. details on additional pages)
For change to allotment, Listing Rule 7.12.1, a separate advice is required.
Full name
of Issuer
Name of officer authorised to
Authority for event,
make this notice
e.g. Directors' resolution
Contact phone
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numbernumber
Date
Nature of event
BonusIf ticked,
Rights Issue
Tick as appropriate
Issue
state whether:Taxable
/ Non TaxableConversionInterestRenouncable
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non-renouncable
changeCallDividend
whether:
InterimYearSpecial
EXISTING securities affected by this
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class of securities
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provide an
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Monies Associated with Event
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Source of
Payment
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SupplementaryAmount per security
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details -
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Total monies
TaxationAmount per Security in Dollars and cents to six decimal places
In the case of a taxable bonusResident
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issue state strike priceWithholding Tax(Give details)
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Timing
(Refer Appendix 8 in the Listing Rules)
Record Date 5pmApplication Date
For calculation of entitlements -Also, Call Payable, Dividend /
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conversion notices mailedMust be within 5 business days
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OFFICE USE ONLY
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Notice of event affecting securities
(09) 488 3241
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03201708
Retained earnings
Date Payable
$0.000000$0.000000
EMAIL: announce@nzx.com
Joan Withers
THE WAREHOUSE GROUP LIMITED
Ordinary Shares (346,843,120)
$0.006944$0.038889$
13 April, 20173 April, 2017
Enter N/A if not
applicable
13 April, 2017
In dollars and cents
Not Applicable
$0.100
New Zealand dollars$0.017647
$34,684,312
(09) 489 8900
NZ WHSE 000 1S6
---
The Warehouse Group Limited
For the 26 weeks ended 29 January 2017
Interim Financial Statements
Consolidated Income Statements
Unaudited Unaudited Audited
26 Weeks 26 Weeks 52 Weeks
Ended Ended Ended
29 January 31 January 31 July
Note
2017 2016 2016
$ 000 $ 000 $ 000
Retail sales
3
1,611,862 1,560,449 2,924,682
Finance business revenue10,321 8,080 20,352
Total revenue1,622,183 1,568,529 2,945,034
Cost of retail goods sold(1,092,854) (1,047,617) (1,966,510)
Other income4,375 5,142 8,858
Lease and occupancy expenses(76,422)(74,504)(148,916)
Employee expenses(258,662)(248,970)(483,812)
Depreciation and amortisation expenses
3
(29,912)(29,674)(59,660)
Other operating expenses(103,939)(99,789)(187,209)
Operating profit
3
64,769 73,117 107,785
Unusual items
4
(27,487)15,537 15,679
Equity earnings of associate
17
- 723 723
Earnings before interest and tax37,282 89,377 124,187
Net interest expense(8,878)(9,402)(17,891)
Profit before tax28,404 79,975 106,296
Income tax expense(14,766)(18,881)(23,820)
Net profit for the period13,638 61,094 82,476
Attributable to:
Shareholders of the parent
13,555 57,201 78,338
Minority interests83 3,893 4,138
13,638 61,094 82,476
Basic earnings per share3.9 cents 16.6 cents 22.7 cents
Diluted earnings per share3.9 cents 16.5 cents 22.6 cents
Consolidated Statements of Comprehensive Income
Unaudited Unaudited Audited
26 Weeks 26 Weeks 52 Weeks
Ended Ended Ended
29 January 31 January 31 July
2017 2016 2016
$ 000 $ 000 $ 000
Net profit for the period13,638 61,094 82,476
Items that may be reclassified subsequently to the Income Statement
Movement in cash flow hedge reserve net of tax13,423 (22,260)(45,990)
Total comprehensive income for the period27,061 38,834 36,486
Attributable to:
Shareholders of the parent26,978 34,941 32,348
Minority interest83 3,893 4,138
Total comprehensive income27,061 38,834 36,486
2
Consolidated Statements of Changes in Equity
Employee
Share
Share Treasury Hedge Benefits Retained Minority Total
(Unaudited)
Capital Stock Reserves Reserve Earnings Interest Equity
For the 26 weeks ended 29 January 2017
$ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000
Balance at the beginning of the period365,517 (7,832)(22,439)3,623 173,872 167 512,908
Profit for the half year- - - - 13,555 83 13,638
Movement in derivative cash flow hedges- - 18,340 - - - 18,340
Movement in de-designated hedges- - 303 - - - 303
Tax related to movement in hedge reserve- - (5,220)- - - (5,220)
- - 13,423 - 13,555 83 27,061
Share rights charged to the income statement- - - 1,048 - - 1,048
Share rights exercised- 2,224 - (2,505)281 - -
Dividends paid- - - - (17,342)(67)(17,409)
Treasury stock dividends received- - - - 73 - 73
Balance at the end of the period365,517 (5,608)(9,016)2,166 170,439 183 523,681
Employee
Share
Share Treasury Hedge Benefits Retained Minority Total
(Unaudited)
Capital Stock Reserves Reserve Earnings Interest Equity
For the 26 weeks ended 31 January 2016
$ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000
Balance at the beginning of the period365,517 (7,302)23,551 2,937 157,154 2,425 544,282
Profit for the half year- - - - 57,201 3,893 61,094
Movement in derivative cash flow hedges- - (31,218)- - - (31,218)
Movement in de-designated hedges- - 301 - - - 301
Tax related to movement in hedge reserve- - 8,657 - - - 8,657
Total comprehensive income- - (22,260)- 57,201 3,893 38,834
Share rights charged to the income statement- - - 1,876 - - 1,876
Share rights exercised- 1,789 - (2,311)522 - -
Dividends paid- - - - (17,342)(142)(17,484)
Treasury stock dividends received- - - - 89 - 89
Purchase of treasury stock- (1,127)- - - - (1,127)
Balance at the end of the period365,517 (6,640)1,291 2,502 197,624 6,176 566,470
Employee
Share
Share Treasury Hedge Benefits Retained Minority Total
(Audited)
Capital Stock Reserves Reserve Earnings Interest Equity
For the 52 weeks ended 31 July 2016
$ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000
Balance at the beginning of the period365,517 (7,302)23,551 2,937 157,154 2,425 544,282
Profit for the year- - - - 78,338 4,138 82,476
Movement in derivative cash flow hedges- - (64,480)- - - (64,480)
Movement in de-designated hedges- - 605 - - - 605
Tax related to movement in hedge reserve- - 17,885 - - - 17,885
Total comprehensive income- - (45,990)- 78,338 4,138 36,486
Contributions by and distributions to owners:-
Share rights charged to the income statement- - - 3,208 - - 3,208
Share rights exercised- 2,001 - (2,522)521 - -
Dividends paid- - - - (55,495)(3,522)(59,017)
Treasury stock dividends received- - - - 280 - 280
Purchase of treasury stock- (2,531)- - - - (2,531)
Purchase of minority interest- - - - (6,926)(2,874)(9,800)
Balance at the end of the period365,517 (7,832)(22,439)3,623 173,872 167 512,908
3
Balance Sheets
Unaudited Unaudited Audited Unaudited Unaudited Audited Unaudited Unaudited Audited
As at As at As at As at As at As at As at As at As at
29 January 31 January 31 July 29 January 31 January 31 July 29 January 31 January 31 July
Note
2017 2016 2016 2017 2016 2016 2017 2016 2016
ASSETS
$ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000
Current assets
Cash and cash equivalents
11
44,535 43,737 49,881 38,888 39,098 36,531 5,647 4,639 13,350
Finance business receivables74,675 73,496 73,565 - - - 74,675 73,496 73,565
Trade and other receivables
6
80,427 88,670 77,059 77,878 85,587 72,434 2,549 3,083 4,625
Available for sale property
9
52,281 7,394 52,277 52,281 7,394 52,277 - - -
Inventories540,513 534,972 501,713 540,513 534,972 501,713 - - -
Derivative financial instruments
12
500 9,067 621 500 9,067 621 - - -
Taxation receivable- - - - - - 5,543 3,213 3,352
Total current assets792,931 757,336 755,116 710,060 676,118 663,576 88,414 84,431 94,892
Non-current assets
Property, plant and equipment
9
252,929 335,938 271,043 251,787 334,776 269,791 1,142 1,162 1,252
Intangible assets
10
146,504 162,637 166,394 122,486 118,437 120,218 24,018 44,200 46,176
Investment in finance business- - - 45,880 66,810 76,797 - - -
Derivative financial instruments
12
291 296 738 291 296 738 - - -
Deferred taxation48,439 37,933 49,597 45,875 35,390 47,304 2,564 2,543 2,293
Total non-current assets448,163 536,804 487,772 466,319 555,709 514,848 27,724 47,905 49,721
