Ladies and gentlemen, and welcome. My name is Erin Vercoe, and I'm the company secretary at The Warehouse Group. Before I hand you over to our chair for the opening of the meeting, I'd like to cover a few points of housekeeping and safety. In the event of a fire or other emergency, if we need to evacuate the building, please follow directions from our staff. The fire exits are located behind me, through the main door on the left-hand side, and to the very back of the room. The assembly point is on the lawn at the front of the building. Bathrooms are available through the main door in the foyer to my left. If you need voting forms, the team at Computershare will be happy to help you.
Finally, following today's meeting, the board, management, and team members look forward to you joining us for refreshments in the adjacent room. Thank you, and I now invite the Chair to open the meeting.
Thank you, Erin.(FL) . Good morning, ladies and gentlemen, and thank you for joining us. My name is Joan Withers, and I'm chair of The Warehouse Group. On behalf of your directors, the group chief executive officer, our leadership squad, and all of our team members, I extend a very warm welcome to our annual shareholders' meeting, both to those of you in the room today and to all of our shareholders who are joining us online. The notice convening today's meeting was circulated to shareholders on the 25th of October, 2023, and a quorum is present. So I am pleased to declare the 2023 annual shareholders' meeting of The Warehouse Group open. Today's meeting is being held both in person and online via the Computershare online meetings platform.
This allows shareholders, proxies, and guests who are not able to travel and attend the meeting in person to attend the meeting virtually. All of our online attendees can now see a live webcast of this event and read the company documents associated with the meeting. In addition, shareholders and proxies may ask questions and submit votes, and I will outline the process for this shortly. Before proceeding with the formal business, I'm going to run through the order of events for today's meeting. The agenda will start with the usual formalities, and then I will provide a recap of the FY 23 annual results, the dividend distributions to shareholders, as well as an update on our non-financial milestones, including sustainability and our people.
Nick Grayston, our Group Chief Executive Officer, will then provide some more detail on our strategy, our ecosystem, and go through more detail of the year in review, as well as provide an update on the first quarter of the current financial year and our outlook for the remainder of FY 2024. We will then turn to the formal part of the day's business. The resolutions today include the re-election of two directors, being Dean Hamilton and Robbie Tindall, and the authorizing of the setting of the auditors' fees. We'll cover each resolution in turn and invite you to submit your questions specific to those items, which we will respond to during the Q&A for each resolution. Voting will take place by way of poll. I'll outline the process for the discussion and voting on the resolutions at that point in the agenda.
Following the resolutions, we'll take questions on the group's financial performance, our operational performance, or other general business. I do ask that you wait to raise any of your questions of a general nature until that time. If you've joined the meeting online, you will be able to submit a question or vote on the resolutions throughout the course of the meeting. We'll now move to the formal agenda. Proxies. Proxies have been received from 300 shareholders, representing 197,828,106 voting shares. That represents 57.04% of the voting shares in the company. The valid proxies we have received support the resolutions to be considered later in the meeting. I'll provide further details on proxies in respect of each resolution at that time.
I confirm that the minutes of the 2022 annual meeting, held on the 25th of November, 2022, have been signed and confirmed by me as the chair of that meeting. Those minutes are available for review on the company's website. The financial statements for the 52 weeks ended 30th of July, 2023, together with the auditor's report, as set out in the company's annual report, which was released to the NZX and made available on our website on the 28th of September, 2023. If you would like a hard copy of the annual report, please email us at investors@thewarehouse.co.nz to request a copy. Under the Companies Act 1993, there is no requirement to approve the financial statements or the auditor's report at annual meetings.
However, we will be happy to answer any questions you may have during the Q&A session at the end of the meeting. How to submit questions online. So for those of you who are attending the meeting virtually, if you have a question to submit during the meeting, please select the Q&A tab on the right-hand side of your screen at any time. Type your question into the field and press Send. Your question will be submitted immediately. Should you require any assistance, you can type your query, and one of the Computershare team will assist via the chat function and reply to that query. Alternatively, you can call Computershare on 0800 650 034. While you can submit questions from now on, I will not address them until the relevant time in the meeting.
Please note that your questions may be moderated, or if we receive multiple questions on one topic, they may be amalgamated. Finally, due to time constraints, we may not be able to answer all of your questions during the meeting. If this happens, then we will answer them in due course via email. How to submit your vote online. Voting will be conducted by way of a poll on all items of business. In order to provide all online attendees with enough time to vote, I'm going to shortly open the online voting for all of the resolutions. At that time, if you are eligible to vote at this meeting, you will be able to cast your vote under the Vote tab. To vote, simply select your voting direction from the options shown on the screen. You can vote for all resolutions at once or by each resolution.
Your vote has been cast when the tick appears. To change your vote, simply select Change your Vote. You can change your vote up until the time I declare voting closed. I now declare voting open on all items of business. The resolutions will now be open in the Vote tab. Please submit your votes at any time. I'll give you a warning before I move to close voting. Now, to the introductions. With me here today are our directors. So from this end, Caroline Rainsford, John Journee , Rachel Taulelei, Dean Hamilton, Robbie Tindall, and Julia Raue over there. And also joining me on stage is our Group Chief Executive Officer, Nick Grayston, and our new Acting Chief Financial Officer, Celia Mearns. Where are you, Tony? Sorry.
Tony's here.
Tony. I forgot Tony. Sorry, missed off.
And Jeremy.
Well, I'll do Jeremy in a minute because he's future director. Sorry, Tony. Jonathan Oram, as you heard, left the group last month, and we were thrilled to have Celia's extensive experience as part of the team. She's now part of the leadership squad. Other members of our leadership squad are seated in the room, and all of us will be available after the meeting for you to meet and speak with. We also have with us our representatives from the auditors, PwC, and our company legal advisors, Russell McVeagh. Also in the audience is Jeremy O'Brien, who is our future director, and I've spoken, I think, on previous occasions, about the value we get from our future directors. The last one we had was Caroline, and we appointed her, as you know, last year as a fully-fledged director.
So now that we've completed the introductory part of the meeting, I'm going to move to my chair's review. I'm firstly going to focus on our financial performance during FY 2023. The past 24 months have been challenging for the New Zealand retail trading environment in general and exceptionally so for The Warehouse Group. As we all know, Kiwi families are experiencing rising inflation, rising interest rates, and increased cost of living, thereby reducing their disposable income. This difficult trading environment has occurred at a time when the company is at the point of our peak spending in replacing legacy information systems and digital infrastructure necessary to support our in-store and online strategies. We did experience sales growth for the group in FY 2023, achieving NZD 3.4 billion in total group sales, which was up 3.2% on the prior year.
We saw a particularly strong sales result in The Warehouse of NZD 1.9 billion, and that was the brand's highest sales year that we have on record, and it was up 9.6% on the prior year, FY 2022. However, customers responded to the economic climate by reducing their spending on higher discretionary incomes, impacting our other brand sales. Gross profit margin was disappointing in the first half of FY 2023, as the costs of products and freight were impacted by inflation and global supply chain disruption. While striving to deliver value to our customers by keeping prices as low as possible, we didn't move quickly enough to react to the impact of those increasing costs. In the second half of FY 2023, we did take action through margin management initiatives to recover some of this deterioration while preserving value on critical items....
Overall, Group gross profit decreased from NZD 1.2 billion in FY 2022 to NZD 1.1 billion in FY 2023. Group gross profit margin percentage improved from 32.7% in the first half of FY 2023 to 33.4% for the FY 2023 full year. However, this was still down from 35.3% in FY 2022, and we continue to put in place margin-enhancing initiatives to recover this. We are pleased to see the second half improvement continue into the first quarter of FY 2024, which Nick will take you through shortly.
The group finished the year with adjusted net profit after tax of NZD 37.5 million for FY 2023, compared to NZD 85.5 million in FY 2022, with reported net profit after tax of NZD 29.8 million after unusual items of NZD 13.9 million, compared to NZD 89.3 million in FY 2022. As the group has traded through this environment and assisted by the sale of our Royal Oak property, we strengthened the balance sheet from the half year, with net debt of NZD 48.1 million, which was still up slightly on FY 2022, but was a significant reduction from debt levels of NZD 83.4 million at the FY 2023 half year.
That provided available liquidity of NZD 421.9 million at year-end, and that is within our target liquidity range of NZD 350 million-NZD 450 million. The FY 2023 result is one on which we have reflected at board and executive level a great deal. We are very conscious of the fact that shareholders will not be happy with where the share price currently sits, or the fact that we did not declare an interim dividend. I can confirm that as a board and executive team, our focus and priority is on maximizing our trading performance and significantly improving our financial results as we work through this current financial year. As mentioned, gross profit margin decreased in the first half of FY 2023 as costs increased and global supply chain were disrupted.
