The Warehouse Group Limited (WHS) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome. My name is Erin Vercoe, and I'm the Acting Company Secretary of 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 for those of you joining us here at Ellerslie. In the event of a fire or other emergency, if we need to evacuate the building, please follow the directions from our staff. The fire exits are located behind me through the main door on the left-hand side and at the back of the room. The assembly point is on the lawn in the front of the building. Bathrooms are available through the main door and the foyer to my left. If you need voting forms, the team at Computershare will be able to help you at the end of the meeting. 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 very much, Erin. [Foreign Language] Good morning, ladies and gentlemen, and thank you very much for joining us today. My name is Joan Withers, and I'm very proud to be Chair of The Warehouse Group. On behalf of your directors, the Group Chief Executive Officer, our leadership team and all of our team members, a very warm welcome to this our Annual Shareholders Meeting to both those of you who are here in the audience today and to those who are joining our meeting online. Those shareholders who are participating online will be able to ask questions and vote online, and I'm going to run through that process a little later in the meeting. The notice convening the meeting was circulated to shareholders, and as a quorum is present, I am pleased to declare the 2020 Annual Shareholders Meeting of The Warehouse Group open. We were very keen as a Board to hold our usual in-person Annual Shareholders Meeting, so I'll start by saying that we are absolutely delighted that the COVID crisis has abated to the extent that we're all able to be here together today. Now for the introductions, joining me on stage are our directors, Keith Smith.

Good morning.

Robbie Tindall.

Good morning.

Dean Hamilton.

Good morning.

Julia Raue.

Good morning.

Tony Balfour and John Journee.

Good morning.

Where is our future director? Renee Mateparae is down at the end. But Will Easton is our director who is joining us from Australia, and you would all understand the reasons why he is here remotely rather than being in-person. So hi, Will, and welcome.

Good morning, everyone.

So also joining me on stage are our Group Chief Executive, Nick Grayston.

Good morning.

Our Chief Financial Officer, Jonathan Oram.

Good morning.