Total assets1,241,094 1,294,140 1,242,888 1,176,379 1,231,827 1,178,424 116,138 132,336 144,613
LIABILITIES
Current liabilities
Borrowings
11
81,162 123,751 125,202 81,162 123,751 125,202 - - -
Trade and other payables
7
329,092 274,992 271,308 322,274 268,717 264,424 6,818 6,275 6,884
Derivative financial instruments
12
9,634 1,871 25,133 9,634 1,871 25,133 - - -
Taxation payable667 4,758 2,068 6,210 7,971 5,420 - - -
Provisions
8
49,525 53,677 58,915 48,682 52,911 58,108 843 766 807
Total current liabilities470,080 459,049 482,626 467,962 455,221 478,287 7,661 7,041 7,691
Non-current liabilities
Borrowings
11
164,121 189,372 164,534 164,121 189,372 164,534 - - -
Securitised borrowings
11
62,597 58,485 60,125 - - - 62,597 58,485 60,125
Derivative financial instruments
12
1,855 3,261 4,845 1,855 3,261 4,845 - - -
Provisions
8
18,760 17,503 17,850 18,760 17,503 17,850 - - -
Total non-current liabilities247,333 268,621 247,354 184,736 210,136 187,229 62,597 58,485 60,125
Total liabilities717,413 727,670 729,980 652,698 665,357 665,516 70,258 65,526 67,816
Net assets523,681 566,470 512,908 523,681 566,470 512,908 45,880 66,810 76,797
EQUITY
Contributed equity359,909 358,877 357,685 359,909 358,877 357,685 - - -
Reserves(6,850)3,793 (18,816)(6,850)3,793 (18,816)- - -
Retained earnings170,439 197,624 173,872 170,439 197,624 173,872 - - -
Investment in finance business- - - - - - 45,880 66,810 76,797
Total equity attributable to shareholders523,498 560,294 512,741 523,498 560,294 512,741 45,880 66,810 76,797
Minority interest183 6,176 167 183 6,176 167 - - -
Total equity523,681 566,470 512,908 523,681 566,470 512,908 45,880 66,810 76,797
Net assets per share151.7 cents 164.2 cents 148.9 cents
CONSOLIDATEDRETAIL GROUPFINANCIAL SERVICES
4
Consolidated Statements of Cash Flows
Unaudited Unaudited Audited
26 Weeks 26 Weeks 52 Weeks
Ended Ended Ended
29 January 31 January 31 July
Note
2017 2016 2016
Cash flows from operating activities
$ 000 $ 000 $ 000
Cash received from customers1,613,069 1,563,921 2,944,555
Payments to suppliers and employees(1,509,992) (1,464,313) (2,745,746)
Income tax paid(20,091)(18,264)(28,037)
Interest paid(8,344)(8,809)(16,495)
74,642 72,535 154,277
Loans repaid by finance business customers86,898 76,247 148,306
New loans to finance business customers(82,998)(72,952)(140,123)
Net cash flows from operating activities78,542 75,830 162,460
Cash flows from investing activities
Proceeds from sale of property, plant and equipment14,827 14,204 39,488
Proceeds from business disposal- - 6,382
Dividend received from associate
17
- 2,695 2,695
Purchase of property, plant, equipment and software(38,434)(37,355)(75,180)
Contingent consideration(1,000)(1,575)(1,575)
Acquisition of minority interest- - (9,800)
Acquisition of subsidiaries, net of cash acquired
16
- (4,363)(4,363)
Other items- 3 3
Net cash flows from investing activities(24,607)(26,391)(42,350)
Cash flows from financing activities
Proceeds from / (Repayment) retail borrowings(43,651)(18,335)(41,825)
Proceeds from / (Repayment) securitised borrowings2,472 (144)1,496
Repayment of finance leases(629)(764)(1,402)
Purchase of treasury stock- (1,127)(2,531)
Treasury stock dividends received 73 89 280
Dividends paid to parent shareholders(17,479)(17,474)(55,920)
Dividends paid to minority shareholders(67)(142)(2,522)
Net cash flows from financing activities(59,281)(37,897)(102,424)
Net cash flow(5,346)11,542 17,686
Opening cash position49,881 32,195 32,195
Closing cash position44,535 43,737 49,881
Reconciliation of Operating Cash Flows
Profit after tax13,638 61,094 82,476
Non-cash items
Depreciation and amortisation expenses
3
29,912 29,674 59,660
Goodwill impairment
10
22,714 - -
Share based payment expense1,048 1,876 3,208
Interest capitalisation272 321 621
Movement in deferred tax(3,977)(5,626)(7,977)
Movement in de-designated derivative hedges218 217 436
Share of surplus retained by associate- (723)(723)
Total non-cash items50,187 25,739 55,225
Items classified as investing or financing activities
Net loss/ (gain) on sale of property, plant and equipment1,289 (5,010)(4,392)
Gain on business disposal
15
- (9,950)(9,950)
Direct costs relating to acquisitions
16
- 479 479
Contingent consideration- (675)(675)
Supplementary dividend tax credit137 132 425
Total investing and financing adjustments1,426 (15,024)(14,113)
Changes in assets and liabilities
Trade and other receivables(3,368)(7,880)(3,681)
Finance business receivables(1,110)(2,258)(2,327)
Inventories(38,800)(25,408)7,851
Trade and other payables66,450 23,486 18,054
Provisions(8,480)9,887 15,471
Income tax(1,401)6,194 3,504
Total changes in assets and liabilities13,291 4,021 38,872
Net cash flows from operating activities78,542 75,830 162,460
5
Notes to the Financial Statements
1. GENERAL INFORMATION
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3. SEGMENT INFORMATION
The interim financial statements of the Group have been prepared in accordance with Generally Accepted Accounting Practice in New Zealand (NZ
GAAP). They comply with NZ IAS 34 Interim Financial Reporting and IAS 34 Interim Financial Reporting and consequently, do not include all the
information required for full financial statements. These Group interim financial statements should be read in conjunction with the annual report for the
year ended 31 July 2016.
These financial statements have been prepared under the historical cost convention except for the revaluation of certain financial instruments
(including derivative instruments). The reporting currency used in the preparation of the financial statements is New Zealand dollars, rounded to the
nearest thousands unless otherwise stated.
The accounting policies that materially affect the measurement of the interim financial statements have been applied on a consistent basis with those
used in the audited financial statements for the 52 weeks ended 31 July 2016 and the unaudited interim financial statements for the 26 weeks ended
31 January 2016.
There have been no significant changes in accounting polices applied by the Group during the current half year period.
Seasonality
The Group's revenue and profitability follow a seasonal pattern with higher sales and operating profits typically achieved in the first half of the financial
year as a result of additional sales generated during the Christmas trading period.
Approval of Financial Statements
These consolidated interim financial statements were approved for issue by the Board of Directors on 8 March 2017. Unless as otherwise stated, the
financial statements have been reviewed by our Auditors, but are not audited.
The Warehouse Group Limited and its subsidiaries (together the “Group”) operates in the New Zealand Retail and Financial Services sectors.
The Warehouse Group Limited is a limited liability company incorporated and domiciled in New Zealand and registered under the New Zealand
Companies Act 1993. The address of its registered office is Level 8, 120 Albert Street, PO Box 2219, Auckland. The Group is listed on the New
Zealand stock exchange.
The interim financial statements of the Group have been prepared in accordance with the requirements of the Financial Reporting Act 2013, the
Companies Act 1993 and the New Zealand Stock Exchange (NZX). The Warehouse Group Limited is registered under the Companies Act 1993 and is
an FMC Reporting Entity under Part 7 of the Financial Markets Conduct Act 2013.
Operating segments
The Group has four main operating segments trading in the New Zealand retail sector and one in the financial services sector. The operating
segments are managed separately with their own management, stores and infrastructure. These segments form the basis of internal reporting used
by Management and the Board of Directors to monitor and assess performance and assist with strategy decisions.
The Warehouse
The Warehouse is predominantly a general merchandise and apparel retailer, with 92 stores located throughout New Zealand.
Warehouse Stationery
Warehouse Stationery is a stationery retailer, with 67stores located throughout New Zealand.
Noel Leeming
Noel Leeming is a consumer electronics and home appliances retailer, with 77 stores located throughout New Zealand.
Torpedo7
Torpedo7 is a multi-channel retailer operating both online through a variety of websites and through 12 stores stores located throughout New Zealand.