To be honest, we should have anticipated those changing conditions sooner. The collapse in the performance of Torpedo7 and the loss in TheMarket.com also seriously impacted our bottom line. As we saw the first half of FY 2023 unfolding, we implemented actions which did see margin performance improve in in the second half, and we have continued to see margin performance improve in the first quarter of FY 2024. In particular, we outlined at the full year specific actions that we are taking to improve margin and profitability performance, including: we have reprioritized our transformation focus to concentrate on EBIT delivery. We are successfully reducing store labor costs by driving productivity improvements. We have closed the 1-d ay operations and integrated the m arket and Torpedo7 into our agile operating structure.
We are improving the profitability of our grocery range while offering affordable essentials to Kiwis, and we have implemented improved inventory control, evidenced by the reduction in inventory levels by financial year-end. Nick's going to provide some more detail on those initiatives and more detail on Torpedo7 shortly. We know we have more work to do. We are committed to growing profitable sales, improving financial performance, and growing shareholder value. Now to dividends. The group dividend policy is to distribute at least 70% of the group's full-year adjusted net profit after tax, at the discretion of the board, and subject to trading performance, market conditions, and liquidity requirements. As previously mentioned, we took the difficult decision to not declare an interim dividend.
Given the return of net debt to levels by year-end that fall within our target liquidity range of NZD 350 million-NZD 450 million, and the planned reduction in project expenditure from NZD 154.4 million in FY 2023 to NZD 80 million in FY 2024, the board was pleased to declare an FY 2023 final dividend of NZD 0.08 per share. Our objective is to deliver consistent and sustainable returns for our shareholders. Now to governance. As I've described, Nick and the executive leadership team continue to be focused on significantly improving our profitability and capitalizing on the opportunities this challenging market is presenting. The boards provide support and guidance to the leadership team, and we continue to evolve our governance practices and our interactions. I must thank my fellow directors for their impeccable dedication to their roles.
Every board has a range of imperatives that it needs to balance in order to fulfill its duties. And we believe there is no inherent incompatibility in fulfilling our purpose of helping Kiwis live better every day, maintaining our social license to operate, which is behaving in a way that inspires trust and confidence in the business, and driving the creation of long-term shareholder value. Results such as we have experienced in this past financial year provoke both a visceral and intellectual response from directors. We care passionately about the fortunes of The Warehouse Group. There has been an enormous effort put in by both the board and leadership team. However, we know that's not what counts. We need to show the results of our collective efforts.
But during the financial year, the board held 13 meetings over 18 days, as well as 25 committee meetings. We once again conducted an independently facilitated board performance review, we considered our skill mix and our composition, and we worked on board succession. We welcomed our latest appointee, as I said, Jeremy O'Brien, to the future director role, and we are one of New Zealand's strongest corporates in terms of support of the Future Directors scheme, which is building a pipeline for the next generation of company directors for New Zealand. And that scheme is going to assist in ensuring that New Zealand has a younger cohort of governance practitioners coming through, and that will enable a sustainable framework for best-of-breed corporate governance. And speaking of sustainability, again, this year, we did make progress against our targets and climate reporting capability.
Back in 2021, we established a dedicated board committee, chaired by Rachel Taulelei, to provide oversight on environmental and social sustainability strategy and to guide our reporting. That same year, we set four building blocks for us to target and measure our progress on the environmental issues which matter the most to us and to our stakeholders, and through which we believe we can make the most impact. Those building blocks include increasing the number of products with sustainable attributes, such as more sustainable production methods, materials, or packaging, and helping our suppliers reduce their own greenhouse gas emissions. Enabling sustainable living solutions that help our customers live healthy, low-carbon lifestyles. Providing circularity solutions that reduce the amount of post-consumer waste going to landfill. And increasing the sustainability performance of our operations and decreasing our operational carbon emissions, Scope 1 and 2 , to zero by 2040.
We are very proud of the milestones that we've achieved this year, and I'd like to call out a few of the achievements that I'm most proud of. Firstly, 33% of our private label sales are now from products with sustainable attributes. 43% of our private label sales were derived from products with packaging that is either compostable or recyclable. We are increasing our efforts on Scope 3, and have engaged with 80% of our direct suppliers to start measuring their Scope 1 and 2 emissions, which are our Scope 3 emissions. Through our in-store consumer recycling initiatives, we recycled 199 tons of post-consumer waste.
Last but not least, in September 2023, we signed an agreement with Lodestone Energy to provide solar power to 260 of The Warehouse Group sites, which will effectively reduce our Scope 2 emissions to zero by 2027. We are well advanced in our preparation for compliance with the mandatory climate-related disclosures regime, which takes effect from 2024. Now to people and diversity in health and safety. Along with our environmental metrics and targets, what we also hold important is the diversity, the well-being, and the health and safety of our 12,000 team members. Gender equity remains a core focus for us, and I am really pleased to report that females hold 50% of our senior leadership roles.
50% of our board members are female, and we have achieved 101% gender pay equity at group level. In addition, we continue to maintain the Rainbow Tick certification, and we've done so since 2019. Some of the diversity and wellbeing initiatives we have implemented or continued this year include Te Ao Māori, Pride, Wahine Advocates, and neurodiversity groups across the organization. Our gender transition policy allows for 10 days paid leave. Our family violence policy allows for 15 paid days paid leave and three nights accommodation. Our parental leave policy, which we brought in last year, allows for 26 weeks of full pay, as well as an ease back to work, flexible hours, and be there for partners leave. We also have lifestyle leave and career break options available to team members.
The health and safety of our people and customers is top priority, with reporting an action plan spanning every level of the organization, right from the Board Health, Safety, and Wellbeing Committee, led by Julia Raue, to our leadership squad and our teams on the store and our distribution center floors. Over the last few years, we have intentionally moved from a culture of compliance to a culture of care, where compliance just becomes second nature. In 2022, we embedded a new health and safety system called EcoPortal, and we've seen an improvement, a significant improvement in reporting, data tracking, and team member response to safety awareness.
We have continued to invest in safety measures and support services for our team members, such as training our store team members in incident management, providing Benestar support for affected team members, and, sorry, investing NZD 1.8 million to strengthen store security across all of our brands, and particularly in our Noel Leeming stores. We do continue to focus on violent and aggressive behavior, traffic management, and critical risk events. During FY 2023, the group reported 224 VAB incidents, and that is disappointing that it's higher than last year, but it does reflect improved reporting from our team across the scale of incidents across the network and our communities. On the other hand, only one critical traffic management incident was reported in FY 2023, which is still one too many, but it compares to 11 in FY 2022.
Eight critical risk events were reported this year, and that was significantly down on last year's 52 events. We also saw a reduction of lost time injuries by nearly 11% year-on-year. Now, before I hand you over to our Group CEO, Nick Grayston, I'd like to thank our customers across all of our brands, that's The Warehouse, Warehouse Stationery, Noel Leeming, Torpedo7, and TheMarket.com, for continuing to choose us. I'd like to thank all of our team members for their hard work, their dedication, and their ability and willingness to adapt and rise to the challenge of the very difficult current trading environments. I've already paid tribute to my fellow board members for their contribution this year, but thank you again. And on behalf of the board, I'd like to thank our CEO, Nick Grayston, and the leadership squad that he has working alongside him.
Their support and energy have been outstanding in helping shape and drive the group's strategy in the midst of wider economic, social, and political challenges that we're all now facing. I'm very proud that the values of The Warehouse Group and our strong and focused team have continued to deliver for New Zealanders. Finally, I'd like to thank you, our shareholders, for your continued support and your forbearance. FY 2023 is a year on which we must reflect and learn and build upon. And as we head into our peak trading weeks, I can assure you that the team is fully focused on making sure we have a much improved result to report to you in 2024. I'll now hand you over to Nick to brief you on the company's strategy and more detail on the FY 2023 performance and FY 2024 Q1 update. Thank you, Nick.
Thank you, Joan, and good morning, everyone. There is no question that 2023 has been a challenging year for The Warehouse Group. I'd like to start my comments today by acknowledging that our annual results for FY 2023 are disappointing, and that we have significant work underway to win back the confidence of analysts and shareholders. In FY 2023, while we're proud to have kept the essentials affordable for families, who are under a lot of pressure, and made strong FY 2023 sales at The Warehouse, the EBIT result was degraded by other factors. These include our ongoing investment in the transformation and the modernization of the group's systems and infrastructure, which coincided with much weaker consumer confidence. The impact was exacerbated by the significant increase in the cost of living and a shift in spending and disposable income away from big-ticket items to travel and entertainment.
