Chair and Group CEO Presentation 2017 Annual Meeting

THE WAREHOUSE GROUP

1
THE WAREHOUSE GROUPLIMITED
ANNUALSHAREHOLDERS’ MEETING
Friday, 24 November 2017

The WarehouseGroup

Board
•Joan Withers (Chair)
•Keith Smith (Deputy Chair)
•James Ogden
•John Journee
•Julia Raue
•Robbie Tindall (alternate for Sir Stephen Tindall)
•Tony Balfour
•Vanessa Stoddart
Group Chief Executive Officer
•Nick Grayston
Group Chief Financial Officer
•Mark Yeoman
Board of Directors
—
THE WAREHOUSE GROUP

3

1.Welcome and Chair’s AddressJoan Withers, Chair
2.Group CEO PresentationNick Grayston
Group Chief Executive Officer
3.Business of the MeetingJoan Withers, Chair
•Re-election of Directors
•Auditor
•General Business
4.Refreshments
Order of Business
—
THE WAREHOUSE GROUP

4

The WarehouseGroup

Share Price
•The decline in market value is a serious concern
The Retail Sector
•Retail shares down in Australia and New Zealand with the
announcement of Amazon’s arrival in Australia
•Only the fittest and most savvy retailers will be successful in this
omni-channel retail environment
Transformation
•We have unmatched depth and relevance in executive talent in NZ
retail
•Undergoing fundamental transformation to ensure we remain relevant
and competitive in the future
•Committed to communicate with the market and shareholders about
what we are doing and how we are progressing
Chair’s Introduction
—
THE WAREHOUSE GROUP

6

Chair’s Introduction
—
THE WAREHOUSE GROUP

7
What we are doing
•We believe our strategy will dramatically transform The Warehouse
and its businesses.
•We exited the Financial Services business as our priorities changed
to focus on retail transformation. The sale to Finance Now (a division
of SBS Bank) completed in September 2017
•The Board and Management are closely aligned
•We have engaged McKinsey to assist with implementation of strategy

Board Update
•To support management driving success the board reviewed skills
going forward
•In addition to personnel changes the Board’s focus on governance
includes revisiting committee structures, policies and charters.
•Sir Stephen Tindall, Founder and major shareholder has decided to
take a year’s leave of absence from the Board to focus on other
interests including the America’s Cup
•Robbie Tindall has worked in the retail business for a number of
years so as Sir Stephen’s alternate will continue to make a valuable
contribution
•James Ogden will not stand for re-election after eight years and
Vanessa Stoddart has resigned
•Vena Crawley joins the Board table as part of our support for the
Institute of Directors Future Directors’ programme
Chair’s Introduction
—
THE WAREHOUSE GROUP

8

THE WAREHOUSE GROUP

9
The WarehouseGroup

Financial Year 2017
—

—
FY17AnnualResult
$MFY17 FY16 Variance
Retail Sales2,980.82,924.7+1.9%
Retail Gross Profit971.9958.2+1.4%
Gross Margin32.6%32.8%-20bps
Retail CODB864.1847.0+2.0%
CODB %29.0%29.0%0bps
Retail Operating Profit107.8111.2-3.0%
Operating Margin3.6%3.8%-20bps
Continuing NPAT
(Adjusted)
68.269.2-1.4%
NPAT (Adjusted)59.264.1-7.7%
NPAT (Reported)20.478.3-73.9%
Operating Cash Flow128.1162.5-21.2%
Ordinary Dividend16.016.00cps
•Group sales up 1.9% with Noel Leeming
and Torpedo7 delivering strong growth
•Gross profit up 1.4% influenced by Noel
Leeming’s performance but overall
margin declined due to The Warehouse’s
weak Christmas trading period
•Costs of Doing Business (CODB) up
2.0% largely reflecting variable cost
increases linked to Noel Leeming and
Torpedo7
•Reported NPAT of $20.4M is 73.9%
below last year due to a number of one-
off items including restructuring costs,
and the goodwill and asset impairments
related to the sale of Financial Services.
These are detailed further on slide 7
•Continuing operations (excluding
Financial Services) delivered an
adjusted NPAT result of $68.2M which is
$1M (1.4%) below last year
•Improved H2 FY17 driven by stable
margin performance and followed two
consecutive weaker halves. H1 FY17
impacted by strong margin pressures
and H2 FY16 by adverse currency
challenges and a warmer winter
THE WAREHOUSE GROUP

11

—
The Warehouse Group H2 vs H1
$MH2 17 H2 16 VarianceH1 17H1 16Variance
Retail Sales1,368.91,364.2+0.3%1,611.91,560.4+3.3%
Retail Gross
Profit
452.9445.3+1.7%519.0512.8+1.2%
Gross Margin33.1%32.6%+50bps32.2%32.9%-70bps
Retail CODB415.0409.9+1.2%449.1437.0+2.8%
CODB %30.3%30.0%+30bps27.9%28.0%-10bps
Retail Operating
Profit
37.935.4+7.2%69.975.8-7.8%
Operating
Margin
2.8%2.6%+20bps4.3%4.9%-60bps
Continuing NPAT
(Adjusted)
23.120.3+13.9%45.048.8-7.8%
Delivered a strong H2 performance during a period of significant internal change
THE WAREHOUSE GROUP

