Managing Director’s Address to Annual Meeting 22 May 2019

Managing Director’s Address to the Annual Meeting of Shareholders
22 May 2019

Thanks Rosanne and welcome everybody – it’s great to see yet another strong turnout for the annual
meeting.

There’s a lot to talk about. I’m going to start with a summary of our financial results, and then I want to
cover developments within the business – we’re working on a number of fronts to build on our best
attributes and focus on the things that can help us to sustain a high level of operating performance. I’ll
come back to the detail of that in a few minutes.
Financial results
It was great to produce another year of sales growth in a retail environment that, as Rosanne has
already noted, tested retailers right across the board. Total sales were up by almost 4½% to just under
$632 million, while same-store sales grew by 3.1% (that is, 3.4% for the homeware segment and 2.5%
for sporting goods). Our online business continued to grow rapidly – around 27% – in what is proving to
be a very successful channel for us and now represents over 10% of total Group sales.
Gross margins also improved – in dollar terms, by just over 4.7% to $253 million; and from just under
40% to just over that number as a percentage of sales.
Earnings before interest and taxation were $86.00 million, an increase of just under 3.2%.
Net profit after tax was $63 million, up by around 3.4%.
I think you’ll agree, those are pretty solid numbers which compare very favourably against many other
retailers.
The financial results reflected our close attention to the fundamentals of the business in what was an
intensely competitive trading environment. Rosanne has already stated the Board’s appreciation of the
team and individual performance levels across the Group. I certainly want to add my own note of thanks
to all our people, in-store and in support roles.

Operating conditions
Retail is obviously very sensitive to the overall state of the economy, but also to the way people feel
about their own prospects in that context. It’s very much a mix of influences, and they seldom all point
in the same direction at the same time.

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The New Zealand economic fundamentals were and are sound, with continuing GDP growth. On the
other hand, there were a couple of factors taking the edge off consumer confidence, and when that
happens shoppers become even more value-conscious than usual. Meanwhile there were some cost
increases from factors that we can’t control... and when you have that combination of trends you
obviously have downward pressure on margins.
The spike in petrol prices during the year affected both retail spending and costs. The effect was, of
course, deepened in our largest market by the imposition of the Auckland regional fuel tax.
Retail spending was also affected by industrial action across a number of sectors, which we think offset
any benefit to consumer sentiment from the legislated increase in the minimum wage taking place over
the years leading up to 2021. The minimum wage rise also represents a significant cost increase within
the business, in the order of 6 to 7% per year over that period, although we have been implementing it
from a starting point where we were already above the minimum level for all employees.
Our store network
We had another busy year in our store development programme, investing around $5.5 million to open
new stores, or to renovate or improve existing stores. By the end of the year the homewares sector had
46 bricks and mortar stores including 13 fulfilment hubs, and there were 38 in the sporting goods sector
including nine fulfilment hubs.
We completed a full refurbishment of Briscoes Homeware Rotorua, and in doing so established an
online fulfilment hub for Briscoes and Rebel Sport as a joint back-of-house facility.
In Christchurch, we relocated Briscoes Northlands to a purpose-built property in Papanui, some 100
metres up the road, and we opened a new Rebel Sport store adjacent to it. This major development
added significant retail and stockroom space for Briscoes and increased the presence of Rebel Sport in
the Christchurch catchment. The joint back-of-house area also contains a fulfilment hub for both brands.
We made good progress on replacing the Group’s support office in Taylors Road, Auckland. The
relocation is scheduled for around July/August this year.
There were some delays, for external reasons, to projects at Silverdale, Tauranga, Nelson and Napier.
These are still alive with the latter 3 expected to be completed by the end of quarter one next year.
That’s the high end of the programme. There is always a lot of work going on at the other end as well,
such as planning for projects to move into during the following year, store-relays, lighting upgrades,
security camera upgrades and so on.
On that note, it’s worth mentioning that we are targeting to complete a number of large projects during
the current year, including:
o The full refurbishment of Briscoes and Rebel Sport in New Plymouth
o The opening of a new Rebel Sport in the redeveloped 277 complex in Newmarket, Auckland

o The refurbishment of a Briscoes and Rebel Sport site at Tauranga, along with the creation of an
enlarged common back-of-house facility

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o The relocation of Briscoes Riccarton to a new site at Bush Inn, Christchurch
o The opening of new Briscoes and Rebel Sport stores at Carr Road, Mount Roskill in Auckland

Just to round off this theme... you will have noticed an increasing emphasis on the establishment or
enlargement of fulfilment hubs. This is about optimising our total retail platform – in bricks and mortar
and online. New fulfilment hubs improve our service level and our costs as the online sales channel
grows at a rapid rate.