These factors, along with the material cost inflation, to costs of goods sold, compromised our margin and profitability. But there is plenty of upside to fight for. I will take you through the plan we've put into place, from which we are seeing some early progress in key areas. We were pleased to be able to share the details of some margin improvements and reduction in our cost of doing business in our latest FY 2024 Q1 trading update, which I'll also share more about. First half of FY 2023 was challenging, during which we experienced a raft of headwinds impacting our margins and profitability. While we planned for an increase in cost of doing business, in particular around information system costs, we faced more pressure on our gross profit margin than expected through promotional activity and cost of goods, while still trying to deliver value to our customers....
We made the conscious choice to continue the investment to complete our transformation program, which did drive increased CODB, particularly IS operational expenditure and depreciation. In addition, the change in accounting principles also meant that much of this expenditure hit the bottom line immediately, resulting in this being expensed to the profit and loss, rather than being capitalized over five or 10 years, which was how it was before. In 2021, coming out of COVID, we recommitted to a strategy that focused on fixing the retail fundamentals and investing in the digital future. While it's hard to strike the right balance in the best of times, the post-COVID-19 environment and subsequent change in customer shopping habits has caused us to refocus the balance on retail fundamentals. As a result, we have deferred approximately NZD 30 million of digital initiative expenditure.
We are 30 years underinvested, and we're going through a painful time of catch-up in that spend. However, it would be inefficient to stop these much-needed key infrastructure projects halfway through, versus continuing to finish these much-needed investments. In response to tougher trading conditions, we undertook a strategic reprioritization to focus on the key triggers to improve our financial performance and improve both our operational efficiency and our customer offering. For our financial performance, this means focusing on operational performance by minimizing our cost to serve and managing our gross profit margin. Looking at initiatives to reduce our cost of doing business and to rebalance our capital and project expenditure. Operationally and better to serve our customers, we have integrated the m arket in Torpedo7 into our Agile brands operating structure. We are focused on growing grocery in the Warehouse, including our own private label Market Kitchen range.
We continue to build our Market Club membership program to offer the best deals for our customers and leverage our competitive advantage. As Joe mentioned, when sales increased in FY 2023, it was a disappointing year as our margins and profitability declined alongside that. As part of the strategic reprioritization, and specifically to improve our financial performance, to minimize our cost to serve, manage gross profit margin, and reduce cost of doing business and project expenditure, we have set the following initiatives. We, we have reprioritized transformation to concentrate on EBIT delivery. We've restructured teams in the SSO, our store support office, which will deliver NZD 24 million in annual benefit. We expect thetm arket loss to be less than NZD 5 million this financial year, down from NZD 16 million in the first half of FY 2023 alone.
We've reduced the m arket promotional spend to do that to close to zero, and we've deferred approximately NZD 30 million of digital initiative expenditure until we can afford to spend it. We continue to reduce store labor costs by driving greater efficiency. As a consequence, total employee expenses have held flat as a percentage of sales in FY 2023 compared to FY 2022, despite wage inflation pressures. The Warehouse cost of doing business decreased as a percentage of sales from 35.9% in FY 2022 to 33.6% in FY 2023. With regards to 1- day, the m arket and Torpedo7, we closed the 1-day website, exited the 1-day distribution center, and sold through 1-day inventory.
the market.com moved to Agile in March 2023, with a greater focus on group marketplace, and we are assessing the future platform direction with a view to even further simplification. Torpedo7 moved to the Agile structure in August 2023. We have a full Torpedo7 review underway, of which I'll share more details in a moment. In The Warehouse, we are focused on improving profitability of our grocery offering. We increased our Market Kitchen range to include 64 different products in FY 2023, with many more being added since. We have improved grocery supply chain capability and efficiency. We've improved margin management through real-time pricing, reactive pricing to increase cost of product, and reduced handling through distribution efficiencies and the use of bulk stacks in stores. We've reduced our SKU count by eliminating unprofitable SKUs and duplication.
We've increased our fresh fruit and vegetables offering to 22 stores. Lastly, after a couple of years of elevated inventory levels due to supply chain disruptions, we reduced inventory levels, which helped reduce working capital. Inventory reduced materially between the FY 2023 half year and year end, with closing inventory at NZD 493.3 million, compared to NZD 562.3 million at FY 2022 year end. Systems projects have commenced, which will enable us to improve inventory further once complete. We know that we have significant work still to do. We are committed to improving our performance through controlling our costs, improving our margin, increasing profitability, and growing shareholder value.... We have been through the results and the headline numbers, so I'll just briefly touch on the key PNL and balance sheet items.
While sales increased 3.2% over the year, gross profit margin did decrease 190 basis points compared to prior year to 33.4%. As mentioned, this did improve in the second half, and we are seeing this improvement continue into the first quarter of FY 2024 as a result of the implementation of margin management initiatives. Cost of doing business increased in dollar terms, mainly due to significant increases in information systems, digital costs and depreciation, but decreased slightly as a percentage of sales to 31.6%. Adjusted NPAT was NZD 37.5 million in FY 2023, compared to NZD 85.5 million in FY 2022, a decrease of 56.2%.
Reported NPAT was NZD 29.8 million in FY 2023, compared to NZD 89.3 million in FY 2022, due to restructuring costs and the impairment of the Zoom investment. Moving to the balance sheet. One of the biggest hurdles over the past couple of years was the buildup of inventory as we managed uncertain stock flow through COVID supply chain disruptions and port congestions. It was pleasing to see our work result in inventory returning to normalized levels. Our payables balance reduced significantly. Fixed assets increased due to an increase in store development, notably our new Warkworth stores, which opened in May 2023, and the investment in core systems and digital platforms, offset by the sale of Royal Oak Property, which reduced capital consumption under a sale and leaseback arrangement.
While net debt increased from NZD 41.2 million- NZD 48.1 million at year-end, this was a significant reduction from the NZD 83.4 million at the FY 2023 half year. The year-end liquidity of NZD 421.9 million is well within the group's target liquidity range of NZD 350 million-NZD 450 million. The nature of new accounting standards and the fact that a significant amount of our project expenditure is now classified as SaaS spend or Software as a Service, means that much of it hits us immediately as expense and is taken straight to the PNL. Now, we account for project expenditure in total rather than just capital expenditure taken to the balance sheet.
In FY 2023, capital expenditure was NZD 113.2 million, compared to NZD 107.5 million in FY 2022, while total project expenditure was NZD 154.4 million on these projects in FY 2023. Core systems investments included the ERP finance and inventory project, group order management system, warehouse management system, master data management system, and the delivery of our new people and HR system, Human Capital Management. Store development did continue as well in FY 2023, but at a lesser pace than in FY 2022. New stores included the new Warkworth retail center, including The Warehouse, a Warehouse Stationery SWAS store, and a relocated Noel Leeming store. We opened a Torpedo7 store in Botany and relocated the Torpedo7 in Christchurch to a bigger site.
Our SWAS integration program included the development of a further five stores in FY 2023, bringing the total number of SWAS stores to 40. The total project expenditure of NZD 80 million is planned in FY 2024, with capital expenditure, including prepayments, expected to be between NZD 60 million-NZD 70 million. Moving to Torpedo7. We have experienced significant challenges with Torpedo7, which delivered an operating loss in FY 2023 of NZD 22.2 million, and we've seen a further sales decline of 25.4% in FY 2024 Q1. Decreased customer and consumer demand, consistent with the global decline in the bike market, has continued to impact sales and profitability and exposed other flaws in our Torpedo7 business model. In FY 2023, we provided for inventory impairment of NZD 44.6 million against Torpedo7 to manage excess and aged stock, and have put a recovery plan into place.
In October, we completed the full end-to-end ERP change for Torpedo7. This has caused some disruption with fulfillment in Q1 and resulted in a period where some customers were unable to have transactions fulfilled, both in-store and online. Most of these teething problems are now resolved. Addressing Torpedo7's performance continues to be a major focus for the group in FY 2024. We have major initiatives to improve gross margin and importantly, reduce the cost of doing business, and will provide a full update at FY 2024 half year. On the fourteenth of November, we shared with the m arket our FY 2024 Q1 trading update. Group sales for the thirteen weeks to twenty-ninth of October, 2023, being FY 2024 Q1, were NZD 713.3 million, a decline of 6.7% compared to FY 2023 Q1.
The Warehouse sales were NZD 394.2 million, down 4.9%. Grocery category sales continued to grow, with sales increasing 8.2% and making up 22.8% of the total Warehouse sales. Warehouse Stationery sales were at NZD 54.6 million, down 4%. Noel Leeming sales were NZD 234.1 million, down 5.1%. Torpedo7 sales were NZD 27.9 million, down 25.4%. The comparative period of FY 2023 Q1, for context, saw exceptionally strong sales growth across all brands following the easing of COVID-19 restrictions. For context, again, we were up against a very strong comparative period in FY 2023 Q1 across all brands following those restrictions.
