The Warehouse Group Limited // Annual Report 2007

THE WAREHOUSE GROUP LIMITED // ANNUAL REPORT 2007 //

ANNUAL REPORT 2007 ANNUAL REPORT

25 YEARS

WAR008 cover f.indd 1 10/18/07 9:06:13 AM The Warehouse Group is one of New Zealand’s largest retailers, achieving sales in New Zealand of $NZ1.76 billion, and profit of $NZ115.5 million for the year ended 29 July 2007.

THE WAREHOUSE GROUP COMPRISES 85 WAREHOUSE NEW ZEALAND STORES AND 43 WAREHOUSE STATIONERY STORES, AND EMPLOYS MORE THAN 8,000 TEAM MEMBERS.

FINANCIAL CALENDAR HALF YEAR FULL YEAR

Balance date 27 January 2008 27 July 2008 Results announced March 2008 September 2008 Reports published/dividends paid April 2008 October/November 2008 Quarterly sales announced November 2007 March 2008 May 2008 September 2008

Annual Meeting The Annual Meeting of shareholders of the Company will be held in the Guineas Ballroom, Ellerslie Event Centre, 80-100 Ascot Avenue, Greenlane East, Auckland, New Zealand on Friday, 30 November 2007 commencing at 10.00am.

The Annual Report is dated 12 October 2007 and is signed on behalf of the Board by:

Keith Smith Ian Morrice Chairman Managing Director Highlights

Top-line growth Positive same Strong Sales from continuing businesses up store sales growth balance sheet 2.4% to $1.76 billion The Warehouse NZ same store sales up Continued improvement in key balance by 2.0% sheet and leverage ratios $115.5 million Warehouse Stationery same store sales up by 2.2% Proﬁt attributable to shareholders, 37.4 cents compared to $29.3 million in F06 Earnings per share up 27.8 cents to Investment 37.4 cents per share $97.9 million continues Net proﬁt after tax excluding divestment Stores upgraded, systems infrastructure 17.5 cents of the Australian business and The Base and supply chain strengthened Ordinary dividend increased by 1.5 cents per share to 17.5 cents per share Year of Special divided of 35.0 cents per share paid Consolidation Warehouse Stationery poised for growth

Celebrating 25 Years // Page 1 Page 2 Our Core Purpose

The Warehouse will make a difference to people’s lives by making the desirable affordable and supporting New Zealand’s communities and the environment. By putting the customer ﬁrst, we will succeed. Everything we do ﬂows from this principle. We enjoy success through working together as one team. People choose to work for us because we care about and recognise individuals.

Celebrating 25 Years // Page 3 06 Results at a Glance 23 New Brands 42 CFO’s Report

08 Chairman’s Report 24 Apparel 44 Financial Information

Managing 10 Director’s Report 26 Supplier Awards 71 Corporate Governance

12 Board of Directors 28 Warehouse Stationery 78 Directors’ Interests

14 Celebrating 25 Years 32 Systems 79 Statutory Disclosures

17 The Warehouse NZ 35 Charities and Fundraising 85 Directory

20 Our People 38 10 Year Review

Page 4 CELEBRATING 25 YEARS See Page 14 >

OUR PEOPLE See Page 20 >

SYSTEMS See Page 32 >

Celebrating 25 Years // Page 5 2007 2006 $000 $000 CHANGE NOTE

Continuing operations Sales 1,761,677 1,720,479 2.4% A EBITDA 188,460 183,492 2.7% B Operating proﬁt 153,051 152,044 0.7% C Unusal items (Loss) / Gain on property disposals (542) 1,591 n.m Gain on disposal of ‘The Base’ Te Rapa Limited joint venture 17,432 – n.m D Gain/(loss) on divestment of the business assets of The Warehouse Australia 5,939 (88,801) n.m E Group results Earnings before interest and taxation 175,880 65,868 167.0% Net interest expense (6,467) (10,127) -36.1% F Income tax expense (53,637) (26,165) 105.0% Minority Interests (302) (259) 16.6% Net surplus attributable to shareholders 115,474 29,317 293.9% Adjusted net earnings 1 97,856 96,190 1.7% G

1 Adjusted for the divestment of the Te Rapa joint venture and Australian operations

A. SALES – Sales from continuing operations increased 2.4 percent. D. GAIN ON DISPOSAL OF ‘THE BASE’ TE RAPA LIMITED JOINT VENTURE The Warehouse NZ sales rose 2.6 percent, and same store sales The group sold its 50% joint venture interest in ‘The Base’ Te Rapa increased by 2.0 percent. Warehouse Stationery sales rose 0.9 percent, retail complex to its joint venture partner, Tainui Group Holdings Limited and same store sales increased by 2.2 percent. in July 2007.

B. EBITDA – EBITDA from continuing operations rose 2.7 percent, with E. DIVESTMENT OF THE BUSINESS ASSETS OF THE WAREHOUSE AUSTRALIA The Warehouse NZ recording a 4.3 percent increase and Warehouse The group sold the business assets of The Warehouse Australia in Stationery a 2.8 percent increase. November 2005. The sale was subject to a number of warranties. Some warranty obligations were settled during 2007 allowing surplus provisions C. OPERATING PROFIT Operating profit from continuing operations to be released. increased 0.7 percent. The Warehouse NZ and Warehouse Stationery had increases of 2.6 percent and 2.2 percent respectively. The operating F. NET INTEREST EXPENSE – Lower net interest expense reflects margin decreased 10 basis point from 8.8 percent to 8.7 percent. The a reduction of $72.4 million in net debt. operating margin was adversely impacted by an increase in group costs related to the group’s long term incentive plan, and a reduction in the G. ADJUSTED NET EARNINGS – Net profit after tax excluding the contribution from financial services. divestment of Te Rapa and the Australian operations increased 1.7 percent which represented a solid trading result given difficult trading conditions.

SALES – CONTINUING EBITDA – CONTINUING BUSINESSES (NZ $M) BUSINESSES (NZ $M)

2,000 220 16.0% 1,800 14.0% 1,600 170 1,400 12.0% 1,200 120 10.0% 1,000 800 8.0% 600 70 6.0% 400 4.0% 200 20

0 EBITDA MARGIN 2.0% EBITDA MARGIN CONTINUING BUSINESSES 01 02 03 04 05 06 07 01 02 03 04 05 06 07

Page 6 Fundamental improvements to our cashflows, debt levels and interest costs have improved the quality of our earnings and represent significant progress in our plans to re-invest in the business.

2007 2006 NOTE

Inventory including goods in transit ($m) 254.8 247.5 A Net debt ($m) 43.0 115.4 B Gearing (net debt/net debt + equity) 9.4% 25.7% C Interest cover (EBIT/Net interest) 1 23.6 15.3 Fixed charge cover (EBITDA + rent)/(net interest + rent) 2 4.0 3.9 Cash realisation ratio (NCFO / NPAT + D + A) 1 0.97 1.15 D Net debt to EBITDA 0.23 0.61

1 Adjusted for the divestment of the Te Rapa joint venture and Australian operations 2 Continuing operations

A. INVENTORY INCLUDING GOODS IN TRANSIT – Inventory including goods DEFINITIONS in transit increased 2.9 percent representing additional investment EBIT: Earnings before interest and taxation in the grocery category associated with the rollout of the new Extra EBITDA: Earnings before interest, taxation and depreciation format stores. NCFO: Net cashﬂows from operating activities NPAT: Net surplus attributable to shareholders B. NET DEBT – Net debt reduced 62.7% to $43.0 million, a decrease N.M.: Not meaningful of $72.4 million from the previous year. The receipt of sale proceeds of $36.7 million from the sale of the group’s Te Rapa joint venture and proceeds of $26.7 million received from exercised employee share options were signiﬁcant factors in the reduction of debt.

C. GEARING – Gearing reduced to 9.4 percent consistent with a reduction in net debt. The gearing ratio remains well within the 50 percent ratio required under the group’s borrowing covenant. Gearing levels will however increase following the payment of the 35.0 cent special dividend declared in September 2007 but are expected to remain comfortably within the group’s borrowing covenants during 2008.

D. CASH REALISATION RATIO – Operating cash ﬂow reduced by 15.4 percent to $129.6 million for the year due mainly to an increase in working capital used to fund higher receivables and a change in inventory mix.

OPERATING CASHFLOW NET DEBT (NZ $M) (NZ $M)

350 2.00x 180 1.80x 160 300 1.60x 140 250 1.40x 120 1.20x 200 100 1.00x 80 150 0.80x 60 0.60x 100 NET DEBT/ EBITDA 0.40x 40 50 0.20x 20

NET DEBT/EBITDA 0 0 0 01 02 03 04 05 06 07 01 02 03 04 05 06 07

Celebrating 25 Years // Page 7 On behalf of the Board of The Warehouse Group, it is my pleasure to announce a net profit after tax of $115.5 million for the year including two non-recurring items. This profit compares with $29.3 million for last year. Sales from continuing operations were up 2.4% to $1.76 billion. Net profit after tax, excluding the sale of The Base development and the divestment of the Australian business, was up from $96.2 million in 2006 to $97.9 million in 2007.

Same store sales positive while Warehouse Stationery sales were Board returned $163.2 million by The improved proﬁt attributable to up 0.9% to $213.5 million, with same way of dividends to shareholders. shareholders has been achieved through store sales up 2.2% for the year. The ﬁnal dividend was 5.5 cents with ongoing improvements and continued total ordinary dividends up by 1.5c to Generous dividend payout solid operating performances from 17.5c per share paid out for the year. to investors both businesses. The Warehouse New In addition, the Board has paid a fully As a result of improvements in Zealand reported a positive top line, imputed special dividend of 35c per the Group’s cash position and the with sales up 2.6% to $1.55 billion, and share, totalling $108.8 million as a strengthening balance sheet, the same store sales up 2.0% for the year, return of surplus cash to shareholders

Page 8 following a review of the group’s capital structure. In total, Warehouse Group shareholders will have received a total of 52.5c per share in dividends this year. The ﬁnal and special dividends were paid on 28 September 2007.

Sale of The Base development During the year, we sold our 50% share of The Base joint venture at Te Rapa, to Tainui Group Holdings Limited. The two companies formed a joint venture in 2004 to develop the site, which opened in 2005. Tainui Group Holdings Limited has also beneﬁted from the venture, as they now have a retail platform in Hamilton that has improved the shopping experience in the area. We wish to take this opportunity to thank the people of Tainui for what has always been seen by us as a positive and constructive relationship. We wish them all the best with The Base.1

The year ahead While it is too early to predict with the important Christmas period imminent, given expected market conditions, the level of investment planned for the business and increased interest costs, Despite the ongoing discussions and our statutory right to join the existing it will be challenging to grow our net media speculation, we have not allowed appeals. I wish to make no further profit after tax in the coming year. ownership issues to impact on our comment on this, other than to say Next year will be the first year we pursuit of returns for shareholders. that the market is now recognising report under New Zealand’s equivalent We have exercised our right to join the the value that has been created at to International Financial Reporting Woolworths and Foodstuffs appeals The Warehouse Group. Standards, and shareholders can expect against the Commerce Commision’s to see some changes in our position, decision to decline clearance for either specifically around profit and loss and party to acquire the company. The Board also our balance sheet. wished to ensure that the company was appropriately placed to provide such Directors market and other relevant evidence as John Dahlsen, who has been a director the High Court may require to determine of the company since 2001, has advised the appeals. Our advice was that this Keith Smith that he will not be seeking re-election was best achieved through exercising Chairman at the annual meeting in November 2007. Mr Dahlsen has provided sound guidance on behalf of the company’s shareholders. We thank him for his contribution and wish him well in his retirement.

Thanks Finally, my thanks on behalf of the Board to management for steering the company through a tightening retail market and maintaining proﬁtability during this challenging time. I also want to take this opportunity to thank all the team My thanks on behalf of the Board to management for steering members for their commitment and the company through a tightening retail market and maintaining motivation – and in particular those at proﬁtability during this challenging time. I also want to take Warehouse Stationery, where behind-the- scenes systems challenges tested the this opportunity to thank all the team members for their patience of all involved. commitment and motivation.

1 See The Base Retail Development page 37 for more detail.

Celebrating 25 Years // Page 9 For a quarter of a century, The Warehouse has been lowering the cost of living for families through fulﬁlling our promise of “Where Everyone Gets A Bargain”. We’d like to think that, because of us, ordinary New Zealanders are able to access products that they need and want, at affordable prices.

The Warehouse is a young, dynamic and part and full refurbishment trials of the Extra format. In fact, we have pioneering company and as we celebrate Warehouse stores. reduced general merchandise in most our 25th birthday we remain committed cases to introduce food, pharmacy and to pursuing our core purpose of “making The Warehouse Extra – liquor. Total sales in our first converted the desirable affordable”. a growth strategy store in Whangarei are expected to The objective of the Extra format was be over 30% higher in the first year of Top line recovery, costs stable not just to extend our grocery range into conversion to the new format. This year, we sustained momentum in fresh food, but through the convenience Whilst this is a very encouraging our top line growth recovery. Sales from of having everything under one roof, start, it is behind our own targets. continuing businesses were up 2.4% to customers will visit our stores more Although sales mix and gross margins $1.76 billion, but despite our strategic often and buy more general merchandise in this store are broadly in line with investment in format and category and apparel. our expectations, operating costs for start-ups, in particular, fresh food, the format have proven higher than we pharmacy and liquor, we have managed Initial customer feedback on the Extra originally anticipated. our profit well for it to remain in line format remains positive; however, there with sales growth. is still work to do to build skills and Ongoing market research is providing us credibility in food retailing that match the with insights on areas for improvement, Overall, costs held as a percentage of strong reputation we have earned in our but at this point we are not planning sales despite inflationary increases existing business. any additional Extra stores in the 2008 in holiday pay, rents, fuel and a financial year, because we need to refine number of other key areas. Our capital What Extra is already showing is the and test both the customer proposition expenditure saw us inject further capital sales growth potential we have. In all and the economic performance of our into continued testing and evaluating three stores so far, we have not added initial stores. of our initial Extra format stores, and any new retail trading space to introduce

Page 10 Food retailing is a different business from general merchandise and apparel, and has different dynamics than our traditional business. There is no doubt that it takes time to refine the logistics and the systems involved, as one would expect in the early days of a new format. We are also aware that we are competing with two very competent food retailers, both of whom are nationally scaled. merchandise, whose role is to drive the furniture only from sustainable sources. Grocery still represents an transformation of our product offer. This All these products are constructed with underdeveloped category for us, and an much needed capability highlights the timber from TFT (Tropical Forest Trust) opportunity to drive growth, sell more critical role that we see our Merchandise or FSC (Forest Stewardship Council) in our existing stores and intensify our team playing as we accelerate product sources. We are also delighted this year merchandising. We have already taken range development and look to to retain our listing on the FTSE4Good the opportunity to expand ranges such revitalise our offer to make it even Index which identifies companies that as health and beauty and pet care in more captivating for our customers. meet globally recognised corporate more stores than Extra. responsibility standards. In Warehouse Stationery, the delivery Stationery grows of a new vision and values, “Passionate Looking ahead despite challenges about making a difference”, was Although we expect retail spending Warehouse Stationery came through a positively embraced by the team. to tighten in the medium term as tough year to achieve same store sales We now have leading training and the economy softens, we believe we growth of 2.2%. Same store and learning programmes in place across are preparing well for that, and our operating earnings were steady compared the business to ensure that every team performances this year have shown that with last year, but there were strong member has the chance to develop we can continue to perform positively sales in consumer electronics, computer themselves and to ensure that we have at a time when others have found the consumables, packaging and postal future talent pushing through from within going very tough. products. Overall, sales were up 0.9% to the company in the next few years. Customer value expectations are $213.5 million. Earnings before interest I am also pleased to report that despite changing rapidly. We are responding to and tax were up 2.2% to $9.5 million. the speculation around the company for these changes across both businesses, 2007 was a year of consolidation. The the whole of the last year, our people through investing in a step-change in introduction of a new merchandising retention rates are at the highest level presentation and shopping experience, system caused significant disruption to ever in recent years. This is a credit to tangible improvement in product quality the business from September 2006, the loyalty and commitment of all our and choice, and maintaining our price creating some inventory issues which team, and I wish to thank everyone at leadership position. We have planned included overstocks that needed to The Warehouse Group for the energy, investments spanning the next three be cleared and some considerable passion and sacrifices in personal years in all of these important areas. stock-outs for our business to business time I know many have made to see us However, retail sales growth is likely (B2B) customers. The system has been profitably through the last year. to slow relative to the 2007 financial effectively stabilised, putting Warehouse year as discretionary spending comes Stationery in a position to begin to Community and Environment under further pressure from macro realise some of the benefits that the We also recognise the important economic factors. The sector will remain new system will provide. leadership role we have in giving back highly competitive in all categories with to the wider community and to minimise Despite that, we didn’t drop profit, a space growth continuing to outpace the impact we have on the environment. tribute to the tenacity of the Warehouse consumption, and inflationary pressures During the year we employed over Stationery management team, who expected to continue in key cost areas. 10,000 New Zealanders, and whilst worked through challenging times with Consumers will continue to demand time and involvement with our local courage and energy. The difficulties with better quality, better service and more communities is encouraged we also the new system did mean however that choice at lower prices, and we will worked with a number of charitable other major investments and projects, continue to strive to meet those needs organisations to raise more than $2 such as store revamps, re-branding and and remain the place, “Where Everyone million for their causes during the year. the restructure planned for the B2B Gets a Bargain.” channel, had to be delayed. We have continued to develop and adopt sensible environmental policies that People commitment guide the design and energy management We continue to build the depth of talent of our stores; further initiatives to reduce that we have in both The Warehouse and waste and packaging; and maintain our Warehouse Stationery. active recycling programme. As part of In The Warehouse, we have now our ethical sourcing programme we are Ian Morrice successfully recruited an experienced the only major retailer in New Zealand Group Chief Executive Officer and high-quality leadership team in who insists on buying timber for garden and Managing Director

Celebrating 25 Years // Page 11 Keith Raymond Smith John Richard Avery Robert Lanham Challinor John Christian Dahlsen BCom, FCA LLB BCom, FCA, FCIS, CMA, AFInstD LLB, MBA

Chairman and Independent Independent Independent Independent Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director

Term of Office: Appointed director Term of Office: Appointed director Term of Office: Appointed director Term of Office: Appointed director 10 June 1994, Chairman since 10 June 1994, last re-elected 2006 28 November 1996, last re-elected 6 September 2001, last re-elected public launch in 1994, last re- Annual Meeting 2006 Annual Meeting 2005 Annual Meeting elected 2005 Annual Meeting Board Committees: Member of the Board Committees: Chairman Board Committees: None Board Committees: Chairman of Audit Committee of the Audit Committee and John, 72, brings workplace the Disclosure Committee and John, 56, is a professional Member of the Corporate wisdom and international business Member of the Audit Committee director and brings to the board Governance Committee and and operating experience to and Remuneration, Talent and strong experience in business, Disclosure Committee the board. He has a significant Nomination Committee risk management and commercial Rob, 65, brings strong corporate background in legal and strategic Keith, 55, has been involved with property. He has had a long career governance and finance expertise management and was a partner The Warehouse since Stephen as the chairman and managing to the board. He has over 20 of Corrs Chambers Westgarth opened his first store in 1982, partner of the law firm Hesketh years’ experience as a director one of Australia’s leading law providing accounting, tax and Henry, until 2006. John was a of numerous public and private firms specialising in mergers and corporate advice. He has a long- board member and Trustee of The companies, and has been a partner acquisitions and related work. John standing record of leadership Royal New Zealand Ballet from in Deloitte. Currently a partner in is currently Chairman of Southern as a director and advisor to 1989 to 1999 and The Tindall investment bankers Northington Cross Broadcasting (Australia) companies in a diverse range Foundation from 1994 to 2006. Partners Limited. Rob is also a Limited. He was a board member of of industries, including printing, In addition to his role as a director director of publicly listed Kingfish Australia and New Zealand Banking media, meat by-products, tannery of The Warehouse, he is Chairman Limited (Chairman), Barramundi Group Limited from 1985 to 2005. processing and exporting. He of Caleta Streetrace Management Limited (Chairman) and CDL Previous positions have included brings a wealth of experience and Limited, Independent Timber Investments New Zealand Limited. Chairman of Woolworths Limited, governance expertise to his role as Merchants Co-operative Limited Former directorships include Ports The Herald & Weekly Times Limited, Chairman of the board. Keith was and Snowplanet Limited. of Auckland Limited, Mighty River Melbourne Business School Limited previously a senior partner in the Power Limited (Chairman) and and Deputy Chairman of Myer national accounting practice BDO Television New Zealand Limited. Emporium Limited. Spicers. He is a past President of The New Zealand Institute of Chartered Accountants.

Page 12 Graham Francis Evans Ian Rognvald Morrice Janine Laurel Smith Stephen Robert Tindall MBA BCom DCNZM, Dip. Mgt, FNZIM, Hon.D, Independent DCom Honoris Causa Non-Executive Director Executive Director Independent Non-Executive Director Founder and Term of Office: Appointed director Term of Office: Appointed Managing Non-Executive Director 1 July 1998, last re-elected 2004 Director and Chief Executive Officer Term of Office: Appointed director Annual Meeting 9 September 2004, last elected 3 August 2006, last elected 2006 Term of Office: Appointed director 2004 Annual Meeting Annual Meeting 10 June 1994, last re-elected 2005 Board Committees: Chairman Annual Meeting of the Corporate Governance Board Committees: Member of the Board Committees: Member of Committee, Remuneration, Talent Disclosure Committee the Remuneration, Talent and Board Committees: Member and Nomination Committee and Ian, 46, has had a career spanning Nomination Committee of the Disclosure Committee Member of the Audit Committee more than 29 years in the retail Janine, 52, brings to the board and Remuneration, Talent and Nomination Committee Graham, 68, brings a broad industry. He holds an MBA from wide ranging knowledge and experience to the board, particularly the highly respected Cranfield expertise as a result of her Stephen, 56, founded The in the areas of business operations Business School, UK. He has experience as a CEO and director Warehouse in 1982 and grew and development, strategic been involved with most facets of with companies in the commercial, the company into a billion dollar direction and performance retailing including merchandising, arts, and education sectors, both business before stepping down as improvement. He has more than store formats, retail operations in New Zealand and overseas. She Managing Director in 2001. His 40 years experience in the New and change management. He was specialises in boardroom practice, vision for creating an organisation Zealand retail sector. As a previous formerly the Managing Director, strategic planning, organisational to provide support for worthwhile Managing Director of Woolworths Commercial for UK based B&Q development and organisational initiatives benefiting New Zealand NZ Limited for 14 years he is able Plc Europe’s largest DIY retailer, change issues for boards and and New Zealanders resulted to share his considerable retailing where he led the growth of the management. Janine is currently in the establishment of The experience. In addition to his role large-format B&Q warehouse chain, a Director of the Bank of New Tindall Foundation promoting a as a director of The Warehouse expansion into Ireland, and the Zealand, Kordia Group Limited, “hand up” rather than a “hand and The Tatua Co-operative Dairy launch of financial services. Prior to Chairman of McLarens Young New out” philosophy. In July 2006, Company Limited, he is Chairman that Ian was Retail Director of the Zealand Limited and a Trustee of Stephen was awarded the Sir Peter of Multichem Group Limited and Woolworths chain of 800 British Venture Taranaki. She is Principal Blake Leadership Award and he associated companies. stores. His retailing career has of the Boardroom Practice Limited was appointed a Distinguished also included a number of senior and is an alumnus of the London Companion of the New Zealand executive positions at Dixons, Business School and the University Order of Merit in the Queen’s Europe’s number one electrical of Auckland and is a member of the Birthday Honours in 2007. He retailing group. Institute of Directors. has helped ordinary Kiwis reach their potential and is a true leader across the spheres of business, community and the environment.

