group executive GREG MUIR DAVID WILSON ROBERT SMITH PAUL HUTCHINSON BRUCE GORDON GRAHAM CHAD NEVILLE BROWN KEITH SMITH HAMISH McKENZIE BRENT WALDRON JOAN WITHERS STEPHEN TINDALL DAVE RICKARDS ROBERT CHALLINOR GLEN INGER NEIL PLUMMER JOHN AVERY JOHN DAHLSEN GRAHAM EVEVANSANS directors contents Chief Executive Officer’s Review ..........................................................................................................3 Triple Bottom Line Summary Report ....................................................................................................11 Corporate Governance ......................................................................................................................14 Founder’s Report ..............................................................................................................................22 Ten Year Review ..............................................................................................................................24 Financials ........................................................................................................................................26 highlights of the year Between 1 August 2000 and 31 July 2001 The Warehouse Group achieved an audited net surplus after tax of $60.8 million The Warehouse Group achieved sales of $1.665 billion The Warehouse New Zealand opened nine new stores - six in new locations and three replacement stores Warehouse Stationery opened nine new stores The Warehouse Australia opened ten new stores - eight in new locations and two replacement stores The Warehouse Group generated a positive operating cash flow of $61.8 million We assisted local clubs and charities in raising $2.6 million for their community needs Financial Statistics 2001 2000 Sales $1.665 billion $1.075 billion EBITDA+ $170.5 million $143.6 million Net Surplus after tax $60.8 million $70.5 million Total Assets $632.2million $374.4 million Equity $259.2million $179.3 million Earnings per share 20.3 cents 24.3 cents Ordinary Dividends per share 12.5 cents 12.5 cents +Earnings before interest, taxation, depreciation and amortisation (excl unusual). Financial Calendar HALF YEAR YEAR Balance date 31 January 2002 31 July 2002 Results announced March 2002 September 2002 Reports published/dividends paid April 2002 November 2002 Quarterly sales announced November 2001 May 2002 February 2002 August 2002 annual meeting The Annual Meeting of the company will be held at the Great Northern Room, Ellerslie Convention Centre, Ellerslie Racecourse, Ellerslie, Auckland, on 30 November 2001 at 9.30 am. This report was printed on Ambassador 50% recycled stock 1 chief executive officer’s review was $122.1 million. This is $10.8 million (9.7 percent) above that achieved for the corresponding period in the 2000 year. Overview The year ending 31 July 2001 was a challenging one for The Warehouse. We aggressively grew the retail space in New Zealand, in both The Warehouse New Zealand and Warehouse Stationery, and we also took ownership of the Australian operation of Clints and Solly’s, now called The Warehouse Australia. Most of the year’s challenges were due to the repositioning and transforming of The Warehouse Australia from a bargain store to a discount variety business, similar to the New Zealand Warehouse concept, while still A warm welcome to managing continued growth in New Zealand. all stakeholders of During the year, sales rose 54.8 percent to $1,665 million, having reached $1 billion only last year, while The Warehouse. New Zealand same-store sales and operating profit increased. Group operating margins as a percentage I am pleased to present my first Annual Report as of sales decreased in the year owing to The Chief Executive Officer. Warehouse Australia’s negative contribution, the The Warehouse Group achieved an audited tax-paid competitive New Zealand market, weaker Australasian profit for the twelve months ended 31 July 2001 of currencies and changes in merchandise mix in $60.8 million. Warehouse Stationery. The Group result was also impacted by a $3.5 million pre-tax expense for unusual This profit result is $9.7 million (13.8 percent) below items such as investment writedowns. This compares the $70.5 million achieved for the corresponding with a $1.8 million pre-tax benefit in the previous year. period ended 31 July 2000. Below is a more detailed discussion of the results of Total group operating profit before interest, unusual each main business comprising The Warehouse Group. items, goodwill amortisation and taxation for the period The Warehouse New Zealand 2001 2000 INCREASE $000s $000s % Sales 1,166,728 1,012,266 15.3% Operating profit 117,127 106,331 10.2% Operating margin % 10.0% 10.5% The Warehouse New Zealand The Warehouse New