This saw FY 2023 group sales increasing 21.2%, with The Warehouse within that increase 39% compared to the previous quarter, so up against really tough comparables. Group gross profit was NZD 243.4 million in FY 2024 Q1, down just 1.6% compared to FY 2023 Q1. We have seen an improvement in gross profit margin percentage of 180 basis points year on year, increasing from 32.3% in FY 2023 Q1 to 34.1% in FY 2024 Q1, and that's largely due to the improvement in the management of cost of goods sold. While online sales have decreased, this has been a normalization of online sales from peak COVID-19 online trading patterns, down to 8.4% of total sales in FY 2024 Q1.
Highlights for the quarter include opening new The Warehouse and Noel Leeming stores in Wanaka on the twelfth of October, and expanding our fresh fruit and vegetables offering at The Warehouse to those 22 stores, up from 12 at the year-end. While these results show some margin improvements across our main brands and good progress on lowering our group cost of doing business, we have a firm focus on Christmas trading, which is of course our peak, and on maximizing the opportunity that summer presents. To recap, looking ahead and drawing on the improvements we've seen in Q1, we're incredibly focused on continuing the momentum and improving our financial performance in FY 2024. FY 2024 has started with softer sales than expected, but with gross profit margin improvements broadly in line with our expectations.
We remain cautious about the outlook as we approach our busiest time of the year. The business has planned its cost base and inventory purchasing in consideration of all of the uncertainty we see. We continue to adapt our trading plan to the m arket conditions as sales build through Christmas. Torpedo7 has not made the progress we'd hoped to see, and we have a critical quarter ahead, driving its performance recovery. It is, without question, a very challenging situation, and we will be reporting on the performance against our recovery plan at the half year. We have planned project expenditure of NZD 80 million in FY 2024, with a focus on delivering major projects that are in flight.
We are well positioned as we move into our biggest quarter, including today's Black Friday, Christmas trading, and our summer peak period, with good stock levels across all of our brands. And lastly, I'd like to provide you with an update and introduce our leadership squad. As Joan mentioned, our Chief Financial Officer, Jonathan Oram, left the group last month after five years with the business. We are thrilled to have the caliber, company knowledge, and financial expertise of Celia to join the leadership team. Celia has been with the group for nearly three years, and up to her appointment as acting CFO, has been leading the financial performance and forecasting teams. We're also thrilled that Mark Anderton will join our executive leadership squad as Chief Sourcing and Sustainability Officer. Mark is based in Shanghai, in our international sourcing office.
The progress Mark and his team have made with suppliers on ethical sourcing and growing our range of sustainable products has been significant. With our focus increasingly on tackling our Scope 3 emissions, Mark will lead our sustainability approach going forward. The rest of the team you know, most of whom are here today, and will be available for questions during the Q&A session at the end of the meeting, and to meet you informally after the closure of the meeting. So to conclude, we're really clear about the work that is in front of us. We remain committed to our strategy and investment in our transformation. However, the shift in market conditions and customer spending has put pressure on our business and led to a disappointing overall result for FY 2023. This has pivoted our focus from transformation to an immediate improvement in our performance.
We would like to thank you as our shareholders for your continued support. I wish you a happy Christmas and a summer ahead. I'm now going to ask Joan to return to the lectern to conduct the formal part of today's business. Thank you, Joan.
Thanks, Nick. As I said earlier, the board is working very closely with Nick and the team to improve our business performance. And again, as Nick said, we'd like to thank you, our shareholders, for your continued support, and we look forward to giving you a, an update at the half year.... We now come to the matters requiring resolutions, which are outlined in the notice of meeting. All voting at today's meeting will be by way of poll, and a poll will be held for each of the resolutions. I'll explain the voting procedures again at the end of the discussions of all resolutions, and we will invite questions for each resolution. If you have a question, please select the Q&A tab on the right half of your screen at any time. Type your question into the field and press Send, and your question will be immediately submitted.
If you have any questions on the 2023 annual report or of a general nature, please feel free to submit those at any time, but we'll address those during the general Q&A session at the end of the meeting. We move now to the re-election of directors. These resolutions have the unanimous support of the board. As set out on the notice of meeting, we have two directors who are eligible for re-election, Dean Hamilton and Robbie Tindall. Both directors offer themselves up for re-election at this meeting. Proxy voting for those resolutions will be shown on the presentation screen. So we'll move to the first resolution, which is the re-election of Dean Hamilton. Dean has been a director of the board of The Warehouse Group since April 2020. Dean has significant CEO and financial market experience.
Most recently, he was CEO of Silver Fern Farms Limited, where he led the business successfully through a significant period of change and improvement in financial performance, staff and supplier engagement, sustainability, and consumer trust in the brand. His prior experience includes 12 years at Deutsche Bank, working in both Australia and New Zealand, where he advised a range of companies on mergers and acquisitions, capital management, corporate restructuring, and capital raising. Dean is chair of our Audit and Risk Committee, and he's also chair of our Disclosure Committee, as well as being a member of the Health, Safety and Wellbeing Committee and Corporate Governance and Nominations Committee. I'll now ask Dean to make a brief statement to this meeting. Dean?
Thank you, Joan. Kia ora. Good morning. My name is Dean Hamilton, and I appreciate the opportunity to seek your support for my re-election to the board of The Warehouse. Having joined the board, as Joan said, in April 2020, shortly after COVID struck and amidst New Zealand's lockdowns, it has been a turbulent three years. The share price tells some of that tale. At the time of joining, it was a little over $ 2 a share. We peaked at over $ 4 a share, as you'll be well aware, in late 2021, when our business, along with others, boomed through the COVID-enforced living and travel restrictions. However, it's disappointing the share price is now back closer to $1.65.
While we've paid over NZD 0.60 in dividends in the intervening period, by any measure, it has been a disappointing performance for our shareholders. There is no doubt it is a challenging economic period for our customers. At the same time, competition for the consumer dollar has never been stronger. That said, we don't control those things. We need to focus on what we do control as a company and do better. We need to deliver higher levels of profit, increase returns on our capital, and to do so more consistently. As a director, I'm very conscious of this responsibility, as I know all of your directors are. The company is undergoing a transformation, be it in our core systems, in our organizational design, in our product ranges, and the way in which we reward our loyal customers.
Importantly, we need to deliver value for our customers and value for our shareholders. My experiences have been, as Joan laid out, as a CEO of manufacturing businesses and senior roles in financial markets. I've been fortunate enough to lead large businesses and small businesses. I believe my strong commercial experience and understanding of what creates shareholder value makes a valuable contribution to the board and to the company. I would welcome the opportunity to continue to serve on behalf of shareholders. Thank you very much for your consideration.
Excellent. Thank you, Dean. Are there any questions on the re-election of Dean Hamilton as a director? There appear to be none. I now move that Dean Hamilton be re-elected as a director of the company. The poll on the re-election of Dean Hamilton will be conducted at the end of formal business. Now we're going to move to the second resolution, which is the re-election of Robbie Tindall. Robbie was elected as a director of the company in November 2020, having previously been Sir Stephen Tindall's alternate director since 2017. Robbie studied the arts and science at the University of Auckland before spending eight years at The Warehouse in various merchandise and buying roles.
Since 2011, Robbie has been an investment director at K1W1, which is a family investment company, where his involvement in some of New Zealand's most exciting technology and innovation companies sees him uniquely placed in understanding a broad range of technology trends as they come to the m arket. Robbie is also a trustee of the Tindall Foundation and the Finn Lowery Foundation.... Robbie is a member of the People and Remuneration Committee, the Disclosure Committee, the Corporate Governance and Nominations Committee, and the Health, Safety, and Wellbeing Committee. I'll now ask Robbie to make a brief statement to the meeting. Robbie?
Thank you, Joan. Kia ora. Good morning, shareholders, Warehouse Group team, and advisors. It's a privilege to be here this morning to seek your vote for my re-election to the board. This will be my second term as a director since being appointed and voted on three years ago. Those three years have seen unprecedented conditions facing retailers and all businesses. The Warehouse Group has seen record sales and profit years, followed by depressed customer confidence. It has seen some of our brands flourish and others struggle. It has seen large numbers of our customers switch to shopping online and then revert back to something more like what we were used to pre-pandemic. Throughout these years, your board has done its best to steer the company in the right direction, and I believe we have the talent and dedication to continue to do this despite challenging conditions.
My day-to-day working life outside Warehouse Group involves studying technology trends and investing in technology companies across several different sectors, from enterprise SaaS to renewable energy to AI automation to sustainability and climate, among others. I believe this experience places me in a good position to contribute strongly around the board table when it comes to innovation and technology, something all retailers are facing into. I'm also a father to four children, aged 15-seven , and I'm learning from my kids and their world experiences every day. They, along with my wife, are big Warehouse Group shoppers, and of course, so am I. I have a long history with Warehouse Group, having grown up around the company. I worked various school holiday and part-time university jobs within the group, and then I started my working career with eight years in buying and merchandising roles with Richards.