We also have other members of our group executive team seated in the room, and all of them will be available to speak with you after we conclude the meeting. Also in the audience, we have representatives of our auditors, PwC, and our company legal advisers, Russell McVeagh. So welcome. Now to the agenda. So before we proceed with the formal business, I'm just going to run through the order of events for today's meeting. And that order of business is set out on the screen. I will address the formalities shortly. And firstly, I'm going to provide a review of the 2020 annual results, which were announced in October, including highlights from FY '20 and some comments on our response to COVID-19. Then, Nick Grayston, our Chief Executive Officer, will take the floor to discuss our transformation. And he will provide some further analysis on the FY '20 results and the first quarter of this current financial year, FY '21, and he'll also provide some further strategic commentary. I will then return to the lectern to start the formal business of today's agenda: the voting of the meeting resolutions including the election of directors and authorizing the setting of auditor's fees. We're going to cover each resolution in turn and invite questions specific to those items. It will then be time to vote on the resolutions. And voting will take place by way of a poll. Following those questions -- those resolutions, sorry, we will then have a question-and-answer session. So 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. When the question function is available, the Q&A icon will appear at the top of the app. To send in a question, simply click on the ask-a-question box, type your question and press the send arrow. Your question will be sent immediately for review and will be addressed at the end of the meeting during the Q&A session. When the poll is open for voting, the vote will be accessible by selecting the voting icon at the top of the screen. To vote, simply select the direction in which you would like to cast your vote. The selected option will change color. So there's no submit or send button, your selection is automatically recorded. And of course, at the close of the meeting, as Erin has said, we will look forward to catching up with you over a morning tea. So we'll move now to the formal agenda. Proxies. Proxies have been received from 378 shareholders representing 188,248,720 voting shares. This represents 54.27% of the voting shares in the company. The valid proxies we have received support the resolutions to be considered later in the meeting. I will provide further details on proxies in respect of each resolution at that time. The 2019 annual meeting. I can confirm that the minutes of the annual meeting, held on the 22nd of November 2019, have been signed and confirmed by me as Chair of that meeting. Those minutes were posted on the company's website after they were approved. The annual report. The financial statements for the 53 weeks ended 2nd of August 2020, together with the auditor's report, are set out in the company's annual report. That was made available on The Warehouse website on the 15th of October 2020. And for those of you who are here today, we've got copies of the annual report available down in the registration area. 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 when we open the floor for general questions. Now to my Chair's Address, and I want to spend some time reflecting on the year and review. And I will start by saying that the Board is extremely proud of the way our entire team has reacted and performed in an environment which presented complexities and challenges that we could not possibly have anticipated. Putting team and customer safety first was a priority for much of the 2020 calendar year. Nick Grayston and his leadership squad have shown exemplary leadership throughout this period. The COVID-19 pandemic and its effect on the New Zealand and global economies have impacted not only our team, but our customers, our operations, and of course, you, our shareholders. The ongoing uncertainty casts a shadow across our economic and societal landscape, creating an environment where organizations need to be nimble, adaptable and have a leadership and governance structure, which is dynamic, and which facilitates fast but optimal decision-making. COVID has provided many challenges, but what has been heartening is witnessing this organization's ability to turn on a dime, or to use the current parlance pivot, when we were presented with decisions made outside our control that we needed to react to. True to the values and ethos of The Warehouse, the Board, our leaders, our team members rolled their sleeves up and did what needed to be done to keep themselves and customers safe and to support one another. We were one of the first companies to halt domestic travel for work, and we were very quick to ensure our buying teams stayed here in New Zealand right back in January. That meant some of our team were residing in countries they didn't normally live in, in some cases for months, but it was important that safety was maintained. Likewise, those that were vulnerable were asked to stay at home, and we ensured teams had time during the day to take care of any family needs arising from COVID. During the year, we needed to face tough decisions. Making changes of the magnitude and nature that occurred this year has been difficult, and we understand the impacts of that and empathize with our team members who have been affected. And I'm going to come back shortly to some of the specific COVID challenges that we faced during the year. Now to our 2020 annual results. So in the context of an incredibly disruptive environment, how did we do? Well, as you know, we've been on a transformation journey for 3 years, and in FY '20, we started seeing significant evidence that the hard work put in by the business was starting to pay off. In fact, post-Christmas 2019 and before the COVID-19 disruption, we had good sales momentum and we were able to report a very credible FY '20 half year result. The strategy we deployed 3 years ago to fix retail fundamentals and invest in the digital future has been key to our results. For the FY '20 financial year, group sales were $3.2 billion, which represented an increase of 3.3%. Now that year in review was a 53-week retail operating year compared to 52 weeks in financial year '19. So sales growth was up 1.5% compared to an equivalent 52 weeks. The group's reported net profit after tax was $44.5 million for the year, that was down 32%, and that result included $67.8 million received in wage subsidies. Excluding the wage subsidies received, reported net profit after tax would have been a loss of $4.3 million. The group adjusted net profit after tax was $80.7 million, up 9% on the prior year. That is our reported profit after adjusting for unusual items. And I think if you look at that, it's a testament to the underlying strength of our brands and operating performance and a pleasing performance in a year which faced so much disruption. We finished the 2020 financial year with a very strong balance sheet. We actually had a net cash balance of $168.1 million compared to having a net debt balance of $76.2 million at the end of the previous financial year. And one of -- just one of the great initiatives coming out of our RISE project a year ago provided significant working capital benefits contributing to that turnaround in our net debt position. And of course, since year-end, working capital levels have continued to normalize, with inventory balances increasing and creditor balances decreasing, with net cash now in the range of $80 million to $100 million. Our online sales experienced an exceptional surge in growth in the 2020 financial year. During that COVID-19 crisis, we were able to provide an important service to New Zealand in terms of being able to supply essential goods online through The Warehouse, we have Stationery and Noel Leeming, to enable Kiwis to live, work and learn from home. People quickly realized how easy it was to search for and to find order and receive the items that they needed from the comfort of their own homes. In fact, our online sales grew 55.2% in the full year compared to financial year '19. And they now make up 11.4% of our total group sales. Combined with that increase in online sales, we also saw a 103.2% increase in Click & Collect sales, and we are really pleased with the improvement of our delivery and fulfillment of customer orders through this channel compared to the prior year. So some other highlights. In addition to our pleasing financial results, there were a number of other big highlights for us during the year. At the end of 2019 calendar year, we were recognized as the winner in the Deloitte Top 200 Awards in the Most Improved Performance category. The group attributed our performance to the successful execution of our business transformation program, stripping out complexity and equipping us to operate in an omnichannel environment. We also received awards for our marketing effectiveness, innovation and our Noel Leeming customer experience. Our sustainability work has gone from strength to strength, and we continued our carbonzero Toitu certification. We also represented the New Zealand Business and the Climate Leaders Coalition as part of the delegation led by Minister James Shaw at the COP25 Summit. We continued to increase transparency in our second year of integrated reporting. We maintained our Rainbow Tick and achieved the accessibility check -- sorry, Accessibility Tick recognition. We continued to support communities, and last year, we raised $3.9 million for charity through our store network. When COVID-19 hit, we also undertook some important work for the wider New Zealand community to source essential PPE. And we worked closely with various industry groups and government agencies to ensure crucial products were available to those who needed them. Now to some specifics on COVID-19. And as I said a moment ago, the scale of the challenges presented by the arrival of COVID-19 in New Zealand cannot be overstated. When the COVID-19 pandemic escalated and New Zealand prepared to head into Level 3 and Level 4 lockdowns, there was uncertainty across many businesses as to how they could operate. Our priority was, firstly, the safety of our people and our customers, and this was top of mind in how we managed through the lockdown periods. We made an announcement to the New Zealand Stock Exchange on Tuesday, the 24th of March, that The Warehouse would remain open for business as a provider of key consumer goods that were essential to maintaining the well-being of people. That announcement was made on the basis of discussions that we've had with government officials in the lead up to the lockdown and was supported by legal advice. We believed we needed to disclose this information to the NZX due to the discrepancy between what we had been advised and what the market was aware of. However, it did become apparent there was significant uncertainty around the determination of who and what would be categorized as essential businesses and be able to remain open. And on the night of Tuesday, the 24th of March, MBIE confirmed to The Warehouse Group that The Warehouse did not constitute an essential service as part of Level 4 business closure plan. Therefore, on Thursday, the 26th of March, all of the group's stores, distribution and online fulfillment centers closed in accordance with the government COVID-19 Level 4 approach. Our original announcement to the NZX was made in good faith and our genuine assessment of the facts and a subsequent inquiry by NZX came back saying they found no cause for further investigation. Heading into that lockdown, the Board and leadership team were actively engaged with our people regarding their well-being. Throughout the lockdown period, we worked with government, and in particular, MBIE, to ensure essential products were available through online or through Click & Collect. As we headed into Level 3, we were able to open 30 The Warehouse and Warehouse Stationery stores and 75 Noel Leeming stores as fulfillment centers to cope with the demand of increased online shopping. Our safety policies were key at this time, and we're very proud of how well our team managed to get goods to customers while working in such a different way to that which they were used to. As I said before, the group received $67.8 million in COVID-19 wage subsidies from the government, and we worked closely with MBIE regarding the application for those subsidies. This enabled us to continue paying 11,000 employees their full wages and salaries during the lockdown period when our stores were closed. In terms of a sales trend, you've got the chart in front of you. And during Level 4 and 3 lockdown, our stores, as I said, were closed to the public. That led to a loss of approximately $265 million on the same period in the previous year. So that's a 67% drop over that period. All our group brands suffered a significant reduction in sales greater than 30% in April, with the exception of TheMarket.com. Given the trading uncertainty, we took prudent measures to manage costs. This included rent relief across our 8 stores, our stores of $8.2 million, suspension of the short-term incentive plan and a reduction in directors' fees. But even given these cost-saving measures, if not for the wage subsidies received, as I said at the outset, we would have made a net loss of $4.3 million. And more difficult decisions and actions would likely have been needed had we not had that subsidy. The wage subsidy actually covered around 55% of our wage bill and went directly to our team members. The business topped that wage subsidy up to team members, so they were all paid in full at 100% of their normal pay. Now to dividends. Due to the uncertainty around COVID-19, the Board made the decision in March to cancel the previously declared interim dividend. In addition, given the net loss excluding the wage subsidy received, continued retail trading uncertainty and potentially further COVID-19 outbreaks and store closures, the Board also made the decision to not declare a final dividend for FY '20. As we've previously stated, subject to trading over this critical Q2 period and any further alert level restrictions and adverse economics of COVID-19, the group hopes to return to paying dividends in line with its dividend policy in FY '21. We're also taking this time before the interim result to review our dividends policy. The current dividend policy has been in place since September 2015, and our review is to ensure that the policy is in line with our strategic and capital management objectives and best -- market best practice. Now to governance changes. Later in the meeting, we're going to formally farewell Sir Stephen Tindall and Keith Smith from the Board, and we have a resolution to appoint Dean Hamilton, who joined us as a director in April. Dean will replace Keith as Chair of the Audit and Risk Committee and is extremely well qualified to fulfill this role. We've just recently completed an independently facilitated board performance review. And as part of that exercise, we are identifying areas where we want to complement the existing skills that we have around the Board table. We'll move forward on the specifics and the search on that early in the new year. Your Board have worked hard in the interest of the company in the financial year in review. In FY '20, we held 19 Board meetings with our various committee meetings in addition to that. So thank you. I'm now going to hand over to Nick Grayston, and he's going to review our strategy and brand performance. Nick?