Issues and challenges
This is a very dynamic era for retail – one in which we are dealing with shifts in the profile of our
customers, in trading patterns across the year and at traditional peak periods, in the expectations that
customers have, and in the way they want to do business with us. We really need to be on our game to
keep up, and to make the changes and improvements needed for us to remain at the forefront of New
Zealand retail.
I have spoken at a number of annual meetings about changes in the timing of retail spending through
the year. This was a factor yet again last year, with summer trading starting quite late and a further
concentration of sales into a smaller number of promotional events like Black Friday and Boxing Day.
The challenge we have is to gear up for the peaks while maintaining focus and performance during the
periods between them – maintaining store standards and product availability, fulfilling online orders to
our normal service levels, and so on. We have continued to adapt our operational and buying strategies
for that purpose, and that was a key factor in the improvement in gross margin during the latest year.
We continue to learn about this – from looking closely at the changes in the trading patterns
themselves, and by analysing our own response – and we hope to further improve our performance in
the future.
Customer demographics and shopping preferences are certainly evolving – with respect to products,
channels, use of technology, environmental consciousness and other factors.
Our focus remains on making it easy and attractive for shoppers to do business with us – providing best
brands at the best prices, and providing the opportunity for people to purchase in the way that suits
them best, at any particular time. We believe this is the best frame of reference for us to compete, and
adapt to the challenges we find in the marketplace.
The growth of our online platform is a key part of this approach. We now live in the age of the online
customer. That of course does not mean online-only – it is clear that web browsing also drives
customers to purchase in-store. As I have said previously, it seems likely that the number of customers
who purchase only in-store or only online will decline, and the numbers we refer to as “multi-channel”
customers will increasingly become the norm.
For those who purchase online, we are well under way with upgrades that will make that easier, and we
continue to improve the way we assemble and deliver orders. We anticipate launching the new online
platform during the current year, and we will also continue to add new fulfilment hubs.

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Our Click and Collect trial continues to show promise. We are working to improve processes and
procedures to support the rollout of more Click and Collect stores during the year ahead.
Understanding what our customers want is another key issue for us. We are looking to the creative use
of information gathered in the course of everyday trading to achieve marketing efficiencies and
promote customer engagement. Our understanding improves as we get better at analysing data and
purchasing decisions.
In a market where media consumption is changing rapidly, the continuous review of media and
messages to improve our reach to target audiences is critical. Meanwhile, we will continue to use the
insights gained from data to ensure product offers, promotions, store design and layouts appeal to our
customers.

Doing the basics
The latest year saw us up the intensity of our internal focus on the fundamentals of the business. To
simplify ... that focus on a few key items, being:
o Stock – driving it out of the stockroom and on to the shop floor
o Service – greeting customers well and using product knowledge and general smarts to help them
find what they’re after
o Standards – maintaining and presenting our stores in a form that is attractive and comfortable for
customers
o Our people – managing with respect and fairness, setting clear expectations, offering training &
development opportunities, looking after safety & wellbeing, and communicating openly
o Administrative excellence – in the supply chain, store management, stockrooms, fulfilment, shop
counters and so on
We look to the fundamentals of our business for the opportunity to improve our offering.

Leadership changes
We had a couple of significant leadership changes during the year, with the retirement of our Chief
Operating Officer, Pete Burilin; and the resignation of the General Manager Retail Operations, Stephen
Jones. Pete was a key part of our senior management team for more than 20 years, and Stephen since
2017.
Andrew Scott, who has an impressive retail career in a number of countries, has been appointed to the
COO role and joins us early July, and Nick Turner, previously our GM Store Development, has been
appointed to the Retail Operations role.

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The current year
Now to the outlook for the year out to January 2020...
As noted by Rosanne, a lot of retailers struggled to reach sales targets in the first quarter. I might add,
that concern about consumer confidence and increasing costs is a common theme amongst those I have
spoken to. What that means is continuing pressure on sales and margins – we will be no exception to
that, but we will be fighting these trends using the weapons I have outlined today.
We recently reported a 2.6% rise in sales, unaudited, for the first three months of our year, or 2.1% on a
same-store basis. Trading patterns were significantly different to those for the same period of last year,
with Easter falling later and much closer to Anzac Day, which compressed our opportunities for
promotional activity. In context we were relatively pleased with the first quarter sales performance and
there’s a long way to go, but with consumer confidence under pressure, an uncertain housing market
and the relentless retail environment, as mentioned in our release a few weeks ago, our ability to grow
profit in the short-term is also under pressure.
We will continue – if anything, we will further intensify – our strong focus on the fundamentals of the
business.
We maintain our focus on the wide range of programmes in place to develop and care for our people.
This year, a number of our senior retail managers have commenced study towards MBA degrees and we
are increasing the content on our online learning platform to spread product knowledge across the
wider team. Our commitment to safety and wellbeing is maintained through our focus on manual
handling and traffic management and enhanced by our investment in a new health and safety system
ecoPortal. Our implementation of Cornerstone on Demand will improve our recruitment, onboarding
and performance management. All of these contribute to a competent, confident and committed team.
Overall, I think I have given you a picture of a business that is in pretty good spirit, albeit with significant
challenges ongoing. But along with the challenges there is opportunity ahead of us, and I remain
confident of our ability to step up and further strengthen our leadership position.
Thank you.