The experiences and insights I gained throughout those years helped to give me an understanding of the company, which I can use to add value around this board table. I also believe I have a role to play alongside other directors and the ELT in keeping the team culture strong. I've appreciated your support over the past three years, and I hope to gain your support again, so I can help the company to flourish into the future. Thank you very much.
Thank you very much, Robbie. Are there any questions on the re-election of Robbie Tindall as a director? There don't appear to be. So I now move that Robbie Tindall be re-elected as a director of the company. The poll on the re-election of Robbie Tindall will be conducted at the end of the formal business. I'll now turn to the third and final resolution, which is auditors' fees and expenses. PricewaterhouseCoopers continue in office in accordance with the provisions of Section 207T of the Companies Act 1993. A resolution, however, is required in respect of their remuneration.
For the information of the shareholders, and as disclosed in the 2023 annual report, the total fees paid to PwC in the financial year ended 30th of July 2023, were $ 1,078,000, of which $ 878,000 was in respect of auditing the 2023 annual financial statements of the group. Proxy voting in respect of this resolution is shown on the presentation screen. Are there any questions on the authorization of auditors' fees and expenses? We have a question here. Could you come up to the mic for us? Up here to the mic would be great, thanks. And if you could just let us know your name.
My name is Bruce. I've been-
Welcome, Bruce.
I've been a shareholder for quite a number of years, and I notice every year it goes up quite substantially, the PricewaterhouseCoopers fee. Is there any way we can restrict the, or the board can restrict the fee that you're paying to them?
Bruce, it's a very interesting question, and you and I had a little bit of a preliminary conversation before the meeting started. As a NZX 50-listed company, we obviously have to use one of the highly reputable Big Four accounting firms. I can tell you, in the last couple of years that there have been some, you know, quite serious discussions with the auditors, not just in this company, but in other companies that directors are involved in, in terms of fees. At the end of the day, we have to negotiate a fee with the auditors, and the fee does fluctuate depending on the amount of work that's done, and that varies from year to year, depending on some of the additional services that we require as part of the audit.
That's been exacerbated in recent years by some of the changing IFRS requirements and some of the additional requirements that we've had as a company in terms of auditing accounts. But I might ask Dean, as Chair of Audit, whether he wants to add anything to that.
No, I think that, that's a good summary, Joan. It's a, it's a constant source of review. I think as we work our way through the systems projects, we've got multiple systems and multiple brands, which makes it more complicated to audit than it may appear. So we're hopeful that once we get our way through that journey, we're in a much stronger position to place a cap on those fees, 'cause we're very conscious that$ 1 million, it's a, it's a large part of our expenses.
Yeah. Well, as I understand, it depends on whether the people doing the auditing are senior in the company or junior, on how much they charge.
Yeah, that's true.
So do you have to accept all the senior personnel there rather than, say, the middle range of their personnel or the junior, more of them? So therefore, the fee would be a bit lower.
... Yes, I think it's always a mixture of things, isn't it? You need some capability, you need some senior people, you need some middle people, and you need some junior people. So, yeah, we're very aware of that. So, ultimately, we're conscious of it. I think part of our journey will be getting through the systems projects, and then we'll be re-sitting again to say, you know, "Where are we now with our fees?
Yeah, 'cause the previous year, their fee was 928, I think it was. This year, over 1 million. That's a very big jump.
Yeah, I agree.
Yep. They're more expensive than the board, as we keep telling them.
Yeah, I-
We're a bargain comparatively.
And-
Thank you for your question. Any, any other questions? If not, I now move that the directors are authorized to fix the fees and expenses of PricewaterhouseCoopers as auditors for the ensuing year. The poll on authorizing the directors to fix the auditors' remuneration will be conducted at the end of formal business. Now to voting. I will just remind you of the voting procedure. All resolutions are ordinary resolutions, which will be passed if approved by a simple majority, that is more than 50%, of the votes of the shareholders entitled to vote and voting in person or by proxy or representative. To vote, simply select your voting direction from the options shown on the screen. You can vote for all resolutions at once or by each resolution. Your vote has been cast when the tick appears. To change your vote, simply select Change Your Vote.
You have the ability to change your vote right up until the time I declare the voting closed. I remind you again that you are voting on each separate resolution as detailed in the notice of meeting. If you hold a proxy on behalf of the shareholder, you will need to cast the shareholder's votes in order for them to be counted. The position with respect to discretionary proxies held by myself and my fellow directors is shown on screen. I will act as any shareholder's proxy, where that shareholder has completed the proxy form but has omitted the name of their proxy, and for those shareholders whose name, whose named proxy is not in attendance. We intend to vote all discretionary proxies we have received in favor of these resolutions, except where I or a fellow director is interested in the resolution, in which case we will abstain.
Once all votes have been cast and voting is closed, they will be counted by the company's share registrar and scrutinized by the company's auditor. The results of today's meeting will be released to NZX on completion of the verification of voting. So to general business. I will now open up the meeting for general discussion. Any eligible shareholder proxy attending the meeting, in person or remotely, is eligible to ask a question. If you're here in person, we welcome you to come up to the front of the room and use the standing microphone. Please introduce yourself when you come up to the microphone and let us know if you are a shareholder or a proxyholder. Online, a reminder, if you're joining the meeting online and if you have a question, please select the Q&A tab on the right half of your screen.
Type your question into the field and press Send. Your question will be immediately submitted. Are there any matters in respect of today's presentations, the annual report, or of a general nature that anyone would like to raise? We got any online questions? We don't appear to have any in the room.
Good morning.
Oh, it's Coralie. Welcome, Coralie. Oh, I'm sorry about that. Well, it would have been, except, except-
We, we-
... except we were scared of missing you, Coralie. So that's why we wanted to make sure, 'cause sometimes-
Okay
... out of the corner of my eye, I can't see everyone.
So returning to my subject from last year about customer experience, I returned to the Sylvia Park store again, Wednesday last week, with a friend who used to work at a major bank, who's pretty switched on with pricing and security. And we walked right through the store, well, pretty much through it. Found it lovely, clean, smart. It somehow looked brighter than last year. My friend said that in order to get a Warehouse discount, she had to have an app loaded onto her smartphone. Now, that might be beyond the reach of quite a lot of your customers, but she's savvy, so she had it. I haven't. Then we walked through. We didn't actually need to buy anything, so we didn't have to go through the checkouts, which last year I pointed out to you were very daunting, very daunting.
In that particular store, and I don't know if it's the same in your other stores, but the screens seem to be very close together. It's a very small area for that huge store. For people with their trolleys, I think about before Christmas, it must be ghastly. They're all trying to get their trolleys through this very small area. There was one young guy helping people who didn't know how to use the screens. And, of course, there was this poor old guy with this trolley full of stuff and a walking stick, and he was absolutely bemused at that screen. And as we walked out, we heard the young guy say to him, "Well, you have to put your card in, you see, you have to put your card in." Now, how long it took for that young guy to help that one person?
... I don't know, 'cause we left. But if you go to the Briscoes store in Mount Wellington, where there's an orderly way to line up with your trolleys, and you've got this whole bank of people helping you, I'm sorry, but that just has to be better. And I think if you improve your customer experience in your stores, your sales will improve.
Thank you, Caroline. I'm gonna pass over to the Chief Executive, but we will download the app on your phone before you leave if you've got a smartphone, because there are some fabulous bargains to be had. But I'll ask Nick to respond.
So yeah, thank you very much, Coralie. And we did take notice of your question last year.
Mm.
There, there's a couple of things I'd like to respond to in that. The first is about Market Club and the app. And so, you know, we've run a test recently, and we have increased our penetration, and it's a way of offering value to our members. Those members do spend more. They're a reflection that we take a survey, and they think better of the store than non-Market Club members. But we're aware that not everyone has a smartphone or wants to use it.
Mm.
We do have a card that we swipe for those customers-
Oh, do you?
-at the register. Yeah. And so of the 30% or so of people that use the app, there was an additional about 4.5% that used that card. So we do have a mechanism-
Oh, well, you had to try.
for doing that. And so we should probably do a better job of telling people. But, you know, we want people to have the app so that we can offer them all sorts of other deals.
Good.
You know, your point about the self-checkouts, it is, again, an ongoing challenge, and-
Mm-hmm
Most of the year, it's fine. At this time of year, particularly, we do accept that it is an issue. Our staff should be trained to help people and shouldn't cause them too much inconvenience. But again, we'll take it further. As ever, we really thank you, Coralie, for pointing it out. I'm really sorry not to bring you a microphone. If there are other shareholders who don't feel comfortable or, you know, are not capable of coming to the microphone, we can bring one to you, but it would be best if you can come up forward, that would be great.
