The Warehouse Group ASM – CEO’s Address

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To: Market Information Services Section
NZX Limited
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Auckland, 26 November 2021

The Warehouse Group Limited Annual Meeting
CEO’s Address
Thank you, Joan and good morning everyone.

I will touch on our vision briefly along with our strategic achievements in FY21. Our vision remains
the same - To build New Zealand’s most sustainable, convenient and customer-first company.

To achieve this vision, we have three strategic priorities:

The first is building our customer ecosystem.
This is the essence of our strategy. It is how we serve our customers’ needs and wants through our
people, our platforms, and our data – to deliver a seamless and frictionless customer experience.

In FY21, we have developed our e-commerce platform and launched the new website for The
Warehouse and Noel Leeming, with Warehouse Stationery following soon. We
have also continued our investment in TheMarket.com which now has over 2.5 million available
products. In order to refine our product offering across our brands we have
improved our inventory management significantly – reducing in-store SKUs by 18.5% for The
Warehouse and 12.6% for Warehouse Stationery, while still offering enhanced range optimisation.

The second is building the future experience.
This means meeting and exceeding the expectations of changing consumer behaviours – providing
more sustainable products, offering improved delivery and click and collect options and having the
right stores in the right places.

In FY21 we were proud to increase our weighted average Net Promoter Score by 7.5 points to
76.6. Joan has mentioned the growth in Click & Collect sales - which grew 21.1% in FY21, driven
by our new offering of same-day Click & Collect at The Warehouse and one-hour Click & Collect at
Noel Leeming. Our 252 stores continue to be the strength of our network and during the year
we transitioned a further 8 SWAS stores bringing the total to 25.

The third is our investment in infrastructure that provides us with the tools we need to excel in
retail fundamentals.
It is our goal to achieve the best New Zealand retail performance metrics, to maintain a strong
corporate and brand reputation and provide the Group and our shareholders with long term
financial security.

FY21 saw a significant increase in our investment in core systems – developing our Warehouse
Management System, starting the development of the ERP system for finance and inventory, and
investing in our cloud-based Master Data Management system. These improvements will provide us
with the data and insights to improve our inventory management – a key aspect of retail

fundamentals. We increased stock turn from 4.4 times to 5.3 times and reduced aged inventory as
percentage of inventory from 28.1% in FY20 to 16.1% in FY21.

During the year, the Group revised its liquidity policy in response to last year’s COVID-19 pandemic
and now operates to a target liquidity range of between $350 million to $450 million. Strong sales
performance and cashflow management meant we ended FY21 above this with total liquidity of
$490.5 million.

Ecosystem
Our customer-centric ecosystem enables frictionless shopping experiences creating greater
customer value. We have strong ecosystem foundations in place with an established physical
footprint and market leading digital assets.

In July, we announced that we have become a cornerstone strategic investor in Zoom Health – we
have a shared vision to offer convenient and affordable access to pharmacy products to all Kiwis.

Further improvements will make customer shopping journeys with our family of brands faster, easier
and more personalised through unified data, platforms and people – while remaining focused on the
fundamentals of delivering exceptional value and new assortments with improved customer
fulfilment and payment options in store and online.

Customer loyalty programmes – MarketClub
On 20th October we launched the new MarketClub and MarketClub+ loyalty programmes. This
provides our customers with more convenience, more ways to save money and more ways to give
back.

MarketClub provides the Group with the opportunity to understand our customers shopping
habits and to send more targeted communications. This will incentivise them to shop more
frequently with us and increase their basket size and enable us to increase our customer
understanding and put the customer at the centre of everything we do.

MarketClub is currently available online at TheMarket.com and in store at The Warehouse – and it is
our intention to extend our programme group-wide.

The MarketClub membership is free. Customers can unlock exclusive offers and benefits on
TheMarket.com and at The Warehouse, with a charitable donation made by The Warehouse Group
on their behalf with every purchase at The Warehouse.

MarketClub+ is a paid membership with free shipping on eligible items when you spend over
$45 and is only available on TheMarket.com at this stage.

Through MarketClub we will unlock the ability to drive greater preference for customers to choose
us first, improving customer experience and a cohesive group ecosystem.  
Our combined loyalty programmes across the Group provide us with nearly 4 million unique
customer records.

Sustainability Linked Loan
On 8th November we announced that we have agreed a $70 million Sustainability Linked Loan with
Westpac. The Warehouse Group will have to meet five sustainability performance goals including
sustainable packaging, carbon emissions and gender targets to receive discounted rates.

