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

[Foreign Language] Good morning, ladies and gentlemen, and thank you for joining us. My name is Joan Withers, and I'm Chair of The Warehouse Group. And on behalf of your directors, the Group Chief Executive, our leadership team and all of our team members, I extend a very warm welcome to our Annual Shareholders' Meeting. As you're all aware, due to the current COVID-19 lockdown levels, we are, unfortunately, only able to hold this year's shareholder meeting online. As you know, this is not our preferred option, and we are sorry we're not able to meet with you all in person today. But we are going to do our best to make the meeting as productive as it can be within the confines of the appropriate COVID-19 protocols, and I sincerely hope the situation is different next year. The notice convening today's meeting was distributed to shareholders. And as a quorum is present, I am pleased to declare the 2021 Annual Shareholders' Meeting of The Warehouse Group open. Now I'm going to run through the process of submitting questions and voting online shortly. But first, I'll do the introductions. And joining me today online are our directors. Robbie Tindall; John Journee; Julia Raue, they're all from Auckland. Tony Balfour and Dean Hamilton from Queenstown. We have Will Easton beaming in from Sydney, Australia. And Rachel Taulelei, and Rachel is beaming in from Wellington. Our future director, Caroline Rainsford is also in attendance today online and she's in Auckland as well. We have Nick Grayston here with us, our Group Chief Executive; and Jonathan Oram, and they're both sitting here with me at our support office in Northcote. We also have representatives from our auditors, PricewaterhouseCoopers, and our company's legal advisers, Russell McVeagh. Welcome to all of you. Now to the agenda. Before we proceed with the formal business, I'm going to run through the order of events for today's meeting. The agenda is going to start with the usual formalities and then I'll provide a recap of the FY '21 annual results. I'll also provide an update on our Board and governance and also shareholder distributions that were made during the year in review. Then Nick Grayston, our Group Chief Executive Officer, will update you on our business performance and our financial performance, including an update on the first quarter of this current financial year. We'll then turn to the formal part of today's business. And the resolutions today include the reelection of 4 directors; a request for the approval of an increase in directors' fees; and the authorizing of the setting of auditor's fees. We're going to cover each resolution in turn and invite you to submit your questions specific to those items, which we'll respond to during the Q&A session for each of those resolutions, and voting will take place by way of poll. So I'm going to outline the process for the discussion and voting on the resolutions at that point in the agenda. Following resolutions, we'll take questions from you on our financial and operational performance or other questions relating to the company. And I do ask that you wait to raise any of your questions of a more general nature until that time. So now we'll move to the formal agenda. And firstly, we would note any apologies. We do not have any apologies for the meeting today. Proxies, proxies have been received from 423 shareholders, representing 196,495,304 voting shares. This represents 56.55% of the voting shares in the company. The valid proxies we have received support the resolutions to be considered later on in the meeting and I'll provide further details on proxies in respect of each resolution at that time. Now the 2020 Annual Meeting, I can confirm that the minutes of that 2020 Annual Meeting that was held on the 27th of November 2020 have been signed and confirmed by me as Chair of that meeting. These minutes were posted on the company's website after they were approved and they are available for review on the website. Our annual report. Our financial statements for the 52 weeks ended the 1st of August 2021, together with the auditor's report, are set out in the company's annual report, which was released to the NZX and made available on our website on the 29th of September 2021. And if you'd like a copy of the annual report, please e-mail us at [email protected] to request a copy. Now 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 our Q&A session towards the end of the meeting. Now this is how to vote online. If you have a question, first about questions and then we'll cover voting. [Operator Instructions] Please note that you can submit your questions from now on. I will not address them until the relevant time in the meeting, though. So please also note that your questions may be moderated or if we receive multiple questions on one topic, those questions may be amalgamated together. And finally, I'll just make the point that due to timing constraints, we may run out of time to answer all of your questions. Now I hope that doesn't happen. But if it does, then we'll be happy to answer them in due course via e-mail. Now about voting online. So voting today 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 will shortly open the online voting for all resolutions. At that time, if you're eligible to vote at this meeting, you will be able to cast your vote