Thank you, Carolyn.
Thank you, Coralie.
Do we have any other questions in the room? Is Bruce just coming back?
Right. Copy your market plan. The thing I have, donate. We will—when you shop, we donate to a charitable cause of your choice. How are you gonna try and work that? Because there's about 300 or 400 different charities. Or is it—is there a charity that you-
Yeah, that-
nominate, and we have to
So there's, I believe, six charities that we support, and you can choo-
Yeah, I-
You can choose which one that you would like.
Yeah, well, that is incorrectly worded.
I take the criticism. We'll look at it, and we'll try and correct it.
All right, that's-
Thank you, Bruce.
Right, that's one out of the way. Now, I have a question for the board. It says here, and this is from your report 10... Page 101, that Mr., the CEO's bonus will not be paid next year. Is that correct, as I understand it, written here? I've got it highlighted.
Yeah. Well, the annual report shows what's paid within the financial year.
Yeah, yeah.
We have already determined the performance for FY 2023.
Yeah.
In FY 2023, there was no STI or LTI payable, which would normally be paid in FY 2024. There is, however, a $ 567,000 deferred STI from FY 2022 that will be paid in FY 2024. As you'll see in that annual report-
Yeah
... Nick's total remuneration for the FY 2024 year has already been determined, and that is 2.2 million. about 1.5 million of that, 1.6, is his fixed remuneration, and the balance is that 567,000 deferred remuneration from 2022. I'm correct on that, Tony, aren't I?
Yep.
Yep.
Yeah, you actually beat me there because I was gonna bring up you saying not getting a bonus next year, then next one that-
Yeah.
Yeah.
Can I also let the audience know that Bruce has been a shareholder since 1994, and this is his first attendance at an annual meeting, so we're very pleased you're here.
Well, there's another thing you're on about, customer service. There's a couple of things. I've got an email here. I think I wanted to... I like buying the H&H brand, which is your own.
Yep.
And, jeans and that. You have plenty of the double X, triple X, and not many of the ordinary ones. I come from Hastings, and I asked. They said, "Oh, we only get what we are sent." So I got hold and found out that Aleisha Bradley is the person meant to be in charge of it. So I sent an email to her asking if she could get some to me. That, the email was sent at 1:09 on the twenty-fourth of June, 2023. Nothing.
You haven't heard a response?
No.
Let me get the CEO to comment.
Yeah. Can you send it to me directly, and I'll personally-
I got it.
Try to get what you want and
I've got the email here.
Thank you very much. We'll talk to you afterwards, and I'll be delighted to sort that, and apologies that that wasn't responded to. Don't know why, but I will look into why not, because the principle of helping our customers is what's most important. I want to get your problem solved, particularly, but want to know why there was a systemic issue so that we can stop that happening in future. So thank you again.
Yeah, there's one thing with Noel Leeming. I bought some. I moved to a new place where I live, but moved into a, like, a little complex, and I needed a new fridge and washing machine, so I ordered it, and they would deliver it at a charge, was no problem. I said, "Oh, I don't always get texts very quickly on the phone. Can you ring me?" And they agreed. So the day came, I turned up at the site to see someone else there. Next minute, the Noel Leeming truck pulls up, and they unload it, and I said, "Oh, you were meant to phone us. Oh, we don't know about that.
Okay.
So then we unloaded. They set it all up. The guy came along and set it all up. Then he left, which took a while. As I was driving out the complex, my phone beeped, and there was a text, "The truck will be there in 30 minutes.
So that's clearly a miss as well. That, that's not how the process is supposed to work. So again, thank you for highlighting that, and, you know, always delighted to hear any of those issues so that we can solve them. So my personal apologies to you for that.
Thank you.
Thank you for your patience, Bruce.
Thank you for coming, Bruce, after bearing with us for so many years.
Jo?
We do have some online questions.
Thank you.
Good morning, everyone.
This is Anna.
I'm Anna Shipley from The Warehouse Group, and I'll help with the online questions. The first one we've got relates to audit from Eva Quiding. Apologies, Eva, there was a short delay on popping these through into the system. There's two questions: What happens if the majority of shareholders voted against Resolution Three? Who then will fix the fees and expenses? And then there's a second part to that question, which is: When is The Warehouse Group due to change its auditor next?
I'll let Dean answer more substantively. Audit rotation is something that I think is getting a bit of prominence at the moment. We've had, it's public domain, Shareholders Association have presented their views to the company in terms of what... we get the lead auditor rotated on a regular basis. In fact, Pip Cameron has just joined us as lead auditor after Lisa Crooke has stood down. But audit firm rotation is certainly a topic du jour, and I guess we'll be having a look at that in the next while. I'm not sure. Where is Erin? What happens if in the event that we had more... I've never heard the, of that happening, of the, majority of shareholders voting down a resolution around setting auditors' fees. What do you think would happen, Erin?
Joanna, I believe it would go back to be a shareholder resolution, but I'd have to check that with our external advisors and confirm. But I'm happy to check that with the shareholder after the meeting.
Okay. Thank you. Next question?
Sorry, there's a gentleman here.
Welcome.
Go ahead.
If the current share price were to persist, would the board consider separation and spin-off of the operating unit businesses?
Would you just let me know your name again? I've met you before.
Oh, apologies. David Prebble.
David. David's an accountant. And just say the question again, we'd consider spin-off of a-
If the current share price were to persist, would you consider a separation and spin-off of the operating businesses, such as Noel Leeming, Torpedo7, the market, as individual listings on the m arket, so they could be valued individually?
Well, I guess our strategy at the moment is as a group, and we see ourselves as having, you know, a very robust strategy in terms of getting the benefits of having all of those brands as part of our portfolio. It's not something that we are considering at the moment at all. Our primary focus is getting the trading right across the brands and making sure that we do get that share price up where it belongs. But obviously, it is something that, you know, boards look at when they do their annual strategic review, or more frequently, if there is, you know, a specific set of circumstances. Thank you, David.
People over there.
Are you able to come up to the mic? Oh, yeah, you've got my roving one there. Thanks, Amber.
Yes, and older and-
Sorry, we just missed your name there.
Edwin Stranahan.
Edwin, welcome.
I take issue with what Nick Grayston says about these cards for at the checkout, where people haven't got a smartphone. My wife was just shopping this week in the Royal Oak store. And we don't have smartphones. Even the Department of Social Welfare acknowledges that about 60% of the Gold Card holders do not have smartphones. So it seems to me that you're cutting out a large slice of the population just for this. When my wife was at the checkout, there was no mention made of a card or anything else. She asked the question because there'd been an indication on one of the items that there was a discount on it for the m arket Club.
She was told, "Well, you'll need a smartphone for that." She said, "I haven't got one," and so they said, "Sorry, well, you're out of luck." Now, is this a matter really that you haven't trained your staff well enough?
So, Edwin, clearly that's a miss, because, you know, we have had scans, as I said, 4.5% of those. If you could tell us what time that was, then that'll help us look back and be able to uncover how we made that mistake. But it is a mistake, and we will look into it, so thank you for raising that.
That's a bit unreasonable just to expect us to know what time it-
We'll look into it anyway. It just makes it easier to identify which-
It was on Wednesday at the Royal Oak store, Wednesday morning.
Okay. Thank you. We'll-
That's valuable feedback. Thank you.
Yeah.
I've got another question, and this question is relating to Torpedo7.
Yep.
... We hear with Torpedo7 that it's not doing very well. It continues to do not very well. You talk about holding on to your brands and so on, but is it time to make the tough decision and close it down if you can't do it successfully? I mean, it's about $ 20 million
No, that's not quite correct. We've lost $ 22 million last year.
Last year.
Yeah.
It was $2 million-
What was it the year before?
$2 million.
2 million before that.
It was a precipitous loss in FY 2023.
What was the 2 million? Was that the m arket?
That was the loss the year before.
Was that the m arket or the Torpedo7?
No, that was the event.
He's saying the m arket. the m arket did make a loss the year prior-
Yeah.
But Torpedo7 made a loss-
Yes
in FY 2023 of $ 22 million. In the prior year, it made a loss of NZD 2 million.
You still haven't been able to reverse that. You said in your presentation that, Q1 of this year, you're still having problems with it.
Yeah.
I mean, there's one of the problems here. You mentioned specifically bikes. Around my neighborhood, I see more people actually using electric scooters now than bikes.
Right.
Perhaps you've too far behind the play.
Your response to that?