Finance Business
The Financial Services Group is a credit card business offering credit to customers through various branded credit cards. In September 2015 the
Group gained control over The Warehouse Financial Services Limited (TWFSL) when it acquired 100% of the company’s share capital and
significantly increased the scale of this business (refer note 15).
Other Group operations
This segment includes the Group’s property operations, which owns a number of stores and distribution centres occupied by the other business
segments. This segment also includes the Group’s corporate function and Waikato Valley Chocolates, which supplies products to The Warehouse.
Transfer prices between business segments are set on an arm’s length basis in a manner similar to third parties. Segment revenues and expenses
include transfers between segments, which are eliminated on consolidation.
6
Notes to the Financial Statements - continued
3. SEGMENT INFORMATION - (Continued)
Operating performance
(Unaudited)(Unaudited)(Audited)(Unaudited)(Unaudited)(Audited)
26 Weeks 26 Weeks 52 Weeks 26 Weeks 26 Weeks 52 Weeks
Ended Ended Ended Ended Ended Ended
29 January 31 January 31 July 29 January 31 January 31 July
2017 2016 2016 2017 2016 2016
$ 000 $ 000 $ 000 $ 000 $ 000 $ 000
The Warehouse975,097 973,081 1,760,708 59,508 65,486 89,376
Warehouse Stationery 138,775 137,789 279,155 6,455 6,009 14,288
Noel Leeming 422,149 379,844 752,137 9,207 6,390 12,050
Torpedo786,402 76,126 148,660 2,424 1,712 3,380
Other Group operations5,436 10,114 13,201 (7,670)(3,801)(7,929)
Inter-segment eliminations(15,997)(16,505)(29,179)- - -
Retail Group1,611,862 1,560,449 2,924,682 69,924 75,796 111,165
Financial Services Group10,321 8,080 20,352 (5,155)(2,679)(3,380)
1,622,183 1,568,529 2,945,034 64,769 73,117 107,785
Unallocated revenue/(expenses)
Gain/(Loss) on disposal of property
(812)5,391 5,533
Gain on business disposals- 9,950 9,950
Operating model restructuring costs(3,961)- -
Goodwill impairment (Financial Services Group)(22,714)- -
Contingent consideration- 675 675
Direct costs relating to acquisitions- (479)(479)
Equity earnings of associate- 723 723
Earnings before interest and tax37,282 89,377 124,187
Net interest expense(8,878)(9,402)(17,891)
Net profit before taxation for the period28,404 79,975 106,296
Attributable to:
Retail Group
58,565 84,186 113,412
Finance business(30,161)(4,211)(7,116)
Net profit before taxation for the period28,404 79,975 106,296
- - -
Operating margin
The Warehouse (%)6.1 6.7 5.1
Warehouse Stationery (%)4.7 4.4 5.1
Noel Leeming (%)2.2 1.7 1.6
Torpedo7 (%)2.8 2.2 2.3
Total Retail Group (%)4.3 4.9 3.8
Capital expenditure and depreciation
(Unaudited)(Unaudited)(Audited)(Unaudited)(Unaudited)(Audited)
26 Weeks 26 Weeks 52 Weeks 26 Weeks 26 Weeks 52 Weeks
Ended Ended Ended Ended Ended Ended
29 January 31 January 31 July 29 January 31 January 31 July
Note
2017 2016 2016 2017 2016 2016
$ 000 $ 000 $ 000 $ 000 $ 000 $ 000
The Warehouse18,330 16,730 41,301 20,332 20,612 41,105
Warehouse Stationery1,386 2,491 5,296 3,403 3,206 6,578
Noel Leeming 6,996 2,578 6,875 4,044 3,567 7,484
Torpedo7185 332 781 571 627 1,240
Other Group operations2,541 5,566 10,156 704 1,055 1,803
Retail Group29,438 27,697 64,409 29,054 29,067 58,210
Finance business1,303 6,102 9,017 858 607 1,450
Total Group
9
30,741 33,799 73,426 29,912 29,674 59,660
REVENUEOPERATING PROFIT
DEPRECIATION & AMORTISATIONCAPITAL EXPENDITURE
7
Notes to the Financial Statements - continued
3. SEGMENT INFORMATION - (Continued)
Balance sheet information
(Unaudited)(Unaudited)(Audited)(Unaudited)(Unaudited)(Audited)
As at As at As at As at As at As at
29 January 31 January 31 July 29 January 31 January 31 July
Note
2017 2016 2016 2017 2016 2016
$ 000 $ 000 $ 000 $ 000 $ 000 $ 000
The Warehouse492,567 494,939 481,322 210,479 188,189 183,502
Warehouse Stationery85,345 89,316 78,021 38,569 37,748 33,084
Noel Leeming 176,379 164,467 154,374 126,137 92,249 103,548
Torpedo750,131 53,161 49,504 11,956 11,861 10,870
Other Group operations138,198 176,956 150,886 2,575 9,084 9,378
Retail Group942,620 978,839 914,107 389,716 339,131 340,382
Finance business102,382 99,227 102,903 7,661 7,041 7,691
Operating assets / liabilities1,045,002 1,078,066 1,017,010 397,377 346,172 348,073
Unallocated assets / liabilities
Cash and borrowings
11
44,535 43,737 49,881 307,880 371,608 349,861
Derivative financial instruments
12
791 9,363 1,359 11,489 5,132 29,978
Intangible Goodwill and Brands
10
102,327 125,041 125,041 - - -
Taxation48,439 37,933 49,597 667 4,758 2,068
Total1,241,094 1,294,140 1,242,888 717,413 727,670 729,980
4. ADJUSTED NET PROFIT
Adjusted net profit reconciliation
(Unaudited)(Unaudited)(Audited)
26 Weeks 26 Weeks 52 Weeks
Ended Ended Ended
29 January 31 January 31 July
Note
2017 2016 2016
$ 000 $ 000 $ 000
Adjusted net profit39,677 45,553 64,110
Add back: Unusual items
Gain on business disposals
15
- 9,950 9,950
Direct costs relating to acquisitions
16
- (479)(479)
Operating model restructuring costs
14
(3,961)- -
Goodwill impairment (Financial Services Group)
10
(22,714)- -
Contingent consideration- 675 675
Gain/(Loss) on disposal of property
9
(812)5,391 5,533
Unusual items before taxation(27,487)15,537 15,679
Income tax relating to unusual items1,336 (1,509)(1,545)
Income tax expense related to depreciation recovered on building disposals29 1,234 3,708
Unusual items after taxation(26,122)15,262 17,842
Minority interest
15
- (3,614)(3,614)
Net profit attributable to shareholders of the parent13,555 57,201 78,338
5. DIVIDENDS
Dividends paid
(Unaudited)(Unaudited)(Audited)(Unaudited)(Unaudited)(Audited)
26 Weeks 26 Weeks 52 Weeks 26 Weeks 26 Weeks 52 Weeks
Ended Ended Ended Ended Ended Ended
29 January 31 January 31 July 29 January 31 January 31 July
2017 2016 2016 2017 2016 2016
$ 000 $ 000 $ 000
Prior year final dividend5.0 5.0 5.0 17,342 17,342 17,342
Interim dividend- - 11.0 - - 38,153
Total dividends paid5.0 5.0 16.0 17,342 17,342 55,495
TOTAL ASSETSTOTAL LIABILITIES
CENTS PER SHAREDIVIDENDS PAID
Certain transactions can make the comparison of profits between years difficult. The Group uses adjusted net profit as a key indicator of
performance and consider it provides a better understanding of underlying business performance and the Group also uses it as the basis for
determining dividend payments (after adjusting for losses from the Financial Services Group). Adjusted net profit makes allowance for the after tax
effect of unusual items which are not directly connected with the Group’s normal trading activities. The Group defines unusual items as any profits or
losses from the disposal of properties or investments, goodwill impairment, direct costs and adjustments relating to business acquisitions or
disposals and costs connected with restructuring the Group.
On 8 March 2017 the Board declared a fully imputed interim dividend of 10.0 cents per ordinary share to be paid on 13 April 2017 to all shareholders
on the Group's share register at the close of business on 3 April 2017.