12

Strategy &
Transformation
—

—
•Power shifted to consumers and retailers need to engage in ‘new rules’ of
retail
•Our retail business model must evolve to utilise new technologies and
platforms which connect consumers across global marketplaces to create
an experience that differentiates us from our competition
•Acceleration of our transformation plan is now an imperative to respond to
emerging trends
Customer Expectations
Global SourcingTechnologyConnectivity
Global Competition
External forces of change
THE WAREHOUSE GROUP

14

—
•Performance over the past 7-10 years
characterisedby declining operating
margins in The Warehouse
•The counter factual analysis suggested the
declining profitability trend would continue
•Under this scenario, and allowing for a level
of sales growth offset, future earnings
would be flat and at a level below FY17
•Robust internal strategy development
process followed including testing
scenarios and examining risk
•Early and repeated engagement with the
Board to understand issues facing the
business and review strategic options in
response, resulting in strong alignment
Note reported operating profit for continuing retail operations
Counter factual: Doing
nothing is not an option
THE WAREHOUSE GROUP

15

THE WAREHOUSE GROUP

16
—
Technology Enablement
Invest for the FutureFix the Retail Fundamentals
EDLP
Operating
Model
Reducing
complexity
21
st
Century Retailer
Reducing the
range of SKUs
and changing
mix from HiLo
to EDLP to
drive gross
margin and
lower
marketing and
operational
costs
Leverage
operational
synergies,
remove
duplication in
product range
and optimise
store footprint
and costs
Driving
efficiency and
reduced CODB
through
technology
driven
automation and
productivity
gains, direct
sourcing and
increased
speed to
market, and
streamlined
fulfilment
Create a mobile first platform to
build digital capabilities and
ecosystems to respond to
customer needs
Effortless, personalised and
seamless customer experience
and interaction across multiple
brands and omnichannel
Innovative ways to engage and
reward customer loyalty and
create value added service
offerings
Moving to execution: Retail
transformation
THE WAREHOUSE GROUP

16

—
What does a 21
st
Century
Retailer look like?
•Pivoting from a supplydriven to a demanddriven model to meet
customers’ needs in different ways
•Leveraging our existing Brand channels but also partnering with others
and redefining how we do business closer to the point of need to create
a truly customer centric ecosystem
•Developing a culture of innovation to look at opportunities beyond our
current retail footprint:
oAgile methodology
oSpeed to market
oTest and learn
THE WAREHOUSE GROUP

17

—
What does this look like for
our Retail Brands?
•Leveraged store footprint incorporated with e-commerce
•Easy to shop: consistent & competitive (dynamic) pricing, clear ranging,
good stock availability, automated checkout, range of payment options &
methods
•Customer centric fulfilment
o‘Last mile’ delivery options (2-hour, same day, next day or standard
delivery)
oExtensive click & collect offering
•Personalised customer experience
oRelevant product offerings, pricing & marketing
•Lower costs: right-sized head office cost structure
•Global brands complemented with high-quality and affordable private
label products
THE WAREHOUSE GROUP

18

—
Building a world class team
THE WAREHOUSE GROUP

19

THE WAREHOUSE GROUP

20
—
Conclusion
•This fundamental transformation will ensure a sustainable business in
this new globally competitive retail environment
•We have established a world class leadership team which includes
global expertise and local knowledge
•We will be working with McKinsey through independent due diligence
to drive performance improvements
•The Board and ExecutiveTeamare focused on successful execution
and risk management
THE WAREHOUSE GROUP

20

THE WAREHOUSE GROUP

21
The WarehouseGroup

THE WAREHOUSE GROUP

22
The WarehouseGroup

•Founder and Non-Executive Director
•First appointed 10 June 1994
•Member of the Disclosure Committee and
the People and Remuneration Committee
•Unanimously endorsed by the Board
•Proxy voting in respect of this resolution is:
A total of 186,260,069 proxy votes received,
185,303,693 votes for, 290,699 against, votes
undirected 532,891 and 132,786 votes
abstain giving a result of 99.56% votes
cast in favour of the resolution
Resolution 1
Re-election of Sir Stephen Tindall
—
THE WAREHOUSE GROUP

23

•Independent Non-Executive Director
•First appointed 10 June 1994
•Chairman of the Disclosure Committee and
Corporate Governance Committee
•Member of the Audit and Risk Committee and
People and Remuneration Committee
•Proxy voting in respect of this resolution is:
A total of 186,260,069 proxy votes received, 183,357,874
votes for, 2,133,333 against, votes undirected 634,090 and
134,772 votes abstain giving a result of 98.51% votes cast in
favour of the resolution
Resolution 2
Re-election of Keith Smith
—
THE WAREHOUSE GROUP

24

•That the Directors are authorised to fix the fees and expenses
of PricewaterhouseCoopers as auditors for the ensuing year.
Proxy voting in respect of this resolution is:
A total of 186,260,069 proxy votes received, 185,232,503
votes for, 157,178 against, votes undirected 723,767 and
146,621 votes abstain giving a result of 99.53% votes cast in
favour of theresolution
Resolution 3
Auditors
—
THE WAREHOUSE GROUP

25

To cast your vote please tick one box either for, against or
abstain alongside each resolution on the voting paper
Undirected Votes held by Directors
Sir Stephen Tindall95,952
Keith Smith147,407
Audit Fees157,757
Voting procedure
—
THE WAREHOUSE GROUP

26

THE WAREHOUSE GROUP

27
The WarehouseGroup

THE WAREHOUSE GROUP

28
The WarehouseGroup