That could be... I mean, that could well, well be true. And, you know, we have sold, sold electric scooters in the past. There wasn't much demand for them, but, you know, maybe we were too early. But, you know, a large proportion of the, the, the issue is the collapse in, in the bike market. It is a global phenomenon. You know, so that's a tactical problem, how we reposition the inventory from what, from what we have. You know, strategically, you know, it's our job as a retailer to, to find a different way of, of appealing to those customers. And so your point is well taken. You know, it was a precipitous loss. We have been trying to get that business to scale and have been sort of close to, to breakeven until last year.
And so, you know, we have, in line with the bike business here and globally, seen that sort of collapse. As I said in my speech, that has exposed some flaws. We continue to look at the future of that business, and, you know, we have committed to report on our progress at the half year. So, you know, totally well noted.
When you're talking about bikes, does that include electric bikes?
It does include electric bikes.
Do you sell electric bikes?
Yes, we do.
Thank you.
Thank you very much, Edwin.
Thanks. Thank you, Edwin. Appreciate it. Carl, I noticed you have your hand up as well.
Carl. Welcome, Carl.
Hi.
Hello, Carl.
I'm Carl from The Warehouse. I am a shareholder. I work in The Warehouse. I did not know about the m arket card.
That's, I think-
I have availability, so I-
I know you work in item availability.
Yeah.
So-
So I very rarely open checkouts. But I am unaware of the cards. My phone does not support the app. I have to bring a Chromebook with me every time I want to purchase stuff on the mark, on the m arket Club. So-
That's good feedback to hear.
Okay. Well, again, thank you for the feedback. We'll absolutely look into it.
In our Workplace, this is something that the staff have raised a number of times about the issue with customers bringing up the fact that they don't have the app. Yet, we haven't received a valid response in relation to that.
Yeah, well, obviously, the workaround isn't as successful as we thought it was. Was that a fair summation, then, Samuel...?
Well, yeah. I mean, I'm pleased to get the information because, you know, we've had a lot of dialogue with the teams. You know, we have briefed them. There is no sort of membership card as such. It's an override card at the register. So, you know, we'll... It's again, something we're considering, but it's a very important part of our business to be able to offer value.
Yeah.
So, Carl, we'll pick up with you again on how that got missed. We know it's in execute, so we'll-
Yeah.
Dig it out.
Yeah.
Thank you again.
Thank you, Carl.
We've been getting conflicting information even from the m arket.
Okay. So that will absolutely-
Uh.
that, that is something we'll absolutely sort, and we'll come talk to you afterwards and
Thank you very much for that, Carolyn.
Again, we always appreciate you raising those things.
We have another question here.
I think we've got two.
Two down there as well.
Hi, Ian Kutcher. I'm a shareholder.
Welcome, Ian.
Thank you. I've recently heard that a profitable and popular Warehouse on the North Shore is being closed down. Could you explain the circumstances around that and what you're going to do because of that?
You're talking about Milford?
Yeah.
Yeah.
Milford, indeed, and there has been a lot of media. It's a store that emotionally we're very attached to. The store has a final lease expiry. We were in extensive negotiations for a long time in advance of it with the landlord. We wanted to find a way of keeping that store open. We were not offered terms that would've allowed it to remain profitable, but it would've lost a lot of money, you know, even if we'd managed to land the terms, which were not feasible to continue to run the store. We're very disappointed to close that store. I know that store very well... and it's particularly important to the local community.
We've continue to look at alternatives and how we serve that community, but we're very disappointed to close that, and it wasn't our choice to do so. We'd have loved to have found a way to do it and worked very hard to do so.
Any other questions in the room? Yes, Edwin. Oh, sorry, we've got one at the front.
I'm a bit concerned because we seem to be getting a lot of glib answers here that don't add up to anything very substantive. Frankly, I'm a bit disgusted with the carrying on.
Which specific glib answers are you concerned by, Edwin?
Well, the reference, for instance, if I could tell you the day and the time of at Royal Oak, and we'll look into it.
And we will. I can-
What the hell will you do after you've looked into it?
Well, I don't think it's anything that anyone... It's, it's not in our interest to have a situation where customers are being alienated because they can't avail themselves of Market Club offers. So I can give you my conviction as Chair of the Board, we will look into it.
Well, it's very widespread, just across here with the cross-section. Look, we've got shareholders. three-- It's been raised by three different shareholders.
Yeah, I guess it's, you know, the ubiquity of smartphones means that in the round, we think it's covering everything. Clearly, it's not, so we've got to address that, and that's one of the values of us fronting up to shareholders every year, is we get insights we don't get anywhere else.
Accepting that a lot of people don't have them and don't use them?
Yes.
Like 60% of the gold card holders.
Well, that stat surprised me.
Well, I got that in writing.
Yeah, no, I'm not disputing it, but like I said, it's one of the reasons it's so good to have an ASM, is that you get those insights. Thank you again, Edwin. Now to this gentleman at the front.
Hello, my name is James.
James, welcome.
I'm a shareholder, and I've submitted four questions by email, and I hope it will be addressed later. I got one more question for today, similar to Bruce's question about the STI.
The what, sorry?
The STI.
STI. STI, yes.
Would you mind to let me know, because I read from the annual report, the gate for payment is 90% of 2024 group adjusted NPAT budget?
Yes.
Can you tell me what is the budget?
The budget. No, we don't disclose the budget.
Okay, then how we know it's meted or not as a shareholder?
How you will know it's met or not is when you see the next financial year report when we've made that assessment. So that's the gate, is the group adjusted net profit after tax, means that has to be achieved at 90% level before any STI is paid. The STI itself is based on EBIT performance, 70%, and then there's personal objectives as well. But before anything gets paid, any STI is paid, that's the gate. But in terms of how will you know, we as a board obviously assess that. The People and Remuneration Committee is led by Tony Balfour, and that's part of our process. Each year, as we go through, obviously, when the financial results are finalized and assess what the STI award is, if any.
As I said, for FY 2023, there was no STI made.
Mm-hmm.
The STI that will be, or the amount that will be paid under an STI heading in FY 2024 for the Group Chief Executive, relates to FY 2022.
Okay, thank you.
We had three other good questions from Mr. Marsh. I'll ask those to you, Joan, and the team now.
I'm sorry, Anna, there, there's one more shareholder in the room who I think also would like to ask a question.
Oh, okay. Sure.
Sorry, I know you're a bit blindsided by that.
My name is John, I'm a shareholder.
Welcome, John.
If we're asking questions, that might actually be opportunities. It seems that if Torpedo7 has put too many eggs in the bike basket, are you actually reaching out to other recreational areas that Torpedo7 should be, or could be serving? So if you've had too many eggs in the bike basket, I'd really suggest you look elsewhere.
Yeah, we absolutely do have a tramping supply business. And you know, I think you're absolutely right. We need to take out our dependence on just bikes-
Mm-hmm.
And broaden that. There are other categories as well, which I'm not gonna reveal for competitive reasons, but we're also looking to get into the big opportunities in New Zealand. So, you know, couldn't agree more.
Thank you. James' other questions.
Certainly. The first one is about grocery. It is noticeable that The Warehouse Group is expanding the grocery sale volumes in recent years. Does The Warehouse Group management team believe it is well-placed and planned to be the third main player? And how do we intend to break up the supermarket duopoly? James notes that Tex Edwards has said that the sheer market power of the two supermarket chains meant that government intervention was the only way to ensure another competitor, and it would take NZD 1.1 billion in capital for a new entrant to operate in The Market. Do we have some commentary on that, please?
Very astute questions, James. Nick?
Yeah, it's a very, very thorny issue and, you know, we feel passionate about the fact that when you look at the amounts of disposable income spent in, for example, in the OECD, you make comparisons of food produced in New Zealand and compare it to what you get charged for the same food overseas, is not a fair outcome. So, you know, we were heartened by the study that was done by the government, and we're heartened by the appointment of a Grocery Commissioner. You know, myself and the team have met with Pierre van Heerden, the Grocery Commissioner, and are included, and, you know, continue to have dialogue. Our point of view is that, you know, we are continuing to do what we can to provide a low-cost alternative.
You know, it's a very thorny question on the duopoly. We can't obviously break up the duopoly, but, you know, what we have found is that on items that we've chosen to get aggressive on and, you know, sort of around providing Kiwis with an affordable breakfast, for example, you know, we've brought down the price of butter. We just added 80 grams of cheese for NZD 7. Sorry, 800 grams of cheese. Sorry, 700 grams of cheese for NZD 8. And, you know, continue to build our Market Kitchen products. There's 64 at the year end, we've added many more. Those are ways that we can drive a more competitive price and, you know, as I said, it's now nearly 23% of our mix.