8
Notes to the Financial Statements - continued
6. TRADE AND OTHER RECEIVABLES
(Unaudited)(Unaudited)(Audited)
As at As at As at
29 January 31 January 31 July
Note
2017 2016 2016
$ 000 $ 000 $ 000
Trade receivables44,576 47,853 41,131
Prepayments10,538 9,214 11,092
Business disposal proceeds receivable
15
1,000 8,411 1,000
Rebate accruals and other debtors24,313 23,192 23,836
80,427 88,670 77,059
7. TRADE AND OTHER PAYABLES
(Unaudited)(Unaudited)(Audited)
As at As at As at
29 January 31 January 31 July
2017 2016 2016
$ 000 $ 000 $ 000
Trade creditors and accruals242,724 215,036 198,828
Goods in transit creditors18,681 14,728 19,673
Capital expenditure creditors1,719 7,634 9,412
Goods and services tax37,913 10,679 11,109
Reward schemes, lay-bys, Christmas club deposits and gift vouchers16,147 16,284 18,010
Contingent consideration- 1,000 1,000
Interest accruals1,505 1,698 1,597
Payroll accruals10,403 7,933 11,679
Total trade and other payables329,092 274,992 271,308
8. PROVISIONS
(Unaudited)(Unaudited)(Audited)
As at As at As at
29 January 31 January 31 July
2017 2016 2016
$ 000 $ 000 $ 000
Current liabilities49,525 53,677 58,915
Non-current liabilities18,760 17,503 17,850
Total provisions68,285 71,180 76,765
Provisions consist of:
Employee entitlements55,416 58,337 64,256
Make good provision7,868 7,279 7,613
Sales returns provision4,119 4,171 3,689
Onerous lease882 1,393 1,207
Total provisions68,285 71,180 76,765
9
Notes to the Financial Statements - continued
9. PROPERTY, PLANT, EQUIPMENT AND COMPUTER SOFTWARE
(Unaudited)(Unaudited)(Audited)
As at As at As at
29 January 31 January 31 July
Note
2017 2016 2016
$ 000 $ 000 $ 000
Available for sale property52,281 7,394 52,277
Property, plant and equipment252,929 335,938 271,043
Computer software
10
44,177 37,596 41,353
Net book value349,387 380,928 364,673
Movement in property, plant, equipment and software
Balance at the beginning of the period364,673 386,709 386,709
Capital expenditure
3
30,741 33,799 73,426
Depreciation and amortisation
3
(29,912)(29,674)(59,660)
Disposals(16,115)(9,906)(35,802)
Balance at the end of the period349,387 380,928 364,673
10. INTANGIBLE ASSETS
(Unaudited)(Unaudited)(Audited)
As at As at As at
29 January 31 January 31 July
Note
2017 2016 2016
$ 000 $ 000 $ 000
Computer software
9
44,177 37,596 41,353
Brands23,523 23,523 23,523
Goodwill78,804 101,518 101,518
Net book value146,504 162,637 166,394
Movement in Goodwill
Balance at the beginning of the period101,518 92,295 92,295
Goodwill impairment (Financial Services Group)(22,714)- -
Disposal of business - Goodwill
15
- (2,477)(2,477)
Acquisition of businesses - Goodwill
16
- 11,700 11,700
Balance at the end of the period78,804 101,518 101,518
The Group performs a detailed impairment assessment annually of the Group's intangible assets and considers if there has been any indicators of
impairment at each interim reporting date. The Group’s interim review did not identify any significant indicators of impairment in any of the Group’s
Cash Generating Units with the exception of the Financial Services Group goodwill, which would require an impairment charge.
Financial Services Goodwill impairment
The trading performance from The Financial Services Group during the current half year continued to be below expectation caused largely by a fewer
than expected number of the cardholders (acquired as part of the Westpac acquisition - refer note 16) taking up new card offers. This resulted in the
board reviewing the outlook for the Financial Services Group and looking at various alternative strategies to gain the scale necessary for the business
to achieve profitability.
As a result of this review current forecasts show that it will take longer to achieve the desired scale of the loan book and the breakeven date for the
business has been extended from 2018 to 2021. The review also indicated that the carrying value of the business is impaired and accordingly the
board has decided to write off all the goodwill attributed to the Financial Services business.
Property Sales
During the current half year the Group sold two store properties, and a parcel of land for a combined net consideration of $14.904 million realising a
pre-tax loss of $0.812 million.
During the first half of the comparative year the Group sold one store property and in the second half year two further store properties plus three
parcels of surplus land, together the sale of these properties realised a pre-tax profit of $5.533 million (H1 2016: $5.391 million).
Available for sale property
The Group's Newmarket store property continues to be classified as available for sale following its initial classification at the previous full year July
balance date as the Group considers the possible sale and future development options for this property.
The Group’s store property at Kaitaia was classified as available for sale at the previous half year balance date and subsequently sold in March 2016.
10
Notes to the Financial Statements - continued
11. BORROWINGS
Net debt
(Unaudited)(Unaudited)(Audited)
As at As at As at
29 January 31 January 31 July
Note
2017 2016 2016
$ 000 $ 000 $ 000
Cash on hand and at bank44,535 43,737 49,881
Bank borrowings80,329 122,470 123,980
Lease liabilities833 1,281 1,222
Current borrowings81,162 123,751 125,202
Bank borrowings40,000 65,000 40,000
Lease liabilities305 988 490
Fixed rate senior bond (coupon: 5.30%)125,000 125,000 125,000
Fair value adjustment relating to effective interest291 296 738
Unamortised capitalised costs on senior bond(1,475)(1,912)(1,694)
Non-current borrowings164,121 189,372 164,534
Non-current securitised borrowings62,597 58,485 60,125
Total borrowings307,880 371,608 349,861
Net debt263,345 327,871 299,980
Committed bank credit facilities at balance date are:
Bank debt facilities
340,000 340,000 340,000
Bank facilities used(120,329)(187,470)(163,980)
Unused bank debt facilities219,671 152,530 176,020
Securitised debt facility150,000 225,000 225,000
Securitised facility used(62,597)(58,485)(60,125)
Unused securitised debt facility 87,403 166,515 164,875
Letter of credit facilities32,526 28,000 32,566
Letters of credit(11,933)(11,295)(21,370)
Unused letter of credit facilities20,593 16,705 11,196
Total unused bank facilities327,667 335,750 352,091
12. DERIVATIVE FINANCIAL INSTRUMENTS
(Unaudited)(Unaudited)(Audited)
As at As at As at
29 January 31 January 31 July
2017 2016 2016
$ 000 $ 000 $ 000
Current assets500 9,067 621
Non-current assets291 296 738
Current liabilities(9,634)(1,871)(25,133)
Non-current liabilities(1,855)(3,261)(4,845)
Total derivative financial instruments(10,698)4,231 (28,619)
Derivative financial instruments consist of:
Current assets
500 9,067 621
Current liabilities(8,684)(1,002)(24,263)
Foreign exchange contracts(8,184)8,065 (23,642)
Current assets- - -
Current liabilities(950)(869)(870)
Non-current assets291 296 738
Non-current liabilities(1,855)(3,261)(4,845)
Interest rate swaps(2,514)(3,834)(4,977)
Total derivative financial instruments(10,698)4,231 (28,619)
US Dollar forward contracts - cash flow hedges
Notional amount (NZ$000)310,758 316,560 363,291
Average contract rate ($)0.7034 0.6582 0.6714
Spot rate used to determine fair value ($)0.7261 0.6476 0.7228
The Group continues to manage its foreign exchange and interest rate risks in accordance with the policies and parameters detailed in the 2016
Annual Report.
The Group’s foreign exchange contracts hedge forecast inventory purchases priced in US dollars over the next 12 months. The following table lists the
key inputs used to determine the fair value of the Group's foreign exchange contracts at balance date.
11
Notes to the Financial Statements - continued
13. FAIR VALUE MEASUREMENT
Asset / (Liability)
(Unaudited)(Unaudited)(Audited)
As at As at As at
29 January 31 January 31 July
Note
2017 2016 2016
Derivatives used for hedging
$ 000 $ 000 $ 000
Foreign exchange contracts(Level 2)
12
(8,184)8,065 (23,642)
Interest rate swaps(Level 2)
12
(2,514)(3,834)(4,977)
Senior bond fair value adjustment relating to effective interest(Level 2)
11
(291)(296)(738)
Fixed Rate Senior Bond
(Unaudited)(Unaudited)(Audited)
As at As at As at
29 January 31 January 31 July
2017 2016 2016
Face value ($000)125,000 125,000 125,000
Coupon (%)5.30 5.30 5.30
Market yield (%)4.15 4.30 3.74
MaturityJune 2020 June 2020 June 2020
NZX quoted closing price ($)
1.04262 1.04659 1.06261
Fair value ($000)130,328 130,824 132,826
14. OPERATING MODEL RESTRUCTURING COSTS
The following table sets out the Group’s financial instruments that are measured subsequent to initial recognition at fair values and are grouped into
levels based on the degree to which the fair value is observable:
Level 1 - fair value measurements derived from quoted prices in active markets for identical assets.