Thank you, Joan, and good morning, again, everyone. As Joan outlined, our year of disruption and change has been immense. And I can't thank our team enough for what they've done to adapt to this new world to keep themselves and our customers safe. The way people changed their day-to-day work and supported one another and our customers at a time of such uncertainty was incredible and a testament to the culture of our company. As Joan mentioned, we began our transformation journey 3 years ago. We're in the process of fixing our retail fundamentals and have strengthened our ability to capture, manage and utilize data. We can track initiatives quickly, ensuring that we have clear line of sight in order to maintain scrutiny and ensure that our investments are indeed adding value. We can access customer data and insights that enable us to identify shopping behavior to respond with both speed and precision. FY '20 carried the bulk of the restructuring costs associated with our 3-year business transformation. Fees included $26 million, and this investment is truly showing results and tangible benefits. We have completed 282 transformation initiatives to date. And while this phase is nearly complete, we will continue to embed our agile ways of working into the business in order to realize full benefit. We continue our transformation journey by improving our systems and processes and enhancing digital initiatives and the customer experience. Changes to our Red Sheds operating model has formed part of this. And earlier this year, we underwent a change to our Red store rosters, recognizing changing customer habits and setting ourselves up for the future. We knew the rosters needed an update as many haven't changed in a decade, but COVID-19 accelerated their importance even more. Making decisions that impact team members roles is the hardest part of my job. And I know if it was tough, and I know it was tough on some of the team. However, it was something that couldn't be avoided or deferred as it was key to our store operations. We did everything we could to provide support to every step of the way, including counseling, access to training to support both current and displaced employees. Another well-documented change during the year was to our stores. Every year, we close or open stores. And in fact, in 2020, we opened 8 stores and closed 8 stores. Following the year-end, we closed another 4 stores. Where possible, we work to redeploy our team members. For me, this is normal healthy retail practice, recognizing shifting population and behavioral patterns as well as risks and opportunities. We flipped our agile ways of working in late August, only a few weeks behind schedule, which I think is an amazing achievement given the monumental scale of the disruption that provided a backdrop. I'm incredibly proud of our employees for having achieved something so world-leading in such adverse circumstances. Agile ensures that we keep customers central to the business. It reduces management levels, particularly in our support office. It also empowers teams to deliver end-to-end customer solutions in a faster way. It provides the basis for collaborative and customer-centric design innovation, capability and investment, and it will make our company the best place to work. We saw some early benefits of our agile prework from our frontrunner tribes. We used those learnings to drive improvements that helped us to manage the change that was required to pivot during the New Zealand lockdowns. As we've seen in the second digital age, companies that have switched the paradigm from supply-focused to customer-focused have become dominant and built immense shareholder value. These customer-centric ecosystems find ways beyond the tight confines of their own network to satisfy their needs and wants. Our ecosystem recognizes that customers want to shop in different ways. We meet their needs through solutions featuring our people, our platforms and our data. All are powered by data and driven by personalization. This year, we put this to the test when we needed to meet customer needs with our Click & Collect and online service when our stores were closed. We interacted with our customers in a whole new way during lockdown using our social media channels to have conversations and share ideas on things to do in coping through COVID-19. This was adding value to the transactional dimension of our customer relationship. The progression of our strategy to fix the retail fundamentals, including embedding everyday low price, or EDLP, strategy within our Warehouse stores and to invest in the digital future through integrated retail omnichannel experiences have allowed us to make significant steps towards executing our vision of becoming a New Zealand-focused ecosystem while staying true to our values. Our people remain one of our greatest assets, and the key aspect of this year has been supporting the team through such an unprecedented time while still making progress on our business strategy. In addition to paying our team in full during the lockdowns, we provided a range of support. Our Thrive Through COVID initiatives saw our team and leadership support one another to stay healthy and safe during lockdowns. We connected regularly using our internal workplace comms platform. In fact, I hosted company-wide digital sessions regularly to engage with the team. Vulnerable employees were supported at an individual level. And we also provided a range of general ideas to stay fit and look after children at home to ensure a range of team member needs were met. Team member feedback was that their line managers kept them well informed of the various COVID-related information and they felt cared for and equipped, particularly through regular phone calls the team managers made to individual team members. The additional time to look after families was welcomed, along with free counseling and financial advice sessions. In September, we announced our retail wage commitment entitling employees at The Warehouse with at least a year's worth of service to receive a pay increase to $21.15 per hour. We are also in the process of normalizing our pay parity across our warehouse and Warehouse Stationery stores. We will continue to work with industry bodies and government agencies on evolving retail-related education in New Zealand and on talent development. This slide demonstrates the shift in the first and second half of the financial year, essentially before and after COVID-19. In the first half, the group made significant progress in its retail gross profit, up 6.2%, and retail gross profit margin, up 110 basis points. In particular, The Warehouse gross margin was up 160 basis points and Warehouse Stationery gross margin was up 230 basis points in the first half. The first half performance shows the benefits of the many initiatives focused on improving our margin and the evolution of our move to EDLP, and our move away from unprofitable sales. While the second half did see growth in sales over the same period last year, COVID-19's impact on the second half was evident in our retail gross profit and operating profit margins, both down in the second half. These were impacted through product mix, clearance activity and the quality of closing inventory and therefore, consequent provisioning. During the first lockdown alone, we lost $265 million in sales. And while there have been subsequent disruptions, recovery has been reasonably strong. But the disruption of our selling seasons caused material harm to our seasonal sell-through patterns, which we addressed through clearance and provisioning to ensure that we dealt with the consequent problems. I'd now like to take some time to recap the highlights of our 4 retail brands. You'll find a more detailed breakdown in the annual report. This slide gives you a quick snapshot of the makeup of our brands with The Warehouse still our cornerstone brand, making up 53.8% of retail sales in FY '20. Noel Leeming continues its excellent performance with growth trajectory -- and growth trajectory with 31.8% of group retail sales, up 30.1% last year. Warehouse Stationery makes up 8.5% of retail sales, while Torpedo7 group, including 1-day, is also in growth mode and now make up 6% of sales, up from 5.6% last year. For The Warehouse, after a strong first half where sales grew 1% despite losing a week between Black Friday and Christmas, sales ended flat for the full year and down 1.6% when you adjust for the 53rd week in FY '20. Sales over the 7 weeks of the first lockdown period were down 78.5% before returning to growth of 26.2% in the 11.5 weeks thereafter. During COVID restrictions, we saw an incredible surge in online performance, with The Warehouse online sales increasing 50% and Click & Collect fulfillment increasing 60%. During these lockdown periods, we increased the number of stores which operated as dark stores, allowing us to meet the increased demand of online sales. The turnaround in Warehouse Stationery continues to deliver good results. Despite COVID-19, we achieved a small lift in sales and increased gross margin percentage by 50 basis points year-on-year, delivering a gross profit of $114.4 million, which is the best gross profit we've ever achieved. Operating profit margin also improved, increasing to another record 8.5% to sales. Warehouse Stationery also experienced a surge in online sales as people were required to work and learn from home, with online sales growth of 25% and Click & Collect fulfillment growth of 76%. The store within a store, or SWAS model, is proving very successful operationally and with our customers as we -- and we rolled out 7 more integrations in FY '20. Noel Leeming also had a record year in some areas with sales breaking through the $1 billion mark, growing 9.2% and gross profit increasing 5.2% to $221.1 million. Before COVID-19, Noel Leeming performed very well through the major trade events in the first half, with its best-ever Black Friday and Boxing Day sale periods. Noel Leeming experienced exceptional online sales activity as customers required improved technology solutions to live, work and learn from home, with online sales up a staggering 145%, and Click & Collect fulfillment up 130%. Our unparalleled commitment to Noel Leeming customer service and solutions enabled us to provide 1-hour Click & Collect services. This year also saw increased focus on our tech service capability and customer solutions with service sales up 19%. Torpedo7 group is made up of Torpedo7 and 1-day. Torpedo7 group has been through some very significant changes in FY '20 with a new CEO, store network expansion and increased operational and store network investment to support future profitability. Group sales were $191 million, an increase of 10.7% on FY '19, with strong same-store sales growth of 10.4%, influenced by growth in online sales, particularly in Q4. Torpedo7 continues its development path of brand clarity and a refined product offering. We continued store expansion. And while we closed 2 stores in K Road, Auckland and No. 1 Fitness Christchurch, these were replaced by 4 new stores in Westfield Newmarket, Rotorua, Tauranga and Northlink Christchurch. Operating loss increased by $7.7 million to $14.7 million. Excluding the performance of 1-day and adjusted for inventory and asset impairments, Torpedo7's performance did, however, improve on last year. We are confident that Simon West and his team have taken many of the actions necessary to reposition the business as needed in order to return to profitability in the very near future. TheMarket.com website had its full year of operation following its launch on 1st of August 2019. TheMarket.com presents an incredible opportunity to broaden our reach and operate in different categories and markets. This presents an existential opportunity to create value for shareholders by exposing this platform internationally. Valuations for platform plays are very different from traditional legacy valuations, and we'll see this develop over time. TheMarket.com attracted 7.8 million online traffic sessions in its first year. Consistent with our business plan, TheMarket.com did make an operating loss in the first year of $14.7 million. Based on current performance and in line with our business plan, we expect TheMarket.com to breakeven in 2 to 4 years. In FY '20, our capital expenditure was lower than guidance at $63.1 million due to a prudent decision-making to defer all nonessential capital expenditure in the wake of COVID-19 operating restrictions and the uncertainty of cash flows and retail trading going forward. As trading patterns return to normal, and we have some increased certainty of operations going forward, we do expect FY '21 capital expenditure to increase in line with previously communicated guidance of between $100 million and $120 million. Our capital expenditure focus will continue to be on our core information system infrastructure, master data management, group e-commerce, platform projects, ERP and our physical infrastructure, including distribution capabilities and our physical stores. Two weeks ago, we reported the group's FY '21 first quarter sales update. Group-wide sales were $738.5 million, up 6.3% on the same quarter last year. We continued to see positive gross margin growth with an increase in rate of 170 basis points. This is a very positive start to FY '21 and continues the sales momentum of the final quarter of FY '20. Group online demand continued to grow in the first quarter of FY '21, with sales of $83.7 million, up 58% compared to the same quarter last year, with online sales as a percentage of total group sales increasing from 7.6% to 11.3%. The Warehouse sales increased 2.9% on the same quarter last year or 8.1% on a same-store sales basis, driven mainly by growth in the toys, leisure and outdoor categories. Of all the brands, The Warehouse was most impacted by the second Auckland lockdown from 12th of August 2020 to 30th of August 2020. Warehouse Stationery saw a decline of 1.9%, but up 0.5% on a same-store sales basis. We continued the rollout of our store within a store program with 6 more stores completed in the quarter: Lyall Bay, Masterton, Wanganui, Oamaru, Riccarton and Te Awamutu, bringing the number of SWAS stores to 23. Noel Leeming continued its very strong performance from the end of last year, with sales increasing 11.5% compared to the same quarter last year or 9.1% based on same-store sales growth, with particular strength in computers, communications and whiteware. Torpedo7 also recorded very strong sales growth with a 41.8% increase on the same period last year and a 39.2% increase in same-store sales. Like most retailers, COVID-19 has required us to take additional measures to ensure that there are sufficient stock levels to meet customer demand during the peak trading period. The Warehouse Group is confident on its product availability, however, there may be some specific categories in the Torpedo7 and The Warehouse brands that are impacted by delays in international shipping and unloading once they arrive. We're engaged with the consultants to develop a winning supply chain strategy in order to transform its network to meet evolving customer needs and expectations across all its brands and channels. We're also very proud of our sustainability achievements and retaining our carbonzero Toitu certification status for the second year in a row. We are strengthening our sustainability governance and accelerating our progress to build New Zealand's most sustainable, convenient and customer-first company. You may have seen our recent sustainable and affordable advertising campaign, which focused on ensuring that sustainable product choices are available at affordable prices. For example, replacing plastic packaging of blankets with recyclable cardboard or paper band and packaging sheet sets in self fabric. We are very pleased with the customer reaction and the cut-through that this campaign achieved, but recognize that there's always much, much more work to do. We are seeing increased customer demand for sustainable products and packaging that is affordable. We now have over 7,000 products, which have at least one sustainable attribute or packaging, now accounting for over $100 million in annual sales. We have a focus on equality and diversity. In July 2020, we joined other major businesses which signed the New Zealand Retailers Against Racism Pledge to confirm an ongoing commitment to address racism and a refusal to tolerate all forms of abuse at work. We've long been a supporter of the LGBTIQ community and are proud to retain our Rainbow Tick certification this year. We strive to make our workplaces more accessible and inclusive for people with disabilities. And in December 2019, we became the first retailer to achieve the Accessibility Tick. We're also committed to gender diversity and promoting women in leadership positions, with a number of female senior leaders reporting to our executive leadership squad now at 44%. There is more work still to be done, but we are making great progress. And lastly, just an update on a few changes in our senior leadership team. In January, we announced some significant changes to our lead team as we prepare to move towards agile ways of working. Two major additions to the leadership team included Edwin Gear and Richard Parker. Edwin Gear was appointed Chief Information Officer in the year, bringing a wealth of retail information services experience. Edwin has extensive operational and broader business experience, together with a strong track record of delivering change and building and leading teams. Richard was appointed permanent Chief Human Resources Officer effective 31st of August 2020. Richard has held a number of senior human resources and corporate legal roles at some of New Zealand's leading organizations, including Fletcher Challenge, Telecom (now Park) and TV New Zealand. More recently, Pejman Okhovat resigned as Chief Operating Officer. We are still working out how to distribute Pejman's responsibilities, but are not planning a direct replacement. We wish Pejman all the best in his future career and thank him for his loyal service and hard work. I'll now hand you back to Joan for the formalities of the meeting. Thank you.