The two-year extendable loan incentivises the Group to meet sustainability targets set out over a 4-
year time period. The targets are ambitious, innovative and forward-thinking and are key priorities
in our sustainability journey.

We know as both customers and shareholders you care about the environment, and we want you to
know that the way we source, package and ship the products we sell is ambitiously ethical and
sustainable. Under these new loan conditions, we will be strengthening that commitment.

We’re committing to sustainable packaging to ensure that more of our packaging is compostable or
recyclable at kerbside or in store. We are also committing to annual greenhouse emissions reduction
targets across the Group. This will help us to achieve our science-aligned target to reduce our Scope
1 and 2 emissions by 42% by 2030.

Likewise, this loan recognises the performance of our ethical sourcing practices. It also incentivises
better traceability across our supply chain to help ensure the products we sell are created in a way
that treats workers and the environment ethically.

Diversity and inclusion also play a key part in our approach to sustainable business. The loan
incentivises The Warehouse Group to achieve two gender goals: diversity of gender, with a target of
50% women in senior leadership by 2025, and gender pay equity for all across our whole workforce.

FY21 Divisional Performance
I will just summarise the key divisional performance from our 2021 annual results. Our core brands
reported significant increases in annual sales – The Warehouse up 5.8%, Warehouse Stationery up
2.2%, Noel Leaming up 11.7% and Torpedo7 up a staggering 22.2%. Total group sales were up 5.8%
to $3.4 billion.

Total Group adjusted operating profit, or EBIT, was $240.6 million up from $49.3 million in
FY20. Again, all our four core brands contributed to this result with The Warehouse up 241.7% to
$187.6 million, Warehouse Stationery up 96.0% to $34.3 million, Noel Leeming up 89.9% to $64.9
million and Torpedo7 up 118.6% - turning around a loss, to a profit of $3.3 million.

FY21 Performance- Brand recap
After a flat year of sales in FY20, we are pleased to deliver sales growth of 5.8% at The Warehouse to
$1.8 billion. Gross profit margin was significant with an improvement of 430 basis points
to 42.2%. Customers continue to embrace online shopping and click and collect delivery options.
The Warehouse online sales increased 4.8% compared to the prior year to make up 6.3% of total
sales. The introduction of same day Click and Collect service at The Warehouse contributed to an
increase in Click and Collect fulfilment of an incredible 37.9% increase for the year.

Warehouse Stationery also had a pleasing result with 2.2% growth in sales to $274.6 million.
Gross profit margin also saw a significant improvement, up 580 basis points to 48.3%. While online
sales were flat year on year as we cycled through the anniversary of the first lockdown, customers
are choosing more and more to collect their online orders in store with Click and Collect sales up
64.4%.

Noel Leeming delivered yet another record year in both sales and operating profit, with sales
exceeding $1.1 billion, up 11.7% on prior year and gross profit margin up 140 basis points
to 23.3%. Online shopping is a significant channel for Noel Leeming and while online sales
decreased 6.4% as we cycled the FY20 lockdown periods, sales penetration remained above the 10%
mark which is almost double pre-pandemic levels. Our one-hour Click & Collect offering for Noel
Leeming saw Click & Collect Sales increasing by 9.3% to 62.0% of online Sales.

Torpedo7 continues the growth trajectory we have seen in recent years with sales growth of 22.2%
to $158.7 million and gross profit margin increased 1,500 basis points to 37.9% - driving the
Torpedo7 turnaround to profitability with FY21 Operating Profit of $3.3m – a significant
improvement compared to an operating loss of $17.7m in FY20. Torpedo7 online sales were up
18.6% on the prior year and now makes up 28.8% of total sales. Torpedo7 customers also embraced
Click & Collect services which increased 26.1% and making up 43.1% of online sales.

Sales Trend
Slide 20 shows the weekly sales trend during FY21. As you can see, COVID-19 lockdown periods have
a significant impact on sales when compared to the equivalent weeks in the prior year. This resulted
in decreased sales in August 2020 when Auckland was placed into Level 3 lockdowns, but a growth in
sales year on year in March to May 2021 compared to March to May 2020 – being the first
nationwide Level 4 lockdown at the start of the pandemic.

I will update you for the first quarter of this financial year shortly.

FY21 Capital Expenditure
FY21 capital expenditure was $85.0 million up from $63.1 million in FY20. While this was less than
our guidance range of $100-130 million, this is significantly higher than annual capital expenditure
over the past five years, as we invest in operational change and growth. 