Celebrating 25 Years // Page 13 Years

25 YEARS OF OUR SUCCESS

Dean Major, 1989 Page 14 These are the themes you hear over When these products did sell through “We were creating and over from people who’ve worked The Warehouse, the company went something.” in The Warehouse during its 25 years looking for suppliers, and goods from in New Zealand. Founder Stephen around the world, that could provide real Tindall says the company couldn’t have bargains for Kiwi shoppers. But these “It was incredibly succeeded without the amazing people were no glamorous overseas junkets – who work for it. And in return those team all the stories that have been told about hard work, but it members pay tribute to Stephen Tindall’s flying economy class and sleeping four was fun.” ability to make hard work challenging to a room are true. The relentless focus and fun, and management’s commitment on keeping costs down and reinvesting to investing in The Warehouse team. in price were firmly embedded in the “We gave anything company culture. So what got The Warehouse to where it is today? Secondly, The Warehouse’s a go. If it didn’t commitment to the people who Firstly, The Warehouse did everything worked for it. work out, we tried differently. From the first days of opening, When the first Warehouse store opened something else.” people mattered. on Wairau Road in 1982, New Zealand was a very different country. Imports In the beginning staff got together at “Nothing was of many products were restricted, so Friday night barbecues. The relationships consumers didn’t have much choice, and that went beyond the work place, to impossible.” the products that were available were having fun out of work, built friendships also expensive. The government had that have lasted a lifetime. And imposed a wage and price freeze, and team members keep mentioning that getting a housing loan required a savings everyone was included and respected. record for three years, before you were Monthly team meetings and a chance able to borrow at 18% interest and more. to socialise afterwards are part of The Needless to say, Kiwis were in need of Warehouse today. a bargain. Everyone just got on and did what had Shopping in New Zealand meant going to be done, which made for a great work to stores like George Courts and environment. And from the early days the Haywrights, big established stores, in ubiquitous red t-shirts worn by all staff, towns and cities. The Warehouse took a including all managers, made it clear different approach, and was located in that everyone was working together – the suburbs, with basic sheds with bins one team. and racks, and concrete floors. But apart from that, it was clear that the The Warehouse sold things that had “People First” philosophy wasn’t just never been seen before, such as the words on a page. The legendary Birthday rattan blinds, the banana loungers, Day Off and annual company Conference and the soccer ball radios. The first for team members and their partners are stores were filled with things that other important parts of The Warehouse Way companies couldn’t sell. that remain today.

Celebrating 25 Years // Page 15 As the company got bigger, team range of New Zealanders into the store, with different requirements, but not members have grown their careers where they’ve seen the team spirit and The Warehouse. The addition of apparel with The Warehouse. the buzz of retailing. Many of them have in the mid-90s has seen the category Shalini Anderson started about 15 stayed, or come back to The Warehouse grow until it is one of the largest areas years ago, as a bright-eyed student after tertiary study, as they see more of The Warehouse, demanding its own on the shop floor, and had the added opportunities for training, development set of fixtures, layouts and buying and bonus of meeting her husband through and increased responsibility. The even its own distribution centre. her job at The Warehouse when she company is clear that everyone is The entry into Australia took courage, was completing her final year of Law valued, and is part of the adventure. but although The Warehouse has at University. After being admitted to Thirdly, commitment to growth. tenacity and strong appetite for risk, the bar, she realised her passion was after five years the strategy that the The Warehouse has grown from just two retailing, and that The Warehouse company had undertaken in Australia stores at the end of 1982, to 85 stores would provide many opportunities for was not viable, and the company today. The Warehouse could have just her to gain new skills. She joined our sold The Warehouse Australia. sat on its laurels and stopped at any merchandise team in 1999 and hasn’t stage. But it was driven by a desire to The exit from Australia didn’t diminish looked back. see every New Zealander able to enjoy The Warehouse’s competitive attitude When Sam Su joined The Warehouse the “bargains” which was reinforced by in New Zealand. The most recent as a nightfill team member in Gisborne the profits that came when Kiwis had the expansion, into fresh food and pharmacy through The Warehouse Extra, underlines in 1999, he had no idea that his chance to shop in The Warehouse. career would lead him to Auckland. the continuous drive for growth. From the original start of odd lots and a After progressing through other roles Throughout the company history, which somewhat unpredictable product range within the store, Sam eventually joined now spans a quarter of a century, the of general merchandise, The Warehouse The Warehouse marketing department culture has not changed. People still has gradually expanded adding category as part of the advertising production come first – the customer and our team after category, capitalising on the team. When he originally joined, he was – and The Warehouse still seeks to make opportunities provided by the removal of looking forward to getting his birthday a difference to people’s lives by making import licenses along the way. day off, and having an all-expenses paid the desirable affordable and supporting overnighter as part of Conference. What The Warehouse started with relatively communities and the environment. he found was a great group of people, simple additions like music and books, and a friendly and sociable company that and then began expanding further supports community values. into categories that required a bit As a retailer, The Warehouse is fortunate more expertise. to be able to offer part time work to stay Most general merchandise companies at home mums as well as students after would hesitate before adding apparel, school. That flexibility has brought a wide because it is a totally different category

Page 16 The Warehouse New Zealand achieved a creditable result in a challenging trading environment in 2007, with sales up 2.6% to $1.55 billion. Earnings before interest and tax was up 2.6% to $147.2 million.

Strong growth in homewares, health also the increased confidence that these Redesigning the retail experience and beauty, mobile communications, major brand owners now have in our Recent work we have been doing around confectionery and books, show that our ability to deliver an improved shopping customer segmentation has revealed diversity strategy is solid and that we experience, in our re-formatted stores. that while families, many of whom are continue to build a rounded offering that Although sales in apparel in general were very loyal to The Warehouse, spend a has broad appeal. Apparel and footwear high proportion of their retail dollars generated later in the season, our Maya sales were flat, due to a difficult market with us, there is an opportunity to target womenswear range and menswear brand across both summer and winter. other consumer spending segments Match were both well received, showing who only occasionally shop with The Our sales performance in the second that we are successfully responding Warehouse, or only shop certain half was the best it has been in three to customer insights in continuing to categories. Many of these consumers years. Same store sales were up 2.0% develop our house brands. for the year, and 3.4% in the second have a high disposable income but half. Gross margins and earnings before Systems and supply spend quite a small proportion with interest and tax were held steady, chain investments us at the moment. Our strategy to grow our share of wallet is to continue despite changes in the sales mix, We continued to invest in systems to add international brands to our category start-up costs and further behind the scenes to ensure we can mix, accelerate our own-label product investment in capability. deliver a positive shopping experience development, and have co-ordination for our customers. Major systems The second Warehouse Extra opened of trends and colour across all product during the year in Whangarei, which is infrastructure investments this year ranges. We believe this focus will enable the first conversion from an existing included replacing all our check-out us to increase the proportion of these store. The third Warehouse Extra opened tills to reduce transaction times for shoppers’ spend at The Warehouse, 1 in Te Rapa in August 2007. customers, a multi-million dollar and at the same time offer existing investment in our stock allocation and customers more genuine choice. More prestige brands on store replenishment systems to increase our shelves A strengthened merchandise team availability, and further investment in The introduction of more internationally is now in place and a number of distribution centre improvements. recognised brands continued, with new brand and design innovations brands such as; Vodafone, RCA, Improving our sourcing and quality are planned for the upcoming year Levene, Bonds, L’Oreal and Lenovo assurance operations in Shanghai and as we keep the momentum going in now featuring prominently on our the realisation of further benefits from transforming our offer. shelves. Their presence confirms not our new international freight forwarding Given our low overall share of wallet, just our intention to lift our game across partner, Kuehne + Nagel, consolidated we believe that all categories represent the range – including electronics, our source to shelf gains and helped opportunity for growth over the long homewares, apparel and grocery – but to support gross profit and product term, however significant investment is quality improvements. needed to improve our store environment

1 More information about The Warehouse Extra can be found in the Managing Director’s Report, pp 10-11.

Celebrating 25 Years // Page 17 Strong growth in homewares, health and beauty, mobile communications, confectionery and books, show that our diversity strategy is solid and that we continue to build a rounded offering that has broad appeal.

to achieve this growth. Having tested stores. The improvements – based on a number of different designs in focus group feedback from both local Warehouse refits at Pakuranga customers and team members – have (Auckland), Lower Hutt (Wellington), included space re-allocations and range Nelson, Newmarket (Auckland), Milford improvements, a new signage package, (Auckland) and Westgate (Auckland) over some new fixtures, and improvements in the past 18 months, we are prepared customer service. This programme will to accelerate this programme with a full continue to be applied to more stores in refit of eight more Warehouse stores this the coming year, in advance of a full refit year. We see this as a critical investment of every store. in modernising the business and We also recognise that multi-channel ensuring that we remain both relevant is fast becoming a retail reality as and competitive over the next five years. broadband becomes more accessible The low cost ‘Pulse’ programme to and more and more customers take refresh stores ahead of a complete advantage of the convenience of pre- refurbishment has now been extended purchase researching and shopping to over a dozen locations. Results through this channel. We are currently Executive Team from left to right: Mark Otten (GM – Finance), Stuart Yorston (GM – Marketing), so far have been encouraging, with investing in our online capability, with a Owen McCall (Chief Information Officer), ‘Pulse’ stores’ growth running at redesigned website launch planned for Ian Morrice (CEO), Ed Connolly (Commercial around 3-5% higher than control early 2008. Director), Paul Walsh (GM – Human Resources), Richard Lewis (Operations Director)

Page 18 We are currently investing in our online capability, with a redesigned website launch planned for early 2008.

Celebrating 25 Years // Page 19 In our Core Purpose, we say: “We enjoy success through working together as one team. People choose to work for us because we care about and recognise individuals.”

Page 20 Over the last year, the company has introduced a range of key people-focused initiatives that support the promise made in our Core Purpose.

Start Here, Go Anywhere talent to demonstrate the type and programme also targets specific groups The continuing tight employment market number of roles as well as the variety of such as managers and operations team has seen us invest energy and resources career paths, the feedback and response members. Interactive and informative, it into strengthening our employment rate of people applying for jobs has helps people develop networks quickly brand. It is vital that we continue to exceeded our expectations. The new site and understand parts of the business attract the best people. went live in August 2007 with hundreds that may have previously taken them much longer to become familiar with. We have researched public perceptions of applications in the first month and the of The Warehouse as a prospective numbers keep increasing every week. Our overall learning and development employer with five key groups: students; The ability to demonstrate to people framework addresses both behavioural non-professional adults; professional before they join us what options are and technical competencies. Workshops adults; women looking to return to the available to them has been achieved in provide people with coaching and workforce; and semi-retired people to part, by providing real and inspirational support on vital everyday business understand both what they thought of examples of people who have had varied requirements such as project The Warehouse, and what they were career paths with us. Examples include management, time management, seeking in an ideal employer. people who started part-time in store team leadership, and oral and written communication skills. Many of these One of our key aims has been to change while at school, found a career path in sessions are facilitated by people within awareness and opinions of the retail buying and have subsequently moved the business. industry. Perceptions of working in retail into marketing. are often limited to shop floor roles and A centralised recruitment model and the have appealed to people as a part-time ability to apply on-line has also allowed job rather than a career move. The reality us to develop a strong talent pool of The company for our team members could not be more both internal and external people. removed from this stereotype. is described as Our ‘start here, go anywhere’ employer Developing Our People brand has allowed hundreds of people At The Warehouse, we are well aware ‘down to earth’, to reach their potential in a company that two of the major reasons people friendly and described as ‘down to earth’, ‘friendly’ choose to stay or leave an organisation and ‘supportive’ by its team members. is because of the way they are led and the opportunities they get to develop supportive by its Understanding what appeals to their skills and knowledge. current and potential employees team members. has been a critical factor in Once people start with us, a thorough developing our new careers website: induction programme aims to help www.thewarehousecareers.co.nz. With them to settle in and understand the a focus on showcasing our internal business and their roles quickly. The

General Manager Human Resources – Paul Walsh

Celebrating 25 Years // Page 21 Our Graduate Store Manager The response has been so positive Workshops’ have been developed Development Programme is targeted at that the portfolio of programmes is in-house to support managers in people who are seen as having store now oversubscribed and feedback on understanding how best to motivate, leadership capabilities. The Programme content has been very favourable. recognise and retain their people. This combines tertiary and internal training, Another benefit of the programme is that year, in our Support Office in Auckland, all assessed against industry standards. follow-ups provide a robust framework retention levels for those joining the We have also introduced a new for measurement. They enable us to business has improved by 33%. educational programme into the see what difference a learning and We also launched a simplified, real- merchandise department to transform development programme has made, both time exit interview process to capture our buying function and develop category for the person themselves and also in meaningful data such as why people management skills. terms of their results and performance. choose to leave, and what people liked and didn’t like about working in Our Senior Leadership Programme Engagement and Retention identifies a set of recognised qualities, our business. This year, we have also put in place against which we can build individual Our new programmes recognise that a range of activities that have seen skills. The programme operates cross- we have a responsibility to attract, retention improve across the company. functionally, and “live” issues are develop and retain our team members, addressed. As a result, our leaders are Engagement focus groups held across to increase their capabilities, and to able to apply what they learn to issues the business helped us understand what provide clear and attractive internal that the business is facing right now. motivates and disengages our team career prospects. members. ‘Engagement and Retention

...retention levels for those joining the business has improved.

Page 22 New Brands General Merchandise

“The Warehouse ﬁrmly believes that the inclusion of national and international brands will be a key factor in the continuing success of our customer proposition. We are delighted with the progress that has been made over the last two years and look forward to showcasing additional brands over the coming twelve months.” Ed Connolly, Commercial Director

Recent improvements to our store In the television area, Sanyo A limited range of official All Blacks formats are already attracting a continues to be a strong brand for The product has previously been available number of international brands to Warehouse, but we were delighted to through souvenir and independent The Warehouse. add America’s top selling brand RCA stores, but with our store network, we The introduction of mobile brand to the television offer. can provide New Zealanders with much Vodafone in April was a successful Recently, The Warehouse has become easier access to All Blacks official launch for The Warehouse, as customers the national retail partner for the New merchandise. can now buy Prepay mobiles and Zealand Rugby Union, stocking of a In the coming year, we will add more top up their existing mobiles at any wide range of All Blacks official licensed brands to the technology category, and of the 85 stores. For Vodafone, the product – including manchester, toys, continue to improve store standards for national network of stores provided an sporting goods, children’s apparel, displaying and merchandising. opportunity to provide additional access luggage and footwear. for their customers.

Celebrating 25 Years // Page 23 The result of range improvements, combined with a greater emphasis on quality, is that customers who used to focus on the basics are now being enticed to shop the more fashionable ranges with conﬁdence as well.

Apparel has been part of the product A year after the launch, MAYA is gear and relaxed loungewear that is offer in The Warehouse since the growing to become one of the strongest functional and hard-wearing, providing mid-90s and is delivering consistently. Warehouse brands. Through customer incredible quality at affordable prices. Originally, the ranges were focused on reaction to MAYA and further research, Several new New Zealand and basic items, and sourcing fashionable the team has identiﬁed another international brands were added to the clothing appropriate to the various target opportunity for growth in a range of clothing range this year, with Bonds, Rio, markets was a secondary priority for womens clothing in larger sizes. Miss Behave by Bendon and Hestia in the the company. Active Intent, the men’s and women’s lingerie department. In footwear, Rocket We conducted extensive research sporting brand, remains a popular choice Dog and the parallel imported Converse into our customers wants, needs and with shoppers who want to have exercise and Reebok shoes were introduced. expectations from The Warehouse, and discovered an opportunity to improve both the fashionability of the range, and the look and presentation of the apparel departments in our stores. In August 2006, in response to this research, a stylish womenswear collection under the MAYA label was launched, in conjunction with the menswear brand MATCH.

Page 24 ShoppersS at The Warehouse have These larger sized tops, trousers, alwaysa appreciated that our womenswear blouses and outerwear will cater to the sizings went to size 18, making it a unique needs of those who purchase naturaln move to expand our clothing larger sizes. Our customers tell us they ranger to include a brand of clothing are more interested in the quality of the New product forf sizes 16-26. product, rather than how trendy it is, and TheT Kate Madison brand is the latest they want fabric and cut that will provide additiona to the stable of house brands a ﬂattering, easy ﬁt. The Kate Madison range availablea at The Warehouse. brand delivers on all counts.

Celebrating 25 Years // Page 25 Supplier Awards

The Warehouse New Zealand has over 2,000 merchandise suppliers, who collectively enable us to source products from about 60 countries. Our supplier base ranges from large multinational corporations to small domestic manufacturers, while our sourcing channels include New Zealand based importers and buying agents, a number of New Zealand manufacturers and our Shanghai Representative Ofﬁce. In addition to our core merchandise suppliers, 1,000 non-trade suppliers provide a range of goods and services.

Without productive partnerships and The winners are those that consistently ability to exceed our customers’ good working relationships with our exceed our expectations for service, value expectations are critical suppliers, we would not be able to quality and price. In addition to factors in our success in this highly continue to offer quality products and recognition at our Supplier Awards and competitive market. great bargains to our customers. Charity Dinner, each winner receives a Hostrade Developments Limited, based Each year, The Warehouse acknowledges certificate and a $5000 grant to be used in Hong Kong, is the largest supplier its outstanding suppliers at our Supplier for the benefit of their teams. of jeans to The Warehouse. Hostrade Awards and Charity Dinner, held in The 2007 Supplier of the has exceeded our expectations in many August. There are five award categories: Year Award winners were: areas this past year – holding costs The Supplier of the Year Awards despite inflationary pressures, meeting Apparel Supplier of the Year for Apparel, General Merchandise, all our delivery windows yet being willing Hostrade Developments Limited Grocery, and Non-Trade, along with the to alter these when needed, sustaining Sustainability Leader of the Year Award. Our Apparel category continues to go quality standards across very high from strength to strength. Fashion, volumes, and providing market savvy quality, speed to market, and the advice on fashion and styling features.

Page 26 General Merchandise eager to see us grow these categories clearance targets, and the provision Supplier of the Year and have brought their expertise and of real-time web-based order tracking Mollers Homewares Limited enthusiasm forward to support us. enabling our staff to track up to 150 Our general merchandise categories Cadbury Confectionery Limited was different attributes of the source to continue to be the backbone of our the winner of this award based on their shelf process. business. The Warehouse is rightly willingness to go beyond key account Sustainability Leader of the Year Award famous for the variety of its general management, supported by a proactive Enviroreel Plastics merchandise, which spans twenty and positive attitude. This enthusiasm With the growing public and political different product categories as diverse is underpinned by solid commercial focus on environmental issues and as ﬁreworks and mobile phones, performance, tailored promotions, full climate change, this award is of entertainment and green gardening. merchandise support, in full on time increasing relevance to all of us. Mollers Homewares Limited is one delivery rates exceeding 95% and more. Although the winner is a specialist of The Warehouse’s longstanding The Warehouse Non-Trade in this area, the award is open to all suppliers and also one of our largest Supplier of the Year suppliers who believe they have a social New Zealand manufacturing suppliers. Kuehne + Nagel or environmental leadership story to tell. Mollers continues to bring an attitude of Our non-trade suppliers are those that Enviroreel Plastics (NZ) Ltd is the continuous innovation and improvement supply either services, or products primary recycler for The Warehouse’s to their relationship with The Warehouse to support the business, such as plastic waste. Through patented and our customers. Nowhere is this

Top left: The team from Cadbury receives the Grocery Supplier of the Year award; Top right: Enviroreel products manufactured from The Warehouse waste plastic; Bottom right: The Mollers Auckland factory. better exemplified than through the professional services, shipping and technology they are able to convert recent launch of Curtains Online, an logistics, advertising and marketing, low grade plastics into industrial and internet-based vehicle for The Warehouse human resources support, IT and consumer plastic products which are and Mollers to further develop this systems support, and goods such as sold domestically and exported. Most important category. computers and stationery. operators simply bale and export Grocery Supplier of the Year A new supplier to The Warehouse in this kind of waste. Enviroreel helped Cadbury Confectionery Limited 2006, Kuehne + Nagel was also a dramatically improve the economics of The Warehouse’s recycling activity The Warehouse’s expansion into fresh finalist in last year’s awards. Kuehne + and enabled us to recover around 500 foods and the launch of the Extra format Nagel is The Warehouse’s international tonnes of waste which would otherwise stores has generated significant interest shipping and logistics provider and be destined for the landfill. in this aspect of our future strategy. has been responsible for developing What is perhaps less appreciated is that and implementing a vast range of new we continue to grow our ambient grocery services and solutions for our business. business throughout all our stores. Many Examples of their performance include outstanding grocery suppliers have been an improvement in customs pre-

Celebrating 25 Years // Page 27 Warehouse Stationery

A report from Gary Rohloff, Chief Executive Ofﬁcer

Warehouse StationeryStatione achieved sales growth of 0.9% to $213.5 million, and same store sales growth of 2.2% for the year, despite signiﬁcant challenges associated with the establishment of a new merchandise system which affected many areas of the business.

Page 28 Earnings before interest and tax Our strategy is to be the leading for the Blue Sheds. Becoming famous was up 2.2% to $9.5 million, and solutions provider for home, office and for being “Passionate about making a growth categories included consumer business. In other words, we are looking difference” was enthusiastically taken electronics, computer consumables to meet the full range of needs, and to up by our people. and packaging and postal products. do so through a multi-channel offer – Changeover proves challenging Our Business to Business (B2B) unit that is, providing our customers with the During 2006, the Group recognised that provided an improved profit contribution. opportunity to “Click onto the website, Warehouse Stationery had reached a Call into our contact centre or Come in The business was able to achieve sales point whereby future growth would be to our stores”. Our new infrastructure and revenue growth throughout this inhibited by the antiquated merchandise platform and merchandise system will difficult period due to the extraordinary and inventory system that we had used enable us to pursue this goal well into efforts of our people right across the since our inception in 1991. In order for the future. business in particular in all our stores Warehouse Stationery to maintain our and in B2B, who remained focused on As well as the work we have done on growth momentum, over $10 million was our customers, in order to deliver a systems behind the scenes, this year we planned for investment, mainly on IT positive result. implemented a new vision and values systems and supply chain.

Celebrating 25 Years // Page 29 Our strategy is to be a total solutions provider for home, ofﬁce and business.

Planned to go live in October 2006, the Going nationwide We will make further improvements, new infrastructure and merchandise This year, we are making important especially to customer service in planning system took longer than advances to our distribution model. stores. We need to respond better to anticipated to bed down, with complete We are centralising our fulfilment for our customers’ demands for improved stabilisation not fully realised until the both our e-commerce and stores, which quality to value ratios, and that means end of the financial year (July). will achieve a more effective inventory investing more money in training. Although we are delighted that the control. The South Island will be included We will accelerate the growth of our B2B systems are now working well, focusing in that model by the end of October and Business to Consumer (B2C) trade on this change-over has consumed 2007 so that we can offer our customers through the development of an easy to much of our energy during the year, a truly effective national multi-channel use, modern, transactional website. and has meant delaying a number of presence. Warehouse Stationery will be Simultaneously we will complete the other initiatives, including some store able to compete even more strongly for right-sizing work on our store footprint refurbishments and a restructure of business from companies that have a so that we can ensure we maximise the B2B side of the business, whilst national network of outlets. the return from our existing store base we focused on getting the merchandise and store expansion programme, with Looking ahead system fully functional. expansion of between seven to ten Over the next year, our focus is on stores planned over the next three years. Nevertheless, we have introduced two execution of our revised category improved stores – at New Plymouth, framework, in-store standards and These significant changes to our and most recently in Henderson. These customer service, and a strategic review operating model will enable the business new formats have a smaller footprint is underway to address fundamental to reach international benchmarks of but have been designed to be more changes taking place in demand and return and profitability over the next convenient for our customers. They are channel mix. three years. still work in progress, as we continue to We will begin to capitalise on our new improve and refine the layouts in order merchandise platform, which offers to maximise return on space. Customers centralised purchasing, replenishment have taken to the new approach with and financial receipting as well as an enthusiasm, as they report it is now integrated warehouse management easier to find what they are looking for. system, and we will introduce new processes to complement our Gary Rohloff new system. Chief Executive Officer

Page 30 From left to right: Anna Campbell, Tania Benyon, Gary Rohloff, Mark Denvir, Dave Christie, Juanita Neville-Te Rito, Mick Finn

The team

Gary Rohloff (CEO) Anna Campbell (GM – Human Resources) Dave Christie (Head of Logistics) Thanks to the Mark Denvir (GM – IS&T) Mick Finn (GM – Operations) Juanita Neville-Te Rito (GM Marketing and Property) Tania Benyon (Head of Merchandising) team Bruce Fowler (GM Finance) I want to take a moment to once again thank all our people for the extraordinary effort and commitment you have shown this year. We will continue to invest in you through training, and at the same time, we will look to support you by continuing to invest in our core systems and distribution. You have done yourselves proud. Gary Rohloff (CEO).