Level 2 - fair value measurements derived from inputs other than quoted prices included within level 1 that are observable for the asset or liability,
either directly or indirectly.
Level 3 - fair value measurements derived from valuation techniques that include inputs for the asset or liability that are not based on observable
market data.
There has been no transfers between levels or changes in the valuation methods used to determine the fair value of the Group’s financial instruments
during the current and comparative periods. Sensitivities to reasonably possible changes in non-market observable valuation inputs would not have a
material impact on the Group’s financial results.
Specific valuation techniques used to value financial instruments are:
• Forward exchange contracts determined using forward exchange market rates at the balance date (refer note 12).
• Interest rate swaps calculated as the present value of the estimated future cash flows based on the applicable market interest yield rates at balance
date.
Except for the Group’s fixed rate senior bond (refer note 11) and derivatives (detailed above) the carrying value of the Group’s financial assets and
liabilities approximate fair value. The fixed rate senior bond is listed on the NZX and measured at amortised cost. The fair value of fixed rate senior
bonds at balance date, based on the last price traded on the New Zealand stock exchange (level 1 valuation), were as follows.
The Group is making a series of changes to its business operating model. The changes are designed to drive an improvement in financial
performance, reduce costs and generate greater customer relevance. The changes focus primarily on simplification to reduce complexities, drive
efficiencies and increase business agility. This involves strengthening and consolidating the various Group support service functions to drive synergy
benefits, deliver efficiencies and reduce complexity. It also involves combining The Warehouse and Warehouse Stationery and similarly combining the
Noel Leeming and Torpedo7 Groups by integrating their operating structures and executive leadership teams.
One-time restructuring costs of changing the business operating model are estimated to be between $10 million to $13 million of which $3.961 million
were incurred prior to balance date with the remaining costs associated with the transition expected to be incurred in the second half of the current
financial year.
12
Notes to the Financial Statements - continued
15. BUSINESS DISPOSALS - PRIOR PERIOD
For the 26 weeks ended 29 January 2017 and the 52 weeks ended 31 July 2016
Note
TWFSL Pet.co.nz Total
$ 000 $ 000 $ 000
Consideration
7
6,006 8,411 14,417
Net assets sold806 1,184 1,990
Goodwill- 2,477 2,477
Carrying value of net assets sold806 3,661 4,467
Gain on business disposal5,200 4,750 9,950
Minority interest- (3,614)(3,614)
Gain on business disposal (after minority interests)5,200 1,136 6,336
16. BUSINESS COMBINATIONS - PRIOR PERIOD
For the 26 weeks ended 29 January 2017 and the 52 weeks ended 31 July 2016
Note
Total
$ 000
Cash and cash equivalents3,453
Finance business receivables57,010
Trade and other receivables346
Deferred taxation640
61,449
Trade and other payables(357)
Provision for tax(820)
Borrowings
17
(58,629)
Provisional fair value of identifiable net assets1,643
Goodwill arising on acquisition
10
11,700
Total consideration13,343
The acquisition consideration is as follows:
Cash paid for Westpac's 51% interest in TWFSL7,337
Value attributed to the Group's previously held 49% equity investment in TWFSL6,006
13,343
The cash outflow on acquisitions is as follows:
Cash and cash equivalents acquired(3,453)
Direct costs relating to the acquisition479
Purchase consideration settled in cash7,337
Net consolidated cash outflow4,363
Equity investment
Value attributed to the Group's previously held 49% equity investment in TWFSL6,006
Carrying value
17
806
Gain on disposal recognised in the income statement
15
5,200
In September 2015 the Group gained control over The Warehouse Financial Services Limited (TWFSL) when it acquired 100% of the company’s
share capital. The Group had previously held a non-controlling 49% interest in TWFSL which was accounted for as an equity investment (refer
note 17). Based on the best information available the Group has initially recognised the following identifiable acquisition assets and liabilities for
the business acquired.
The acquisition of TWFSL represented the next step in the Group's development of an in-house financial services business and followed the
earlier acquisition of Diners Club (NZ) Limited in March 2014. TWFSL offered credit and risk related products that included credit cards and
insurance cover. The increase in the Finance Receivable loan book following the acquisition helped to provide scale and will enable the Group to
leverage its current infrastructure, core systems and people capability to grow this business segment cost effectively.
Sale and Purchase of The Warehouse Financial Services Limited
In September 2015 the Group gained control of The Warehouse Financial Services Limited (TWFSL) by increasing its shareholding from 49% to
100% of TWFSL’s share capital. For accounting purposes this single transaction was treated as having two distinct components, the first being the
sale by the Retail Group (RG) of its 49% TWFSL associate investment, and the second, the purchase by the Financial Services Group (FSG) of
TWFSL’s share capital from both Westpac as the majority 51% shareholder and RG as the 49% associate shareholder. Details of the second part
of the transaction regarding the acquisition can be found in note 16. In respect of the first part and the intercompany sale transaction between the
RG and FSG for the 49% associate investment, this resulted in a notional gain on sale of $5.200 million. This gain was calculated with reference
to the premium above net assets paid to Westpac for its 51% TWFSL shareholding and is included as a component of goodwill arising on the
acquisition.
Pet.co.nz Limited business disposal
At the end of January 2016 the Group sold the business assets of Pet.co.nz (formerly Shop HQ Limited) for a consideration of $8.411 million.
13
Notes to the Financial Statements - continued
17. INVESTMENT - PRIOR PERIOD
For the 26 weeks ended 29 January 2017 and the 52 weeks ended 31 July 2016
Note
Total
$ 000
Investment at beginning of the year2,778
Share of associates profit before taxation1,004
Less taxation(281)
Equity earnings of associate723
Dividend received from associate(2,695)
Acquisition of majority shareholder
16
(806)
Investment at end of the period-
18. MINORITY INTEREST ACQUISITION - PRIOR PERIOD
19. COMMITMENTS
(Unaudited)(Unaudited)(Audited)
As at As at As at
29 January 31 January 31 July
2017 2016 2016
(a) Capital commitments
$ 000 $ 000 $ 000
Within one year5,258 7,677 12,666
(b) Operating lease commitments
Future minimum rentals payable
0-1 Years121,731 114,876 120,636
1-2 Years109,032 104,932 111,731
2-5 Years249,329 240,923 254,246
5+ Years299,121 291,407 325,121
Total operating lease commitments779,213 752,138 811,734
20. RELATED PARTIES
21. CONTINGENT LIABILITIES
The Group has no material contingent liabilities other than those arising in the normal course of business, being primarily letters of credit issued to
secure future purchasing requirements and store lease commitments.
Except for Directors' fees, key executive remuneration and dividends paid by the Group to its Directors, there have been no other related party
transactions during the period.
In March 2016 the Group acquired the remaining 20% of the share capital of Torpedo7 Limited for a consideration of $9.800 million, increasing the
Group’s interest in the Torpedo7 group of companies from 80% to 100%. The consideration had two components, a cash component of $7.500
million settled in March 2016 and the transfer to the minority interest of the Groups interest in a parcel of surplus land located in Hamilton (valued
at $2.300 million).
Capital expenditure contracted for at balance date but not recognised as liabilities is set out below:
Commitments for minimum lease payments in relation to non-cancellable operating leases at
balance date are as follows:
The Warehouse Financial Services Limited
The Group ceased accounting for The Warehouse Financial Services Limited (TWFSL) as an equity investment when it acquired 100% of the
share capital of TWFSL in September 2015. Prior to the acquisition the Group held a 49% interest, and Westpac a 51% interest in TWFSL.
Following the acquisition the income statement and balance sheet of TWFSL have been fully consolidated and included within the Financial
Services Group segment. Further information regarding the details of the acquisition are provided in note 16.
14
---
PricewaterhouseCoopers, 188 Quay Street, Private Bag 92162, Auckland 1142, New Zealand
T: +64 9 355 8000, F: +64 9 355 8001, pwc.co.nz
Independent Review report
To the Shareholders of The Warehouse Group Limited
Report on the Interim Financial Statements
We have reviewed the accompanying financial statements of The Warehouse Group Limited (“the
Company”) on pages 2 to 14, which comprise the consolidated balance sheet as at 29 January 2017,
and the consolidated income statement, consolidated statement of comprehensive income, the
consolidated statement of changes in equity and the consolidated statement of cash flows for the
period ended on that date, and a summary of significant accounting policies and selected explanatory
notes. The Group comprises the Company and the entities it controlled at 29 January 2017 or from
time to time during the financial period.