Thank you very much, Nick. And on behalf of the Board, I want to thank you and the management team who've guided The Warehouse Group through what has undoubtedly been the toughest and most turbulent year in our history. I'd also like to thank my fellow directors for their extreme dedication to their role and to the personal support that they've given me. Most importantly, on behalf of all the Board, I want to thank all of you, our shareholders, for your continued support. Now director's farewell. Before we address the formalities of the meeting and the voting of the resolutions, I'd like to take this moment to say a special farewell to our 2 directors who are retiring from the Board this year. Firstly, Sir Stephen Tindall. As you all know, Sir Stephen was the founder of The Warehouse and opened the first Warehouse store in Takapuna back in 1982, changing the retail face -- the retail landscape as we know it. Since then, Sir Stephen has been integral to the operations and growth of The Warehouse Group, leading the company to where it is today with 6 brands and 257 stores across New Zealand. Sir Stephen's early vision to build New Zealand's most sustainable, convenient and customer-first company is still what drives us today. Sir Stephen is one of New Zealand's most well-known and highly respected businessmen and philanthropists. His ingenuity and entrepreneurship and founding The Warehouse Group and introducing affordable products in the 1980s set the foundation for the ongoing growth and diversification, which remains a cornerstone of the group's philosophy for continued success. Sir Stephen will remain involved with The Warehouse Group in an advisory capacity as the group's sustainability champion. In that role, he will help us and develop and encourage our sustainability initiatives and lead our sustainability governance as well as, of course, continuing in his role as founder. From a governance perspective, we have a consultancy agreement and protocols in place to govern the business relationship between the group and Sir Stephen going forward. All transactions, including any share transactions between The Warehouse Group and Sir Stephen will be -- will continue to be performed on an arm's length transaction basis as they always have been. As you know, Sir Stephen has been on leave of absence from the Board since October 2017, with Robbie Tindall representing Sir Stephen during this time. Robbie has been an invaluable member of the Board over the past 3 years, and he had 8 years career experience across The Warehouse Group, so that provides a real contribution to the Board. Sir Stephen is retiring by rotation and is not seeking reelection at this annual meeting. We also farewell Keith Smith, a member of The Warehouse Group Board of Directors since 1988 and Chair of the Board of The Warehouse between 1994 and 2011. He has also been Chair of the Audit and Risk Committee since 2017. Keith has been a major asset to The Warehouse Group over his many years of service, where he's provided enormous support experience, financial expertise and wisdom to the whole Board and to the group. He will be greatly missed by all of those who've worked with him. And for me, personally, he's been a highly valued mentor and the source of wise, unbiased advice on innumerable occasions. And I'm certainly going to miss his support and collegiality, but also his unfailing ability to provide a perspective and to lighten the mood when the going gets tough. Keith is retiring by rotation and is not seeking reelection at this meeting. Unfortunately, Sir Stephen is unable to be with us here today, but did sincerely wish to address the shareholders of the company he founded nearly 40 years ago. He has sent a short video through so that he's able to speak to you today, and we will play that now.