Celebrating 25 Years // Page 31 Systems

A strong infrastructure system is integral to success for any retail business, and requires on-going investment to keep systems running smoothly, from source to shelf. Back ofﬁce systems begin with ordering, follow through with distribution and end with the customer at the check-out.

In 2007, The Warehouse made company’s busiest period. Additionally, and due to the team’s commitment to improvements and investments in all the new tills comply with the global credit get the project completed smoothly to areas. Five key investments over the card standard for Europay, Mastercard benefit everyone for Christmas. past year have enabled us to significantly and Visa (EMV), and enable the tills The refreshment of this infrastructure improve our customers’ experiences in to store EFTPOS transactions off-line, in 1,329 customer lanes has sped up our stores. so that if EFTPOS goes down, The transactions by up to 15%, and reduced Warehouse tills can keep ringing. our POS downtime, adding both reliability New POS just in time for Christmas and speed to our serving times. The first of these was the complete A project like this would have been replacement of all the point of sale challenging at any time of the year. Better demand forecasting machines (check-out tills) in all 85 The fact that it was completed in the The Warehouse’s demand forecasting stores, in the weeks leading up to period leading up to Christmas only system plays a critical role in ensuring Christmas 2006. The main benefit increased the pressure. However, we we have the right stock, in the right of these upgrades was to speed up were confident that this much-needed place, at the right time for our customers transaction time at the check-out, to replacement could be successfully by enabling us to predict and handle prepare the stores to be able to process implemented because of how well the the replenishment of all products in all the Christmas shoppers more quickly, change-over had been completed at stores by SKU (stock keeping unit). thereby reducing queue time during the Sylvia Park four months beforehand,

Page 32 The system, which allows us to specify Apparel planning minimum and maximum inventory Our assessment of the space we make We have the right levels, has been upgraded to include available for clothing and seasonal powerful new functionality, including apparel is based on the number of stock in the right space-based allocation for stores based prongs we have available in every store. place at the on their optimum shelf display quantity Historically, we sent 40 – 60% of the (SDQ). This means that for every SKU total seasonal stock in one hit to the except apparel (discussed below), we stores. This distribution meant stores can forecast demand, compare our were often overwhelmed by the apparel right time store minimum and maximum levels, they had to accommodate. Team and quantify the shelf display space members had to crowd too much stock we have available to calculate the into too little space, resulting in apparel optimum replenishment. departments that were cluttered, with Once the new system is fully in place, it items falling off the end of the prongs will mean that stores will be restocked and customers struggling to move the only with what is needed and only with stock around on over-crowded fixtures to what we have space to store. The goal find their sizes. is to keep our stock availability up for Now we send stock based on the prongs in-demand products and keep our stock- available and the merchandising we have turn high. At the same time, having the for each store for all prong-based areas. right amount of stock will reduce how Range quantities are planned based on much stock we need to hold, which will prongs – so that they fit in store and also mean less working capital required. are available in season, and we know

Celebrating 25 Years // Page 33 Systems

the display quantities that we need to which is a good outcome for a major Scan-do for our customers replenish to, based on prong capacity infrastructure implementation project. Finally, we introduced price scanners and the lead time for fast sellers. The Apart from a few minor and easily into each of our stores this year. result is less inventory, and the ability to correctable problems, the new system Customer research had indicated that actively manage the end of the season. went live without a hitch. one reason a customer might choose not A much better sense of what’s needed, TUI is the heart of the business, as it is to purchase is because they are unsure where and when will generate more our ERP (Enterprise Resource Planning) what the price is. Although we aim to sales at full margin, less markdowns system, which runs our inventory, our ensure all items are priced clearly, these and enable us to reduce the need for ordering, and tracks sales. It is the core scanning posts provide a wanted service clearances at the end of the season. system for how we manage our stock, and reassurance for shoppers who find items that are not clearly priced. TUI Upgrade our stores and our distribution centre. In 1995, The Warehouse introduced This year we replatformed and What our customers see “TUI” – the inventory database for modernised the system to a Wintel The end result of all these system the business, and it was a disaster. platform with Jade Software. The improvements will be improved efficiency The system failed, stock visibility was revamped system went live on 3 from source to shelf. From having lost, and the share price plummeted. September 2007, and is expected to pay more of the right stock available and It is fair to say we approached TUI2 for itself in future IT cost savings alone. accessible at the times when customers – the upgrade of TUI – with a degree It will also improve our business agility most want it, to shorter wait times, to of apprehension. and flexibility, enable better integration having the ability for every customer and allow us to recapture our intellectual Through thorough planning and testing, to check the price of an item they are property by owning the system thinking. the implementation of the TUI Upgrade interested in, these investments will was largely uneventful to the end user, improve the experience our customers have in our stores.

The Demand Forecasting Team won Team of the Month in July 2007. From left to right are Idaeho Bouras, Doug Cleverley, Carl Andersson, Brigid Goldﬁnch, Ray Renner, Gabrielle Hessell, Stephanie Raddich, Bevan Mace, Paul Carlisle and Roger Collinson.

Page 34 Charities and Fundraising

From sausage sizzles to scratch ‘n’ win ticket sales, coin collections to product sales, The Warehouse raises around $2 million dollars every year for charities and community groups. That equates to almost $250 raised per team member, going to over 300 groups throughout New Zealand, including Surf Life Saving New Zealand.

Celebrating 25 Years // Page 35 Photo: John Bisset. Timaru Herald 07/07/2007.

The Warehouse’s approach to community In the space of a month we sold a total We’re a nation that loves the water, and support is simple – help as many people of 92,000 Daffodil Day pens raising with 95% of New Zealanders living within as we can, in as many ways as we $184,000 for the Society. half an hour of a beach, it really is our can. Whilst some companies choose The campaign was supported and favourite playground. to partner with one charity, and provide promoted in The Warehouse mailers The new IRBs will be used by volunteer centralised support to that one cause, and advertising, while in-store lifeguards for a range of rescue The Warehouse’s approach spreads posters provided visual reminders for activities, but more specifically event funding across as many organisations customers. Additionally, Cancer Society water safety. This need has been driven as possible. was the recipient of the funds raised in part by the increasing participation in As almost every New Zealander shops through the Bob Tindall Classic Golf ocean swimming, triathlons and other at The Warehouse, we are pleased to Tournament in August 2006, which water based events. offer a variety of choices, so that every totalled over $85,000. Additionally, Surf Life Saving NZ was the customer has an opportunity to support The money raised will go to a variety recipient of the funds raised through a cause that is meaningful to them of projects including providing the Supplier Awards and Charity Dinner throughout the year. accommodation during treatment, in August 2007, which totalled over On a local level, stores help a variety of funding cancer research and delivering $500,000. These funds will be used organisations, from the local branches a range of support services. not only for IRBs, but for training almost of St John’s Ambulance, the SPCA and 100 lifeguards. Arthritis Foundation Alzheimers New Zealand, through to play The Warehouse funds all the costs With one in six New Zealanders over the centres, kindergartens and hospices. of holding this event, and donates age of 45 living with arthritis, Arthritis Through local activities, such as all money raised from the event to New Zealand was very appreciative to barbecues and the coin collection boxes the charity, including ticket sales. The Warehouse for the support it has at the checkouts, hundreds of thousands The Warehouse does not deduct any received. As part of the Arthritis Orange of dollars were raised in 2007. expenses from the funds raised. Appeal in October 2006, The Warehouse Nationally, The Warehouse supported enthusiastically helped promote and five different charities during 2007. Starship Foundation sell the orange “Joint Effort” silicone The following is a summary of the In April this year $292,000 was wrist bands throughout all its stores. organisations and causes we have raised from a national Scratch and At only $2 these “Joint Effort” silicone supported over the last 12 months: Win promotion which gave Warehouse fundraising bands have proven to customers the opportunity support The Cancer Society New Zealand be hugely popular and helped raise Starship Foundation. over $50,000. In August 2006 The Warehouse The Warehouse also raised money stores throughout the country made The money raised has been used to offer through an initiative with clothing a tremendous contribution to Daffodil support services throughout Arthritis designer WORLD, where t-shirts Day 2006 – the Cancer Society’s major New Zealand’s 25 Service Centres to designed by WORLD were sold, with fundraising event. benefit local communities. $5 from every shirt going to benefit Surf Life Saving New Zealand Starship Foundation. Through national sales in October 2006, $222,000 was The $267,000 raised from the Surf Life raised. Starship Foundation was also Saving Scratch-to-Win campaign, held the recipient of funds raised through in February 2007 will be used by Surf the Supplier Awards and Charity Live Saving New Zealand to purchase Dinner in August 2006, and over new Inflatable Rescue Boats (IRBs) $300,000 was raised. and engines. These will increase their lifesaving capability in the community.

Page 36 Funds raised from these initiatives went a national service which operates 24 Fund, designed to enable talented towards a cutting-edge national video hours, seven days a week transporting New Zealand children achieve artistic, conferencing network for children, the hundreds of critically ill children from educational or sporting goals, despite New Zealand Telepaediatric Service, around New Zealand to the country’s suffering from illness, disability or which connects communities to the best only paediatric intensive care unit at ﬁnancial circumstances. medical expertise available. the Starship Hospital. The Warehouse thanks all customers The Service enables children throughout who supported these organisations Variety – The Children’s Charity New Zealand who need medical care throughout the year; suppliers for their Variety – The Children’s Charity, our to have direct access to Starship generous donations to the Bob Tindall June charity partner, was thrilled with Hospital doctors, without having to make Classic and Supplier Dinner, and team the results of its Red Heart Light-Up the uncomfortable, long, and often members for ensuring the success Pen promotion. expensive, journey to Auckland. of each campaign. We hope we can Variety said that funds raised exceeded continue to provide this level of support Starship Foundation beneﬁted from expectations, netting close to $100,000. to the charities and community groups, the Bob Tindall Classic golf day 2007 both large and small, of New Zealand in August 2007. Over $65,000 was The pens were available for a $2 well into the future. raised, which will support the Air donation, and proceeds will go towards Ambulance Retrieval Service. This is Variety’s 2008 Gold Heart Scholarship

Charity Date Amount Raised NZ Cancer Society August 2006 $184,000 Arthritis NZ October 2006 $50,000 Surf Lifesaving February 2007 $267,000 Starship Foundation April 2007 $292,000 Variety – the Children’s Charity June 2007 $141,000 Store Fundraising – National Campaign Total $934,000 Barbecues and Coin Collections (estimate) On-going $600,000 Cancer Society – Bob Tindall Classic August 2006 $85,000 Starship Foundation – Supplier Dinner August 2006 $310,000 Starship Foundation – WORLD T-shirt campaign February 2007 $222,000 TOTAL $2,151,000 WORLD fashion designers Denise L’Estrange-Corbet The funds raised through the Bob Tindall Classic Golf Tournament and Supplier Awards and Charity Dinner and Francis Hooper, on either side of Starship 2007 will be included in next year’s report. Foundation CEO Andrew Young. © Patrick Bellett Photography www.phototime.co.nz.

Taunui Group Holdings and The Warehouse – developing The Base together

In July 2004, Tainui Group Holdings One year later, in July 2005 The Base and Bond, Briscoes, Cotton On, Dick announced a partnership with The was ofﬁcially opened by Te Arikinui Smith Electronics, Dress Smart, New Warehouse to build a $100 million Dame Te Atairangikaahu, with the Prime Zealand Post, Noel Leeming, North shopping centre, The Base at Te Rapa, Minister the Rt Hon Helen Clark present. Beach, Number One Shoe Warehouse, Postie Plus, Rebel Sport, Shanton on a site that was part of the Waikato- In July 2007, with The Base retail and Whitcoulls. Tainui Raupatu (land conﬁscation) development nearing completion, The Settlement with the Crown in 1995. Warehouse sold our 50% share back The Warehouse continues to invest in For Tainui, the partnership with The to Tainui. our store at The Base, as the store was recently converted into the third Warehouse Group was strategically Apart from The Warehouse, The Base Warehouse Extra, in August 2007. important for the site’s development has so far attracted other retailers due to our considerable retail expertise including: Arbuckles, Baby City, Bond and our ability to attract other retailers to the site. For The Warehouse, the partnership provided an opportunity to share our retail and property expertise to assist an organisation to develop a successful centre, while also securing an ideal location at the intersection of main arterial routes from the east, west and south of Hamilton.

Celebrating 25 Years // Page 37 10 Year Review

2007 2006* 2005* 2004* 2003*

FinancialFinancial ReResultssults ($($000)000) Sales revenue 1,761,677 1,882,902 2,202,557 2,244,454 2,034,917 Operating proﬁt 153,051 153,078 133,406 121,192 142,672 Interest (6,467) (10,127) (18,584) (17,188) (11,962) Goodwill and unusual items 22,829 (87,210) (37,226) (7,809) (13,810) Net surplus before taxation 169,413 55,741 77,596 96,195 116,900 Taxation expense (53,637) (26,165) (38,363) (34,692) (41,310) Net surplus after taxation 115,776 29,576 39,233 61,503 75,590 Minority interests (302) (259) (254) (324) (191) Net surplus attributable to shareholders 115,474 29,317 38,979 61,179 75,399

Ratios Operating margin % 8.7 % 8.1 % 6.1 % 5.4 % 7.0 % Tax paid return on average net assets % 30.8 % 8.5 % 11.0 % 17.4 % 22.8 % Net interest cover (times) 27.2 x 6.5 x 5.2 x 6.6 x 10.8 x Ordinary dividend per share (cents) 17.5 c 16.0 c 14.5 c 14.5 c 14.5 c Earnings per share (cents) 37.4 c 9.6 c 12.8 c 20.0 c 24.7 c

Financial Position ($000) Current assets 360,627 325,341 475,237 474,601 437,239 Current liabilities (143,879) (168,185) (240,651) (321,882) (185,900) Working capital 216,748 157,156 234,586 152,719 251,339 Non-current taxation 13,153 11,255 28,154 21,656 17,097 Fixed assets and investments 313,205 310,514 367,273 343,130 276,580 Intangible assets – – – 40,621 48,277 543,106 478,925 630,013 558,126 593,293 Term liabilities (127,301) (144,729) (278,132) (200,644) (246,553) Net assets 415,805 334,196 351,881 357,482 346,740

Ratios Current assets to current liabilities 2.51 :1 1.93 :1 1.97 :1 1.47 :1 2.35 :1 Net debt to equity 0.0 % 34.5 % 76.6 % 87.3 % 71.0 % Equity to total assets 60.5 % 51.6 % 40.4 % 40.6 % 44.5 %

Cashﬂows ($000) Operating cashﬂow 129,562 153,061 153,495 88,592 83,145 Capital expenditure 60,505 62,577 86,924 133,578 115,416

Operating Statistics Retail employee numbers 9,032 9,177 15,401 15,877 15,308 Total retail stores at year end The Warehouse New Zealand 83 85 85 83 80 Warehouse Stationery 43 43 43 42 39 Rolling average sales per store ($000) The Warehouse New Zealand 18,208 17,735 17,495 18,213 17,100 Warehouse Stationery 4,232 4,155 3,951 4,375 3,898 Retail area at year end (square metres) The Warehouse New Zealand 455,361 459,594 440,901 401,547 360,055 Warehouse Stationery 58,165 58,890 60,432 56,145 45,918 Rolling weighted average sales per square metre ($) The Warehouse New Zealand 3,345 3,356 3,539 3,852 3,873 Warehouse Stationery 3,063 2,975 2,872 3,326 3,352

* The 2001 to 2006 years include the trading results of the discontinued Warehouse Australia business.

Page 38 SALES (NZ $M)

2000

1500

1000

500

2002* 2001* 2000 1999 1998 0 98 99 00 01 02 03 04 05 06 07

1,862,031 1,664,749 1,075,349 932,769 750,220 147,009 122,095 111,336 85,202 62,456 NET SURPLUS ATTRIBUTED TO (12,250) (14,927) (4,786) (2,925) (6,742) SHAREHOLDERS (NZ $M)

(7,786) (11,353) 1,502 182 1,826 120 126,973 95,815 108,052 82,459 57,540 100 (44,369) (35,062) (37,593) (28,030) (17,202) 80 82,604 60,753 70,459 54,429 40,338 (398) (348) (406) (376) (229) 60 82,206 60,405 70,053 54,053 40,109 40

0 7.9 % 7.3 % 10.4 % 9.1 % 8.3 % 98 99 00 01 02 03 04 05 06 07 28.6 % 27.5 % 40.1 % 31.9 % 25.2 % 11.4 x 7.4 x 23.6 x 29.2 x 9.5 x 13.5 c 12.5 c 12.5 c 9.5 c 7.0 c ORDINARY DIVIDENDS PER SHARE 27.0 c 20.3 c 24.3 c 18.9 c 14.0 c (CENTS PER SHARE)

341,153 314,996 193,961 177,331 147,991 15 (140,442) (193,218) (185,153) (145,657) (96,846) 200,711 121,778 8,808 31,674 51,145 10 11,460 14,389 2,205 7,049 5,318 5 245,697 230,151 166,401 154,296 140,585 59,349 72,709 11,881 7,050 1,518 0 517,217 439,027 189,295 200,069 198,566 98 99 00 01 02 03 04 05 06 07 (201,744) (179,785) (10,000) (30,000) (30,000) 315,473 259,242 179,295 170,069 168,566 EARNINGS PER SHARE (CENTS PER SHARE)

2.43 :1 1.63 :1 1.05 :1 1.22 :1 1.53 :1 40 63.9 % 87.1 % 50.9 % 38.0 % 33.9 % 35 30 48.0 % 41.0 % 47.9 % 49.2 % 57.1 % 25 20 15 112,487 61,843 70,560 68,694 61,550 10 79,911 77,776 65,443 52,407 42,082 5 0 98 99 00 01 02 03 04 05 06 07 11,988 11,503 7,264 5,613 5,006

STORE FOOTPRINT – CONTINUING 78 75 69 69 67 BUSINESS (IN THOUSANDS PER SQUARE METRES) 36 33 24 18 17 600 16,348 15,493 14,616 12,782 10,934 500

3,455 3,063 3,004 2,623 2,085 400

300 330,343 306,838 253,717 240,589 215,942 200 40,406 36,775 29,062 20,768 16,824 100 3,947 3,963 4,039 3,763 3,450 0 98 99 00 01 02 03 04 05 06 07 3,096 2,732 2,487 2,382 2,214

Celebrating 25 Years // Page 39 128 Store Locations

Auckland Wellington · Masterton Christchurch Rest of South Island · Auckland Airport · Johnsonville · Matamata · Belfast · Alexandra · Albany · Kilbirnie · Morrinsville · Barrington · Ashburton · Balmoral · Lower Hutt · Napier · Riccarton · Balclutha · Birkenhead · Lyall Bay · New Plymouth · Eastgate · Blenheim · Botany Downs · Paraparaumu · Palmerston North · Hornby · Dunedin · Clendon · Petone · Papamoa · Linwood · Dunedin South · Downtown · Porirua · Rotorua · Papanui · Gore · East Tamaki · Upper Hutt · Snells Beach · South City · Greymouth · Glenﬁeld · Wainuiomata · Taupo · Invercargill · Henderson · Wellington2 · Tauranga · Motueka · Lincoln Centre · Te Awamutu · Nelson · Manukau Rest of North Island · Te Kuiti · Oamaru 1 · Milford · Bell Block · Te Rapa · Queenstown · Mt Wellington · Cambridge · Thames · Rangiora · New Lynn · Chartwell · Tokoroa · Timaru · Newmarket · Dannevirke · Waipapa · Pakuranga · Dargaville · Wanganui · Papakura · Feilding · Whakatane · Penrose · Fraser Cove · Whangarei · Pukekohe · Gisborne · St Lukes · Hamilton · Sylvia Park · Hastings · Westcity · Hawera Key · Westgate · Hillcrest · The Warehouse NZ · Whangaparaoa · Kaikohe · The Warehouse NZ/ · Kaitaia Warehouse Stationery · Levin · Warehouse Stationery

1 Milford store was closed due to a ﬁre on 23 April 2007 and reopened on 24 August 2007. 2 Wellington Central store closed for relocation on 10 June 2007 and reopens on 18 October 2007.

Page 40 Financial Information, Governance and Disclosures

Notes to the 42 CFO’s Report 48 Financial Statements

43 Auditors’ Report 71 Corporate Governance

Statement of Organisational 44 Financial Performance 77 Structure

Statement of 44 Movements in Equity 78 Directors’ Interests

Statement of 45 Financial Position 79 Statutory Disclosures

Statement of 46 Cash Flows 85 Directory

Reconciliation of Net Surplus with 47 Net Cash Flows from Operating Activities Our strong operating cashﬂow continues to provide a solid base for both growth and reinvestment in existing business.

Highlights reduction. Net debt was $43.0 million infrastructure was achieved, investment The 2007 financial year saw good at financial year end. As a result, net in format development was lower trading performances from continuing interest costs reduced by 36% to $6.5 than anticipated. businesses with sales up 2.4% to million and all key financing ratios International Financial $1,761.7 million and EBITDA up 2.7% improved significantly. Gearing reduced Reporting Standards to $188.5 million. Net profit after tax, from 25.7% to 9.4% and fixed charge The Group will prepare financial excluding divestment of Te Rapa and The cover improved to 4.0 times EBITDR. statements under the New Zealand Warehouse Australia was up 1.7% to This allowed the board to consider equivalent to International Financial $97.9 million. and subsequently declare a special Reporting Standards (NZIRFS) for the dividend of 35.0 cents per share, paid to An after tax surplus on the divestment of year ending 27 July 2008 including shareholders on 28 September 2007. Te Rapa of $11.7 million was realised in comparative financial information for the the year. Assets year ended 29 July 2007. Note 36 to the Total assets increased by 6.2% to financial statements provides details of Cashflow, Debt Servicing the effect of the transition to NZIFRS. and Gearing $687.0 million. Increased cash balances were the main contributor. Although operating cash flow reduced by 15.4% to $129.6 million for the year, Capital Expenditure cash conversion was a solid 97.0%. Total gross capital expenditure for the Proceeds from divestments and year was $60.5 million, down $2.1 Luke Bunt employee share options exercised million on 2006. Although the planned Chief Financial Officer during the period were applied to debt level of investment in systems and 13 September 2007

Abbreviated Statement of Financial Position

2007 2006 $ MILLION $ MILLION

Current assets 360.6 325.3 Property, plant & equipment 305.2 305.6 Deferred tax 13.2 11.3 Investments 8.0 4.9 Total assets 687.0 647.1 Current liabilities 143.9 168.2 Non-current liabilities 127.3 144.7 Total liabilities 271.2 312.9 Shareholders equity 415.8 334.2 Total liabilities and equity 687.0 647.1

Page 42 Auditors’ Report

To the shareholders of The Warehouse Group Limited We have audited the financial statements on pages 44 to 70. The financial statements provide information about the past financial performance and cash flows of the Company and Group for the year ended 29 July 2007 and their financial position as at that date. This information is stated in accordance with the accounting policies set out on pages 48 and 49.