Directors’ Responsibility for the Financial Statements
The Directors are responsible on behalf of the Company for the preparation and presentation of these
financial statements in accordance with New Zealand Equivalent to International Accounting Standard
34 Interim Financial Reporting (NZ IAS 34) and for such internal controls as the Directors determine
are necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
Our Responsibility
Our responsibility is to express a conclusion on the accompanying financial statements based on our
review. We conducted our review in accordance with the New Zealand Standard on Review
Engagements 2410 Review of Financial Statements Performed by the Independent Auditor of the
Entity (NZ SRE 2410). NZ SRE 2410 requires us to conclude whether anything has come to our
attention that causes us to believe that the financial statements, taken as a whole, are not prepared in
all material respects, in accordance with NZ IAS 34. As the auditors of the Company, NZ SRE 2410
requires that we comply with the ethical requirements relevant to the audit of the annual financial
statements.
A review of financial statements in accordance with NZ SRE 2410 is a limited assurance engagement.
The auditors perform procedures, primarily consisting of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and other review procedures.
The procedures performed in a review are substantially less than those performed in an audit
conducted in accordance with International Standards on Auditing (New Zealand) and International
Standards on Auditing. Accordingly we do not express an audit opinion on these financial statements.
We are independent of the Group. Our firm carries out other services for the Group as providers of
treasury advisory services and agreed upon procedures at the Annual General Meeting. The provision
of these other services has not impaired our independence.
PwC 2
Independent Review report
To the Shareholders of The Warehouse Group Limited
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that these financial
statements of the Group are not prepared, in all material respects, in accordance with NZ IAS 34.
Restriction on Distribution or Use
This report is made solely to the Company’s Directors, as a body. Our review work has been
undertaken so that we might state to the Company’s Directors those matters which we are required to
state to them in our review report and for no other purpose. To the fullest extent permitted by law, we
do not accept or assume responsibility to anyone other than the Directors, as a body, for our review
procedures, for this report, or for the conclusion we have formed.
For and on behalf of:
Chartered Accountants Auckland
8 March 2017
---
The Warehouse Group Limited
FY17 Interim Result
Thursday, 9 March 2017
Chairman’s Introduction
.
2
A mixed first half result, with an adjusted Net Profit After Tax of $39.7M which
is inside the guidance range issued on 20 December 2016, and represents a
(12.9%) reduction with the comparable period last year.
Positive results from Noel Leeming, Torpedo7 and Warehouse Stationery,
offset by weaker performances in the core Red Sheds business, and
Financial Services.
One-off costs, mainly a non-cash impairment of goodwill in financial services
impacted our Reported Profit result of $13.6M which was (76.3%) down on
the comparable period last year.
The Group announced a major restructure in January as a first step in a
broad programme of change which is aimed at improving both profitability
and customer relevance. An update on that programme is included later in
this presentation.
The Board is confident that despite the mixed result in the half year, that the
business is taking the steps needed to revitalise and achieve its potential.
We intend to inform the market and update as appropriate.
3
The Warehouse Group H1 17 Interim Result
Retail sales were up 3.3% on last year,
reflecting a mix in fortunes across the
Retail businesses, with Red being just
above flat year on year, but strong growth
being seen in Noel Leeming and
Torpedo7.
A 1.2% increase in Gross Profit dollars
reflects currency headwinds year on
year, as well as the impact from the start
of longer term strategies to rationalise
product and move to more EDLP within
Red. Some sales growth was achieved
at lower margin rates due to product mix
(for example in Noel Leeming).
CODB continues to be a focus. There is
more work to be done here and the
recent structural reorganisation is the first
step in delivering a step-change in our
CODB.
Impacting the reported profit is a non-
cash write-down of $22.7M goodwill in
Financial Services, as previously
signalled at the ASM.
Adjusted NPAT has been delivered
within the range signalled to the market
on 20 December, at $39.7M which is
12.9% down on last year.
3
A first half result characterised by margin compression resulting from transition of product strategy,
softening trading conditions and currency headwinds. This result reinforces our need to go faster on
executing real change in the business, steps which are being taken.
$ MH1 17 H1 16Variance
Retail Sales1,611.91,560.43.3%
Gross Profit519.0512.81.2%
Gross Margin32.2%32.9%-70bps
CODB449.16437.02.8%
CODB27.9%28.0%-10bps
Retail Operating Profit69.975.8-7.7%
Operating Margin4.3%4.9%-60bps
NPAT (Reported)13.657.2-76.3%
NPAT (Adjusted)39.745.6-12.9%
Operating Cash Flow78.575.8+2.7m
Ordinary Dividend10.0cps11.0cps-1cps
Adjusted vs Reported Results
The Group adjusts reported profit for unusual and non-operating items. Unusual items include any gains
or losses from the sale of assets, adjustments in carrying values of assets, business acquisitions or
disposals and restructuring costs.
$M
EBITNPAT
H1 17H1 16H1 17H1 16
Adjusted Earnings64.873.839.745.6
Contingent Consideration-0.7-0.7
Acquisition Costs-(0.5)-(0.5)
Goodwill(22.7)-(22.7)-
Restructure(4.0)-(2.9)-
Business Disposals-10.0-10.0
Property Divestments(0.8)5.4(0.6)3.9
Deferred Tax Adjustment
(resulting from property divestments)
0.11.1
Minority Interest-(3.6)
Reported Earnings37.389.413.657.2
4
5
Balance Sheet
5
Trade & Other Payables are higher
than last year with several scheduled
payments such as GST occurring
post balance date compared to the
previous year.
Receivables are lower compared to
last year as the prior year included
business disposal proceeds
receivable from the sale of Pet.co.nz
which have since been received.
The mark to market valuation of the
Group’s Portfolio of Foreign
Exchange derivatives has declined
following an increase in the US dollar
over recent months.
After two years of efforts to secure a
cost effective retail development for
the Newmarket site, we have decided
to sell that asset.
Tax assets are higher largely due to
the reversal of deferred tax liabilities
connected with the property sales
Goodwill relating to the Financial
Services Group fully written off
$22.7M.
Equity is lower than last year due to
the Goodwill write-off and devaluation
of hedging derivatives.
$MH1 17H1 16Variance
Inventory
Finance Receivables
Trade & other
Receivables
Trade & other Payables
Provisions
540.5
74.7
80.4
(329.2)
(68.3)
535.0
73.5
88.7
(273.9)
(71.2)
+5.5M
+1.2M
-8.3M
-55.3M
+2.9M
Working Capital298.1352.1-54.0M
Fixed Assets349.4380.9-31.5M
Funds Employed647.5733.0-85.5M
Tax Assets
Derivatives
Contingent consideration
Goodwill and brands
47.8
(10.6)
-
102.3
33.2
4.2
(1.0)
125.0
+14.6M
-14.8M
+1.0M
-22.7M
Capital Employed787.0894.4-107.4M
Shareholders’ Equity
Minority Interests
Net Debt
523.5
0.2
263.3
560.3
6.2
327.9
-36.8M
-6.0M
-64.6M
Source of Funds787.0894.4-107.4M
Gearing 33.5%36.7%
Balance Sheet gearing remains at appropriate levels.
6
Cash Flow
The increase in operating cash
flows is largely a result of the
timing of creditor payments (part of
working capital).
Divestments include the proceeds
from the sale of Rangiora and
Gisborne stores.
Retail capital expenditure
continues to track at levels that are
in-line with depreciation.
The business remains cash generative. A focus on consolidation and tight capital controls will
continue to maintain the balance sheet in good shape.
$MH1 17H1 16Variance
Trading EBITDA94.7 102.8-8.1M
Working Capital
Taxes Paid
Interest Paid
Other Items
10.8
(20.1)
(8.3)
1.4
(2.1)
(18.3)
(8.8)
2.2
+12.9M
-1.8M
+0.5M
-0.8M
Operating Cash Flow78.575.8+2.7M
Capital Expenditure
Divestments
Treasury Stock
Acquisitions
Dividends Received
Dividends Paid
Other
(38.4)
14.8
-
-
0.1
(17.5)
(0.8)
(37.4)
14.2
(1.1)
(64.6)
2.8
(17.6)
(0.4)
-1.0M
+0.6M
+1.1M
+64.6M
-2.7M
+0.1M
-0.4M
Net Cash Flow36.7(28.3)+65.0M
Opening Net Debt
Closing Net Debt
(300.0)
(263.3)
(299.6)
(327.9)
-0.4M
+64.6M
The Warehouse Group
H1 17 Interim Result
The Warehouse Group Limited
Retail Brands
10
The Warehouse –2017 Interim Result
Same Store Sales growth was
+1.3%.