Hi, everybody, and welcome to the Annual Shareholders Meeting, for those that are there and also those that are all online. A big welcome and a huge thank you for coming this year. As you can see, I'm in my team New Zealand gear. That's been a big job for the last 3 years, and that's why I stepped aside and let my son Robbie be my alternate. And he's done a great job. Part of what I've done for Emirates Team New Zealand has been a big sponsor. And for that, I've been able to secure a space on the boat this year. You might remember when we won in Bermuda, we had Torpedo7. Well, this year, we're having TheMarket. So watch out for that on during all the races, which we're going to win. So it's coming up 40 years since I started the first Warehouse store in 1982. It goes back a long, long time, but man, did we have a huge amount of fun. So as you can see, I've transformed myself back to my old red shirt, which I wore for just on 20 years as the CEO of the company. And in fact, my old badge, I found as well, which says 30 years of service, which I got in 2012. So we had an enormous amount of fun between 1982 and then when we listed in 1994, which was 26 years ago. We had 53 Warehouse stores in 38 locations. So some of the blue Warehouse Stationery stores in those days. Today, of course, we've got 90 red stores. And we've got 166 of our other brands. So back in 1994, when we listed, we had $301 million worth of sales. And today, as you know, it's over $3 billion, so enormous growth over that period. So between '82 and '94 and thereon, we used to take away all our team members each year for a conference, and we had just enormous amount of fun. And in fact, I got involved every year in the annual skit, which we did to music. So we all dressed up in costumes and pranced and danced around the place and had a lot of fun, and that sort of filtered down to the culture of the company. And that culture has been incredibly strong right through. We always talked about putting people first, and we told our team members, "If they put the customers first, then that would reflect back on them and on us. And we also talked a lot about making the desirable affordable." And to my mind, we made the desirable affordable in the first few years because of the change in import licensing rules, but it's always been the case. And during tough times, as we've seen through the GFCs, The Warehouse thrives. And I'm sure this year with this terrible COVID that's come upon us and what we know is going to make things tough for next year and maybe the year after, The Warehouse will do particularly well because we'll stick to our really good values. So another change of clothes and another haircut. I just wanted to go back and just say, back in '94, we had 2,000 employees. And today, of course, we've got 11,000 team members. And it's those people that are doing such a fantastic job for you as shareholders, for me as a shareholder, and on behalf of everybody. There's a huge amount of change going on in the retail sector. It just increases every year. And as you know, we are now facing the likes of Amazon. That's why we've gone and started TheMarket, a new concept that I think will do very well to compete with them. But there's all these overseas retailers coming in all the time, the likes of H&M. These people have got enormous budgets. And so we have to keep changing. We always used to run on the smell of an oily rag in the old days. And today, we just have to continue to make sure that we keep our costs under control. So the key thing we have to be able to do is to watch the market, see what customers are doing and react to that. And that means we have to be incredibly lean, so that there's a margin there for you guys. And we have to be always cognizant of what's happening. And the company will continue to do that and maintain their great culture. I just signed a document last week, which is called the Founder Consultancy Agreement. And so I'll have more time once the America's Cup is over, and I'm going to be able to help without pay to continue to drive the culture of the company, and more particularly, the sustainability angle. We know climate change is coming, and the company can make quite an enormous difference. We've reduced our carbon by 8% over the last 12 months. And I'm really proud that, in 2018, we became carbon neutral. I just wanted to talk for a minute about my son Robbie, who works with me on a daily basis through K One W One, our venture capital business, and of course, he's a trustee also of the Tindall Foundation. I'm incredibly proud of Robbie, and I believe he's done a great job while I've been away from the Board. And I believe he'll do a great job on behalf of you, guys, as well. I also want to give a particular shout-out for Keith Smith, my very best friend. I met Keith back in 1969 when I was Head Prefect of Takapuna Grammar and Keith was at Rotorua Boys High School. And I was billeted with Keith and his family. In fact, he and I played against each other in basketball on the Friday night and poor Keith dislocated a shoulder during that game and got carted off to hospital. It is -- his younger brother had to look after me for First XV Rugby game the next day. But Keith has done an absolutely magnificent job for The Warehouse Group. He stuck with us through thick and thin. He was our accountant right from the very beginning and worked closely with me. And then, in 1994, when we floated, he became our Chair, a job he continued for many, many years for the company. Just cannot speak too highly of Keith Smith. What a great guy, what a fantastic job he's done for us. Thank you so much, Keith. So just finally, I hope you have a great ASM today. I can assure you that I will continue to assist the company, particularly on culture. In fact, I'm really proud that over all those years, we've been able to contribute to New Zealand communities through donating over $70 million. And of course, our customers and our suppliers have all been part of that. So going forward, I have no doubt that the roots of this company, the ethos of this company will continue, and we will continue to do well for you, our shareholders. All the best.

On behalf of the Board, I would like to thank Sir Stephen for his vision, guidance and dedication in developing The Warehouse Group into the company that it is today. We now come to the matters requiring resolution, which are outlined in the notice of meeting. And as I indicated earlier, all voting at today's meeting will be by way of a poll, and a poll will be held for each of the resolutions. For those shareholders participating online, when the poll is open, the vote will be accessible by clicking on the voting icon at the top of the screen. To vote, simply select the direction in which you would like to cast your vote. The selected option will change color. So as I said earlier, there is no submit or send button. Your selection is automatically recorded. Shareholders who are entitled to vote and proxies who have discretion as to how they vote have received a voting/proxy form when they registered upon arrival this morning. If you have not received a voting/proxy form, please go to the Computershare desk at the back of the room when the time comes for the casting of votes, and there, representatives will be able to help you. After voting, you should place your vote in one of the ballot boxes, which will be passed around the room. We now move to the election and reelection of directors. These resolutions have the unanimous support of the Board. Proxy voting for these resolutions will be shown on the presentation screen. Resolution 1. The first resolution is that Robert Tindall be elected as a director of the company. Set out in the notice of meeting, Robert Tindall has been nominated to be elected as a director. Robbie Tindall has accepted the nomination, and being eligible, has offered himself for election. Upon Sir Stephen Tindall's retirement as a director, Robbie Tindall ceases to be an alternate director. To remain on the Board, he must be elected as a director of the company. Robbie Tindall was appointed to the Board as Sir Stephen's alternate back in July 2011, and he's been an active member of the Board since Sir Stephen took leave absence from the business in October 2017. In that role, he has been a valuable member of the Disclosure Committee, the Corporate Governance and Nominations Committee, and the People and Remuneration committee as well as the Health, Safety and Well-being Committee. I'm now going to ask Robbie to make a brief statement to the meeting. Robbie?