under the vote tab. Once the voting has opened, the resolutions will allow votes to be submitted. To vote, simply select your voting decision from the options shown on screen. You can vote for all resolutions at once or you can vote for each individual resolution. Your vote has been cast when the tech appears. If you want to change your vote, simply select change your vote, and you have the ability to change your vote up until the time I declare the voting closed. So I now declare voting open on all items of business. The resolutions will now be opened in the vote tab. Please submit your vote at any time. And I'm going to give you a warning before I move to close the voting later on in the meeting. Now I'm going to move to the Chair's address, and I'm going to start with some commentary on the year-end review FY '21. So after the significant disruption in the 2020 financial year, once again, the COVID-19 global pandemic has continued to cause disruption and uncertainty to New Zealand and the world. Despite all of the interruption COVID-19 has thrown at us, the Board and I are extremely proud of the way our team has reacted and performed in an environment of ongoing complexity and challenges. The execution of the strategy that we embarked on in 2017 has gone to plan. And it is pleasing to see the benefits that the transformation of our business is now delivering as we strive to be and become New Zealand's most sustainable, convenient and customer-first company. What has been heartening to see is our organization's continued ability to adapt and pivot when we're presented with circumstances outside our control that we needed to react to. Our recent transformation and our shift to agile has enhanced our ability to do that. So now to the FY '21 annual results. And in terms of that financial year performance, we announced those 2021 annual results on the 29th of September. And despite the context of the global pandemic, we were very pleased to report a record annual result for that financial year. Our transformation to an agile organization has better enabled us to shift and adapt to the changing needs of our customers and our business, and we continue to see these benefits in the current uncertain and constantly changing COVID environment. Our people, our culture and our team's expertise has provided the group with the resilience required to operate the company through these challenging times. So in FY '21, group sales were up 7.6% to $3.4 billion. and gross profit margin increased from 32.6% in FY '20 to 36.4% in FY '21. Reported net profit after tax was $117.7 million, and that was up from $44.5 million in the prior year, and that represents an increase of about 165%. Our adjusted net profit after tax came in at $175.5 million and that was up from $32.1 million in the prior year. Online sales continued to increase in FY '21 as New Zealanders embrace the convenience of online shopping, especially when living and working from home. So online sales grew 5% from last year to just over $393 million and comprised 11.5% of total group sales. In particular, our same-day Click & Collect service at The Warehouse and 1 hour Click & Collect service at Noel Leeming, accelerated online sales. And so we saw that channel, Click & Collect become a preferred option, and that increased 21.1% over the prior year. In terms of our balance sheet, the work that was done 18 months ago continues to assist us with capital management. We have no debt. And at year-end, we had net cash on hand of $160.5 million. That, combined with undrawn banking facilities of $330 million provided us with a liquidity buffer at that point of $490.5 million. The last 3 months has seen Auckland in either Level 3 or 4 and the rest of the country pivoting between Levels 4 and 2. So predictably, that has impacted our cash flow, particularly with all of our Auckland stores closed from the 18th of August until the 10th of November. The reopening of stores this month in Northland and Waikato on the 3rd of November and in Auckland on the 10th of November, has seen a significant increase in trading and cash flow. And Nick is going to take you through an update of our Q1 performance shortly. Now to talk about dividends. Due to our exceptionally strong performance in FY '21, the Board was pleased to declare a fully imputed final dividend of $0.175 per share at the time we announced the annual result. The final dividend was declared on the basis that New Zealand was predominantly at Alert Level 2 or below from the end of October. Now as you know, that was not the case, with Auckland and parts of Waikato in Level 3 at the end of October. However, due to our strong cash position, the trading conditions that were experienced since Auckland and Waikato stores opened up earlier this month, combined with our expected trading and the balance of the peak period, we are pleased to confirm that the final dividend will be paid to shareholders as scheduled. The record date for the dividend was the 18th of November, and the dividend will be paid on the 3rd of December 2021. So that brings our total dividends for the year to $0.355 per share declared and represents a payout ratio of 70.2% of adjusted net profit. And that's in line with our recently amended dividend policy, which was approved by the Board back in March 2021 to distribute at least 70% of the group's full year adjusted net profit. And