Sales growth modest compared to
a very strong season LY and as we
make changes to our promotional
program however a highlight has
been the sales momentum in our
EDLP range and continued
acceleration in digital sales.
Gross margin was negatively
impacted by currency movements
vs. LY and continued investment in
price of our EDLP products.
Despite a modest CODB increase
of 1.1% on LY, cost growth higher
than Margin growth.
CAPEX increasing as we invest in
systems to support ongoing growth
including Order Management
System, web and sourcing
platforms.
10
$MH1 17H1 16Variance
Sales975.1973.1+0.2%
Same Store
Sales
+1.3%+4.6%-330bps
Gross Profit354.7357.6-0.8%
Gross Margin36.4%36.7%-30bps
CODB295.2292.1+1.1%
CODB30.3%30.0%+30bps
Operating Profit59.565.5-9.1%
Operating Margin6.1%6.7%-60bps
Capital Expenditure18.316.7+1.6M
Stores9293-1
A challenging trading period which reduced profit 9.1% vs. LY.
Sales
Apparel departments have performed strongly through the half especially through our expanded
EDLP offer, with improved margin and stock position and more curated assortment.
Leisure categories including Toys have also delivered good sales growth despite cooler weather
through much of New Zealand during Dec/Jan, with effective events, promotional activity and
range improvements.
Online growth supported by a new platform and a strong promotional program. Customer
experience throughout the fulfilment process continues to show solid improvement to match the
momentum now in this channel.
Gross Profit
Gross Profit declined $2.9M in the half –a combination of additional investment in price, lower
inflow margin impacted by currency impacts vs. LY and promotions in seasonal categories to
maintain sell through curves. As a result, inventory quality continues to improve with a reduction
in aged inventory.
CODB
Focus throughout the half on cost control however CODB leverage is challenging with a largely
fixed cost base. Productivity continues to be a focus.
11
The Warehouse –2017 Interim Highlights
Key Categories performing well, reflecting good range selection and solid trading plans.
Stores
In the period, the Tauranga Crossing store was opened (in conjunction with other TWG
brands) and Northlands was refitted.
Following the November 2016 Earthquake the Wainuiomata store was closed permanently
and the Lower Hutt store is closed temporarily until work is completed to the mall complex.
Focus
Continuing focus on delivering great products at great prices, ensuring that we deliver on our
promise to make the desirable affordable and also the affordable desirable, and offer great
value.
We are reshaping our Operating Model to reduce complexity and cost, while responding to the
fast changing needs of our customers, and ultimately be set up for success in tomorrow’s
retail environment.
12
The Warehouse –2017 Interim Highlights
Emphasis on reshaping our Operating Model for sustainable profitability.
14
Solid sales growth year on year with focused management of CODB resulting in operating
profit leverage.
Warehouse Stationery –2017 Interim Result
Continued growth in a very
competitive market with increasing
market share.
Trading performance for the half
benefited from an increase in
transaction count along with a
small increase in average basket.
Experienced a slow start to “Back
to School” with a stronger finish in
February (Q3).
GP% has been influenced by
product mix with higher growth in
some of the lower margin
categories.
CODB has been managed tightly
resulting in significant improvement
as a percentage of sales
Network expansion continued with
the addition of one new store at
Tauranga Crossing.
H2 focus remains on sales growth
with focus on improving GM% and
sustained CODB management to
ensure profit leverage is continued.
14
$MH1 17H1 16Variance
Sales138.8137.8+0.7%
Same Store Sales1.2%8.5%-730bps
Gross Profit54.554.5-
Gross Margin 39.3%39.6%-30bps
CODB48.048.5-1.0%
CODB %34.6%35.2%-60bps
Operating Profit6.56.0+7.4%
Operating Margin 4.7%4.4%+30bps
Capital Expenditure1.42.5-1.1M
Stores6766+1
16
Noel Leeming Group –2017 Interim Result
A significant increase in Operating Profit for H1 driven by continued strong growth in Sales and careful
management of CODB.
Noel Leeming continued to grow market
share during Q2 in an extremely
competitive appliances and technology
market.
The sales momentum in H2 16 continued
into H1 17. Total sales growth of 11.1%
was underpinned by strong Same Store
Sales growth of 9.9%. We expect some
softening of the Same Store Sales growth
in Q3 as we cycle periods post the exit of
Dick Smith from the market.
The Cellular, Television and Whiteware
categories performed well, providing a good
product mix.
Gross Profit was $8.8m up on H1 16. This
was as a result of the increase in sales
volumes.
The continued focus on managing CODB
resulted in the business leveraging off the
strong Sales performance to deliver a
significantly higher Operating Profit for H1
17.
We continue to differentiate ourselves in
the market through our Passionate People
and Services offering.
During H1 17 we opened new stores in
Takapuna and Tauriko. In addition, we
relocated our Gisborne and Queenstown
stores. This store activity is reflected in our
capital expenditure.
16
$MH1 17H1 16Variance
Sales422.1379.8+11.1%
Same Store Sales+9.9%+11.4%-190bps
Gross Profit86.777.911.2%
Gross Margin20.5%20.5%+0bps
CODB77.571.5+8.4%
CODB18.3%18.8%-50bps
Operating Profit9.26.444.1%
Operating Margin2.2%1.7%+50bps
Capital Expenditure7.02.6
Stores7777-
18
18
Torpedo7 Group –2017 Interim Result
Torpedo7 has delivered positive results
with the key highlight being strong sales
growth. CODB has been tightened, which
has translated into an improved EBIT
performance.
Torpedo7 house brand has had a strong
performance. Categories such as Water
Sports have been well received by
customers and continue to add value to
our range and assortment.
1-day’s sales have accelerated and it is
maintaining profitable growth. The
extended range of product offering has
bolstered performance in a declining daily
deals market.
No1 Fitness & Shotgun Supplements
performance remains challenging. The
promotional competitiveness of these
markets is creating margin pressure.
H2 priorities are focused on the operating
model review and improving in store
execution, as well as bedding in the
operating model changes.
Torpedo7 Group continues to develop and deliver a seamless experience for customers
as NZ’s leading outdoor adventure sports multichannel retailer
$MH1 17 H1 16Variance
Sales86.476.1+13.5%
Gross Profit21.019.3+8.7%
Gross Margin24.3%25.3%-100bps
CODB18.617.6+5.4%
CODB21.5%23.1%-160bps
Operating Profit2.41.7+41.6%
Operating Margin2.8%2.2%+60bps
Capital Expenditure0.20.3-0.1M
Stores1212-
20
20
Financial Services –2017 Interim Result
Building on launch –Leveraging the Group’s retail distribution
$MH1 17H1 16Variance
Operating Profit(5.2)(2.7)-92.4%
Net Profit Before
Tax and Goodwill(7.4)(4.2)-76.8%
Capital Expenditure1.36.1-4.8M
Receivables Book74.773.5+1.2M
H1 16 reflected that the business was
still partially in build mode with two
months of operations, compared with
H1 17 being 100% operational and
business growth.
H1 17 has borne the majority of the
cost associated with the migration of
the Westpac JV book, with costs not
expected to be replicated in H2 17.
The first half has been focused on
getting the foundations of the business
right.
•Successfully migrating the ex
Joint Venture with Westpac card
and accounts onto Warehouse
Money hosted systems.
•Continuing to develop our
customer service processes
•Bedding down our systems and
processes.
FollowingarevisionofexpectationsaroundthetransferofoldWestpac
JVcustomersandassetgrowth,thebusinesshaswrittenoffasanon-
cashitemthecarryingvalueofgoodwill($22.7M)whicharosefromthe
acquisitionofDinersClub(NZ)andtheWestpacJV.
Itisdifficultforanearlystagecompanywithdevelopingfuturecashflows
tohavesufficientcertaintyinoutlooktosupportcarryingvaluesof
goodwillrelatingtostrategicvalueinacquisitions.
21
Financial Services Outlook
As signalled at the ASM, our expectations around asset growth and customer behaviour
resulting from the acquisition of the JV book from Westpac had to be re-set after the
completion of the transition and re-carding process. We saw more churn and less
customer conversion than was expected. Consequently the asset base is 1.6% up year on
year, reflecting a combination of that churn and bad debt write-off which has offset asset
growth.