[Foreign Language] It's a privilege to be here today to speak to the shareholders of the group to let you know a little bit about me and to present my credentials as a nominated director. My journey with the group started when I was very small. My father, Stephen, founded The Warehouse when I was 3 years old, and I've been involved in one way or another ever since. My formal employment started as a 15-year-old working school-holiday jobs in the stockroom of the old Takapuna store and continued in various other holiday and part-time jobs, such as the bike assembly plant at Wiri and the marketing department at our store support office. In 2001, after graduating from university, I took up a full-time position as a trainee buyer. I spent 6 months working and learning in stores and a further 6 months in the buying office, before then given my own small department to run in the apparel division alongside an experienced buyer. In total, I spent 8 years working within the merchandise department, the latter years as a buyer for outdoor furniture and barbecues as well as luggage. In 2010, I left the group to take up a position in dad's private investment company, K One W One. There, I learned the ropes of investing into start-up and high-growth technology companies. Over the past 10 years, I've worked alongside and learned from some of New Zealand's most innovative and entrepreneurial founders and Boards. Today, we have mainly minority positions in over 140 New Zealand companies. In 2011, I joined the Warehouse Board as an Alternate Director. From the start, I took the role seriously and attended every meeting, learning as much as I could from some of New Zealand's most experienced and talented professional directors as well as from the executive team members who have been in senior roles in the years since then. I've been a director of small companies, Franklin Smith Group and Foundation Services Limited, and a trustee of the Tindall Foundation and the [ Finley Foundation ]. I believe this experience sitting around these Board tables as well as the exposure to innovation and technology by my day job holds me in good stead to contribute to the governance and direction of the group. As you've heard today, digital innovation is a large part of what we do as a group, and I feel I'm well placed to contribute in this area given the many advancements that I see on a daily basis. Likewise, my long involvement with the group over several decades puts me in a unique position as I understand the essence of what has been built. Three years ago, dad stepped away from the Board for an extended period of leave, and I have remained as an alternate director, taking on more of a meaningful role in his absence. I have a young family with 4 children aged between 12 and 4 years. And as such, I have the perspective of a consumer in a different life stage to many of my colleagues around the Board table. I believe this contributes to the Board diversity. I'm a regular shopper across all of our brands. I look forward to the opportunity to contribute to the future of the group should you put your faith in me and vote to appoint me to the Board. Thank you very much.

Thank you very much, Robbie. I now move that Robert Tindall be reelected as a director of the company. Is there any discussion? Doesn't appear to be any. Ladies and gentlemen, the poll on the election of Robert Tindall will be conducted at the end of formal business. Now to Resolution number 2. The second resolution is that Dean Hamilton be reelected as a director of the company. In accordance with the NZX Listing Rules, Dean Hamilton retires, and being eligible, has offered himself for reelection. Dean Hamilton was appointed to the Board in April this year and is a current director of the company seeking reelection. He is a member of the Audit and Risk Committee. And as we said, will go in as Chair, and a member of the Health, Safety and Well-being Committee. Should he be reelected, Dean will take over the chair responsibilities for the Audit and Risk Committee with Keith retiring from the Board. I'll now ask Dean to make a brief statement to the meeting.

Thank you, Joan. [Foreign Language] Good morning. My name is Dean Hamilton. I appreciate the opportunity to speak to you today and put myself up for election as a director. As Joan mentioned, I've been on the Board for 8 months now. And in that time, I'm very excited by what I have seen and the journey that the group is on. By way of some background to myself, my experience has been a mixture of finance, operations and governance. I'm currently on the Board of Auckland Airport, Skyline Enterprises and currently the Chair of Fulton Hogan. More recently or most recently before that, I was the Chief Executive of Silver Fern Farms, New Zealand's largest meat export processor. That was a large business with $2 billion worth of revenue with 7,000 employees and some 20 sites. Prior to running Silver Fern Farms, I had 12 years in investment banking, both here in New Zealand and some 7 years with my family over in Melbourne. I believe given the opportunity, I can make a positive contribution to the development and performance of The Warehouse. I believe the company is in an exciting place, and I would greatly appreciate your support to continue in the role as a Director of Warehouse Group. [Foreign Language] Thank you.

Thank you, Dean. I now move that Dean Hamilton be reelected as a director of the company. Is there any discussion? Ladies and gentlemen, the poll on the reelection of Dean Hamilton will be conducted at the end of formal business. I'll now turn to the third and final resolution. The third resolution is that the directors are authorized to fix the fees and expenses of PricewaterhouseCoopers as auditor for the ensuing year. 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 annual report, the total fees paid to PricewaterhouseCoopers in the financial year ended second of August 2020, was $759,000, of which $713,000 was in respect of auditing the financial statements of the group. Proxy voting in respect of this resolution is shown on the presentation scheme -- screen. I now move that the directors are authorized to fix the fees and expenses of PricewaterhouseCoopers as auditors for the ensuing year. Is there any discussion? Doesn't appear to be any. Ladies and gentlemen, the poll on authorizing the directors to fix the auditor's remuneration will be conducted at the end of formal business. Voting procedures. I'll now explain how we're going to vote. So Resolutions 1, 2 and 3 are ordinary resolutions, which will be passed if approved by simple majority, that is more than 50% of the votes of shareholders entitled to vote and voting in person or by proxy or representative. To cast your vote, please tick one box, either for, against or abstain, alongside each resolution on the voting paper. Once again, for those shareholders participating online, please click on the voting icon at the top of the screen. To vote, simply direct -- select the direction in which you would like to cast your vote, the selected option will change color. And as I said before twice, there is no submit or send button. Your selection is automatically recorded. The position with respect to discretionary proxies held by myself and my fellow directors are shown on screen. I will act as any shareholder's proxy where that shareholder has completed the proxy form but has submitted the name of their proxy and for those shareholders 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. If you hold a proxy on behalf of a shareholder, you will need to cast the shareholders' votes in order for them to be counted. The voting proxy form gives -- given to proxyholders sets out the number of proxy votes held and records discretionary votes. If there are no discretionary votes, the proxyholder need only sign the voting form. Where there are discretionary votes, proxyholders may vote those as they see fit by ticking the appropriate box and where proxyholders wish to split the votes of a shareholder by writing the number of votes in each of the respective boxes. In all cases, please ensure that the voting form is signed. I remind you that you're voting on each separate resolution as detailed in the notice of meeting. After voting, you should place your voting/proxy form in one of the ballot boxes, which will be passed around the room. And if anyone is unsure how to complete the voting form or hasn't got one, if you go to the Computershare registration desk, someone will be able to help you. And as I said a moment ago after voting, you should place your vote in one of the ballot boxes, which will be passed around the room. Once all the votes have been cast, they will be counted by the company's share register and scrutinized by the company's auditor. The results of today's meeting will be released to NZX on completing of the verification of voting. Now to general business and questions. I'm now going to open up the meeting for general discussions and questions. We will take questions from you on our financial and operational performance or other questions relating to the company. I ask that you wait to raise any of your questions of a general nature until that time. If you are present here today, if you wish to speak, please raise your hand and use the microphones provided by our staff. Please state your name before addressing the meeting, so that an accurate record of the proceedings can be kept. For those shareholders participating online, please click on the speech bubble Q&A icon at the top of the screen. To send in a question, simply click on the ask a question box, type your question and press send arrow. And your question will be sent in immediately for review.