I have to say the Board is delighted to be able to maintain the declared final dividend, even in the wake of continued COVID-19 lockdown periods following our year-end. Capital management is actually an area that the Board pays significant attention to, and it has been heartening to be able to resume dividends this year. But we're also continuing to invest in critical infrastructure and Nick will provide more detail on our progress in executing that strategic priority shortly. Moving now to health, safety and well-being. Keeping our team members and our customers safe remains our utmost priority. The increased health and safety precautions we've implemented across our business has enabled us to operate within government guidelines and in the safest way possible. The increased mental health and well-being support and initiatives that we've put in place over the past year are critically important for our team members, for those who continue to work in our stores and distribution centers, and for many of our team members who are at present working from home. We continue to pay our 11,000 team members in full throughout the lockdown periods we experienced in the 2021 financial year, and we've continued to do so through the most recent lockdown since the 18th of August. COVID-19 continues to cast uncertainty for our business, our people and our customers as well as for the New Zealand and global economy, where we can provide as much certainty as possible to our team members and our customers, we will continue to do so. For the safety of our people, our customers and the wider community, we have announced that from the 16th of January 2022, only team members who are fully vaccinated will be able to perform work for The Warehouse Group. Many of our team members work in locations, which involve a high risk of contracting or spreading the virus, and the vaccination is an important part of managing the risk associated with COVID-19. As a group, we've actively supported our team members by offering on-site workplace vaccinations as well as a one-off incentive payment of $100 to all fully vaccinated employees. We are also deeply concerned about violent and aggressive behavior directed towards our team members. And just before the lockdown started in August, we met with the Police Commissioner to express our concerns. We look forward to working more closely with the police to make sure that these issues are appropriately handled and to use the technology we now have and will deploy in the near future to assist in identifying the perpetrators of these incidents. We do welcome the new Police National Retail investigation support unit, which was announced this month to address retail crime prevention and we'll continue to work with the New Zealand police to reduce violent and aggressive behavior in our stores and to ensure the safety of both our customers and our team members while they're at work. I'd now like to talk about our approach to sustainability and wider environmental, social and governance matters. Right from the time our founder, Stephen Tindall, opened the first The Warehouse store almost 40 years ago back in 1982, we have always had a strong focus on sustainability. The company achieved Carbon Zero status back in FY '19, and we've maintained that status in FY '21 and have continued on our sustainability journey. As a result of our focus on areas including ethical sourcing, reduction in packaging and plastics and prioritizing sustainable products and materials, our brands now offer over 11,500 products with sustainable attributes, and that's up from 6,000 just a year ago. We've diverted nearly 78% of operational waste from landfill and reduced total carbon emissions by a further 6.4% when compared to FY '19. To underscore our commitment to the wider stakeholder imperatives that corporates need to have cognizant of in the operations, both through operations and governance. In June 2021, we established a new Board level committee, which oversees our environmental, social and sustainability priorities targets and reporting. The Board is committed to understanding and implementing ways we can fulfill our obligations to stakeholders as greater expectations and a requirement for more transparency around environmental and social governance unfolds. We have started the process to set ambitious, innovative and forward-thinking short- and long-term targets, spanning the 3 areas of focus, so our products and customers, our planet and our communities. We are also committed to increasing the transparency of our sustainability reporting, for which this new committee will also be responsible. We have started with the inclusion of global reporting initiatives in this year's annual report. And we are currently reviewing the New Zealand XRB proposed climate-related disclosures, which are in line with the globally-recognized TCFD reporting. We are committed to our sustainability targets and intend to convert a number of our bank facilities into sustainability-linked loans, providing further weight to this commitment. We've started with a $70 million sustainability-linked loan with Westpac. We signed that commitment earlier this month, and Nick is going to talk about that very shortly. In terms of social equity, we are focused on gender equality and wider diversity principles such as ethnicity. On the former, I can report the number of female senior