The Warehouse Group Limited — AGM Information 2017

Nov 23, 2017

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1
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THE WAREHOUSE GROUP
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THE WAREHOUSE GROUP LIMITED ANNUAL SHAREHOLDERS’ MEETING Friday, 24 November 2017

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The Warehouse Group

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Board of Directors

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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

Order of Business

1. Welcome and Chair’s Address

2. Group CEO Presentation

3. Business of the Meeting • Re-election of Directors

• Auditor

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Joan Withers, Chair

Nick Grayston Group Chief Executive Officer Joan Withers, Chair

• General Business

• Refreshments

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The Warehouse Group

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Chair’s Introduction

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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

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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

Chair’s Introduction

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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

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The Warehouse Group

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Financial Year 2017

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FY17 Annual Result

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Group sales up 1.9% with Noel Leeming and Torpedo7 delivering strong growth

	FY17 Ann	u	al Re	s	ult
THE WAREHOUSE GROUP11	$M		FY17		FY16	Variance
	Retail Sales		2,980.8		2,924.7	+1.9%
	Retail Gross Profit		971.9		958.2	+1.4%
	Gross Margin		32.6%		32.8%	-20bps
	Retail CODB		864.1		847.0	+2.0%
	CODB %		29.0%		29.0%	0bps
	Retail Operating Profit		107.8		111.2	-3.0%
	Operating Margin		3.6%		3.8%	-20bps
	Continuing NPAT (Adjusted)		68.2		69.2	-1.4%
	NPAT (Adjusted)		59.2		64.1	-7.7%
	NPAT (Reported)		20.4		78.3	-73.9%
	Operating Cash Flow		128.1		162.5	-21.2%
	Ordinary Dividend		16.0		16.0	0cps

• Gross profit up 1.4% influenced by Noel Leeming’s performance but overall margin declined due to The Warehouse’s weak Christmas trading period

• Continuing operations (excluding Financial Services) delivered an adjusted NPAT result of $68.2M which is $1M (1.4%) below last year

The Warehouse Group H2 vs H1

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Delivered a strong H2 performance during a period of significant internal change

$M		H2 17	H2 16	Variance		H1 17	H1 16	Variance
Retail Sales		1,368.9	1,364.2	+0.3%		1,611.9	1,560.4	+3.3%
Retail Gross Profit		452.9	445.3	+1.7%		519.0	512.8	+1.2%
Gross Margin		33.1%	32.6%	+50bps		32.2%	32.9%	-70bps
Retail CODB		415.0	409.9	+1.2%		449.1	437.0	+2.8%
CODB %		30.3%	30.0%	+30bps		27.9%	28.0%	-10bps
Retail Operating Profit		37.9	35.4	+7.2%		69.9	75.8	-7.8%
Operating Margin		2.8%	2.6%	+20bps		4.3%	4.9%	-60bps
Continuing NPAT (Adjusted)		23.1	20.3	+13.9%		45.0	48.8	-7.8%

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Strategy & Transformation

External forces of change

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Customer Expectations
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Global Sourcing
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Technology Connectivity Global Competition
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• 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

Counter factual: Doing nothing is not an option

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• Performance over the past 7-10 years characterised by declining operating margins in The Warehouse

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• 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

Note reported operating profit for continuing retail operations

• Early and repeated engagement with the Board to understand issues facing the business and review strategic options in response, resulting in strong alignment

Moving to execution: Retail transformation

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Fix the Retail Fundamentals

Invest for the Future

Technology Enablement

EDLP	Operating Model	Reducing complexity
Reducing the	Leverage	Driving
range of SKUs	operational	efficiency and
and changing	synergies,	reduced CODB
mix from HiLo	remove	through
to EDLP to	duplication in	technology
drive gross margin and lower marketing and operational	product range and optimise store footprint and costs	driven automation and productivity gains, direct sourcing and
costs		increased speed to market, and streamlined
		fulfilment

21[st] Century Retailer

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

What does a 21[st] Century Retailer look like?

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• Pivoting from a supply driven to a demand driven 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:

• Agile methodology

• Speed to market

• Test and learn

What does this look like for our Retail Brands?

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• 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

• ‘Last mile’ delivery options (2-hour, same day, next day or standard delivery)

o Extensive click & collect offering

• Personalised customer experience

o Relevant product offerings, pricing & marketing

• Lower costs: right-sized head office cost structure

• Global brands complemented with high-quality and affordable private label products

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19
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THE WAREHOUSE GROUP
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Building a world class team

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Conclusion

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• 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 Executive Team are focused on successful execution and risk management

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The Warehouse Group

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The Warehouse Group

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Resolution 1

Re-election of Sir Stephen Tindall

• 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

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Resolution 2 Re-election of Keith Smith

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• 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 3 Auditors

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• 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 the resolution

Voting procedure

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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 Tindall 95,952 Keith Smith 147,407 Audit Fees 157,757

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The Warehouse Group

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The Warehouse Group

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