Are there any other matters in respect of today's presentations, the annual report or any questions of a general nature you would like to raise?

I'm [ Alan Best ], and I'm a proxyholder today for voters in the Shareholders Association. I've got just a couple of things. I thank you for a really good report including the sustainability and other elements of it, making a full integrated report. It was really good to read. The question that I came up with when I was looking through the report online, was that the borrowings are right down to nil. But the interest expense in the P&L account seems to be up from $8.8 million to $46.7 million. And I just wondered how that occurred because I couldn't quite understand with the cash flow at a very good operating cash flow level of 48 -- $408 million, how the high interest expense came in?

It's a very astute question. I will hand over to the CFO in a moment. But there's a wonderful thing called IFRS 16, which came into play this year, which is all about leases and the way that they're treated in terms of the balance sheet and the P&L. So I'll hand over to Jonathan.

Thanks, Joan. So [ Alan ], that is a good question. So IFRS 16 was adopted this year. And you would have also noticed in the balance sheet about $930 million of lease liabilities that we now have on the balance sheet. And in relation to that, when we account for how we make a lease payment now, a portion of that is interest on that lease liability. So $43 million -- roughly about $43 million of that $46 million of interest is actually in relation to the lease liability...

No cash?

No. It's effectively, and that's why from a net perspective, if you look at the result, the net impact of IFRS 16 is about $1.5 million after-tax on our reported profit. So it's not a -- don't consider it to be further cash flow that's going out in relation to debt. It's just a reclassification of the way we treat our leases and lease payments.

Thanks. I have other questions, but I think I'm going to leave them until after the meeting because I'm fairly specific and I can easily cover them. But I really wanted to say a couple of words about Keith's retirement and to Stephen's retirement because they've both been an integral part of the activities that I've been involved with the Shareholders Association. We haven't always been flavor of the month, Keith, I know that. But -- and I can recall a tip over the way in which an offer for Tourism Holdings was handled and another one over our view of trusts involved in property companies. And -- but look, Keith has been always prepared to treat us with cordial and friendly approach and has been open to our questions and has answered them very well. So I respect Keith's job. And certainly, the job that he performed on this company has been great because he's just the right man for a finance role in the Audit and Risk Committee. So the second person that I must make comment on is Sir Stephen Tindall. He's certainly an outstanding merchandising entrepreneur in New Zealand and deserves all the credit that he's earned. But as far as the shareholders are concerned, Shareholders Association is concerned, Sir Stephen's been a very valued friend indeed. I can remember back when we -- full of steam, if you like, [ Bruce ] started a subsidiary of our association called FLOW, Financial Literacy in the Workplace (sic) [ Financial Literacy in Our Workplace ]. And we went to Sir Stephen, and he was prepared to back us with a little bit of money. Unfortunately, it was a failure. And it wasn't a failure because the companies weren't interested in developing financial literacy in the workplace, it happened to hit about the same time as the GFC, and they suddenly closed the book on us. However, he -- the other area of great success really has been as cooperation with our member, Des Hunt, and his support and shall we say, a solid contact work in floating the future directors' program. And I'm very pleased to see that we have a member at the table for that. That was a wonderful addition to the New Zealand finance scene, in my view. And I'm so pleased that you are able to support it yourself. So thanks for that.

Well, thank you very much. And I know that will be much appreciated by Keith and Sir Stephen. I think a point about future directors. You mentioned Renee, who's given us fabulous service, she's with us until March, the end of March next year. In her day job, she's an agile tribe leader, I think, at Spark. So you can imagine how much benefit we've had out of having her around the Board table, just giving us her insight. So yes, Stephen, Des Hunt and [ Michael Steers ] may really set that scheme up, and it's interesting, talking to people even overseas who are operating in governance. Every time you tell them about the scheme, they say, "Hey, what a great idea." So no, it's fantastic. I've got one here because we've got new technology now, and they actually come through to me. And I've got a question from Coralie van Camp. And Coralie nearly always comes to this meeting. So I'm delighted that if she's sitting at home, she's still able to communicate to us and ask a question. Coralie's question is, much has been made of how well staff were looked after during lockdown, but going forward and during the pre-Christmas in-store rush, will customer experience include being able to find any staff to assist them to physically locate -- to locate and move the goods to check out on a cash and carry basis. Nick?

We're very happy to take that. And thank you, Coralie. That's a great question. So I'm glad that you recognize how well we did look after our people. We were very proud to do so. But there's been much made about our operating model changes that we've done recently. And as I said in my speech, many of our rosters have not changed in at least a decade. And the consequence of that was that those rosters were originally set out when we had a high-low pricing cadence in our stores, and the major task was around making sure the prices were changed in time for the weekend. Unfortunately, the hangover of those things mean that we've had too many staff from 9 to 5 on week days and not enough on evenings and weekends as customer shopping patterns have changed. And so the second thing that's happened is, and very much accelerated under COVID, is a big switch to online, and a major part of that is our Click & Collect business. And so being able to serve customers when they're shopping and to be able to serve changing patterns and be available for Click & Collect is exactly why we made those changes to the rosters. And so not everyone was wanted to or was able to be able to make those changes, but that's going to make us much more efficient and make sure that we do have customers at the time -- have staff to help customers at the time. And so we're very happy to have made those changes, and we're very confident that, that will help us to be better serving of our customers going forward.

Thanks, Nick. Any other questions? I guess we've got one here.

I'm [ Karl Lincoln ]. One of the staff that was seriously affected by the changes in the roster. First off, my nose, I've just had surgery on it. So that's why my nose looks a bit of a mess.

Without my glasses, I can't see a thing. You look perfect.

Yes, I can't wear my glasses either. But yes, I just had a $6,000 surgery. And my roster has been cut to the point where my -- basically, I'm left with $25 a week for groceries. So I'm one of the ones that has had that major adjustment to my roster. But another separate point is in regards to our sustainability, I work night field. A lot of our products now have a lot more packaging, in particular plastic around them that we never used to have, e.g., take the chopping boards. They used to come in a cardboard box, and you used to get 10 or 12 to a box. That was fine. You just take them out of the box, put them on the shelf. Now every single one of those chopping boards comes in an individual plastic bag, which we have to remove before we put the product on the shelf. And The Warehouse is going on about reducing our packaging, yet from what we're seeing, it's going up considerably.

Okay. Let me talk about the first issue first, and we empathize deeply with team members who have been affected by the changes that we've needed to effect this year. As we said through the presentations, we have to remain fit-for-purpose as a business in the 21st century. And what we're seeing, and it was exacerbated and accelerated by COVID. People are changing their shopping habits. We're seeing that around the world, and it's happening in New Zealand. And in order for this business to go forward, as was Stephen's vision for the next 100 years, we've got to be able to serve our customers where and when they want to shop. And there had been a historic lack of flexibility in terms of changing the rosters, and we really had to get to grips with it when you think that our online sales increased 55% during the year, and people, for the first time, had real other options like Click & Collect, more people shopping at weekends. So it's a desperately hard thing to do. And I know how Nick grappled with having to make the changes. As we said, we did everything we could to assist people who were affected by the change to help them get on with their lives and get into different situations. And we're also -- we've had put aside some money for training for people who are impacted as well to equip them with the ability to go in a different direction. But, Karl, I absolutely understand. So I'll have a chat with you down the back of the room later. I'll let Nick answer the question about packaging. But we did hear yesterday, actually, because we had a Board meeting, that even a little plastic covers on a plug, that has to normally get a plug that's got a place to come in. Even taking those off, which we've been able to do because this is a big imperative for us getting rid of surplus packaging. There was -- what was it? A half a tonne or something, that equated to about 0.5 tonne saving in terms of freight and so forth. But on the wider issue Karl rises about that?