Zealand’s sales continued to grow In February 2000 with my move to CEO, David Wilson strongly. The operating margin dropped slightly to 10.0 joined us as General Manager - The Warehouse New percent (from 10.5 percent last year). This change is Zealand. David was most recently head of store caused largely by the compression of gross margin operations at Target Australia. He is a very owing to heavy promotional activity undertaken in the experienced retailer and is already making a very fourth quarter combined with the weakness of the New valuable contribution to our New Zealand business. Zealand dollar during the year. 3 Growth in store numbers and retail space continued to recent Warehouse Stationery store rollout programme be aggressive. During the year The Warehouse opened creates a temporary drag on operating margins that nine new stores (including three replacements), will take up to two years to reverse. extended nine and relaid two others. This increased Confirmation that sales growth is not confined to the retail space 20.9 percent to 306,838 square metres store rollout programme is confirmed by same-store across seventy-five stores. This increase in retail space sales that were up 25.4 percent. The nine new store of 53,121 square metres was the largest single-year openings during the year increased Warehouse increase in floor space in the history of The Warehouse. Stationery’s retail space 26.5 percent to 36,775 Our customers have responded well to the increase in square metres. A continuing programme of store store numbers and floor space and this is confirmed by refurbishment to maximise efficiencies and more new other indicators including: store openings, lead us to be confident of a restoration of operating margins on a larger sales base in our • A 5.1 percent increase in same-store sales. traditional stationery market. However, a planned • The Warehouse accounting for $154 million or 82 initiative focusing on the business stationery market percent of the $188 million growth in the New (touched on later in this report) is expected to have a Zealand department store retail sector during the negative impact on overall Warehouse Stationery year. operating margins for the next two to three years. • A 2.9 percent increase in The Warehouse’s share of The Warehouse Australia the total department store retail sector to 43.6 The former Clints and Solly’s retail stores - which are percent. progressively being transformed and renamed The Warehouse - achieved sales of $404.5 million. This • Weekly paying-customer count up 11.4 percent to figure represents an estimated increase of 8.8 percent 825,000 compared with 740,000 last year. over the same period last year allowing for the removal of wholesale tax in Australia and the introduction of GST. • An increase in customer’s average basket size to $27.20 compared with $26.07 last year. The Warehouse Australia 2001 $NZ000s Warehouse Stationery Sales 404,496 Warehouse Stationery continued its exceptional growth Operating profit (1,537) with a 48.3 percent increase in sales. The reduction in Operating margin % -0.4% margin - to 7.0 percent compared with 7.9 percent last The Warehouse Australia’s operating margin for the year - is attributable to a planned change in the stores’ year was an unsatisfactory -0.4 percent. While sales mix. That is, a higher proportion of Warehouse macroeconomic conditions in Australia were not Stationery’s sales are now comprised of business supportive for the retail sector generally, much of our machines such as computers, facsimiles and printers. weak result in Australia reflects execution difficulties It’s a large and important market category - essential to with our format transition, which were further the Warehouse Stationery’s growth and success - but it compounded by our decision in April 2001 to quit customarily has lower margins than those for general excess inventory. stationery items. When the Australian business was acquired we Warehouse Stationery 2001 2000 INCREASE $000s $000s % indicated that it would take two to three years before Sales 93,525 63,083 48.3% the business would produce material positive returns to Operating profit 6,505 5,005 30.0% the group. During that time the Australian business Operating margin % 7.0% 7.9% would be repositioned to a format similar to The Warehouse in New Zealand. We continue to have Warehouse Stationery’s operating profit was also confidence in this strategy and there are a number of affected by a significant infrastructural investment positive signals that confirm this view: required to support the nine new stores added during the year. It takes up to two years for a new Warehouse • As new stores are opened, and as the merchandise Stationery store to become profitable which means the range