leaders have increased to now it's 44.5 -- sorry, 44.4% of our senior leadership population. And we're taking a very granular approach to gender pay equity, and we have reduced the gap to the level where we can now realistically achieve 100% gender pay equity across the organization by FY '25. Now philanthropy. And of course, philanthropy is part of our DNA and right back since Stephen founded the company. And during the year in review, we raised a further $4.3 million for New Zealand charities and communities. And I'm particularly proud of the work that we've done in the area of period poverty. We have partnered with The Period Place with the goal of eliminating period inequity in Aotearoa by 2030. Now I'll come to governance, and I introduced you to our Board members at the start of the meeting. Rachel Taulelei joined us back in February this year, and she is standing today for reelection by shareholders. Rachel is going to speak to you at the time we put the resolution, but I have to say she is a superb addition to our Board. We do take governance very seriously at The Warehouse Group, and we aspire to be the best that we can possibly be. We assess the composition of the Board on a regular basis and we publish our skills matrix in our annual report. We have a comprehensive induction program and regularly conduct independently facilitated board performance reviews. As a Board, we've dedicated significant time to understanding the governance requirements of an agile organization and we've actually changed the schedule and the structure of our Board and strategy meetings to match the cadence required. We are also, as a Board, committed to ongoing learning and we've been fortunate to be able to access sessions with some of the most highly-regarded governance thinkers around the world to understand what is on the mind of global governors. We are also committed to assisting the pipeline of younger directors coming through. And again, we've secured a fabulous future director in Caroline Rainsford, who is the Country Director for Google New Zealand. And Caroline replaced Renee Mateparae, whose term ended in September. For my part, it has been very rewarding to be part of the group's journey over the last few years. And I know all of my fellow directors and I are energized and committed to our purpose, our values and our strategic priorities. Now to directors' fees. As you will have seen, Resolution 5 at this annual meeting seeks approval for an increase in the total director's remuneration fee pool pursuant to the NZX Listing Rule 2.11.1(a). The current directors remuneration fee pool of $900,000 per annum was last approved at the annual meeting on the 22nd of November 2013, so 8 years ago. Details of the total fees that are paid to directors are set out in the company's annual report. And earlier this year, we engaged PwC to provide an independent benchmarking report on our nonexecutive director fees and to compare them with comparable companies. You can find a summary of that PwC benchmarking report attached to the notice of meeting, and it's also available on the Computershare platform or on the group's website. So when we got the report, we reviewed the fees that were paid to the company's directors taking into account the results of that report, and we included base fees and committee fees. So we looked at particularly the fees, how they compare, but also what they would mean in terms of our ability to retain and to continue to attract capable independent directors over time as the Board continues to implement its succession plan. Based on the results of that review, the directors have concluded that an increase in total fees payable to directors is justified and appropriate. So it is proposed that the total director's fee pool be increased by $90,000 from $900,000 per annum to $990,000 per annum, and that would take effect of shareholders on an agreement from the 1st of December 2021. In addition, if the resolution is passed, the Board has approved the implementation of a new policy requiring directors to hold a minimum number of shares in the company, which can be acquired over 5 years. Now just to conclude, before I hand you over to our group CEO, I'd just like to thank my fellow Board members, I'd like to thank Nick, our entire leadership team and all of our team members for their hard work, for their dedication and their ability and willingness to adapt and pivot to the changing environment we are currently in. As a Board and leadership team, we have the utmost confidence in the business going forward. And despite COVID-19 disruptions across all of our brands and as a group, we have demonstrated we have the ability to adapt to meet our customers' needs and wants in all environment be it online, either delivered or Click & Collect or in the safe in-store environment for our teams and our customers. And lastly, I'd like to thank you, our shareholders, for your continued support and belief in the company. For those of you who've been part of our shareholder family for a while, I hope you're enjoying seeing a much better performance. And I'd just note that our total shareholder return for the financial year-end review was 74.9%. We hope you share our confidence in the enhanced prospects for the company. So I'm now going to hand over to Nick to brief you on the company's strategy and an FY '22 Q1 update. Thank you, Nick.