Yes. So let me add my empathy to what Joan has said. And frankly, that's the thing that keeps me awake at night is when you think of the individuals that have been affected by these changes. And so that is in no way lost on me. With regards to the packaging, I'd love to get some more detailed feedback from you. I would say we are on a journey. We've had a major initiative to remove packaging, but we're not perfect yet. I think we've taken out 16,000 tonnes of packaging. And there's lots, lots more to do. And I don't think we are always making the right decisions, and the chopping board seems like a perfect case in point. So anyone that has ability to help us by giving us more suggestions on that, we'd really welcome it. And so we're on a journey. We've made a lot of progress. We reduced our carbon emissions by 8% last year. Is it enough? No, but we can continue to work on it with a real passion. But we'd love to get some more download on specifics.

Thanks for that, Karl. Do we have any other questions? Appears not to be the -- oh, we've got one down the back. Hello.

Yes, [ Michael Bowden ], shareholder. Just wondering what's happening with the Newmarket store, which going to be closed or whether you're moving to 277. What's happening?

We've gotten Noel Leeming in 277 already. And 277, I think, is about right for The Warehouse. Isn't that with the amount of space we need?

Yes. So the Newmarket, so I think we sold about 2 -- over 2 years ago now, and we sold it for $65 million. But it was scheduled for redevelopment at least 18 months ago for a number of reasons that we're not privy to. That hasn't happened. And so our lease has been extended. One of the issues for us around Newmarket, which we tried and got very close to getting deals away with a couple of different partners is that in order to monetarize that particular development, we realized it had to be mixed use. So not just retail, but also office and residential because of the price of real estate in Newmarket. And because we weren't able to do that, that's how we came to the conclusion to realize shareholder value by selling the land. However, as a result of the fact that those developments have not gone forward, we've had our lease extended. And I think it was going to go through to April next year. I believe we've just extend for another year as well. So it's a bit of a quandary because we -- if we were know that we're keeping that store, it needs some work. It's a bit tatty. It needs renovation and all the rest of it. But obviously, it makes no sense to put money into it on a short-term basis.

Thanks, Nick. I've got one here. [Foreign Language]. This is from [ Honaro Wareiho ] from the East Coast. And [ Honaro ] is an 18-year-old investor. And first of all, he says he'd like to commend the work that -- no, no. I'm sorry. This is not -- he's commending us for the work that The Warehouse Group has done in the past reporting year as well as the Board Members for their tireless efforts even during COVID. I would also like to commend the outgoing directors also, Sir Robert, I think, he means Sir Stephen. Have you gotten light out as well? And Keith for the years of service. Firstly, I just wanted to ask what is The Warehouse Group's relationship with multiple e within the country? And second, I would also like to ask in statistical terms how many Maori and Pasifika are employed in high-ranked executive questions. Not enough is the answer to the second part of the question, and it is something that we're absolutely focused on. And I spoke before about Board recruitment and the Board profiling we've done, and diversity is something that we are looking at very, very closely. We do, within the business, have a Maori competency cultural program. So there were about 100 of the group executive team and other senior leaders completed a program called Te Kaa, Igniting Your Maori Cultural Competency, and most of the leadership squad have completed that. In terms of the relationship across wider Iwi, a number of us have close relationships up and down the country. But it's not something that we have focused on, I guess, in terms of having interaction at senior Iwi level. And, Nick, you may want to...

And so there's always room for improvement. And particularly as it relates to getting more Maori and Pasifika leaders into the business, which we'd love to do. With regards to the relationships of the Iwi, specifically, there are 2 areas where we have very strong connections. One is with Iwi property. And Fiona Shelton, who's here, would tell you -- and can tell you more detail about the nature of all of those. The Iwi own a lot of the land that our stores are on. But in addition to that as well, we've been working a lot with Iwi around -- and through trees that came with Stephen, around planting trees as part of our carbon offset. We'd like to move from -- away from international carbon offsets into truly planting native trees in the country. And so that's where we've been working directly with a lot of Iwi. But -- and also around education and community as well. Red shirts in the community, red shirts in schools. We have a relationship with Manaiakalani and a lot of educational trusts. But we'd love to do more, frankly.

Yes. Keith, just reminded me that a number of years ago, we did the development at the base near Hamilton, and it was a JV with Waikato-Tainui at that stage. So that's one of the examples in terms of property that Nick alluded to. Okay. Are there any other questions? Yes, we've got one on here. It's coming up behind you.

Thank you. [ David Harper ], shareholder. What proportion of the group's merchandise is sourced from within New Zealand? And what proportion of the merchandise comes from China? Now is the company becoming too reliant on China for a source of product? And I'm asking this question because the People's Republic of China, Communist China, has threatened to poke our eyes out.

Yes. So I did see that as well. And I commend the Prime Minister, her restraint on her reply, which is it's not language we would use. So we've long since sourced from China. And indeed, we do have a sourcing office in Shanghai, and we've just converted that from representative office to a wholly-owned foreign subsidiary. So China is going to continue to be in the sourcing future. And so 70% of our products are our own brand products, where we have good visibility of where they're made. Nearly 100% of those were made in China, but we've now opened offices in New Delhi in India and Dhaka in Bangladesh. And so as you may know, a lot of apparel manufacturing, for example, has now moved to Bangladesh, which is the largest source of apparel. And so a big proportion of our apparel has moved out of China. And we are actively developing new sources in places like Vietnam and Indonesia and all the rest of it. And so the answer is that we still source a lot overseas. We're dependent on that. We wish we could source more locally. Unfortunately, there isn't much manufacturing capability left in New Zealand, but where we can, we do. And some of it is still through local agents. And things like plastic storage, for example, is made locally. But we wish that we could do more. The other thing I'd point out is that TheMarket.com, where we have 2 million products, much of that is local and international brands from over 650 merchants, many of which are New Zealand companies. So it's becoming a more and more complex issue. But I agree with the perspective that we need to insulate ourselves against geopolitical issues with China because I can see those intensifying.

And also, there seems to be a strong emphasis on sourcing product from Asia. Have you ever considered South America?

I personally have sourced from South America before. I worked for a lot of years in the footwear industry in Brazil. Used to be a very big source. Unfortunately, when we have looked recently, a lot of the labor cost in South America skyrocketing. And so it's hard to source from there. I've also sourced from Africa. And Africa is starting to really develop as being one of the big labor sources. Investment needs to catch up, but we really need to be alive to the changing pattern of sourcing throughout the world. And it's -- I can see it changing quite rapidly.

Thank you, Nick. Okay. Appear to be no other questions. So as there is no further official business, I now declare the meeting closed. I really sincerely thank you for your attendance today and for your continued interest in the company. So I'm declaring the meeting closed at 11:35. And of course, as in previous years, we've sent all of you a shareholder discount letter out. And if you've not received one of those, there are copies available at the registration desk. I do wish you and your families a safe and happy festive season and a very prosperous New Year. And please come and join us down on the back of the room. We'll all be there, and we'll have some morning tea together. So thank you all very much.