Directors’ Responsibilities The Company’s Directors are responsible for the preparation and presentation of the financial statements which give a true and fair view of the financial position of the Company and Group as at 29 July 2007 and their financial performance and cash flows for the year ended on that date.

Auditors’ Responsibilities We are responsible for expressing an independent opinion on the ﬁnancial statements presented by the Directors and reporting our opinion to you.

Basis of Opinion An audit includes examining, on a test basis, evidence relevant to the amounts and disclosures in the financial statements. It also includes assessing: (a) the significant estimates and judgements made by the Directors in the preparation of the financial statements; and (b) whether the accounting policies are appropriate to the circumstances of the Company and Group, consistently applied and adequately disclosed. We conducted our audit in accordance with generally accepted auditing standards in New Zealand. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatements, whether caused by fraud or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We have no relationship with or interests in the Company or any of its subsidiaries other than in our capacity as auditors.

Unqualified Opinion We have obtained all the information and explanations we have required. In our opinion: (a) proper accounting records have been kept by the Company as far as appears from our examination of those records; and (b) the financial statements on pages 44 to 70: (i) comply with generally accepted accounting practice in New Zealand; and (ii) give a true and fair view of the financial position of the Company and Group as at 29 July 2007 and their financial performance and cash flows for the year ended on that date. Our audit was completed on 13 September 2007 and our unqualified opinion is expressed as at that date.

Chartered Accountants Auckland

Celebrating 25 Years // Page 43 Statement of Financial Performance FOR THE YEAR ENDED 29 JULY 2007

GROUP GROUP PARENT PARENT

2007 2006 2007 2006 NOTE $ 000 $ 000 $ 000 $ 000

Sales revenue 1,761,677 1,882,902 – – Other revenue 3 43,225 23,336 100,000 44,296 Operating revenue 1,804,902 1,906,238 100,000 44,296 Operating expenses 4 (1,641,428) (1,761,696) (4) (8) Operating surplus before tax and Australian asset disposals 163,474 144,542 99,996 44,288 Disposal of Australian assets 34 5,939 (88,801) – – Operating surplus before income tax 169,413 55,741 99,996 44,288 Income tax 8 (53,637) (26,165) 1 3 Net surplus after taxation for the year 115,776 29,576 99,997 44,291 Net surplus attributable to minority interest 26 (302) (259) – – Net surplus attributable to parent shareholders 115,474 29,317 99,997 44,291

Operating surplus before tax: Operating surplus from continuing activities 163,474 145,293 99,996 44,288 Operating deﬁcit from discontinued activities 5,939 (89,552) – – 169,413 55,741 99,996 44,288 Earnings per share – Net surplus attributable to parent shareholders 6 37.4 cents 9.6 cents

Statement of Movements in Equity FOR THE YEAR ENDED 29 JULY 2007

GROUP GROUP PARENT PARENT

2007 2006 2007 2006 NOTE $ 000 $ 000 $ 000 $ 000

Net surplus for the year, comprising Parent shareholders’ interest 115,474 29,317 99,997 44,291 Minority interest 26 302 259 – – 115,776 29,576 99,997 44,291 Foreign currency translation movement 23 – (3,175) – – Total recognised revenues and expenses 115,776 26,401 99,997 44,291

Share options exercised 20 26,716 – 26,716 – Dividends paid to parent shareholders 25 (54,201) (44,296) (54,201) (44,296) Dividends paid to minority interest 26 (286) (202) – – Treasury stock dividends received 24 435 – – – Purchase of treasury stock on market 21 (8,677) – – – Forfeited ESOP shares repurchased as treasury stock 21 (22) (578) – – Share scheme amortisation 22 1,868 990 – – Movement in equity for the year 81,609 (17,685) 72,512 (5)

Equity at beginning of year, comprising Parent shareholders’ interest 333,917 351,659 219,664 219,669 Minority interest 279 222 – – Total equity at beginning of year 334,196 351,881 219,664 219,669

Equity at end of year, comprising Parent shareholders’ interest 415,510 333,917 292,176 219,664 Minority interest 26 295 279 – – Total equity at end of year 415,805 334,196 292,176 219,664

The accompanying accounting policies and notes form an integral part of the ﬁnancial statements.

Page 44 Statement of Financial Position AS AT 29 JULY 2007

GROUP GROUP PARENT PARENT

2007 2006 2007 2006 NOTE $ 000 $ 000 $ 000 $ 000

ASSETS Current assets Cash balances 19 77,909 21,443 1,066 930 Receivables 11 25,530 18,761 247,772 167,826 Inventories 12 254,770 247,527 – – Taxation receivable 9 2,418 37,610 1,338 8,908 Total current assets 360,627 325,341 250,176 177,664

Non-current assets Investments 13 8,051 4,889 42,000 42,000 Property, plant and equipment 16 305,154 305,625 – – Deferred taxation 10 13,153 11,255 – – Total non-current assets 326,358 321,769 42,000 42,000 Total assets 686,985 647,110 292,176 219,664

LIABILITIES Current liabilities Bank overdraft 18 905 184 – – Payables and accruals 15 142,974 158,401 – – Borrowings 18 – 9,600 – – Total current liabilities 143,879 168,185 – –

Non-current liabilities Borrowings 18 120,000 120,000 – – Borrowings – secured 18 – 7,081 – – Provisions 14 7,301 17,648 – – Total non-current liabilities 127,301 144,729 – – Total liabilities 271,180 312,914 – –

EQUITY Share capital 20 245,692 218,976 245,692 218,976 Treasury stock 21 (14,699) (7,628) – – Employee equity-settled beneﬁts reserve 22 1,970 990 – – Foreign currency translation reserve 23 – (3,068) – – Retained earnings 24 182,547 124,647 46,484 688 Parent shareholders’ interest 415,510 333,917 292,176 219,664 Minority interest 26 295 279 – – Total equity 415,805 334,196 292,176 219,664 Total equity and liabilities 686,985 647,110 292,176 219,664

On behalf of the board

Keith Smith Ian Morrice Authorised for issue on 13 September 2007

The accompanying accounting policies and notes form an integral part of the ﬁnancial statements.

Celebrating 25 Years // Page 45 Statement of Cash Flows FOR THE YEAR ENDED 29 JULY 2007

GROUP GROUP PARENT PARENT

2007 2006 2007 2006 NOTE $ 000 $ 000 $ 000 $ 000

Cash ﬂows from operating activities Cash received from customers 1,779,401 1,898,613 – – Interest income 2,180 429 – – Dividends received from subsidiary companies – – 100,000 44,296 Payments to suppliers and employees (1,624,256) (1,711,466) – (8) Income tax paid (17,537) (20,733) – – Interest paid (10,226) (13,782) – – Net cash ﬂows from operating activities 129,562 153,061 100,000 44,288

Cash ﬂows from investing activities Proceeds from sale of property, plant and equipment 3,315 5,664 – – Staff share purchase advances repaid 257 674 – – Distributions received from associate 13 – 9,687 – – Advances from subsidiary companies – – (71,063) 1,763 Purchase of property, plant and equipment (60,505) (62,577) – – Refund of staff share purchase advances (19) (396) – – Net proceeds from the disposal of joint venture 33 36,681 – – – Net proceeds from the disposal of Australian assets 34 464 87,165 – – Net cash ﬂows from investing activities (19,807) 40,217 (71,063) 1,763

Cash flows from financing activities Repayment of short term borrowings (9,600) (30,265) – – Repayment of term borrowings (7,081) (141,961) – – Share options exercised 20 26,716 – 26,716 – Purchase of treasury stock 21 (8,677) – – – Treasury stock dividends received 435 – – – Dividends paid to parent shareholders (55,517) (45,910) (55,517) (45,910) Dividends paid to minority shareholders 26 (286) (202) – – Net cash flows from financing activities (54,010) (218,338) (28,801) (45,910)

Net (decrease) / increase in cash held 55,745 (25,060) 136 141 Effect of exchange rate movements – 746 – – Total movement in cash position 55,745 (24,314) 136 141

Cash position at beginning of year, comprising Cash, bank in funds and deposits 21,443 45,742 930 789 Bank overdrafts (184) (169) – – Total cash position at beginning of year 21,259 45,573 930 789

Cash position at end of year, comprising Cash, bank in funds and deposits 19 77,909 21,443 1,066 930 Bank overdrafts 18 (905) (184) – – Total cash position at end of year 77,004 21,259 1,066 930

The accompanying accounting policies and notes form an integral part of the ﬁnancial statements.

Page 46 Reconciliation of Net Surplus with Net Cash Flows from Operating Activities FOR THE YEAR ENDED 29 JULY 2007

GROUP GROUP PARENT PARENT

2007 2006 2007 2006 NOTE $ 000 $ 000 $ 000 $ 000

Reported net surplus after taxation 115,776 29,576 99,997 44,291

Non-cash items Depreciation 4 35,409 35,982 – – Share plan amortisation 22 1,868 990 – – Movement in deferred taxation 10 (1,898) 16,899 – – Share of surplus retained by associate 13 (3,162) (4,198) – – Total non-cash items 32,217 49,673 – –

Items classified as investing or financing activities Net loss on sale of property, plant and equipment 1,079 144 – – Capitalised interest – (119) – – Gain on disposal of joint venture 33 (17,432) – – – (Gain) / Loss on the disposal of Australian assets 34 (5,939) 88,801 – – Other investing and financing activities 1,316 1,614 1,316 1,614 Total investing and financing adjustments (20,976) 90,440 1,316 1,614

Changes in assets and liabilities Payables and accruals (18,267) (3,347) – – Income taxation 35,138 (14,485) (1,313) (1,617) Receivables (7,083) (139) – – Inventories (7,243) 5,147 – – Effect of exchange rate movements – (3,804) – – Total changes in assets and liabilities 2,545 (16,628) (1,313) (1,617)

Net cash ﬂows from operating activities 129,562 153,061 100,000 44,288

The accompanying accounting policies and notes form an integral part of the ﬁnancial statements.

Celebrating 25 Years // Page 47 Notes to the Financial Statements FOR THE YEAR ENDED 29 JULY 2007

1. Statement of Accounting Policies U Cash comprises cash on hand and in transit, bank in funds and short term deposits offset by bank overdrafts. Reporting entity U Cash flows relating to current and non-current borrowings are The Warehouse Group Limited is a company registered under the presented as net cash flows as gross cash inflows and outflows New Zealand Companies Act 1993 and is listed on the New Zealand include day-to-day cash management. and Australian stock exchanges. The Warehouse Group Limited is an issuer for the purposes of the New Zealand Financial Reporting (e) Revenue Act 1993. The financial statements and group financial statements Goods and services of The Warehouse Group Limited have been prepared in accordance Sales revenue comprises the amounts received and receivable for with the New Zealand Companies Act 1993 and New Zealand goods and services supplied to customers in the ordinary course Financial Reporting Act 1993. of business. Measurement base Investment income The accounting principles recognised as appropriate for the Dividend income is recognised in the period the dividend measurement and reporting of financial performance and financial is declared. position on an historical cost basis are followed by the group. Interest and rental income are accounted for as earned.

Specific accounting policies (f) Property, plant and equipment The following specific accounting policies which materially affect the Cost measurement of financial performance and the financial position The cost of purchased property, plant and equipment is the value have been applied: of the consideration given to acquire the assets and the value (a) Basis of consolidation of other directly attributable costs which have been incurred in bringing the assets to the location and condition necessary for their The consolidated financial statements include the parent company intended use. The cost of self-constructed assets includes the cost and its subsidiaries, associates and joint venture investments. of all materials used in construction, direct labour on the project, Subsidiaries have been consolidated using the purchase method. financing costs, and costs of obtaining regulatory consents that are All significant intercompany transactions are eliminated on directly attributable to the project. consolidation. Subsidiaries are entities that are controlled, either directly or indirectly, by the parent. The results of subsidiaries and Depreciation and disposal associates acquired or disposed of during the year are included in Property, plant and equipment are depreciated on a straight line the consolidated statement of financial performance from the date basis to allocate the cost, less any residual value, over their useful of acquisition or up to the date of disposal. life. When property, plant and equipment are disposed of the gain or loss recognised in the statement of financial performance (b) Joint ventures is calculated as the difference between the sale price and the Where the group invests in joint ventures, the group’s share of carrying amount of the asset. revenues, expenditures, assets and liabilities are included in the Estimated useful life of property, plant and equipment: appropriate categories within the financial statements. Freehold land indefinite (c) Associates Freehold buildings 50 – 100 years Associates have been recorded in the consolidated financial Store fittings and equipment 4 – 12 years statements on an equity accounting basis which recognises Computer equipment 2 – 10 years the group’s share of retained surpluses in the statement of Vehicles 5 – 8 years financial performance and its share of post acquisition increases Work in progress not depreciated or decreases in net assets in the consolidated statement of (g) Income taxation financial position. The income tax expense charged to the statement of financial Associates are entities in which the parent, either directly or performance includes both the current year provision and the indirectly, has a significant but not controlling interest. income tax effects of timing differences calculated using the liability method. Taxation effect accounting is applied on a (d) Statement of cash flows comprehensive basis to all timing differences. A debit balance in The following definitions are used in the statement of cash flows: the deferred taxation account, arising from timing differences or U Operating activities include all transactions and other events income taxation benefits from income taxation losses, is recognised that are not investing or financing activities. only if there is virtual certainty of realisation. U Investing activities are those activities relating to the (h) Goods and services tax (“GST”) acquisition, holding and disposal of property, plant and equipment and of investments. The statement of financial performance and statement of cash flows have been prepared so that all components are stated exclusive of U Financing activities are those activities that result in changes in GST. All items in the statement of financial position are stated net the size and composition of the capital structure. This includes of GST with the exception of receivables and payables which include both equity and borrowings not falling within the definition of GST invoiced. cash. Dividends paid in relation to the capital structure are included in financing activities.

Page 48 (i) Inventories U Letters of credit exposures are disclosed as contingent liabilities Inventories are stated at the lower of cost, determined on a in the financial statements until valid documents are received weighted average cost basis, and net realisable value. and terms, as set out in the letter of credit, are met. Foreign currency forward exchange contracts and currency options (j) Receivables are used to hedge foreign currency transactions. Any exposure to Receivables are carried at estimated realisable value after providing gains or losses on the foreign exchange derivatives are generally against debts where collection is doubtful. offset by a related loss or gain on the item being hedged. (k) Employee entitlements Foreign currency option premiums paid are expensed and spread Employee entitlements to salaries and wages, annual leave, over the period from the inception of the option to the exercise date. bonuses and other benefits are recognised when they accrue Any amounts paid or received on interest rate swaps are to team members as a result of services rendered prior to recognised as an interest expense over the period of the balance date. underlying debt hedged. (l) Investments Electricity contracts used to fix electricity prices are recognised as The parent company’s investment in subsidiaries is stated at cost in an expense over the period of usage. the statement of financial position. Other investments are stated at Financial instruments are not used for the purpose of trading or the lower of cost or net realisable value. speculation. All other financial exposures are recognised in the (m) Leases statement of financial position.

Group entities lease certain land and buildings. Certain plant (r) Foreign currencies and equipment are also leased for short terms. Operating lease Transactions in foreign currencies are converted to New Zealand payments, where the lessors effectively retain substantially all the dollars at the exchange rate ruling at the date of the transaction. risks and benefits of ownership of the leased items, are recognised Short term transactions covered by forward exchange contracts in the statement of financial performance in equal instalments over are measured and reported at the forward rates specified in the lease term. those contracts. (n) Impairment of long life assets At balance date foreign monetary assets and liabilities are Annually the directors assess the book value of each asset. Where translated to New Zealand dollars at the closing exchange rate, and the estimated recoverable amount of the asset is less than its book exchange variations arising from these translations are recognised value the asset is written down. The impairment loss is recognised in the statement of financial performance. in the statement of financial performance. (s) Translation of foreign operations (o) Share options Revenues and expenses of independent foreign operations are No compensation expense is recognised in respect of fixed price translated to New Zealand dollars at the exchange rates in effect at share options granted if the exercise price is equal to or greater the date of the transaction, or at rates approximating them. Assets than the market price of the shares on the date that the options and liabilities are converted to New Zealand dollars at the rates of are granted. If the options are granted at a discount to the market exchange ruling at balance date. price, a compensation expense is recognised in the statement of Exchange differences arising from the translation of independent financial performance based on that discount. When the options are foreign operations are recognised in the foreign currency translation exercised, the proceeds received are recognised in share capital. reserve, together with unrealised gains and losses on foreign (p) Executive share scheme currency monetary liabilities that are identified as hedges against Conditional share rights granted in accordance with the executive these operations. share scheme are measured at fair value on grant date. The fair An average Australian dollar exchange rate of 0.9210 cents was value of the share rights are expensed on a straight line basis over used to translate earnings of the group’s Australian operations, for the minimum vesting period, based on the group’s estimate of the 4 month period from 1 August 2005 to 28 November 2005. The shares that will eventually vest. disposal of the assets of The Warehouse Australia (refer note 34) was translated at an exchange rate of 0.9415 cents representing (q) Financial instruments the Australian dollar exchange rate on 28 November 2005, the date The group is party to the following financial instruments with off- of the disposal. balance sheet risk: U Letters of credit to secure future purchasing requirements. (t) Changes in accounting policies There have been no changes in accounting policies. U Forward exchange contracts and currency options to reduce exposure to fluctuations in foreign currency exchange rates. U Interest rate swaps to reduce exposure to fluctuations in interest rates. U Electricity hedge contracts to reduce exposure to fluctuations in electricity prices.

Celebrating 25 Years // Page 49 Notes to the Financial Statements – continued FOR THE YEAR ENDED 29 JULY 2007

2. Segment analysis

SALES OPERATING PROFIT OPERATING MARGIN

2007 2006 2007 2006 2007 2006 NOTE $ 000 $ 000 $ 000 $ 000 % %

The Warehouse New Zealand 1,546,611 1,507,654 147,235 143,536 9.5 9.5 Warehouse Stationery 213,481 211,677 9,548 9,345 4.5 4.4 Other group operations 8,913 8,101 (3,732) (837) Inter-segment eliminations (7,328) (6,953) – – New Zealand – continuing businesses 1,761,677 1,720,479 153,051 152,044 8.7 8.8 The Warehouse Australia – discontinued business – 162,423 – 1,034 Total 1,761,677 1,882,902 153,051 153,078 8.7 8.1

(Loss) / Gain on property disposals 4,3 (542) 1,591 Gain on disposal of joint venture 33 17,432 – Gain/(loss) on disposal of Australian assets 34 5,939 (88,801) Earnings before interest and taxation 175,880 65,868 10.0 3.5 Net interest expense (6,467) (10,127) Operating surplus before income taxation 169,413 55,741 9.6 3.0

OPERATING ASSETS

2007 2006 $ 000 $ 000

The Warehouse New Zealand 347,058 323,594 Warehouse Stationery 60,805 59,032 Other group operations 185,642 194,125 New Zealand – continuing businesses 593,505 576,751 The Warehouse Australia – discontinued business – 51 Total operating assets 593,505 576,802

Cash 19 77,909 21,443 Taxation 15,571 48,865 Total assets 686,985 647,110

The group operates predominantly in the retail sector. Operating Margins are calculated by dividing the respective segment operating proﬁt by the respective segment sales. The “Earnings before interest and taxation” and the “Operating surplus before income taxation” operating margins are similarly calculated by dividing the respective line items by total sales. Discontinued business Effective from 27 November 2005 the group sold the business assets of The Warehouse Australia. The discontinued operations of The Warehouse Australia represent the four month trading period up to and including 27 November 2005 and the loss on sale was determined at that date. Further details pertaining to the asset sale are referred to in note 34.

Page 50 3. Other revenue

GROUP GROUP

2007 2006 NOTE $ 000 $ 000

Interest income 3,667 2,736 Rental income 6,092 5,242 Gain on sale of property – 1,591 Share of surplus of associate 13 3,162 4,198 Gain on disposal of joint venture 33 17,432 – Other income 12,872 9,569 Total other revenue 43,225 23,336

During the year the parent company received dividends from subsidiaries of $100.000 million (2006: $44.296 million).

4. Operating expenses

Operating expenses include Bad debts written off 61 555 Provision for doubtful debts (181) 302 Loss on sale of property 542 – Loss on sale of plant and equipment 537 1,735 Donations 85 92 Interest on borrowings 10,134 12,863 Leasing costs 54,892 64,662 Net foreign currency exchange loss 260 31 Depreciation Freehold buildings 2,870 2,737 Store ﬁttings and equipment 22,265 24,890 Computer equipment 9,766 7,755 Vehicles 508 600 Total depreciation 16 35,409 35,982

5. Auditor’s remuneration

Auditing the group ﬁnancial statements 285 329 Reviewing the half year ﬁnancial statements 65 85 Other services 49 19 Total auditor’s remuneration 399 433

Fees paid for non audit services were approved by the group’s Audit Committee and related to the group’s implementation of International Financial Reporting Standards and audit of the group’s Sustainability Reporting.

6. Earnings per share

Net surplus attributable to parent shareholders 115,474 29,317 Cents per share 37.4 cps 9.6 cps

Earnings per share is calculated by dividing the group net surplus attributable to parent shareholders by the weighted average number of ordinary shares on issue during the year. The weighted average number of ordinary shares on issue was 308,356,000 shares (2006: 305,489,000 shares).

Celebrating 25 Years // Page 51 Notes to the Financial Statements – continued FOR THE YEAR ENDED 29 JULY 2007

7. Directors remuneration

GROUP GROUP

2007 2006 $ 000 $ 000

Non-executive directors: K R Smith (Chairman) 132 105 J R Avery 73 60 R L Challinor 70 60 J C Dahlsen 87 84 G F Evans 72 60 J L Smith (appointed 3 August 2006) 66 – S R Tindall 66 60 Total non executive directors remuneration 566 429

In addition to the remuneration stated above R L Challinor also retains 11,000 share options granted on 16 April 2003 as part of the 2003 share option plan (refer note 27). During the year a Committee of Independent Directors was formed to respond to matters arising from potential transactions concerning the acquisition of substantial shareholdings in the group. The members of the Committee of Independent Directors R L Challinor – Chairman ($30,000), J C Dahlsen ($7,500), G F Evans ($7,500) and J L Smith ($3,000) received additional remuneration for this work not included in the remuneration stated above. This additional remuneration and other attributable expenses (total costs $294,000) incurred responding to information requests connected with the potential transaction were reimbursed by the consortium proposing the transaction. The consortium leading the proposal was comprised of Director, S R Tindall and Paciﬁc Equity Partners.

Executive directors: I R Morrice received the following remuneration in his capacity as an Executive Director and Chief Executive Ofﬁcer of the group.

GROUP GROUP

2007 2006 $ 000 $ 000

Base Salary 1,365 1,300 Annual performance based payments 878 696 Total 2,243 1,996

The remuneration stated above represents the salary and incentives received by I R Morrice during the financial year. The performance based payments relate to the current first half year and previous year’s second half performance. I R Morrice also received additional remuneration of $1,665,000 as a special non-recurring incentive payment, which became payable on the achievement of certain specified performance hurdles agreed at the commencement of his employment with the group in 2004. In the comparative 2006 year I R Morrice received additional remuneration of $350,000 in compensation for loss of benefits as a result of foregoing a long term incentive plan with his previous employer. The details of ‘award shares’ and ‘performance shares’ granted to I R Morrice in accordance with the Executive Share Scheme (refer note 28) are detailed below. The fair value of the “performance shares” and “award shares” are not included in the remuneration stated above.