Detailed scenario modelling around future cash for projections for the business have been
undertaken based on observed “run rates” and customer behaviour:
The book is still young, which brings with it a range of assumptions around how
customers will behave, revolve rates, loss rates, and growth potential
We believe that our risk settings are correct regarding customer acceptance, and our
cost of acquisition is low by industry standards
We have yet to develop and launch additional product offerings that are fundamentally
important to the future profitability of the business
Our scenarios are realistically bound by capital constraints and a conservative posture
towards taking on too much risk
22
Financial Services Outlook
Our financial projections reflect various scenarios around product launch and
penetration, and key assumptions around leveraging all Group distribution
opportunities
Our focus is on building scale. Presently the business is sub-scale and with the
infrastructure investment and fixed cost base, the priority is to grow the customer
book in the most capital efficient way possible and reduce costs as a % of revenue
We have a new CEO joining the business this month who will drive the business
through this phase to profitability
Scale would come at an asset base of approximately $300M. The current base is
$74M
Key projections are currently:
•Breakeven has been pushed out to FY21, with two more years of losses of
similar scale to FY17 as the business invests to acquire customers.
•Asset base of ~$320M by FY21
•The projected growth is able to be funded from existing capital in the Group
•No revenues or investment have been included from “new to market” products.
The Warehouse Group
Strategy Update FY17-FY19
Our StrategicObjectives
Customer centric. Fast-paced, flexible and agile. Transparent. Celebrates diversity.
Learn all, not know it all orientation
Top talent. Lean approach. Data driven insights informing metrically driven
decision-making. Engage proactively with customers and team. Relentless
prioritisation. Strong and supportive Board.
PRODUCT
DIGITAL
PROCESS
CSR
CULTURE
ENABLERS
•EDLP
•Price transparency
•Range Curation
•Reinvent the Bargain
•Great value -
“Making the
desirable affordable
and the affordable
desirable”
•Dynamic/flexible
sourcing
•Transactional to
engagement model
•Omnichannel –
serving customers
as they choose to
shop
•Extended portfolio
of products and
services ecosystem
•Develop best in class
logistics and
fulfilment
capabilities
•Re-engineered for
simplicity and
reduced complexity
•Cost reduction –
eliminate non value-
add to customers
•Automation
•Test fast, fail fast
•Help Aotearoa
flourish
•Embed everything
we do
•Partnership with
communities to
give back
•Protecting the
environment
•Enable customers
to choose who and
what we support
24
Our strategy is to be New Zealand’s most successful retail group, both in terms of
relevance to customers, and sustainable profitability.
= Margin
Enrichment
= Redeployment
of investment
= Cost
Reduction
= Staying true to our
heritage and values
Strategy -Re-engineering Group Performance
Having stabilised performance, the strategic focus is:
Getting the retail fundamentals right
Making the business less complex, more efficient and
operating on shorter, more agile time frames to better align
products with customer demand.
Investing for the future
Evolving our digital capability, and store design to ensure that
we maintain relevance with changing customer needs
Operational efficiency
Removing duplication and fragmentation across the Group
resulting from multiple acquisitions in the last six years,
driving process efficiency and automation
Gross Margin
Current <32%
3yr Target 200-300bps improvement
CODB
Current 28%
3yr Target 200-300bps improvement
EBIT
Current <4%
3yr Target ~7%
The key levers:The case for change:
Note: GM/CODB/EBIT %’s with reference to total sales and are Group (consolidated) measures
25
Target financials
$MFromTo (3yrs)
Retail Gross Profit %<32%>35%
Retail CODB %28%26%
EBIT%<4%~7%
Although we have started to reshape the business through the new operating model,
there are many initiatives in the programme to realise our goals.
The following slides give more details on two of those initiatives as examples of the
scope of changes within our programme:
Operating model change
Logistics and Fulfilment change
26
Example 1: Operating Model change
The Group recently announced a structural re-organisation around the introduction of a
new operating model for the retail businesses and support services.
The operating model changes are an important first step in executing our strategy. The
impacts of this phase will be completed by the start of FY18.
The operating model is designed to:
support the implementation of changes to improve our retail fundamentals such as
more dynamic sourcing
set the foundation for investment into areas to better engage today’s customers;
evolving our marketing capabilities and investing in digital expertise.
remove duplication, promote streamlining of business processes and systems.
27
28
Operating Model Changes –key components H2 FY17
Blue and Red (Operating models)
Consolidate the leadership and specialist retail functions of the two businesses.
Bed down the new operating model and business processes.
Transfer support functions to Group Support Services (e.g. finance, property, people
support, information systems).
Noel Leeming and Torpedo7 Group (Operating models)
Consolidate the leadership and specialist retail functions of the two businesses.
Cross fertilisebest practice in improving retail operations (T7) and digital effectiveness
(NL).
Transfer support functions to Group Support Services (e.g. finance, property, people
support, information systems).
Group Support Services
Remove duplication and inefficiency (complete back-office integration of group
businesses).
Enable the retail businesses to focus on trading and customer related activity rather
than dividing their time with business support services.
Re-design and harmonisation of support business processes.
Example 1: Operating Model change
next phase
The next phase of the operating model change is to redesign business processes and ways
of working to improve the organisation’s speed to market, flexibility and efficiency.
Identification and realisation of synergies resulting from combining the business
operations. The majority of benefits will be recognised in FY18:
•Potential growth opportunities
•Product rationalisation
•Physical space reconfiguration
•Supply chain and sourcing economies
•Business process improvements
The structural changes and realignment are also key enablers to other initiatives within
the broader change programme such as the move to a more EDLP-focused product
strategy in Red.
Implementation of technology changes to enable a more streamlined, efficient and lower
cost retail operation that can support the business strategies to engage customers and
shorten sourcing cycles.
29
Example 1: Operating Model change
Key financial forecast
$MH2 17FY 18
(annualised)
Personnel Cost Savings1-213-15
Non-personnel cost
savings
1-25
Cost of Change*(10)-(13)
* The final cost of change is unknown at this time as the process is still ongoing. We
have established a new structure, to enable key change strategies to be delivered.
Further savings and growth will flow from their implementation.
30
Example 2: Fulfilment and Distribution change
Following the acquisition of a number of businesses in the last six years, the Group has had
a fragmented and siloed distribution and fulfilment capabilities. While incremental
improvements have been made over the years, our strategy is now to centralise a best
practice capabilities and develop the necessary utility to support a next-day/same-day
delivery model for online fulfilment and reduce the cost of moving goods around our
network.
The distribution and fulfilment scope includes:
International freight forwarding from point of origin into our distribution centres in NZ
Local product supply from agents, distributors or manufacturers in NZ
Warehouse stock management
Distribution to stores
Distribution direct to customer
Online fulfilment
Click and collect
31
Example 2: Fulfilment and Distributionchange
As at the half year, we have progressed a number of initiatives within the fulfilment and
distribution programme. Most of these initiatives are still in progress, and include:
Consolidating our North Island Distribution Centres across brands, centered on our
warehouse facility at Wiri in South Auckland
Investing in and expanding our South Island Distribution Centre, with the objective of
consolidating South Island distribution into that facility when completed in March 2017.
We are in the process of transitioning our international Freight Forwarder relationship to
Mondiale.
Making improvements in the electronic transfer and management of product data.
Changes in how Apparel is shipped from manufacture to improve distribution efficiencies
and hence speed to market.
Currently implementing a new Order Management System that will underpin online
fulfilment.
Work has progressed on developing a next-day delivery to the customer capability.
32
Dividend & Outlook
34
Retail Environment
Retail conditions remain generally favourable, albeit there are signs that retail
spending is softening.
Headwinds for H2 remain increased competition and the execution risk around
strategic change (both internally and with customers).
Full Year Guidance
FY17 Adjusted Net Profit After Tax subject to material changes in trading conditions is
expected to be in the range $54M to $58M. This represents a decrease of 10-15% in
profit for the full year.
Targeted 15cps dividend.
34
Outlook & Earnings Guidance
Retail Environment
Retail conditions remain generally favourable, albeit there are signs that retail
spending is softening.
Headwinds for H2 17 remain increased competition and the transition timeframe
around strategic change (both internally and with customers).
Full Year Guidance
FY17 Adjusted Net Profit After Tax subject to material changes in trading conditions is
expected to be in the range $54M to $58M. This represents a decrease of 10-15% in
profit for the full year.
Targeting 15cps dividend for the full year. Today the Board has declared an interim
dividend of 10cps payable on 13 April 2017.
Outlook & Earnings Guidance
34
QUESTIONS
Data sourced from publicly available filings. Our datasets may not be complete. Automated analysis can produce errors. If you believe any data on this page is incorrect, please contact us at hello@nzxplorer.co.nz. For informational purposes only. Not investment advice.
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