POSTIE PLUS GROUP LIMITED
ANNUAL ADDRESS BY CHIEF EXECUTIVE RON BOSKELL, 13 DECEMBER 2011

The year of 2010-11 was challenging but we achieved a 58% growth in profit to $656k and whilst this is only what we will describe as a small profit; it has nevertheless provided a dividend of one cent per share.

We accomplished many things during a year that can only be described as tough.

Chief amongst the highlights for the year was the increase in market share for Postie followed by the continuing vigilance on cost reduction through our Profit Improvement Programme, the reduction in our stock levels, particularly in Postie and our supply chain which continues to provide very good results from getting stock to store and the lowering of the costs associated with this.

We also saw our loyalty programmes shift a gear to enable our on-line sales growth across both Babycity and of more recent times Postie.
Our toughest quarter was the final quarter; we had every reason to feel confident going into the quarter as we had performed well in the autumn; our customers were telling us that the taste level was what they liked. It wasn’t to be; we endured record warm temperatures in May and June and customers didn’t need any excuses not to shop. We had to carry our regular well performed winter weight products longer and as a result the stocks were cleared but at discounted rates later in the season. Our competitors were in the same position and you may recall the enormity of price reductions which started in May; these were on a scale not seen before. Fortunately, we managed our stock well and continued to do so, even with the stronger discounting by the market in May and June.

There is little doubt that the increase in GST has been a negative factor for retailers and the continuing shift in consumer attitude has seen all retail affected in New Zealand; not just apparel.

PPGL is not immune from the world’s troubles. As well, the Government advice to the public that less debt and more savings is desirable has created a subsequent reduction in consumer spending. Our goal is clear; we will maintain our drive to get a larger slice of market share.
We have been successful in building market share over the past 2 years and it is only in the past few months where this has flagged. We have reworked our promotional plan; changed a number of proposed advertisements and carefully looked at ways to maximise the sales opportunities with our customers whilst protecting our margins.

1. Cost of stock
2. Cost savings in distribution a significant part of the success story: expected cost savings vs. actual cost savings, and now cumulative.
3. Supply chain changes were essential, have been fulfilled, repetitive rewards.

A lot has been said about the earthquakes in Christchurch; I would like to use this opportunity to highlight the immense commitment from the staff we have in Christchurch. I believe that everyone in Christchurch has been impacted in one form or another; our teams were no different to others in this city and I would like to recognise our people; whether they were in the forefront talking to customers, working in our support office or at our third party distribution centre; everyone rose to the occasion and it is apparent when I talk to the people both here and outside of Christchurch that they are full of praise for how the community all pulled together through the toughest of times. To our staff; on behalf of the Company and you as shareholders, I say a big and heartfelt ‘thank-you!’ From a business perspective, we were fortunate in that we didn’t have stores in the CBD and that whilst we had three stores closed for a period of time; our sales in the area held up extremely well as the customers found new areas to shop. Our risk management worked superbly in this time as we did not have any business interruption to our network sales data through the planning of our back office support. Business interruption insurance covers costs and losses during this period.

Our Brands:

he Refresh programme for Postie has been an important component of our capital spend for the group; to date we have completed 30 of our planned 36 refreshes with the remainder to be completed in this financial year. Four of our existing sites will also be built to the new standard with revamped space.  Postie still has areas for growth around New Zealand as we are actively seeking new sites in the Waikato and Auckland regions.

This year we have opened new sites in Rotorua and Papamoa (BoP), Chartwell (Waikato), Feilding, Palmerston North (Manawatu) and Rolleston (Christchurch) whilst during this time we have closed poor performing sites in Rotorua, Hamilton, Palmerston North and the Kidszone store in Lower Hutt.

here are three core elements of the refresh:

1. Restyling of storefronts. The new fresh white on red signage has been completed in 62 stores with the remainder of these to be finished this year.
2. Restyling of internal layouts: with new look flooring, improved displays and a better customer flow
3. Differentiation of stores within stores layouts: we have made our departments within the stores easier to shop

We are pleased with the look and feel of our stores and our newest store in Palmerston North reflects further enhancements as we move forward.

The Babycity brand is one that stirs the emotion because of its audience and the products it sells; it is a market leader and we have made big inroads with this brand over the past 3 years. The introduction of on-line sales has been an important innovation for many mums and we see this business growing at a rapid rate for the future. Our biggest challenge with this brand is the lower margin that it achieves; something that is peculiar to the sector globally; and it is only the inclusion of apparel that allows it to provide a reasonable contribution. We have a number of changes planned within the brand that have commenced with the closure of some its smaller ‘cluster’ stores and our plans to open larger format stores in the Auckland region replicating the very successful stores we see in Tower Junction and Albany. So, as we look ahead; Babycity will have fewer branches by removing the poor performers and a stronger on-line presence from which we can expect an improved financial performance.