NUMBER OF NUMBER OF RIGHT RIGHTS RIGHTS RIGHTS RIGHTS RIGHTS VALUE 2006 ISSUED EXERCISED LAPSED 2007 GRANT DATE EXPECTED VESTING DATE $ 000s 000s 000s 000s 000s

Performance shares 06/10/2005 17/10/2008 (target price $4.77) 1.68 99,624 – – – 99,624 16/04/2007 16/10/2009 (target price $8.14) 3.75 – 60,847 – – 60,847 Award shares 06/10/2005 20/10/2006 3.78 46,491 – (43,005) (3,486) – 06/10/2005 19/10/2007 3.65 46,491 – – (3,486) 43,005 06/10/2005 17/10/2008 3.51 46,491 – – (3,486) 43,005 16/04/2007 12/10/2007 8.03 – 28,395 – – 28,395 16/04/2007 17/10/2008 7.88 – 28,395 – – 28,395 16/04/2007 16/10/2009 7.74 – 28,395 – – 28,395 Total conditional share rights 239,097 146,032 (43,005) (10,458) 331,666

I Tsicalas was an Executive Director and Chief Executive Ofﬁcer of The Warehouse Australia for the ﬁrst four months of the 2006 comparative year. During that period he received a remuneration of $449,000.

Page 52 8. Income taxation expense

GROUP GROUP PARENT PARENT

2007 2006 2007 2006 NOTE $ 000 $ 000 $ 000 $ 000

Operating surplus before income taxation 169,413 55,741 99,996 44,288

Taxation calculated at 33% 55,906 18,395 32,999 14,615 Effect of change in taxation rate on future timing differences 46 – – – Prima facie income taxation 55,952 18,395 32,999 14,615 Adjusted for the taxation effect of Non taxable dividends – (115) (33,000) (14,618) Non deductible costs associated with the Australian asset disposal (1,960) 8,069 – – Other non deductible expenditure 744 1,309 – – Share of associates tax paid earnings (1,043) (1,385) – – Section DF7 notional interest on staff share purchase plan (3) (19) – – Income taxation expense on operating surplus 53,690 26,254 (1) (3) Income tax over provided in prior year (53) (89) – – Total income taxation expense 53,637 26,165 (1) (3)

Total income taxation expense comprises Current year income taxation payable 9 55,535 9,266 (1) (3) Deferred taxation 10 (1,898) 16,899 – – Total income taxation expense 53,637 26,165 (1) (3)

9. Income taxation

Taxation receivable at beginning of year 37,610 23,125 8,908 7,291 Current year income taxation payable 8 (55,535) (9,266) 1 3 Net taxation paid 17,537 20,733 – – Supplementary dividend taxation credit 1,316 1,614 1,316 1,614 Other adjustments 1,490 2,313 (8,887) – Taxation effect of movements in the translation reserve 23 – (909) – – Taxation receivable at end of year 2,418 37,610 1,338 8,908

Imputation credit account Memorandum account Imputation credit at beginning of year 136,459 130,060 61 61 Taxation payments made 11,000 20,496 – – Credits attached to dividends paid (25,379) (21,817) (25,379) (21,817) Credits attached to dividends received 132 3,695 49,254 21,817 Other adjustments 1,507 4,025 – – Imputation credit at end of year 123,719 136,459 23,936 61

New Zealand taxation group Certain group subsidiary companies form a consolidated group for income tax purposes. The group imputation credit account movements reported above are for the tax group only, and are available to shareholders through their shareholding in the parent company.

Celebrating 25 Years // Page 53 Notes to the Financial Statements – continued FOR THE YEAR ENDED 29 JULY 2007

10. Deferred taxation

GROUP GROUP

2007 2006 NOTE $ 000 $ 000

Deferred taxation at beginning of year 11,255 28,154 Recognised in the statement of ﬁnancial performance 8 1,898 (16,899) Deferred taxation at end of year 13,153 11,255

Deferred taxation asset consists of: Depreciation differences 2,314 2,186 Inventory differences 5,420 2,905 Holiday pay and other payroll related accruals 6,165 5,973 Provisions and other timing differences (746) 191 Total deferred taxation 13,153 11,255

11. Receivables

Current Trade receivables 18,051 14,307 Provision for doubtful debts (578) (759) Net trade receivables 17,473 13,548 Prepaid expenses and interest 8,033 4,928 Employee share purchase plan advances 29 24 285 Advance to subsidiary company – – Total current receivables 25,530 18,761

The parent company had advances owing from subsidiary companies of $247.772 million (2006: $167.826 million).

12. Inventory

Retail stock 219,863 212,043 Goods in transit from overseas 34,907 35,484 Total inventory 254,770 247,527

In some instances where goods have been purchased locally, the supplier retains title to the goods until payment has been made. No inventories have been speciﬁcally or separately pledged as security for any liabilities.

Goods in transit Goods in transit from overseas are recognised when title to the goods is passed to the group. Title to the goods is passed when valid documents (which usually include a ‘bill of lading’) are received, and terms, as set out in a supplier’s letter of credit or in the supplier’s terms of trade, are met.

Page 54 13. Investments

GROUP GROUP

2007 2006 NOTE $ 000 $ 000

Balance at beginning of year 4,889 10,378 Share of associates surplus before taxation 4,755 6,123 Less taxation (1,593) (1,925) Equity earnings of associate 3 3,162 4,198 Distributions received – (9,687) Balance at end of year 8,051 4,889

The Warehouse Financial Services Limited The group has a 49% interest, and Westpac Holdings-NZ-Limited a 51% interest in The Warehouse Financial Services Limited. There have been no changes in the shareholders or the percentage shareholdings since formation in July 2001. The Warehouse Financial Services Limited offers consumer credit and risk related products that include credit cards and basic insurance cover. The products and services are sold through The Warehouse stores as well as by direct mail and over the telephone. The balance date of The Warehouse Financial Services Limited is 30 September. The share of associate earnings is based on both audited ﬁnancial statements for the year ended 30 September 2006 and unaudited management accounts for the ten month period ended 31 July 2007.

The parent company has an investment in subsidiaries of $42.0 million (2006: $42.0 million).

SHAREHOLDING 2007 2006 SIGNIFICANT SUBSIDIARIES COMPRISE: PRINCIPAL ACTIVITY COUNTRY OF INCORPORATION % %

Guaranteeing subsidiaries The Warehouse Limited Retail New Zealand 100 100 TWGA Pty Limited Investment Australia 100 100 TWL Australia Pty Limited Investment Australia 100 100 Warehouse Stationery Limited Retail New Zealand 100 100 The Warehouse Nominees Limited Investment New Zealand 100 100 Eldamos Investments Limited Store property owner New Zealand 100 100 Waikato Valley Chocolates Limited Chocolate factory New Zealand 50 50 The Warehouse Management Trustee Company Limited Share plan trustee New Zealand 100 100 Non guaranteeing joint venture The Base Te Rapa Limited (sold 26 July 2007) Property development New Zealand – 50

All subsidiaries have the same balance date as the group.

Celebrating 25 Years // Page 55 Notes to the Financial Statements – continued FOR THE YEAR ENDED 29 JULY 2007

14. Provisions

WARRANTY WARRANTY ONEROUS PROVISIONS PROVISIONS LEASE TOTAL TOTAL 2007 2006 2006 2007 2006 NOTE $ 000 $ 000 $ 000 $ 000 $ 000

Value at beginning of year 20,142 – 5,277 20,142 5,277 Additional provision 34 – 20,926 – – 20,926 Release of surplus provision (5,939) – – (5,939) – Amounts settled (1,728) (380) (3,750) (1,728) (4,130) Liabilities transferred as part of Australian asset disposal 2,192 (3,186) (1,410) 2,192 (4,596) Effect of exchange rate movements – 2,782 (117) – 2,665 Provisions at end of year 14,667 20,142 – 14,667 20,142

Represented by: Current 15 7,366 2,494 – 7,366 2,494 Non-current 7,301 17,648 – 7,301 17,648 Total provisions 14,667 20,142 – 14,667 20,142

Warranty provision In November 2005 the group sold the assets of The Warehouse Australia discontinued business. As part of the sale the group agreed to indemnify the buyer of the business assets against potential losses associated with six specified property leases which were assigned to the buyer. The amount of the losses which can be claimed by the buyer in respect of these leases was capped in the sale and purchase agreement. The initial provision recorded at the time of the sale represented the full amount which could be claimed. During 2007 both parties agreed to an early settlement of three of the specified property leases. The settlement resulted in the group receiving a net payment of $1.663 million which included a recovery of $2.192 million in respect of excess provisions included in the net assets sold. The buyer must notify the group of any claim against the remaining three properties leases before the expiry of certain specified dates. The last date under which the buyer can make a lease warranty claim is December 2011. The sale and purchase agreement also contains general warranty provisions in respect of the assets sold. General warranty claims made by the buyer must be claimed by September 2007. The group has provided for general warranty claims based on the group’s assessment of claims which are anticipated could arise. During the 2007 and 2006 financial years the group has worked with the buyer to settle a number of the product and public liability claims which have arisen.

Onerous leases At the commencement of the 2006 comparative year, the group had onerous lease provisions in respect of four store leases in the discontinued Australia business and one store lease in New Zealand. The group was able to negotiate a settlement agreement with the landlord of the New Zealand store and the landlord of one of the stores in Australia to discharge the future lease obligations during the 2006 ﬁnancial year. The provisions relating to the three remaining Australian stores and were included as an adjustment to working capital included as part of the sale of The Warehouse Australia’s business assets.

15. Payables and accruals

GROUP GROUP

2007 2006 NOTE $ 000 $ 000

Trade creditors 91,681 96,847 Goods in transit creditors 13,002 21,966 Accrued staff entitlements 30,643 34,812 Provisions 14 7,366 2,494 Property development payables 282 2,282 Total creditors and accruals 142,974 158,401

Trade creditor terms are between 7-90 days.

Page 56 16. Property, plant and equipment

STORE FITTINGS FREEHOLD FREEHOLD AND COMPUTER WORK IN LAND BUILDINGS EQUIPMENT EQUIPMENT VEHICLES PROGRESS TOTAL NOTE $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000

Carrying amount at beginning of year, comprising Cost 68,109 129,400 302,667 109,990 6,160 21,984 638,310 Accumulated depreciation – (10,116) (182,085) (85,073) (4,561) – (281,835) Book value 2005 68,109 119,284 120,582 24,917 1,599 21,984 356,475

Additions 631 21,668 29,046 13,584 1,289 (9,889) 56,329 Disposals (694) (2,953) (1,884) (150) (128) – (5,809) Australian asset disposal 34 (3,637) (8,337) (42,266) (7,826) (349) – (62,415) Reclassiﬁcation (2,573) 2,573 – – – – – Depreciation – (2,737) (24,890) (7,755) (600) – (35,982) Effect of exchange rate movements (169) (389) (2,018) (380) (17) – (2,973) Movement for the year (6,442) 9,825 (42,012) 2,527 195 (9,889) (50,850)

Carrying amount at beginning of year, comprising Cost 61,667 141,607 227,118 91,355 3,403 12,095 537,245 Accumulated depreciation – (12,498) (148,548) (68,965) (1,609) – (231,620) Book value 2006 61,667 129,109 78,570 22,390 1,794 12,095 305,625

Additions 5,744 5,465 28,281 21,186 167 (2,338) 58,505 Disposals (2,130) (1,044) (1,027) (82) (112) – (4,395) The Base Te Rapa joint venture disposal 33 – (19,164) (8) – – – (19,172) Depreciation 4 – (2,870) (22,265) (9,766) (508) – (35,409) Movement for the year 3,614 (17,613) 4,981 11,338 (453) (2,338) (471)

Carrying amount at end of year, comprising Cost 65,281 126,102 253,092 112,211 2,835 9,757 569,278 Accumulated depreciation – (14,606) (169,541) (78,483) (1,494) – (264,124) Book value 2007 65,281 111,496 83,551 33,728 1,341 9,757 305,154

Property valuation The directors, having taken into consideration purchase offers, independent and government valuations and other known factors, have assessed the fair value of freehold land and buildings to be $277.602 million (2006: $250.350 million). The directors’ valuation was approved by the Board on 6 September 2007.

CARRYING AMOUNT DIRECTORS VALUATION

2007 2006 2007 2006 $ 000 $ 000 $ 000 $ 000

Freehold land and buildings Support ofﬁces 13,987 14,112 26,500 26,500 Distribution centres 43,976 43,801 96,000 60,000 Stores 81,924 84,796 92,550 93,050 Development assets and tenanted property 36,890 48,067 62,552 70,800 Total freehold land and buildings 176,777 190,776 277,602 250,350

Stores comprise eight stores located throughout New Zealand. Development assets include four Auckland properties and properties at Gisborne and Timaru.

Property Caveat The group has development land in Manukau which can be repurchased for its carrying value of $10.955 million if the group does not perform certain speciﬁed development works.

Celebrating 25 Years // Page 57 Notes to the Financial Statements – continued FOR THE YEAR ENDED 29 JULY 2007

17. Commitments

GROUP GROUP

2007 2006 $ 000 $ 000

Lease commitments The group has the following non-cancellable operating lease commitments which relate to leases of stores and distribution centres:

Due within one year 53,439 54,317 Due within one to two years 48,162 48,513 Due within two to ﬁve years 98,671 107,832 Due after ﬁve years 56,584 78,323 Total lease commitment 256,856 288,985

Capital commitments Contracts entered into for capital expenditure within the next twelve months which have not been provided for in the statement of ﬁnancial position 6,540 13,930

The commitments at balance date comprise the completion of certain information system development projects ($2.776 million) and three store reﬁts and a store extension. The parent company had no capital or lease commitments (2006: nil).

18. Borrowings

GROUP UNUSED FACILITY FACILITY LIMIT

2007 2006 2007 2006 2007 2006 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000

Bank overdraft 905 184 Repayable within one year – 9,600 Current borrowings and overdrafts 905 9,784 84,095 75,216 85,000 85,000 Repayable within one to two years 120,000 – 85,000 35,000 205,000 35,000 Repayable within two to ﬁve years – 120,000 – 96,622 – 216,622 Non-current borrowings 120,000 120,000 85,000 131,622 205,000 251,622 Borrowings – secured Repayable within two to ﬁve years – 7,081 – 6,419 – 13,500 Total borrowings and overdrafts 120,905 136,865 169,095 213,257 290,000 350,122

Letters of credit 17,254 15,470 33,000 40,000 Total facility 186,349 228,727 323,000 390,122

Borrowings have been aged in accordance with the bank facilities under which the funds have been drawn. All borrowings are drawn down by way of short term bills at interest rates current at draw down date.

Bank overdrafts The average overdraft interest rate incurred for the year was 9.56% (2006: 9.17%). The bank overdraft is set off against cash balances pursuant to the right of set off arrangement with the bank.

Negative pledge deed Bank borrowings are subject to a negative pledge deed. The negative pledge deed provides a guarantee to the group’s banking institutions that the parent and its guaranteeing group companies (refer note 13) will comply with certain quarterly debt ratios and restrictive covenants. The principal covenants of the negative pledge are: (a) the group gearing ratio will not exceed 60.0% in the October ﬁrst quarter or exceed 50% for the remaining three quarter’s of the year (b) the interest cover ratio for the group will not be less than 2 times (c) the total tangible assets of the guaranteeing group will constitute at least 90% of the total tangible assets of the group The group was in compliance with the negative pledge covenants throughout the 2007 ﬁnancial year. During 2006 the group sought and was given a waiver from compliance with the negative pledge covenants for the second and third quarters of the year. The loss incurred on the disposal of the business assets of The Warehouse Australia caused the group to be unable to meet the negative pledge covenants during this period.

Page 58 18. Borrowings (continued)

Secured borrowings The secured borrowings related to the group’s interest in ‘The Base Te Rapa Limited’ joint venture which was sold in July 2007. The borrowings of the joint venture were secured by ﬁrst mortgage over certain assets of the joint venture. These borrowings were repaid in full when the joint venture interests were sold. The groups share of total tangible assets of the joint venture at the 2006 balance date was $16.688 million.

Interest rate repricing periods

WEIGHTED NOTIONAL PRINCIPAL OF AVERAGE EFFECTIVE GROUP INTEREST RATE SWAPS INTEREST RATE

2007 2006 2007 2006 2007 2006 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000

Borrowings Reprices within six months 20,000 86,681 – – 8.59 7.79 Reprices within one to two years 30,000 – 30,000 – 6.95 – Reprices within two to ﬁve years 40,000 50,000 40,000 50,000 7.05 6.91 Reprices within ﬁve to ten years 30,000 – 30,000 – 7.01 – Total borrowings 120,000 136,681 100,000 50,000 7.27 7.47

Bank overdraft 905 184 Total borrowings and overdrafts 120,905 136,865

Interest rates Certain borrowings have been paired with interest rate swaps to hedge interest rate risk. The effect of the interest rate swaps are included in the calculation of the effective interest rate and repricing periods. Where the group has extended the repricing period by entering into a second interest rate swap commencing from end of an earlier maturing contract, the effective interest rate and notional principal have been disclosed as if they were a single contract.

19. Cash balances

GROUP GROUP PARENT PARENT

2007 2006 2007 2006 $ 000 $ 000 $ 000 $ 000

Cash on hand and at bank 15,559 16,791 1,066 930 Deposits at call (interest rate: 8.25% – 2006: 5.65%) 62,350 4,652 – – Total cash 77,909 21,443 1,066 930

Cash on hand and at bank includes EFTPOS transactions which have not been cleared by the bank until the day following balance date. The timing of the end of the ﬁnancial year means three days (2006: three days) EFTPOS sales remain in transit at balance date.

20. Share capital

GROUP ORDINARY SHARES

2007 2006 2007 2006 NOTE $ 000 $ 000 $ 000 $ 000

Share capital at beginning of year 218,976 218,976 305,489 305,489 2003 Employee share options exercised at $5.36 per share (net of issuance costs) 27 15,863 – 2,979 – 2004 Employee share options exercised at $4.38 per share (net of issuance costs) 27 10,853 – 2,494 – Share capital at end of year 245,692 218,976 310,962 305,489

All ordinary shares have equal voting rights and share equally in dividends and surplus on winding up.

Share restrictions The share plan trustee holds 35,000 shares (2006: 343,000 shares) allocated to team members purchasing shares in accordance with the group’s share purchase plans. The trading restrictions placed on these shares are detailed in note 29.

Celebrating 25 Years // Page 59 Notes to the Financial Statements – continued FOR THE YEAR ENDED 29 JULY 2007

21. Treasury stock

GROUP ORDINARY SHARES

2007 2006 2007 2006 NOTE $ 000 $ 000 000s 000s

Treasury stock at beginning of year 7,628 7,050 1,758 1,602 Share issued to satisfy executive share scheme obligations 22, 28 (1,628) – (249) – Shares purchased on market in accordance with the requirements of the executive share scheme 8,677 – 1,271 – Shares forfeited under the staff share purchase plan 29 22 578 5 156 Treasury stock at end of year 14,699 7,628 2,785 1,758

Ordinary shares held by the trustee of the share purchase plan Unallocated treasury stock 2,785 1,758 Allocated to staff share purchase plan 29 35 343 Total ordinary shares held by the trustee 2,820 2,101

Percentage of share capital 0.91% 0.69%

Shares held by the trustee are fully paid and carry the same voting rights as other issued ordinary shares. Voting rights attached to the shares are held by the trustee, and dividends paid on unallocated shares are retained by the trustee for the beneﬁt of the group. The directors may appoint or remove any trustee by directors’ resolution.

22. Employee equity-settled beneﬁts reserve

GROUP

2007 2006 NOTE $ 000 $ 000

Employee equity-settled beneﬁts reserve at beginning of year 990 – Share plan amortisation 1,868 990 Transfer from treasury stock 21 (1,628) – Transferred to retained earnings 24 740 – Employee equity-settled beneﬁts reserve at end of year 1,970 990

The employee equity settled benefits reserve arises on the grant of rights to ‘performance shares’ and ‘award shares’ under the executive share scheme. The fair value of share rights granted is recognised as an employee benefit expense with a corresponding increase in the reserve. At each balance sheet date, the group revises its estimate of the number of share rights that are expected to become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate. Upon the exercise of the share rights, the balance of the employee equity settled benefits reserve relating to the share rights is offset against the cost of treasury stock allotted to settle the employee commitment, with any difference in cost of settling the commitment transferred to retained earnings. Further information about these share based payments to employees is detailed in note 28.

23. Foreign currency translation reserve

GROUP

2007 2006 NOTE $ 000 $ 000

Foreign currency translation reserve at beginning of year (3,068) (2,862) Exchange difference on translation of overseas subsidiaries – (5,471) Effect of hedging the net investment of overseas subsidiaries – 3,205 Taxation effect of movements in the translation reserve 9 – (909) Transferred to retained earnings 24 3,068 2,969 Foreign currency translation reserve at end of year – (3,068)

Following the substantial completion of the disposal of Australian business assets the group changed the classiﬁcation of the Australian operations from independent to integrated.

Page 60 24. Retained earnings

GROUP GROUP PARENT PARENT

2007 2006 2007 2006 NOTE $ 000 $ 000 $ 000 $ 000

Retained earnings at beginning of year 124,647 142,595 688 693 Net surplus attributable to parent shareholders 115,474 29,317 99,997 44,291 Dividends paid to parent shareholders 25 (54,201) (44,296) (54,201) (44,296) Treasury stock dividends received 435 – – – Transferred from employee equity-settled beneﬁts reserve 22 (740) – – – Transferred from translation reserve 23 (3,068) (2,969) – – Retained earnings at end of year 182,547 124,647 46,484 688

25. Dividends

GROUP & PARENT CENTS PER SHARE

2007 2006 2007 2006 NOTE $ 000 $ 000

First half year – current year 37,265 32,076 12.0 cps 10.5 cps Second half year – previous year 16,936 12,220 5.5 cps 4.0 cps Total dividends paid 24 54,201 44,296 17.5 cps 14.5 cps

All dividends paid were fully imputed. Supplementary dividends of $1.316 million (2006: $1.614 million) were paid.

Dividend policy The group has a policy of paying 50% of the net surplus attributable to shareholders back to shareholders in the form of ordinary dividends. The board declares two dividends annually in respect of the half year and full year results. The dividends declared in respect of the net surplus relating to the second half of the year, are accounted for in the year they are paid. The declared dividend payout ratio for the year is 55.6% after adjustment for the sale of ‘The Base’ Te Rapa and the release of provisions relating to the divestment of The Warehouse Australia (2006: 50.5% after adjustment for the divestment of The Warehouse Australia).

GROUP & PARENT CENTS PER SHARE

2007 2006 2007 2006 NOTE $ 000 $ 000

Dividends declared, in respect of: First half year – current year 37,265 32,076 12.0 cps 10.5 cps Second half year – current year 17,103 16,936 5.5 cps 5.5 cps Sub total 54,368 49,012 17.5 cps 16.0 cps Special dividend 108,837 – 35.0 cps – Total dividends declared 163,205 49,012 52.5 cps 16.0 cps

Subsequent event On 6 September 2007 the directors declared a second half dividend of 5.5 cents per ordinary share and a special dividend of 35.0 cents per share. Both dividends will be paid on 28 September 2007 to all shareholders on the group’s share register at the close of business on 21 September 2007.