The Group’s major investments during the year were in core systems including ERP finance and
inventory systems, Warehouse Management System and cloud-based Master Data Management.
Significant investment was made in customer focused digital initiatives including the Group
eCommerce platform for our brand sites, and further development of TheMarket.com.

Store renewals included new The Warehouse, Warehouse Stationery and Noel Leeming stores at
Ormiston, the Noel Leeming Silverdale expansion and the new Torpedo7 store in Napier.  In addition
to Ormiston, seven SWAS stores were opened during the year including Masterton, Lyall Bay,
Whanganui, Oamaru, Riccarton, Te Awamutu and New Plymouth The Valley.

We expect capital expenditure in FY22 to be in the range of $115 million to $135 million and to
remain at this level for the coming years.

FY22 Q1 Update
Group sales in the first quarter ending 31 October 2021 were impacted due to COVID-19 lockdown
levels from 18 August – including Level 4 for two weeks New Zealand wide and five weeks in
Auckland, with Auckland remaining in Level 3, and Northland and Waikato switching between Level
2 and 3 for the remainder of the quarter.

Group sales for the quarter were $630.7 million, a decline of 14.6% on the same quarter in FY21. Our
customers moved swiftly to our digital channels to purchase the items they need to work and
school from home and manage from their homes – resulting in online sales growth of
118.2% and representing 30.1% of Group sales.

The reduced sales due to COVID-19 lockdown did result in a build-up of winter seasonal
stock, requiring increased clearance sales and resulting in a gross profit margin of 32.9%, down 200
basis points from the same quarter last year. There has also been a change in product mix with the
limitations of lockdown shopping.

The Warehouse recorded sales of $298.2 million in the quarter, down 21.4% on the same quarter
last year and online sales growth of 164.1%.

Warehouse Stationery sales were $48.2 million, a decline of 22.0% and online sales growth of 91.8%
compared to the same quarter last year.

Noel Leeming sales were $238.7 million, a decline of 4.8%, however these sales were up 6.1%
compared to the same quarter in FY20. Noel Leeming online sales saw growth of 148.5% with strong
uptake in our one-hour click and collect offering.

And lastly Torpedo7 recorded sales growth of 1.2% to $34.2 million compared to the same quarter

last year and more than 43% growth compared to FY20 due to growth in both store and online
channels. Torpedo7 online sales increased 73.0% compared to the same quarter last year.
As we have moved into Level 3, Step 2 in the second quarter, our Group stores in the Waikato traded
30% up year on year in the first week as customers returned to shopping in store, and our Auckland
stores have traded significantly higher than this. Group wide total sales demonstrated growth of
19% in the second week of the quarter – of which Auckland stores were open for half of this week.

Senior Leadership Update
And lastly, an update on a few changes in our Senior Leadership team.

Tim Edwards left the company in September after holding positions as CEO Noel Leeming, CEO
Torpedo7 and most recently as Chief Sales Officer - supporting the business through a period of
significant transformation. Following Tim’s departure, Jonathan Waecker’s remit has been extended
to include responsibility for Group Sales, and he has been appointed Chief Customer and Sales
Officer.

Ian Carter has been appointed as Chief Store Operations Officer. Ian joined The Warehouse Group
in December 2019 and was most recently Tribe Lead – Group Sales.

Chief Digital Officer Michelle Anderson leaves us at the end of the year, after 15 years with
business – most recently leading the development and execution of digital customer experiences
and data strategy across the Group. We are pleased to appoint Sarah Kearney as our new Chief
Digital Officer. Sarah joined The Warehouse Group in August 2017 as Group General Manager E-
Commerce, and was most recently Tribe Lead – Customer Engagement.

We also farewelled Nicholas Falconer in October after 3 years in the business as Chief of
Staff. Nick was instrumental in guiding our business strategy, implementing our transformation
programme and our shift to Agile business structure.

Close
Our purpose at The Warehouse Group is ‘helping Kiwis live better every day’. We are building an
ecosystem of brands, products and services that help to serve this purpose. It was pleasing to see
our transformation and strategy delivering a record result in FY21.  We have started FY22 with the
constraints of trading in various levels of lockdown across the country, but our strategy has allowed
us to pivot and trade as best we can within these constraints, and we are positioned well – with our
stores, our people, and stock levels – to make the most of increased demand with retail now open.
We have a tremendous team of people who have proved so resilient, have enabled The Warehouse
Group to operate through the ups and downs over the past 18 months, and who we will continue to
support through uncertain times.

I would also like to thank you as shareholders for your continued support and I hope you share my
excitement in the year ahead.

ENDS