But we need government action, and the government action needs to look at the sort of relationship between the duopoly and the big suppliers. And that's, you know, the net, net pricing, when you adjust for all of the sort of various different discounts based on volume, all the rest of it, is, you know, how that needs to happen. You know, there is dialogue to your point, I've seen Tex's comments about the potential breakup of the duopoly. That's obviously something that we can't impact. Our view is that, you know, grocery is very much needed and should represent value as we try to offer across the whole of the store. In order to do that, you know, we need to make our business more profitable, more efficient.
So worked a lot on gross margins, you know, that's why we've launched our own private label, Market Kitchen, business. And we also need to reduce our cost to serve. That looks like sort of more efficiency in the DCs, and we've seen a lot of those efficiencies start to come through and throughout the supply chain. Offering expanded products, you know, bulk stacks in stores that reduces the cost to handle and all the rest of it. So it's a very thorny issue, and, you know, we really are looking to government to, you know, to be able to help us support everyday New Zealanders. The element of people's income that is spent on food is way higher than the vast majority of countries.
You know, we're doing what we can, but we're still a relatively small player, and we need some help from the government.
A related topic, Nick, on capital raising. James notes that if NZD 1.1 billion is needed to be a third player, and the share market value of the group now stands at around NZD 600 million, how might we be able to financially, deal with that? And the undervaluation of The Warehouse Group share has put us in an awkward position for the capital raise needed. What is our comment or plans to address that?
Yeah, I mean, you know, my focus and the management team's focus is around rebuilding the profitability of the business, as I said, and that's what drives the valuation. You know, it's a fairly straight line with the multiple that on EBIT that we're awarded by the m arket, and that drives the share price and drives the m arket capitalization. And if that's up, it makes it easier to raise capital. You know, it's not impossible in that scenario that you could look at an equity raise or a number of other things. I don't know if the board has any comments on that?
I have been-
You know, the focus really needs to be on rebuilding profitability in the business and-
That's absolutely the focus at the moment, and it'd be fair to say that there's no intention from the board of directors to be raising $ 1 billion worth of capital to go into grocery at the moment.
There's a final part, James, and I think there were several other comments that you made around gross profit and margin, which I think we covered off in the main presentation. But there's one final question, and, Celia, I might pop this one to you around interest cost management. Due to the high interest rates globally compared to FY 2023, how much more interest cost is estimated this financial year?
Yeah. Thank you, Anna. So, interest rates are obviously a little bit higher this year than they were last year. Our interest cost last year was around 8.3 million for the year. And our focus this year really is on getting our debt lower and managing our working capital significantly. So that being said, we are expecting costs to be similar to last year in terms of interest.
Any other questions? We've got a couple more. Yes. We've got a question from Mr. Moselen. He notes that he was visiting Pupu Springs, northwest of Takaka in April. He noticed a Warehouse vehicle in the car park there. This is a tourist spot some 60 kilometers over the torturous Takaka Hill, I quote, "From the nearest retail outlet in Motueka." His question is: Is the, is the company planning to set up a store at the springs? Nick, is this something you haven't told us, Nick?
Yeah. No. Joking aside, it's a beautiful spot, and I have zero intention of setting up a store there. It would be environmentally devastating. I have no idea what the car was doing there. But we have a good store, which I have visited in Motueka. Anyone planning to go over the hill, I'd urge them to stop off there in advance, but I have no idea what that car was doing there. But I'm pretty sure that I can say without fear of contradiction, that there is no plan to open a store there.
... Okay. A further question around retention for Nick, Joan, from Paul Walsh. In October 2022, it was announced that the company had entered into a four-year retention agreement with Mr. Grayston. The agreement required Mr. Grayston to meet certain performance criteria determined by the board. Can the board inform shareholders what those performance criteria are?
Mr. Walsh is correct. The scheme was entered into in October 2022. It's a four-year retention arrangement. There are three prongs to that retention arrangement. The first is to encourage the current CEO to stay in the role until that four-year horizon. It's the first. Second criteria was the group CEO has to have some valid succession options, which are approved by me as chair by, I think, August next year, August 2024. And the third was a more general criteria, which is about performance, and we specifically haven't disclosed or even formulated what those performance criteria would be. And the reason for that is we're going to look at it in the round. Nick's remuneration is based on fixed short-term incentive, as we've discussed this morning, and a long-term incentive.
It's important that we look at events as they have transpired over that four-year period and judge in the round whether we think that, that our view of performance has been met. Obviously, the 1.6 million share rights at the time they were issued were worth quite a lot more than they are at the moment. But I have to tell you that Nick is working incredibly hard with his leadership team to make sure that we do the best we possibly can for our shareholders and all of our stakeholders. So I know that's his focus.
Another question from Paul Walsh: Can the board inform shareholders to what extent, if any, the dividend to be paid next month would have been affected had it not been for the sale of the Royal Oak store?
That's a very good question, and as I've said in my speech, we were pretty devastated that we didn't declare an interim dividend. When we evaluated whether we would pay a final dividend, there were a number of parameters. As I think I mentioned in my speech, the debt level at the end of FY 2022 was about NZD 40 million, and then at the half year, debt had gone up to about 80 million. In addition, we made creditor payments, I think, within a few days of the end of the half, so our debt levels were much higher. So we elected not to pay a dividend at that point.
At the end of FY 2023, debt levels were down again to just over what they had been in the previous corresponding period, so around 43-44 million. We knew also that we had planned a significant reduction in project expenditure, so we spent about 154 million on project expenditure during FY 2023. That is reduced to about 80 million this current financial year. And yes, we did have the proceeds, I think it's $ 30 million dollars roughly, of the sale of Royal Oak store. So we were well within the bounds of our target liquidity range, which I talked about in my speech. So it was one of the factors, but not the most important factor, and I think as all of you as experienced shareholders know, signaling is a very important part of dividend.
So, the 0.08 we believed was absolutely appropriate, and we're looking forward to improving our financial performance so we can get back to, you know, the sorts of levels we had pre-COVID, which were around NZD 0.17-NZD 0.18. Our objective is to have a gently inclining dividend trajectory. Anything you want to add to that, Dave?
Thank you. A further, a new question from Jaspal Singh. He asks: With the continual failings of the m arket and its financials, is it time to cut shareholder losses and stem the hemorrhaging? Member numbers are increasingly... Obviously, it does not equal profits.
No, the losses has reduced significantly, though, Nick.
So again, let me tell you that, and I think there maybe is some confusion that I'd like to clarify. There is one entity, which is the m arket, which is our online marketplace, and, you know, as I pointed out, it lost over 20 million last year. We consolidate that business to go into Agile and see the loss reducing to under 5 million. We are looking at further things that we can do to reduce that loss and still retain the opportunity to be able to serve our customers with what's now nearly 7 million different products. And we have tested putting third-party products on the Red website. It's in its early days, but we've had very good feedback from our customers.
I think the member numbers part of the question refers to Market Club, which is a separate thing. We started Market Club in the m arket. There are 200,000 people that signed up through the m arket. However, we have at the year-end, and it's increased since, 1.3 million members in the m arket, in the m arket Club. Most of those have signed up through The Warehouse, where it's a way of offering value via membership. And so we've just done, as various different shareholders have noted, a test on Market Club, and we've seen big increase in the profitability of those products and overwhelmingly good support, noting that there are some customers that don't like it. There's a lot of customers that do like it.
It's a part of the strategic discussion about how we take it forward. We've got some good, you know, some good feedback and builds from customer- from shareholders today, but also we continue to gather those all the time from our customers, and so that's very much an open question. But, you know, if you look at our competitors and successful business models throughout the world, they are driven by membership programs. And, you know, you reflect on One Pass in Wesfarmers Group, you know, Tesco Clubcard, et cetera, et cetera. And so we believe it's a really, really important part of our competitive advantage. But how we make it clear and available to all of our customers with smartphones or not is something that is definitely under consideration.
Okay. We've got a further online question from Eva Quiding relating to Torpedo7. Following the major review, will Torpedo7 physical stores be all closed down? Nick?
Again, premature. We, we, you know, we haven't made that decision. And, you know, we are reviewing all aspects of what we need to do to drive the, the business performance. And so, you know, we'll look at everything, but that decision has not been made.
Thank you.
We don't have any further online questions.
It appears we have no further questions in the room, so thank you for all of those very valuable questions and insights. That concludes the discussion on the items of business, and in a minute, I'm going to close the voting. Please ensure that you have cast your vote on all of the resolutions. I'm now going to pause just to allow you time to finalize those votes. The voting is now closed. The results of these votes will be released to the stock exchange later today. I now also declare this meeting closed at 11:47 A.M., and I thank you all for your attendance, whether it be here in person with us or online today, and for your continued interest in the company.
For those of you here in the room, please join the board and the senior leadership team for some refreshments, and I believe there are goodie bags at the back of the room as well. I hope you all stay safe and well, and I wish you and your families a very, very happy Christmas and a prosperous new year. Thank you.