26. Minority Interest

GROUP

2007 2006 $ 000 $ 000

Minority interest at beginning of year 279 222 Net surplus attributable to minority interest 302 259 Dividends paid to minority shareholders (286) (202) Minority interest at end of year 295 279

Celebrating 25 Years // Page 61 Notes to the Financial Statements – continued FOR THE YEAR ENDED 29 JULY 2007

27. Share Option Plan

NUMBER OF NUMBER OF OPTION EXERCISE OPTIONS OPTIONS OPTIONS OPTIONS OPTIONS VALUE PRICE 2006 ISSUED EXERCISED LAPSED 2007 GRANT DATE EXERCISE PERIOD $ $ 000s 000s 000s 000s 000s

Share option plan 16/04/2003 16/03/2006 – 16/03/2008 (target price $6.52) 0.91 5.36 3,210 – (2,979) (86) 145 16/03/2004 16/03/2007 – 16/03/2009 (target price $5.12) 0.76 4.38 3,400 – (2,494) (272) 634 Total share options 6,610 – (5,473) (358) 779

(Refer Note 20)

Share option plan In accordance with the share option plan approved by shareholders at a special general meeting held in March 2003, two tranches of share options were granted to team members in 2003 and 2004. The share options can only be exercised when the share price exceeds the target price during the exercise period, and is further restricted to the share trading period detailed in the group’s ‘insider trading policy’ (refer Corporate Governance page 76). The exercise price for the share options was set ‘at the money’ on grant date. The target price for the plan was calculated using the weighted average market price of the group’s share price over the ten share trading days prior to grant date, increased by the group’s estimated cost of equity (after adjusting for dividends) between the grant date and earliest exercise date. The estimated cost of equity was independently determined by external advisors and approved by the directors prior to the share options being granted. On 6 September 2007 the Directors declared a special dividend of 35 cents per share (refer note 25). To compensate team members for the dilutive effect of the special dividend the Remuneration Committee are considering amending both the target price and exercise price of unexercised share options. If approved these amendments would ensure the fair value of the share options remain unchanged once the shares are ex-dividend.

Option value The option value of the share options at grant date were independently estimated using the Black-Scholes option pricing model and used to determine the number of share options allocated to individual team members. At year end 94 (2006:304) current and former team members held share options. The scheme committee granted dispensation for the former Australian team members of the discontinued business to retain their share options while they remain employees with their new employer.

28. Executive Share Scheme

NUMBER OF NUMBER OF RIGHT RIGHTS RIGHTS RIGHTS RIGHTS RIGHTS VALUE 2006 ISSUED EXERCISED LAPSED 2007 GRANT DATE EXPECTED VESTING DATE $ 000s 000s 000s 000s 000s

Performance shares 06/10/2005 17/10/2008 (target price $4.77) 1.68 454 – (21) (78) 355 16/04/2007 16/10/2009 (target price $8.14) 3.75 – 339 – (34) 305 Award shares 06/10/2005 20/10/2006 3.78 211 – (182) (29) – 06/10/2005 19/10/2007 3.65 212 – (23) (45) 144 06/10/2005 17/10/2008 3.51 212 – (23) (45) 144 16/04/2007 12/10/2007 8.03 – 158 – (15) 143 16/04/2007 17/10/2008 7.88 – 158 – (15) 143 16/04/2007 16/10/2009 7.74 – 158 – (16) 142 Total conditional share rights 1,089 813 (249) (277) 1,376

(Refer Note 21)

Page 62 28. Executive Share Scheme (continued)

Executive share scheme In November 2004 shareholders approved the establishment of an Executive Share Scheme. The executives who are nominated to participate in the scheme are offered conditional rights to be allocated and transferred shares which are termed “performance shares” and/or rights to shares which are termed “award shares”. Performance shares convert into ordinary shares at the end of the vesting period if the group’s share price exceeds the speciﬁed target price. The target price is calculated using the same method used to determine the target price for the group’s share option plan referred to in note 27. The Remuneration Committee is considering amending the target price of unexercised performance shares to compensate team members for the dilutive effect of the special dividend declared on 6 September 2007 as mentioned above. If approved the amendment is designed to ensure the fair value of the performance shares remain unchanged once the shares are ex-dividend. Award shares convert into ordinary shares upon the satisfaction of certain company performance targets and individual targets set for each executive member during the initial vesting period. The amount of ordinary shares which are allocated is determined by reference to the percentage achievement of these targets with one third of the allocated shares being transferred to the executive member at the end of the initial vesting period if minimum threshold performance targets have been achieved. The executive member is transferred a further third of the allocated shares at the end of each of the next two vesting dates providing the executive member has maintained continuous employment with the group.

Right value The value of performance shares at grant date has been independently estimated using an average of the outcomes using the Binomial Options Pricing Model and a Monte Carlo simulation. The value of award shares is the present value of the rights at grant date discounted using the group’s estimated cost of equity (after adjusting for dividends). At year end 42 (2006:36) executive members held conditional share rights.

29. Share Purchase Plan

NUMBER OF NUMBER OF ISSUE SHARES SHARES SHARES SHARES SHARES PRICE 2006 ALLOCATED REDEEMED FORFEITED 2007 GRANT DATE EXPECTED VESTING DATE $ 000s 000s 000s 000s 000s

Staff share purchase plan 18/05/2001 18/05/2004 – 18/05/2006 4.04 34 – (25) (1) 8 24/05/2002 24/05/2005 – 24/05/2007 4.90 309 – (278) (4) 27 343 – (303) (5) 35

(Refer Note 21)

Staff share purchase plan The Warehouse Management Trustee Company acts as trustee for the team members share purchase plan. At regular intervals the trustee offers shares to those permanent team members of the group with service in excess of 750 hours per year. The shares are usually offered at a discount ranging from 15% to 30% of market price. Team members accepting the share offer are provided financial assistance on an interest free basis, payable over five years in regular instalments. Dividends paid on the allocated shares during the qualifying period are paid to team members. Shares are offered to team members in accordance with Section DF7 of the New Zealand Income Tax Act 1994 to a maximum consideration of $2,340 per team member in any three year period. The qualifying period between grant and vesting date is a minimum of three to a maximum of five years. If a team member leaves the group before the three year qualifying period ends the shares are repurchased by the trustee at the lesser of the market price and the price at which the shares were offered. The trustee may at its discretion extend the qualifying period for individual team members and suspend loan repayments for a period of time in the case of hardship or when a team member is on maternity leave.

Celebrating 25 Years // Page 63 Notes to the Financial Statements – continued FOR THE YEAR ENDED 29 JULY 2007

30. Financial Instruments

Interest rate risk The group manages its interest rate risk by using interest rate swaps and forward rate agreements to hedge ﬂoating rate borrowings. The directors regularly review the amount and the mix of interest rate derivatives used for hedging purposes.

Currency risk The group maintains an off-balance sheet portfolio of forward exchange contracts and currency options to reduce the currency risks associated with purchasing goods in foreign currencies. The group’s overseas purchases are principally denominated in US dollars. The group hedging policy parameters of forecasted future US dollar exposure are: U 0 to 6 months hedge 40% to 100% of the forecasted US dollar commitments U 6 to 12 months 0% to 85% of the forecasted US dollar commitments When the US dollar is trading at historically high levels the policy provides discretion to extend the hedging time horizon beyond 12 months, allowing hedging levels up to 70% of the 12 to 36 month forecasted US dollar exposure. Foreign currency hedging which extends beyond a 12 month time horizon requires the approval of the group’s Chief Executive Officer. No foreign currency hedging has been undertaken during the year which extended beyond 12 months. Where specific currency exposures are known the group specifically hedges these risks as they arise. Treasury management of foreign currency and interest rate risk is reported to the directors at each board meeting.

GROUP

2007 2006 $ 000 $ 000

Foreign currency portfolio Foreign currency options – 13,057 Forward exchange contracts 160,882 198,858 Total contract amounts 160,882 211,915

Credit risk Financial instruments that potentially subject the group to credit risk consist principally of bank balances, off balance sheet financial instruments, receivables and advances. The group’s deposits and off balance sheet financial instruments are placed only with major banks within limits approved by the directors. Team members advanced funds to purchase shares in accordance with the share purchase plan, are not given the shares until the advances are fully repaid. Agreements for the sale of property are entered into only with parties of high credit quality, and title and possession do not pass until settlement. The group performs credit evaluations on customers requiring credit but generally does not require collateral. Concentrations of credit risk with respect to trade receivables are limited due to the minor nature and spread of such accounts. There were no other significant concentrations of credit risk at balance date.

The Warehouse Financial Services Limited The group’s associate company, The Warehouse Financial Services Limited, offers consumer credit to customers who potentially expose the group to an indirect credit risk. The amount of capital invested by both parties, and the level of bad debt provisions maintained by the associate are determined in accordance with Westpac Banking Corporation standards. The directors are satisﬁed that these standards are appropriate for the nature and performance of the business, and that the bad debt provisions are adequate to meet expected credit losses.

GROUP GROUP PARENT PARENT

2007 2006 2007 2006 NOTE $ 000 $ 000 $ 000 $ 000

Maximum exposures to credit risk at balance date are: Cash, bank in funds and deposits 19 77,909 21,443 1,066 930 Trade receivables and intercompany advances 11 17,473 13,548 247,772 167,826 Employee share purchase plan advances 11 24 285 – – Investment in associate 13 8,051 4,889 – – Total exposure to credit risk 103,457 40,165 248,838 168,756

Page 64 30. Financial Instruments (continued)

Fair values Except for the group’s off-balance sheet ﬁnancial instruments and the staff share purchase plan advances the fair value of the group’s ﬁnancial instruments do not differ from their carrying values.

GROUP CARRYING AMOUNT GROUP FAIR VALUE

2007 2006 2007 2006 $ 000 $ 000 $ 000 $ 000

Off-balance sheet ﬁnancial instruments Asset / (Liability) Foreign currency options – – – (166) Forward exchange contracts – – (17,973) 9,427 Interest rate swaps and forward rate agreements (176) (48) 4,057 693 Electricity contracts for difference – – (340) (342)

The fair value of the interest rate derivatives and foreign exchange derivatives are based on the quoted market price of the financial instrument or comparable financial instruments. The carrying value of interest rate derivatives represents the accrued interest on these instruments. The carrying value of currency options represents the unamortised option premium spread over the period from inception to the exercise date. It was not practicable to estimate the fair value of the staff share purchase plan advances as there is no market for the advances and the timing of repayment is uncertain. The parent has no off-balance sheet financial instruments.

31. Contingent Liabilities

GROUP GROUP

2007 2006 $ 000 $ 000

Bank letters of credit issued to secure future purchasing requirements 13,038 20,731 Bank guarantees provided to land lords and the New Zealand Stock Exchange Limited 558 744 Lease disputes 300 250 Product liabilities 1,000 1,000 Total contingent liabilities 14,896 22,725

Contingent liabilities Bank letters of credit issued to secure future purchasing requirements are matched to a contingent asset of the same value representing the inventories purchased. No settlement relating to bank guarantees has occurred since their inception and any future outﬂow is unlikely. Other contingent liabilities arise in the ordinary course of business. The likelihood and value of any future outﬂow relating to these liabilities is uncertain.

The Warehouse Financial Services Limited The Group has a 49% interest, and Westpac Holding-NZ-Limited a 51% interest in The Warehouse Financial Services Limited. The Commerce Commission has issued civil proceedings against Visa, Mastercard and 11 financial institutions including The Warehouse Financial Services Limited for alleged price-fixing in relation to credit card interchange fees. Further to the Commerce Commission’s allegations, a group of retailers has also brought an action against the same financial institutions seeking damages for the alleged price fixing of the credit card interchange fees. At this time it is not possible to quantify the amount of the liability, if any, that may arise out of these proceedings. No provision has been recognised in the accounts for this potential liability.

Celebrating 25 Years // Page 65 Notes to the Financial Statements – continued FOR THE YEAR ENDED 29 JULY 2007

31. Contingent Liabilities (continued)

The Warehouse Australia In November 2005 the group sold the assets of The Warehouse Australia discontinued business. As part of the sale the group agreed to indemnify the purchaser against losses associated with the company’s property leases as a consequence of the change of ownership, pre-existing issues regarding the zoning of the properties and general warranty claims under the sale and purchase agreement. Where it is probable that a liability will arise, a provision has been made in the ﬁnancial statements (refer note 14), however there are potentially residual exposures for unknown claims that can not be quantiﬁed.

Money back guarantee The group has a contingent liability for guarantees. The group offers a twelve month money back guarantee on certain goods sold, and any cost of making good a customer’s purchase is accounted for when incurred. The parent company had no contingent liabilities (2006: nil)

32. Trading period In order to align merchandising planning and ﬁnancial management processes within The Warehouse, the group reports its results on a 52 week basis. The current period represents a 364 day period commencing 31 July 2006 to 29 July 2007. Prior year comparative ﬁgures represent a 364 day period commencing 1 August 2005 to 30 July 2006.

33. The Base Te Rapa Limited joint venture disposal

GROUP

2007 NOTE $ 000

Gross consideration 37,350 Working capital adjustment (669) Net proceeds received 36,681

Property, plant and equipment 16 19,172 Working capital (274) Net assets disposed 18,898

Transaction costs and adjustments payable (351) Gain on disposal of ‘The Base’ Te Rapa Limited joint venture 17,432

Taxation (5,753) After taxation gain on disposal of The Base Te Rapa Limited joint venture 11,679

The group sold its 50% joint venture interest in ‘The Base’ Te Rapa retail complex to its joint venture partner, Tainui Group Holdings Limited effective from 26 July 2007. The sale proceeds are subject to a working capital adjustment which will be determined once the disposal accounts have been ﬁnalised. The gain on disposal has been calculated based on pro-forma accounts for the joint venture at the date of disposal as ﬁnal disposal accounts will not be available until early October 2007.

Page 66 34. The Warehouse Australia asset disposal

GROUP

2007 2006 NOTE $ 000 $ 000

Consideration – 98,184 Working capital adjustment – (4,185) Transaction costs – (6,834) Net proceeds received – 87,165

Property, plant and equipment 16 – 62,415 Working capital – 92,625 Net assets disposed – 155,040

Net proceeds received in settlement of warranty claims 14 (464) – Warranty provisions (discharged)/recognised 14 (5,475) 20,926 Gain/(loss) on disposal of the business assets of The Warehouse Australia 5,939 (88,801)

Taxation – 21,235 After taxation gain/(loss) on disposal of the business assets of The Warehouse Australia 5,939 (67,566)

The group sold the business assets of The Warehouse Australia to a jointly owned entity formed by Catalyst Investment Managers Pty Limited and its parent PPM Capital and Castle Harlam Mezzanine Partners Pty Limited effective from 27 November 2005. In two other related property sales the group sold The Warehouse Australia Sydney Head Ofﬁce and a store in Moe Victoria as part of the combined sale. The sale was subject to a number of warranties (refer note 14) which extended over a number of years, the latest of which may not be fully discharged until December 2011. During 2007 both parties agreed to an early settlement of certain sale warranties. As a consequence of settling these warranties the group was able to release surplus provisions held against these speciﬁc warranties. The group also recovered $2.192 million from the purchaser as a working capital adjustment arising from a reduction in the liabilities transferred. This receipt has been netted against the ongoing settlement payments made by the group of sale warranty claims.

35. Related parties The group paid for the following services at normal commercial rates from the legal ﬁrm of Hesketh Henry in which Director, J R Avery was a partner. J R Avery retired as a partner of Hesketh Henry on 1 October 2006.

GROUP

2007 2006 $ 000 $ 000

Hesketh Henry 275 689

K R Smith retired as a partner of BDO Spicers on 31 December 2005. The group paid fees of $83,000 at normal commercial rates to BDO Spicers during the 2006 ﬁnancial year. Directors are entitled to purchase goods at normal staff discount. Other speciﬁc director’s disclosures are made in note 7.

36. Explanation of transition to New Zealand equivalents to IFRS The Warehouse Group Limited will prepare financial statements under the New Zealand equivalent to International Financial Reporting Standards (“NZIFRS”) for the year ending 27 July 2008, including comparative financial information for the year ended 29 July 2007. A project team was established to plan for the transition to NZIFRS and identify the impacts of implementation. This work is now largely complete and has been reported to the audit committee of the board. The project team identified a number of accounting policy changes that are required although, the team have not identified any new issues since those which have been previously reported in the 2006 annual report. The team has prepared a transition balance sheet for the year ended 30 July 2006 in compliance with NZIFRS which details the adjustments which arise on the transition to NZIFRS. A reconciliation of changes between the group’s balance sheet reported under current New Zealand Financial Reporting Standard (“NZ FRS”) and NZ IFRS is detailed on page 68.

Celebrating 25 Years // Page 67 Notes to the Financial Statements – continued FOR THE YEAR ENDED 29 JULY 2007

36. Explanation of transition to New Zealand equivalents to IFRS (continued)

Reconciliation of equity reported under current NZ FRS to equity under New Zealand equivalents to IFRS (NZ IFRS).

EFFECT OF TRANSITION TO NZ IFRS FINANCIAL SHARE BASED EMPLOYEE MAKE GOOD SALES RECLASSIFIC- BALANCE SHEET CURRENT INSTRUMENTS ASSOCIATES PAYMENTS BENEFITS COSTS RETURNS ATIONS

NZ FRS (A) (B) (C) (D) (E) (F) (G) NZ IFRS AS AT 30 JULY 2006 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000

ASSETS Current assets Cash and cash equivalents 21,443 – – – – – – – 21,443 Trade and other receivables 18,761 – – – – – – – 18,761 Inventories 247,527 – – – – – – – 247,527 Derivative ﬁnancial instruments – 9,428 – – – – – – 9,428 Taxation receivable 37,610 – – – – – – – 37,610 Total current assets 325,341 9,428 – – – – – – 334,769

Non-current assets Property, plant and equipment 305,625 – – – – – – (15,864) 289,761 Computer software – – – – – – – 15,864 15,864 Investments 4,889 – 857 – – – – – 5,746 Derivative ﬁnancial instruments – 693 – – – – – – 693 Deferred taxation 11,255 (3,172) – – 1,721 701 852 – 11,357 Total non-current assets 321,769 (2,479) 857 – 1,721 701 852 – 323,421 Total assets 647,110 6,949 857 – 1,721 701 852 – 658,190

LIABILITIES Current liabilities Bank overdraft 184 – – – – – – – 184 Trade and other payables 155,907 – – – – – – (27,995) 127,912 Derivative ﬁnancial instruments – 508 – – – – – – 508 Provisions 2,494 – – – – 201 2,582 27,995 33,272 Borrowings 9,600 – – – – – – – 9,600 Total current liabilities 168,185 508 – – – 201 2,582 – 171,476

Non-current liabilities Borrowings 120,000 – – – – – – – 120,000 Borrowings – secured 7,081 – – – – – – – 7,081 Provisions 17,648 – – – 5,215 1,924 – – 24,787 Total non-current liabilities 144,729 – – – 5,215 1,924 – – 151,868 Total liabilities 312,914 508 – – 5,215 2,125 2,582 – 323,344

EQUITY Share capital 218,976 – – – – – – – 218,976 Treasury stock (7,628) – – – – – – – (7,628) Equity-settled employee beneﬁts 990 – – 5,093 – – – – 6,083 Hedge reserve – 6,781 – – – – – – 6,781 Foreign currency translation reserve (3,068) – – – – – – 3,068 – Retained earnings 124,647 (340) 857 (5,093) (3,494) (1,424) (1,730) (3,068) 110,355 Parent shareholders’ interest 333,917 6,441 857 – (3,494) (1,424) (1,730) – 334,567 Minority interest 279 – – – – – – – 279 Total equity 334,196 6,441 857 – (3,494) (1,424) (1,730) – 334,846 Total equity and liabilities 647,110 6,949 857 – 1,721 701 852 – 658,190

Page 68 36. Explanation of transition to New Zealand equivalents to IFRS (continued)

Notes to the reconciliation

REF ITEM NZ FRS NZ IFRS IMPACT DEBIT $000 CREDIT $000

(a) Financial Foreign exchange contracts Foreign exchange contracts Cash flow hedges Instruments Forward exchange contracts In accordance with NZ IAS 39 “Financial Derivative – foreign exchange 9,428 and foreign currency options Instruments” derivatives are initially recognised Derivative – interest rate swap 693 were recognised at the date at fair value on the date a derivative contract the contract was entered, is entered and are subsequently remeasured Deferred taxation 3,340 and exchange gains or losses to fair value at regular intervals. The method of Hedge reserve 6,781 deferred until settlement and recognising the resulting gain or loss depends included in the cost of the on whether the derivative is designated as a Recognise derivative assets of $10.121 million a hedged item. hedging instrument. corresponding deferred tax liability of $3.340 million and Interest rate swaps Prior to the group’s transition to NZIFRS the a credit to the equity hedge reserve of $6.781 million. The fair value of interest rate group designated its portfolio of forward swaps were not recognised exchange contracts and interest rate swaps as on the balance sheet. Net cashflow hedges of future forecast overseas receipts and payments were purchasing requirements; and as hedges recognised as an adjustment of future interest expense commitments to the interest expense. respectively. Cash flow hedges The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in equity in the hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in the income statement. Amounts accumulated in equity are recycled in the income statement in the periods when the hedged item will affect profit or loss (for instance when the forecast interest payment takes place) or when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, inventory), the gains and losses previously deferred in equity are transferred from equity and included in the measurement of the initial cost of the asset.

Electricity contracts for Derivatives that do not qualify for IMPACT DEBIT $000 CREDIT $000 difference hedge accounting Non-compliant hedges Electricity contracts used On transition the group had certain derivative to ﬁx electricity prices were instruments which did not qualify for hedge Derivative – foreign exchange 166 recognised as an expense accounting. Derivative – electricity 342 over the period of usage. The groups electricity “contracts for difference” Deferred taxation 168 and foreign currency options did not meet the Retained earnings 340 strict hedge criteria required to qualify for hedge accounting stipulated in NZ IAS 39. Recognise derivative liabilities of $0.508 million a Changes in the fair value of derivative corresponding deferred tax asset of $0.168 million and a instruments that do not qualify for hedge debit to retained earnings of $0.340 million. accounting are recognised immediately in the income statement.

(b) Associate General provisioning was Investment in The Warehouse Financial IMPACT DEBIT $000 CREDIT $000 used to determine the Services Limited Investments required levels of doubtful Non speciﬁc provisioning for doubtful debt is not debts in the group’s permitted under NZ IFRS. This has resulted in a Investment in Associate 857 associate. reduction in the level of doubtful debt provisions Retained earnings 857 held by the group’s associate and resulting in an increase in the value of the group’s investment Decrease retained earnings and increase investment in in associate. associate by $0.857 million.

(c) Share based Share Options 2003 and 2004 Share Option Plan IMPACT DEBIT $000 CREDIT $000 payments No expense was recognised In accordance with NZ IFRS 2 “Share based Cash flow hedges for fixed price share options payments” the fair value of share options granted granted by the group in are recognised as an employee expense with a Employee benefit reserve 5,093 respect of the 2003 and corresponding increase in equity. The fair value Retained earnings 5,093 2004 share option plans. is measured at grant date and recognised over the period during which the employees become Decrease retained earnings and increase the employee unconditionally entitled to the share options. benefit reserve by $5.093 million. At each balance date, the group revises its estimate of the number of share options that are expected to become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate. Upon the exercise of the share options, the balance of the share-based payments reserve relating to the share options is transferred to share capital.

Celebrating 25 Years // Page 69 Notes to the Financial Statements – continued FOR THE YEAR ENDED 29 JULY 2007

36. Explanation of transition to New Zealand equivalents to IFRS (continued)

Notes to the reconciliation (continued)

REF ITEM NZ FRS NZ IFRS IMPACT DEBIT $000 CREDIT $000

(d) Employee benefits Long Service Leave and In accordance with NZ IAS 19 “Employee Provisions Sick Leave benefits”, the liability for both vested and non- Employee benefit provision 5,215 No expense was recognised vested employee benefits, is recognised in the Deferred taxation 1,721 for employee benefits until financial statements based on the present value the benefits vested. of the expected future obligation. Retained earnings 3,494 Long Service Leave Recognise an additional provision for employee benefits of The liability for long service leave is recognised $5.215 million, a corresponding deferred taxation asset as a provision for employee benefits and of $1.721 million and a decrease to retained earnings measured as the present value of expected $3.494 million. future payments to be made to the employees. Sick Leave A provision for sick leave is recognised for employees with entitlements in excess of one year, where there is a likelihood that the entitlement will be taken.