Our Schooltex brand has provided a good result in a year that has seen considerable change in the school uniform sector where we see many changes for our competitors as they struggle for supply. Earlier in the year, we purchased the Uniforms Plus business in Auckland. This has been a success due to the addition of 50 schools and 29,000 students and also because we have introduced many of those parents to our Postie branches. We anticipate that other similar opportunities will be presented to Schooltex in the next year. As well as school uniforms, we are actively engaging with schools to supply their sports uniforms.

The Schooltex business is one that continues to grow for PPGL, but is one that takes time to turn the many meetings with school boards into orders and contracts. We are pleased with its progress and its plans for 2012.

Postie has refocused on its core labels. This is an appropriate moment to take a look at current fashion.

We have seen the emergence of the Who’s Henri? label over the past few years and now I am pleased to say that our other women’s labels SPIRIT and CONCEPT are enjoying renewed success with new styling and fits that have earned very good reviews from across New Zealand. We will see changes in our children’s and men’s styling going forward; the latter drawing on its previous successes with great value and classic styling for the New Zealand man.

We are committed to have our classic ranges on our shelves, all of the time, to capture sales every day. There is some very good work happening in the merchandise area as we continue to challenge for the best prices and balance this with Postie’s renowned quality for our customers.

Over the past three years, we have invested in two kiwi personalities in Jayne Kiely and Ruby Hutchins; our research shows their value and the connection they have with our customers; they will continue to feature on TV, our mailers and our web sites in the year ahead. We strongly believe that our ‘faces of postie’ are of immense value and that we will use a little less of TV in the future and more mailers to showcase the great family appeal that Postie offers.  You can tell how well our faces of postie enjoy their role in these recent TV commercials.

Our investment in technology continues with the SAP operating platform. It has produced better business intelligence this year and further investment will see new improved tools for our planners to assist all buying decisions. SAP has enabled the development of our e-commerce strategy through accurate stock information and streamlined back office processes.

The loyalty programmes for each of our brands continue to grow with over 575,000 customers registered; our members enjoy the instant rewards and we get a chance to talk direct with them providing updates on trends and special offers.

As a partner to the loyalty brands, the e-commerce platform provides a significant growth opportunity – we are not just catching up with the competition- we are ahead in many cases and well advanced with an active transaction website connected with social media. Babycity has led the way and its success has allowed us to provide a similar platform for Postie which is now seeing the benefit; it’s not massive yet for Postie; but we have no reason to think that it won’t be a great contributor going forward. Of course, every time a customer logs into Postie’s web site they are seeing a bit more of what we have on offer; many of our customers use the web site to gather information before making the choice to shop directly from our branches.

Our goals for e-commerce are:

• trade successfully from virtual stores as well as ‘physical’ stores.
• Provide continuing evolving information for our shoppers.
• Achieve excellence in Internet-based shopping.

Outlook

Whilst the first quarter was difficult; it was ironic that we started poorly because our stocks were so clean for the month of August because of less winter stock to clear. We have since seen some gains; particularly in our women’s ranges, however our men’s and children’s ranges have suffered in this time. We have made significant changes to the ranges for next autumn and we are confident these changes will provide growth in each of these two departments going forward.

Our purchases for autumn and winter were concluded some time ago; I have confidence that we have addressed the poor performers and added new product ranges to entice our customers. We have de-risked our winter sales with less reliance on ‘winter weight’ product and more on layers and style.

The period leading up to Christmas-New Year trading is a critical one for all retail businesses and we have major campaigns planned to ensure we win. This period leads into the very important ‘Back to School’; a time where we believe we can attain greater sales on the back of our ability to grow this sector of the business. Last year we trialled school shoes and sandals; it worked and worked well and this year our customers will see an enlarged range of footwear to build on the initial success.
As Richard mentioned in his address, our growth plans will hopefully go beyond that of the brands we currently have. Our debt ratio is favourable and we have a sound balance sheet overall.

We are on the lookout for complementary brands in our sector of the retail market. We believe that acquisition will not only provide greater sales and profits but most importantly leverage the very good back office we have and provide very good systems for new businesses.

I am looking forward to the remainder of this financial year; it is certain to have its challenges, but that is the nature of retail. I am confident that we have the infrastructure, the strategies and the management to deliver a further improved result for this year.

Before I sign off; I would like to pass on my thanks to the senior management team; it has been a difficult year and you have not flagged during this time; to our frontline staff in our stores and to our support office crew; a huge thank-you to all of you who have  contributed to our future.

To the Board; thank you for your vigour and our very good open discussions; I am looking forward to working with you in the year ahead to take PPGL on its path to bigger and better results

Thank you.