(e) Make good costs The group has an obligation In accordance with NZ IAS 37 “Provisions”, where IMPACT DEBIT $000 CREDIT $000 to restore certain leasehold an obligation exists to restore leasehold sites to sites to their original their previous condition when the lease expires, Provisions condition when the related a ‘make good’ provision is recognised from the Make good provision 2,125 lease expires. No expense commencement of the lease. The provision is Deferred taxation 701 was recognised for restoring calculated on the basis of the present value of these sites until the costs the expected future make good commitment. Retained earnings 1,424 were incurred. Recognise a provision for make good costs of $2.125 million, a corresponding deferred tax asset of $0.701 million and a decrease to retained earnings $1.424 million.

(f) Sales returns When a customer returns In accordance with NZ IAS 18 “Revenue” where IMPACT DEBIT $000 CREDIT $000 product for a refund the cost products sold to customers have a right of return, of the refund was recognised an estimate for such returns are provided for at Provisions at the time the product was the time of sale based on historical return rates. Sales return provision 2,582 returned. Deferred taxation 852 Retained earnings 1,730

Recognise a provision for sales returns of $2.582 million, a corresponding deferred tax asset of $0.852 million and a decrease to retained earnings $1.730 million.

(g) Reclassifications Computer software was In accordance with NZ IAS 38 “Intangibles” all IMPACT DEBIT $000 CREDIT $000 classified as property, plant computer software assets are reclassified as and equipment. intangible assets. Intangibles Property, plant and equipment 15,864 Intangibles 15,864

Decrease property, plant and equipment and increase intangible assets by $15.864 million.

Translation Reserve Transfer the $3.068 million debit balance in the translation NZ IFRS 1 “First time adoption” permits reserve to retained earnings. companies adopting NZ IFRS for the ﬁrst time to take some exemptions from the full requirements of NZIFRS when applying the standards to the comparative period. The group has applied the exemption relating to foreign currency translation reserves to reset the opening balance to zero on the date of transition.

Employee Entitlement Provisions Reclassification of $27.995 million from “Trade and other As a result of additional disclosure on the face of payables” to ‘Provisions’. the balance sheet, Employee Benefit provisions specifically relating to annual leave, sick leave and bonus payments previously classified as “Trade and other payables” have been reclassified to ‘Provisions’.

The areas identified above are based on the projects team’s current interpretation of the standards which have been released to date. Until the time when the company prepares its first full NZIFRS financial statements, the possibility cannot be excluded that the items identified in the transition balance sheet reconciliation between NZFRS and NZIFRS may have to be adjusted.

Page 70 Corporate Governance

At The Warehouse, Corporate Governance is not simply a matter of creating checks and balances; it is about creating an outperforming organisation. The primary objective is to create and adhere to a corporate culture of conscience and consciousness, transparency and openness; and to develop capabilities and identify opportunities that best serve the goal of value creation.

The board is committed to conducting the company’s business U is not a substantial shareholder of the company holding more ethically and in accordance with high standards of corporate than 10% of the company’s voting stock; governance. The primary objective of the board is to build long-term U has not within the last three years been employed in an shareholder value with due regard to other stakeholder interests. It executive capacity by the company or been a director after does this by setting strategic direction and context and focusing on leaving to hold any such employment; issues critical for its successful execution. U is not a principal or employee of a professional advisor to the This governance statement outlines the company’s main company and its entities whose billings exceed 10% of the corporate governance practices as at 13 September 2007. adviser’s total revenues; Unless otherwise stated they reflect the practices in place U is not a significant supplier or customer of the company – a throughout the financial year. significant supplier is defined as one whose revenues from the company exceed 10% of the supplier’s total revenue; Compliance U has no material contractual relationship with the company; The company seeks to follow the best practice recommendations for U has no other interest or relationship that could interfere with the listed companies to the extent that it is appropriate to the size and director’s ability to act in the best interests of the company and nature of The Warehouse operations. independently of management; The company considers its governance practices comply with the U is not a member of management of The Warehouse Group NZX Corporate Governance (“NZXCG”) Best Practice Code in its Limited or its subsidiaries; and entirety for the year ended 29 July 2007. The company complies U the corporate governance committee and board determines the with the majority of ASX Corporate Governance Council (“ASXCGC”) director is independent in character and judgement. Best Practice Recommendations other than making detailed disclosure of the five highest executives’ remuneration. On appointment, each director is required to provide information to the board to assess and confirm their independence as part of their The board also believes that the company’s policies and practices consent to act as a director. Directors have undertaken to inform have complied in all substantial respects with the requirements of the board as soon as practicable if they think their status as an the New Zealand Securities Commission’s Governance Principles independent director has or may have changed. and Guidelines. The board does not believe that any director has served on the The board will continue to monitor developments in the governance board for a period which could, or could reasonably be perceived area and review and update its governance practices to ensure the to materially interfere with the director’s ability to act in the best company continues to maintain the most appropriate standards of interests of the company. The board considers that directors retain governance for The Warehouse. independence of character and judgement regardless of length The company’s constitution, the board and committee charters, of service. codes and policies referred to in this section are available to view at www.thewarehouse.co.nz. Board Role and Responsibility The board charter regulates board procedures and describes its role Board of Directors and responsibilities. The board of the company is elected by the shareholders to supervise the management of the company and is Board size and composition accountable to shareholders for the company’s performance. The The current board comprises of directors with a mix of board’s responsibilities include: qualifications, skills and experience appropriate to the company’s existing operations and strategic directions. U strategy – providing strategic direction and approving corporate strategic initiatives; The board has a majority of independent directors and the roles U leadership selection – evaluating the performance of and of Chairman and Group Chief Executive Officer (“CEO”) are not selecting the CEO and Group Chief Financial Officer (“CFO”); exercised by the same person. The Chairman is an independent director. The board consists of eight directors, six of whom are U board performance and composition – evaluating the independent non-executive directors, one executive director and performance of non-executive directors, determining the one non-executive director who is not deemed to be independent size and composition of the board as well as making by virtue of his shareholding in the company. recommendations for the appointment and removal of directors; U remuneration – setting CEO and senior executive remuneration Director Independence and setting non-executive director remuneration within The board has adopted the definition of independence set out in the shareholder approved limits; ASXCGC Best Practice Recommendations. A non-executive director is considered to be “independent” providing that director:

Celebrating 25 Years // Page 71 Corporate Governance – continued

U succession planning – planning board and executive succession; into the items being discussed, because of their personal U financial performance – approving the annual budget, involvement or have future potential that management believes monitoring management and financial performance as well as should be demonstrated by the board. the achievement of company strategic goals and objectives; Nomination and Appointment of Directors U financial reporting – considering and approving the annual and Procedures for the appointment and removal of directors are half-year financial reports; governed by the company’s constitution. The Remuneration, Talent U audit – selecting and recommending to shareholders the and Nomination Committee is delegated with the responsibility of appointment of the external auditors. Maintaining a direct and identifying and nominating, for the approval of the board, candidates on-going dialogue with the external auditors; to fill board vacancies as and when they arise. U risk management – approving the company’s risk management The board’s procedure when selecting and appointing directors strategy and monitoring its effectiveness; varies depending upon the circumstances of the company at the U social responsibility – setting business standards and particular time. The board believes that its membership should promoting ethical and responsible decision making by the comprise directors with an appropriate mix of skills, experience company; and personal attributes that allow the directors individually and the U relationship with regulators, exchanges and continuous board collectively, to: disclosure – maintaining direct and on-going dialogue with the U discharge their responsibilities and duties under the law NZX and ASX and ensuring that the market and shareholders are effectively and efficiently; continually informed of material developments. U understand the business of the company and the environment Delegation in which the company operates so as to be able to agree with The board is responsible for guiding the corporate strategy and management on the objectives, goals and strategic direction directions of The Warehouse and has overall responsibility for which will maximise shareholder value; and decision making. The board delegates to the CEO responsibility for U assess the performance of management in meeting those implementing the board’s strategy and for managing the operations. objectives and goals. While the day-to-day responsibility for the operation of the business While recognising that each director will not necessarily fulfil all is delegated to the executive management there are a number of criteria, the Remuneration, Talent and Nomination Committee matters which are required to be, or that in the interests of the has identified the existence of certain personal characteristics as company should be, decided only by the board of directors as a relevant to the selection and appointment of directors. whole. The board has therefore formally adopted a list of “Matters The committee believes that a potential director should: Reserved for the Board” for which no delegation is permitted. The U be outstanding in capability and have extensive and senior delegation to the CEO is reviewed annually. commercial experience; Avoiding Conflicts of Interest U be a cultural “fit” with existing board members and have The board is conscious of its obligations to ensure that directors empathy with the company’s culture; avoid conflicts of interest between their duty to The Warehouse U have a high level of personal integrity; and their own interests. Where conflicts of interest do exist at law U be a team player; then the director must disclose their interest. Directors and team U have an independent state of mind; members are required to minimise any potential conflicts in line with the company’s Code of Ethics and Code of General Business U be free of conflicts as identified by the company; and Principles. All directors have signed the Codes. U have the time available to meeting the commitment required. In addition, specific functional skills will be identified from time Board access to Information and Advice to time to complement the overall mix of functional skills of The board has established a procedure whereby directors and board members. board committees have the right, in connection with their duties and responsibilities, to seek independent professional advice at Letter of Appointment the company’s expense. Prior written approval of the Chairman The terms and conditions of appointment are set out in a letter is required. of appointment which details the director’s duties, term of Independent professional advice includes legal advice and the appointment (subject to shareholder approval), expectations of the advice of accountants and other professional advisers on matters role and remuneration. of law, accounting and other regulatory matters but excludes advice Directors Induction and Education concerning the personal interests of the director concerned (such as service contracts with the company or dealings in the company’s When appointed to the board, all new directors undergo an induction securities or disputes with the company). Any advice obtained under programme appropriate to their experience to familiarise them this procedure will be made available to the other members of with The Warehouse business and strategy. A detailed induction the board. programme, including a familiarisation programme for non-executive directors has been developed and approved by the board. The board has complete access to company team members via the CEO. The board encourages management to schedule presentations As part of the strategic planning review, directors are formally at board meetings by managers who can provide additional insight briefed by senior management on relevant industry and competitive issues.

Page 72 Retirement and Re-election of Directors U determine the scope of the internal audit function, its authority, In each year one third of the directors, or if their number is not resources and scope of work including co-ordination with a multiple of three then the nearest number to one third, shall external auditors; retire from office and may offer themselves for re-election at the U oversee the effective operation of the risk annual meeting of shareholders. Directors to retire are those management framework; who have been longest in office since they were last elected or U recommend to the board the appointment, removal and deemed elected. remuneration of the external auditors, and review the terms of While the constitution provides for the payment of retirement their engagement and the scope and quality of the audit; and benefits to directors, the company has not paid retirement benefits U review and approve, within established procedures and before to any directors since listing in 1994. commencement, the nature and scope of non-audit services being provided by the external auditors. Board Performance Review Each year the Chairman, with assistance from the General Manager- In fulfilling its responsibilities the audit committee receives regular Human Resources, formally assesses the performance of individual reports from management and the internal and external auditors. directors whilst directors also assess the collective performance of During the year the committee also held private sessions with the the board and the performance of the Chairman. internal and external auditors. The internal and external auditors have a clear line of direct communication at any time with either the Board Committees chairman of the audit committee or the chairman of the board, both of whom are independent non-executive directors. Committees established by the board review and analyse policies and strategies, usually developed by management, which are within The audit committee relies on information provided by management their terms of reference. The Warehouse Committees assist the and the external auditor. Management determines and makes board in the conduct of its responsibilities and report to the full representations to the board that The Warehouse financial board on all material matters and issues requiring board decisions. statements and disclosures are complete and accurate. The external auditor has the duty to plan and conduct audits. The current committees of the board are: U Audit Committee Remuneration, Talent and Nomination Committee U Remuneration, Talent and Nomination Committee Membership is restricted to non-executive directors and the majority on the committee must be independent. The chairman of the U Corporate Governance Committee committee is an independent director. U Disclosure Committee The members of the Remuneration, Talent and Nomination From time to time, the board may create ad hoc committees to Committee are: examine specific issues on its behalf. The board regularly reviews the performance of the committees against written charters specific U G F Evans (Chairman) to each committee. U J L Smith U K R Smith Audit Committee U S R Tindall Membership is restricted to non-executive directors, and the majority must be independent. The chairman of the committee must The committee is responsible for determining and reviewing also be independent and must not be the chairman of the board. compensation arrangements for the directors, CEO and the The committee includes members who have appropriate financial executive management team, ensuring appropriate performance experience and an understanding of the industry in which The management, talent identification and succession planning Warehouse operates. frameworks are in place. The committee is also responsible for reviewing the structure, size and composition of the board, and The members of the Audit Committee are: identifying and nominating candidates for the approval of the board. U R L Challinor (Chairman) U J R Avery Corporate Governance Committee Membership of the committee is restricted to independent directors. U G F Evans U K R Smith The members of the Corporate Governance Committee are: Rob Challinor and Keith Smith are Fellows of the New Zealand U G F Evans (Chairman) Institute of Chartered Accountants in New Zealand. U R L Challinor This committee meets a minimum of four times each year. Its main The committee was established to ensure that the company responsibilities are to: maintains a high level of corporate governance through continuous monitoring of international corporate governance best practice as U exercise oversight of the integrity and completeness of the financial statements (annual report and the half-year promulgated by the relevant authoritative bodies. financial report); The committee is responsible for developing recommendations U assist the board to review the effectiveness of the to the board on corporate governance matters, undertaking an organisation’s internal control environment covering: annual review of the alignment of the board’s governance systems – effectiveness and efficiency of operations; with best practice, determining and monitoring independence of directors, reviewing ethical guidelines, approving the corporate – reliability of financial reporting; and governance statements in the annual report, and reviewing the – compliance with applicable laws and regulations company’s disclosure policy.

Celebrating 25 Years // Page 73 Corporate Governance – continued

Disclosure Committee The disclosure committee is a committee of the board of directors and management and comprises of the following members: U K R Smith (Chairman of the board) U R L Challinor (Chairman of the audit committee) U I R Morrice U S R Tindall U CFO and Company Secretary The committee is responsible for ensuring the company meets its disclosure obligations under the ASX and NZX listing rules. To achieve and maintain high standards of disclosure, the board has approved a Market Disclosure Policy which is designed to ensure compliance with continuous disclosure requirements.

Board and Committee Meetings The board normally meets at least eight times a year or whenever necessary to deal with speciﬁc matters. The board committees meet either quarterly or are convened as necessary. Each committee is entitled to the resources and information it requires to operate effectively. All directors can attend any committee meeting at the invitation of the relevant committee, with the CEO and the CFO attending the Audit Committee by standing invitation. Senior management is also available to address queries, and to assist in the understanding of issues facing the company. The main board formally met 12 times during the year. In addition, directors met throughout the year on matters of strategic planning, committee business, and to attend to business between meetings. The table below shows director attendance at the board meetings and committee member attendance at committee meetings during the year ended 29 July 2007.

REMUNERATION TALENT AND CORPORATE BOARD AUDIT NOMINATION GOVERNANCE DISCLOSURE

NUMBER OF MEETINGS 12 4 6 1 3

J R Avery 12 4 R L Challinor 11 3 1 3 J C Dahlsen 9 G F Evans 12 4 6 1 I R Morrice 12 3 J L Smith 11 4 K R Smith 12 4 6 3 S R Tindall 12 6 2

Audit Governance and Independence Approach to Audit Governance The independence of the external auditor is of particular importance to shareholders and the board. The audit committee is responsible for overseeing the external audit of the company. Accordingly it monitors developments in the areas of audit, and threats to audit independence, to ensure its policies and practices are consistent with emerging best practice in these areas. The board has adopted a policy on audit independence, the key elements of which are: U the external auditor must remain independent of the company at all times and comply with New Zealand Institute of Chartered Accountants (NZICA) Code of Ethics; U the external auditor must monitor its independence and report to the board that it has remained independent; U guidelines in relation to the provision of non-audit services by the external auditor in order that the provision of such services does not impair the external auditor’s independence or objectivity; U the audit firm may be permitted to provide non-audit services that are not considered to be in conflict with the preservation of the independence of the auditor subject to the approval of the company audit committee; U the audit committee must approve significant permissible non-audit work assignments that are awarded to an external auditor, and the value of non-audit work must be reported at every board meeting; and U the directors are satisfied that the provision of non-audit services for the year were compatible with the general standard of independence of the auditor.

Engagement of the External Auditor The Warehouse external auditor is PricewaterhouseCoopers (“PwC”). PwC was appointed by shareholders at the 2004 annual meeting in accordance with the provisions of the Companies Act 1993 (“Act”). PwC is automatically reappointed as auditor under Section 200 of the Act.

Page 74 Attendance at the Annual Meeting Risk management roles and responsibilities PwC as auditor of the 2007 financial accounts has been invited to The board is responsible for reviewing and approving The attend this year’s annual meeting and will be available to answer Warehouse’s risk management strategy. The board delegates day-to- questions about the conduct of the audit, preparation and content of day management of risk to the CEO who may further delegate such the auditor’s report, accounting policies adopted by The Warehouse responsibilities to brand chief executive officers and other officers. and the independence of the auditor in relation to the conduct of Inherent in this delegation is the belief that responsibility for the audit. managing risks in the business is the domain of the business unit.

Internal Audit CEO and CFO Assurance The company has an internal audit function, which is independent The CEO and CFO have provided the board with written confirmation of the company’s external auditors. The internal audit function of that company’s 2007 financial statements are founded on a sound the company is undertaken in conjunction with Ernst & Young. The system of risk management and internal compliance and control, respective internal audit teams report to and are directed by the and that such systems are operating efficiently and effectively in all audit committee. material respects.

Each year the internal audit programme is approved by the audit Risk monitoring and evaluation committee. The programme of audit work considers the most The audit committee reviews the reports of management and the significant areas of business risk in the company and is developed external and internal auditors on the effectiveness of systems for following discussions with senior management, review of the internal control, financial reporting and risk management. To assist business process model of the company and consideration of the in discharging this responsibility the board has in place a number findings of the annual strategic risk assessment. The programme of strategies designed to safeguard the company’s assets and also considers risks in relation to major projects that are planned or interests and ensure the integrity of reporting. currently underway. The audit committee receives regular reports regarding the The role of internal audit is to: effectiveness of policies and processes to manage risk. These U assess the design and operating effectiveness of controls reports included quarterly reviews of store audit results, an annual governing key operations processes and business risks; strategic risk assessment of key risks and risk mitigation strategies U provide the board with an assessment, independent of and quarterly reports from Ernst & Young on internal audit findings. management, as to the adequacy of the company’s internal operating and financial controls, systems and practices; and Insurance The company maintains insurance coverage with reputable insurers U assist the board in meeting its corporate governance and for relevant insurable risk. The company retains a $50,000 regulatory responsibilities. insurance deductible for any single event loss arising from Store audits are carried out by the company’s internal audit team. damage or business interruption to stores, distribution centres or For the year ended 29 July 2007, 294 programmed, follow-up or support offices. trigger store audits were carried out (2006: 351 audits). Non-store The Warehouse Limited and Warehouse Stationery Limited are internal business processes are audited by Ernst & Young. accredited employers under the ACC Partnership Programme for Certification by the CEO and CFO workers compensation insurance. This programme encourages The CEO and CFO provided the board with written confirmation that eligible employers to take responsibility for their own workplace the company’s financial report presents a true and fair view, in all health and safety, and injury management. This includes material respects, of the company’s financial position for the year rehabilitation and claims management of employee work injuries. ended 29 July 2007, and that operational results are in accordance As a partnership employer the company self-insures the costs and with relevant accounting standards. compensation arising from workplace injuries up to a maximum limit of $150,000 for any one event and up to $1.6 million in any Controlling and Managing Risk one year.

Approach to managing risk Remuneration Risk is the chance of something happening that will have an impact on business objectives. Having established an acceptable risk Making sure team members get the rewards they deserve is tolerance, The Warehouse approach is to identify, analyse, evaluate the responsibility of the Remuneration, Talent and Nomination and appropriately treat risk in the business. Committee, a committee of the board. The committee makes recommendations to the board on salaries and incentive The company recognises three main types of risk: programmes and more generally on group issues, plans and U Operational risk – risk to earnings and reputation arising from policies relating to people management. The committee is assisted inadequate or failed internal processes, people and systems or by the General Manager-Human Resources, and by external from external events; remuneration advisors.

U Business risk – risk to earnings and reputation from business Non-executive Directors’ remuneration event risk, legal, compliance or regulatory risk; and The fees payable to non-executive directors are determined by U Market risk – risk to earnings and reputation arising from the board within the aggregate amount approved by shareholders. competitor activity, product risk and risk associated with The board considers the advice of independent remuneration changes in ﬁnancial markets (such as interest rate, foreign consultants when setting remuneration levels. The current directors’ exchange and liquidity risk). fee pool limit is $650,000 which was approved by the shareholders at the 24 November 2006 annual meeting of shareholders.

Celebrating 25 Years // Page 75 Corporate Governance – continued

Details of the remuneration paid to directors and other beneﬁts The Code of General Business Principle covers: provided by way of salaries, bonus and exercising share options, is U Workplace responsibilities (diversity, employment practices, disclosed in Note 7 to the Financial Statements. health and safety)

Senior Executive remuneration U Doing business in an environmentally responsible manner The objective of the senior managerial remuneration strategy is to U Interaction with customers and suppliers provide competitive remuneration aimed at: U Fair competition in all the markets in which the U aligning managers’ rewards with shareholders’ value; company operates U achieving business plans and corporate strategies; Team members are encouraged to bring any problems to the U rewarding performance improvement; and attention of management; this includes activities or behaviour that may not be in accord with Code of Conduct or other regulatory U retaining key skills and competencies requirements or laws. The composition of senior executive remuneration is made up Concerns can be raised anonymously through The Warehouse free- as follows: phone line. U Base or fixed remuneration – determined by the scope of the role and the level of knowledge, skill and experience required Trading in The Warehouse Securities by the individual. The main reference point is the salary at the The Code of Conduct contains a Code of Practice for dealing in median of this group although the company is prepared to pay company securities which is modelled on the Securities Markets more to secure and retain the right people to deliver what the Act 1988. The in-house Code of Practice limits directors and senior business needs. management to dealing in the company’s shares, options or other U Short-term incentive plan – this comprises an annual incentive, securities only in the six-week period commencing one day after based on a percentage of the fixed remuneration, dependent the release of the interim and annual financial results. In this on the achievement of key performance and operating result connection, team members deemed to be senior management are objectives. For the senior executive the bonus is generally up those defined by the CEO from time to time. to 50 per cent of base salary for ‘On Target’ performance and All company team members must obtain the written consent is based on a combination of the group reported earnings and of the CEO or Company Secretary prior to dealing in company each executive’s specific objectives. shares or options at any time. Directors of the company must U Long-term incentive plan – a reward for the achievement also obtain written consent from either the chairman of the board of long-term shareholder return. Under various share rights or chairman of the audit committee prior to dealing in company and option plans that have been approved by shareholders, shares or options. participants may be entitled to purchase ordinary shares in the Directors and senior management are prohibited from short-term company if certain share price targets are met. Details of those trading in company shares. plans, and the share price targets, are contained in Notes 27 and 28 to the Financial Statements. All current share rights and The company monitors share trading by senior team members option plans have been approved by shareholders. of the company and reports any share movements to the board each month. Senior management remuneration is detailed in the wider disclosure made by the company in the team members remuneration section Market Disclosure of the statutory disclosures. The company considers that this level of disclosure is adequate and is in compliance with the disclosure The Warehouse considers that shareholders and the investment obligations of the New Zealand Companies Act 1993 which requires market generally should be promptly informed of all major business the disclosure of all remuneration payable over $100,000 per events that influence the company. To achieve and maintain annum in $10,000 bands. high standards of disclosure, the board has approved a Market Disclosure Policy which is designed to ensure compliance with NZX Promoting Ethical and Responsible Behaviour and ASX continuous disclosure requirements. The Warehouse Code of Conduct To assist the company with its Market Disclosure policy, the The Warehouse Code of Ethics and Code of General Business board has appointed a Disclosure Committee. The committee is Principles sets out clear expectations of ethical decision-making responsible for making decisions on what should be disclosed and personal behaviour by directors and employees in relation publicly under the continuous disclosure policy. to situations where their or The Warehouse’s integrity could The Company Secretary is the Disclosure Officer of the company be compromised. and has responsibility for ensuring compliance with the continuous The Code of Ethics has been adopted by all companies of The disclosure requirements, and overseeing and co-ordinating Warehouse Group Limited. It addresses: disclosure to the market. Confidentiality U Shareholder Communication and Relations U Trading in company securities The company values its dialogue with institutional and U Receipt of gifts and entertainment private investors and is committed to giving all shareholders U Transparency and avoiding conflicts comprehensive, timely and equal access to information about U Use of company information and assets its activities. U Delegations of authority U Processes for reporting and resolving ethical issues

Page 76 The board aims to ensure that shareholders are informed of all Corporate Responsibility and Sustainability information necessary to assess the board’s performance. They do The Warehouse aims to manage its business in a way that will so through a communication strategy which includes: produce positive outcomes for all stakeholders including the public, U periodic and continuous disclosure to ASX and NZX; our customers, team members, suppliers and our shareholders. Our U information provided to analysts and media; intention is to monitor our progress towards business sustainability U annual and half-yearly reports distributed to all shareholders; in which we seek to assess and actively improve the social and U the annual shareholders meeting and any other meetings called environmental characteristics of our business. This is a goal we are to obtain approval for board actions as appropriate; and strategically committed to and which we seek to integrate more fully into our day-to-day operations. U the company’s website The Warehouse is listed on the FTSE4Good Index which The notice of meeting is circulated at least ten days before the identifies companies that meet globally recognised corporate meeting and is also posted on the company’s website. Shareholders responsibility standards. are provided with notes on all the resolutions proposed through the notice of meeting each year. Directors and the company’s external auditor are available to answer shareholder questions. The board encourages full participation of shareholders to ensure a high level of accountability and identification with the company’s strategies and goals. In addition, web-casting and teleconferencing facilities are provided for market briefings to encourage participation from all stakeholders, regardless of their location.

Organisational Structure at the Warehouse

The Warehouse Group Limited

Store Property Retail Manufacturing Consumer Finance Owner/Developer

The Warehouse Limited TWL Products Limited Eldamos Investments Limited The Warehouse Financial Services Limited (49% shareholding), 51% held by Warehouse Stationery Limited Waikato Valley Westpac NZ Operations Limited Chocolates Limited (50% shareholding) The Warehouse Cellars Limited (90% shareholding)

TWP No.1 Limited (49% shareholding) (Pharmacy) TWP No.2 Limited (49% shareholding)

Celebrating 25 Years // Page 77 Directors’ Interests

Disclosures of Interests by Directors General Disclosures The following are particulars of general disclosures of interest given by the Directors of the Company pursuant to section 140(2) of the Companies Act 1993:

John R Avery Robert L Challinor Director, America’s Cup Village Limited Chairman, Kingﬁsh Limited Director, Caleta Streetrace Management Limited Chairman, Barramundi Limited Director, Fund Managers Auckland Limited Director, CDL Investments New Zealand Limited Director, Independent Timber Merchants Co-operative Limited Director, Crighton Anderson Property & Infrastructure Limited Director, JLE Management Services Limited Director, Northington Partners Limited and associated companies Director, Signify Limited JV Committee Member, Copthorne Bay of Islands Resort Director, Snowplanet Limited Member, L.E.K. Consulting (New Zealand Advisory Board) Member, Aotea Centre Board Graham F Evans John C Dahlsen Chairman, Multichem Group Limited and associated companies Chairman, J.C. Dahlsen Pty Limited Director, The Tatua Co-operative Dairy Company Limited Chairman, Southern Cross Broadcasting (Australia) Limited Stephen R Tindall Janine L Smith Chairman, Growth and Innovation Advisory Board Chairman, McLarens Young (New Zealand) Limited Chairman, KEA New Zealand and associated companies Director, Aspiring Technology Limited Director, Bank of New Zealand Director, Byron Corporation Limited Director, Kordia Group Limited Director, Deep Video Imaging Limited Director, Kordia Limited Director, Foundation Services Limited and other privately owned companies Director, K One W One Limited Principal, The Boardroom Practice Limited Director, Lake Pupuke Investments Limited Trustee, Venture Taranaki Director, Norwood Investments Limited Director, Nurture Nature Limited Keith R Smith Director, Squishvc Limited Chairman, Electronic Navigation Limited Director, Sustainable New Zealand Limited Chairman, Healthcare Holdings Limited Director, Tindall Family Holdings Limited Chairman, Lowe Corporation Limited and subsidiaries Director, The Bracken Company Limited Chairman, Mobile Surgical Services Limited Director, The Gorse Company Limited Chairman, NZ Farming Systems Uruguay Limited Director, U-Clic Limited Chairman, Skellerup Holdings Limited Member, New Zealand Institute Chairman, Tourism Holdings Limited Member, New Zealand Business Council Director, Enterprise Motor Group Limited and subsidiaries for Sustainable Development Director, Goodman (NZ) Limited Trustee, The Tindall Foundation Director, Gwendoline Holdings Limited Director, James Raymond Holdings Limited Director, PGG Wrightson Limited Director, The Ascot Hospital & Clinics Limited Director, Wickliffe Limited and other privately owned companies Member, L.E.K Consulting (New Zealand Advisory Board) Trustee, Cornwall Park Trust Board

Entries in the Interests Register The group paid legal fees to Hesketh Henry in which J R Avery, a director, had an interest. Mr Avery retired from this partnership on 1 October 2006. The details of legal fees paid to Hesketh Henry are detailed in Note 35 to the Financial Statements.

Indemnity and Insurance In accordance with section 162 of the Companies Act 1993 and the constitution of the company, the company has provided insurance for, and indemnities to, directors and employees of the Group and its subsidiaries for losses from actions undertaken in the course of their legitimate duties. The insurance includes indemnity costs and expenses incurred to defend an action that falls outside the scope of the indemnity.

Page 78 Statutory Disclosures

Directors’ Equity Participation Directors’ shareholdings as at 29 July 2007 At 29 July 2007 the following directors or entities related to them, held interests in the company shares:

BENEFICIAL BENEFICIAL NON-BENEFICIAL NON-BENEFICIAL RELATED RELATED INTEREST INTEREST INTEREST INTEREST PARTY PARTY

2007 2006 2007 2006 2007 2006

J R Avery – – 7,724,417 7,974,417 402,928 402,928 R L Challinor 2,394 2,394 – – – – J C Dahlsen 110,600 110,600 – – – – G F Evans 11,202 11,202 1,022,010 – – – I R Morrice 1 1,043,005 1,000,000 1,796,049 2,100,225 – – K R Smith 12,000 – 11,082,259 10,364,425 32,800 54,300 S R Tindall 84,358,283 84,358,283 7,065,272 7,065,272 9,600 9,600

1 Ian Morrice also holds conditional rights to acquire 331,666 ordinary shares, refer Note 7 to the Financial Statements.

Major shareholdings in which more than one director has an interest in the same parcel of shares are as follows: U Ian Morrice and Keith Smith held non-beneficially the same parcels of shares 1,796,049 (July 2006: 2,100,225 shares) as trustees of The Warehouse Management Trustee Company Limited. U Graham Evans and Keith Smith held non-beneficially the same parcels of shares 1,022,010 (July 2006: NIL) as trustees of The Warehouse Management Trustee Company No.2 Limited. U Stephen Tindall maintains a beneficial interest in 1,300,000 shares sold to Ian Morrice and Ian Tsicalas due to being a grantor of a put option in favour of registered holder exercisable any time on or prior to 19 November 2009 and holder of a mortgage over shares to secure debt.

Share Dealings by Directors During the year, the directors disclosed in respect of section 148(2) of the Companies Act 1993 that they acquired or disposed of a relevant interest in shares as follows:

NUMBER OF ORDINARY SHARE TRANSACTION DATE OF TRANSACTION ACQUIRED/(DISPOSED) CONSIDERATION

K R Smith 22 August 2006 12,000 Nil (per terms of legacy) J R Avery as trustee of Stinger Trust 14 September 2006 (250,000) est. value $1,277,500 I R Morrice 20 October 2006 43,005 allotment of shares pursuant to executive share scheme I R Morrice and K R Smith as trustees of The Warehouse Management Trustee Company Limited various dates (304,176) to/from team members under the staff share schemes G F Evans and K R Smith as trustees of The Warehouse various dates 1,271,183 $8,677,164 Management Trustee Company No.2 Limited various dates (249,173) settlement of obligations under the executive share scheme

Celebrating 25 Years // Page 79 Statutory Disclosures – continued

Remuneration of Directors On 24 November 2006 the shareholders approved the total directors’ remuneration increase by $161,000 from $489,000 per annum to $650,000 per annum. The fees paid to non-executive directors for services in their capacity as directors during the year ended 29 July 2007 was as follows:

2007 2006

J R Avery $73,000 $60,000 R L Challinor $70,000 $60,000 J C Dahlsen $87,000 $84,000 G F Evans $72,000 $60,000 J L Smith (appointed 3 August 2006) $66,000 – K R Smith (Chairman) $132,000 $105,000 S R Tindall $66,000 $60,000 Total $566,000 $429,000

I R Morrice received remuneration in his capacity as an executive director and chief executive ofﬁcer of the group. Further details of these transactions are given in Note 7 to the Financial Statements.

Team Members Remuneration Grouped below, in accordance with section 211(1)(g) of the Companies Act 1993, are the number of team members or former team members, not being directors or former directors, who received remuneration and other beneﬁts valued at or exceeding $100,000 during the year under review. Remuneration has also been calculated to include redundancy and other termination payments made during the year to team members whose remuneration would not otherwise have been included in the total ﬁgures reported below.

REMUNERATION NUMBER OF TEAM MEMBERS REMUNERATION NUMBER OF TEAM MEMBERS

($000) 2007 2006 ($000) 2007 2006

100-110 35 33 270-280 2 1 110-120 18 19 280-290 1 – 120-130 24 16 290-300 3 – 130-140 15 9 310-320 – 1 140-150 18 6 320-330 1 – 150-160 5 5 330-350 1 – 160-170 8 11 350-360 1 1 170-180 6 7 400-430 3 – 180-190 3 8 510-520 – 1 190-200 4 4 540-550 – 1 200-210 7 4 560-570 – 1 210-220 1 4 580-590 1 – 220-230 1 1 610-620 1 – 230-240 2 2 840-850 – 1 240-250 3 1 970-980 1 – 250-260 – 1 1,000-1,155 1 – 260-270 4 6 170 144

Page 80 Twenty Largest Registered Shareholders as at 14 September 2007

NUMBER OF PERCENTAGE OF ORDINARY SHARES ORDINARY SHARES

S R Tindall 83,058,283 26.71% The Tindall Foundation 66,323,220 21.33% First NZ Capital Custodians Limited 29,291,887 9.42% National Nominees New Zealand Limited – NZCSD A/C 1 11,721,978 3.77% HSBC Nominees (New Zealand) Limited – NZCSD A/C 1 10,493,406 3.37% Cash Wholesalers Limited 10,298,029 3.31% Foodstuffs Auckland Nominees Limited 10,298,029 3.31% Wardell Bros and Company Limited 10,298,029 3.31% ANZ Nominees Limited – NZCSD A/C 1 8,212,346 2.64% Citibank Nominees (New Zealand) Limited – NZCSD A/C 1 4,233,307 1.36% S R Tindall & K R Smith & J R Avery (as trustees) 3,389,844 1.09% NZ Superannuation Fund Nominees Limited – NZCSD A/C 1 3,270,660 1.05% R G Tindall & G M Tindall & S R Tindall & J R Avery & K R Smith (as trustees) 3,100,000 1.00% RBC Dexia Investor Services Australia Nominees Pty Ltd 2,990,895 0.96% TEA Custodians Limited – NZCSD A/C 1 2,830,608 0.91% Accident Compensation Corporation – NZCSD A/C 1 1,989,514 0.64% Public Trust – Australian Equity Nominee Pool – NZCSD A/C 1 1,260,101 0.41% Citicorp Nominees Pty Limited 1,198,941 0.39% Custody and Investments Nominees Limited – NZCSD A/C 1 1,056,350 0.34% IAG Nominees Pty Limited 1,054,366 0.34% 266,369,793 85.66%

1 New Zealand Central Securities Depository Limited (NZCSD) is a depository system which allows electronic trading of securities to members. As at 14 September 2007, total holdings in NZCSD were 51,411,773 or 16.53% of shares on issue

Distribution of Shareholders and Holdings as at 14 September 2007

NUMBER OF NUMBER OF SIZE OF SHAREHOLDING SHAREHOLDERS PERCENTAGE SHARES PERCENTAGE

1 – 1,000 4,894 52.24% 2,664,593 0.86% 1,001 – 5,000 3,613 38.56% 8,708,439 2.80% 5,001 – 10,000 484 5.17% 3,725,198 1.20% 10,001 – 100,000 325 3.47% 7,835,221 2.52% 100,000 and over 53 0.56% 288,028,417 92.62% 9,369 100.00% 310,961,868 100.00%

Geographic Distribution Auckland and Northland 3,434 36.65% 184,817,406 59.43% Waikato and Central North Island 1,785 19.05% 4,019,116 1.29% Lower North Island and Wellington 1,576 16.82% 96,661,622 31.08% Canterbury, Marlborough and Westland 873 9.32% 12,982,622 4.18% Otago and Southland 590 6.30% 1,123,332 0.36% Australia 996 10.63% 11,024,176 3.55% Other Overseas 115 1.23% 333,594 0.11% 9,369 100.00% 310,961,868 100.00%

Celebrating 25 Years // Page 81 Statutory Disclosures – continued

Substantial Security Holders According to notices given to the company under the Securities Markets Act 1988, as at 14 September 2007, the substantial security holders in the company and their relevant interests are noted below.

RELEVANT INTEREST DATE OF NOTICE

General Distributors Limited (an indirect, wholly-owned subsidiary of Woolworths Limited) 30,548,887 29 May 2007 Wardell Bros & Coy Limited, Cash Wholesalers Limited and Foodstuffs (Auckland) Nominees Limited 30,894,087 23 March 2007 Morgan Stanley Investment Management Limited 7,997,218 3 October 2006 AXA SA and AXA Asia Paciﬁc Holdings Limited 15,187,274 28 September 2006 S R Tindall 84,141,524 19 March 2004 The Tindall Foundation 66,323,220 19 March 2004

Non-marketable parcel of shares As at 14 September 2007, the number of shareholders holdings less than the marketable parcel of A$500 under the listing rules of the ASX is 355.

On-market share buy-backs The company is not, at the date of this annual report, undertaking any on-market share buy-backs.

Dividends on ordinary shares The Warehouse Group Limited has paid dividends on its ordinary shares every year without interruption since listing on the New Zealand Exchange in 1994. On 6 September 2007 the directors declared a final dividend of 5.5 cents per share, and a special dividend of 35.0 cents per share, bringing the total dividend for the year to 52.5 cents per share. The dividends fully imputed were paid on 28 September 2007. The level of future payments will depend upon the cash earnings of the company and the intention to maintain a conservative gearing ratio. The dividends declared for each of the last five financial years were as follows:

Cents per share

DIVIDENDS 2007 2006 2005 2004 2003

Interim 12.0 10.5 10.5 10.5 10.5 Final 5.5 5.5 4.0 4.0 4.0 Sub Total 17.5 16.0 14.5 14.5 14.5 Special 35.0 – – – – Total 52.5 16.0 14.5 14.5 14.5

Page 82 Stock Exchange Listing The ordinary shares of The Warehouse Group Limited are listed on the NZSX Market and Australian Stock Exchange (“ASX”).

Ordinary Shares The total number of voting securities of the company on issue on 14 September 2007 was 310,961,868 fully paid ordinary shares.

Holders of each class of equity security as at 14 September 2007

NUMBER OF NUMBER OF SHARES CLASS OF EQUITY SECURITY HOLDERS OR OPTIONS

Ordinary Shares 9,369 310,961,868 Share Options – Fixed price share option plan 94 779,000 – Executive share scheme 42 1,376,000

Share Price History The following tables show the high and low sale prices for the ordinary shares during the periods, indicated, based on mid-market prices at the close of business on the New Zealand Exchange for the following periods: (i) the ﬁve most recent ﬁnancial years; and (ii) each of the six most recent months

(i) Five most recent ﬁnancial years

ORDINARY SHARES ORDINARY SHARES

HIGH LOW

2007 7.32 4.55 2006 5.13 3.44 2005 4.67 3.04 2004 6.03 3.89 2003 7.55 3.96

(ii) The six most recent months

ORDINARY SHARES ORDINARY SHARES

HIGH LOW

September 2007 6.08 5.50 August 2007 6.25 5.56 July 2007 6.10 6.00 June 2007 6.55 5.97 May 2007 6.96 6.25 April 2007 7.32 6.75

Celebrating 25 Years // Page 83 Statutory Disclosures – continued

Rights attaching to Shares Clauses 20-22 of the company’s constitution set out the voting rights of shareholders. Ordinary shares in the company each carry a right to vote on a poll at any general meeting of shareholders on any resolution. Holders of ordinary shares may vote at a meeting in person, or by proxy, representative or attorney. Voting may be conducted by voice, a show of hands or a poll. Each of the company’s ordinary shares entitles the holder to one vote.

Auditor PricewaterhouseCoopers have continued to act as auditors of the company, and have undertaken the audit of the ﬁnancial statements for the 29 July 2007 year.

Disciplinary action Neither the NZX nor ASX has taken disciplinary action against the company during the period under review.

Donations In accordance with section 211(1)(h) of the Companies Act 1993, the company records that it donated $85,000 (2006:$92,000) to various charities during the year. In line with board policy, no political contributions were made during the year.

Escrow Apart from the shares held under the Staff Purchase Plan (refer Note 29 to the Financial Statements), the company has no securities subject to an escrow agreement.

Waivers granted by NZX On 5 February 2007, the NZX Regulation granted waivers from Listing Rules 7.3.2(b) and 7.6.6A(b) to the extent necessary to allow The Warehouse Group Limited to issue conditional rights to executive employees and provide financial assistance to the Trustee (The Warehouse Management Trustee Company No.2 Limited) by way of advances under the existing loan agreement, in amounts sufficient for the Trustee to purchase ordinary shares of the company in connection with the issue of conditional rights under the Scheme in the 2006/2007, 2007/2008, 2008/2009 and 2009/2010 financial years of the company.

Limitations on the acquisition of company’s securities The terms of the company’s admission to the ASX require the following disclosure. The Warehouse Group Limited is incorporated in Auckland, New Zealand. As such, it is not subject to Chapters 6, 6A, 6B and 6C of the Australian Corporations Act dealing with the acquisition of shares (such as substantial holdings and takeovers). Limitations on acquisition of the securities are, however, imposed on the company under New Zealand law: (a) In general, securities in the company are freely transferable and the only signiﬁcant restrictions or limitations in relation to the acquisition of securities are those imposed by New Zealand laws relating to takeovers, overseas investment and competition. (b) The New Zealand Takeovers Code creates a general rule under which the acquisition of more than 20 per cent of the voting rights in the company or the increase of an existing holding of 20 per cent or more of the voting rights in the company can only occur in certain permitted ways. These include a full takeover offer in accordance with the Takeovers Code, a partial takeover offer in accordance with the Takeovers Code, an acquisition approved by an ordinary resolution, an allotment approved by an ordinary resolution, a creeping acquisition (in certain circumstances) or compulsory acquisition if a shareholder holds 90 per cent or more of the voting rights in the company. (c) The New Zealand Overseas Investment Act 2005 and Overseas Investment Regulations 2005 regulate certain investments in New Zealand by overseas persons. In general terms the consent of the New Zealand Overseas Investment Commission is likely to be required where an “overseas person” acquires shares or an interest in shares in the company that amount to more than 25 per cent of the shares issued by the company or, if the overseas person already holds 25 per cent or more, the acquisition increases that holding. (d) The New Zealand Commerce Act 1986 restricts a person from acquiring shares in the company if the acquisition would have, or would be likely to have, the effect of substantially lessening competition in a market.

Material differences There are no material differences between ASX Appendix 4E and NZX Appendix 1 issued by the company on 14 September 2007 for the year ended 29 July 2007 and this annual report.

Page 84 Directory

Board of Directors Shareholder Enquiries Keith R Smith (Chairman) Shareholders with enquiries about share transactions, changes of John R Avery address or dividend payments should contact the Share Registrar in Robert L Challinor the country in which their shares are registered. John C Dahlsen Graham F Evans New Zealand Ian R Morrice (Managing Director) Computershare Investor Services Limited Janine L Smith Level 2, 159 Hurstmere Road, Takapuna Stephen R Tindall Private Bag 92119, Auckland 1142 New Zealand Chief Executive Officer Telephone: +64 9 488 8777 Ian Morrice Facsimile: +64 9 488 8787 Email: [email protected] Chief Financial Officer Website: www.computershare.co.nz Luke Bunt Australia Company Secretary Computershare Investor Services Pty Limited Shehnaz Hajati Level 3, 60 Carrington Street GPO Box 7045 Place of Business Sydney, NSW 1115 26 The Warehouse Way Australia Northcote, Auckland 0627 Freephone: 1 800 501 366 (within Australia) PO Box 33470, Takapuna Telephone: +61 3 9415 4000 (overseas) Auckland 0740, New Zealand Facsimile: +61 2 8234 5050 Telephone: +64 9 489 7000 Facsimile: +64 9 489 7444 Direct Crediting of Dividends To minimise the risk of fraud and misplacement of dividend Registered Offices cheques, shareholders are strongly recommended to have all New Zealand payments made by way of direct credit to their nominated bank C/- BDO Spicers account in New Zealand or Australia. Further information can be Level 8, 120 Albert Street obtained from the Share Registrar. PO Box 2219 Auckland, New Zealand Investor Relations Australia For investor relations enquiries email [email protected] TWGA Pty Ltd Stock Exchange Listings C/- Allens Arthur Robinson Level 28 NZSX trading code: WHS Deutsche Bank Place ASX trading code: WHS Corner of Hunter & Phillip Streets Sydney NSW 2000, Australia Company Numbers ARBN 094 719 089 Auditor NZ Incorporation: AK/611207 PricewaterhouseCoopers Website Private Bag 92162 Auckland, New Zealand www.thewarehouse.co.nz

New Zealand Business Council World Business Council for for Sustainable Development Sustainable Development

The company is a member of the New Zealand Business The company is a member of the World Business Council for Sustainable Development (NZBCSD). Council for Sustainable Development (WBCSD). The NZBCSD is a coalition of leading businesses united The WBCSD is a coalition of 170 international companies by a shared commitment to sustainable development united by a shared commitment to sustainable via the three pillars of: economic growth, ecological development via the three pillars of: economic growth, balance and social progress. Its mission is to provide ecological balance and social progress. business leadership as a catalyst for change toward sustainable development and to promote eco-efﬁciency, innovation and responsible entrepreneurship.

Insight Creative Limited. Auckland/Sydney. 10/07 Insight Creative Limited. Auckland/Sydney. Printed on paper from sustainable forests.