Thank you, Joan, and good morning, everyone. I will touch on our vision briefly along with our strategic achievements in FY '21. Our vision remains the same: to build New Zealand's most sustainable, convenient and customer-first company. To achieve this vision, we have 3 strategic priorities. The first is building our customer ecosystem. This is the essence of our strategy. It is how we serve our customers' needs and wants through our people, our platforms and our data to deliver a seamless and frictionless customer experience. In FY '21, we have developed our e-commerce platform and launched a new website for The Warehouse and Noel Leeming, with Warehouse Stationery following soon. We have also continued our investment in TheMarket.com which now has over 2.5 million products available. In order to refine our product offering across our brands, we have improved our inventory management significantly, reducing in-store SKUs by 18.5% for The Warehouse and 12.6% for Warehouse Stationery, while still offering enhanced range optimization. The second is building the future experience. This means meeting and exceeding the expectations of changing consumer behaviors, providing more sustainable products, offering improved delivery and Click & Collect options and having the right stores in the right places. In FY '21, we were proud to increase our weighted average Net Promoter Score by 7.5 points to 76.6. Joan has mentioned the growth in Click & Collect sales, which grew 21.1% in FY '21, driven by our new offering of same-day Click & Collect at The Warehouse and 1 hour Click & Collect at Noel Leeming. Our 252 stores continue to be the strength of our network. And during the year, we transitioned to further 8 SWAS stores, bringing the total to 25. The third is our investment in infrastructure that provides us with the tools we need to excel in retail fundamentals. It is our goal to achieve the best New Zealand retail performance metrics to maintain the strong corporate and brand reputation and provide the group and our shareholders with long-term financial security. FY '21 saw a significant increase in our investment in core systems, developing our warehouse management system, starting the deployment of the ERP system for finance and inventory, and investing in our cloud-based master data management system. These improvements will provide us with the data and insights to improve our inventory management, a key aspect of our retail fundamentals. We increased stock turn from 4.4x to 5.3x and reduced aged inventory as a percentage of inventory from 28.1% in FY '20 to 16.1% in FY '21. During the year, the group revised its liquidity policy in response to last year's COVID-19 pandemic and now operates to a target liquidity range of between $350 million and $450 million. Strong sales performance and cash flow management meant that we ended FY '21 above this, with total liquidity of $490.5 million. Our customer-centric ecosystem enables frictionless shopping experiences creating greater customer value. We have strong ecosystem foundations in place with an established physical footprint and market-leading digital assets. In July, we announced that we have become a cornerstone strategic investor in Zoom Health. We have a shared vision to offer convenient and affordable access to pharmacy products to all Kiwis. Further improvements will make customer shopping journeys with our family of brands faster, easier and more personalized through unified data, platforms and people, while remaining focused on the fundamentals of delivering exceptional value and new assortments with improved customer fulfillment and payment options, both in-store and online. On the 20th of October, we launched the new Market Club and Market Club Plus loyalty programs. This provides our customers with more convenience, more ways to save money and more ways to give back. Market Club provides the group with the opportunity to understand our customers' shopping habits and to send more targeted communications. This will incentivize them to shop more frequently with us, increase their basket size and enable us to increase our customer understanding and put the customer at the center of everything we do. Market Club is currently available online and at TheMarket.com and in store at The Warehouse, and it's our intention to extend our program group-wide. The Market Club membership is free. Customers can unlock exclusive offers and benefits on the TheMarket.com and at The Warehouse, with a charitable donation made by The Warehouse Group on their behalf with every purchase at The Warehouse. Market Club Plus is a paid membership with free shipping on eligible items when you spend over $45 and is only available on TheMarket.com at this stage. Through Market Club, we will unlock the ability to drive greater preference for customers to choose us first, improving customer experience and a cohesive group ecosystem. Our combined loyalty programs across the group provide us with nearly 4 million unique customer records. On 8th of November, we announced that we have agreed a $7 million sustainability-linked loan with Westpac. The Warehouse Group will have to meet 5 sustainability performance goals, including sustainable packaging, carbon emissions and gender targets to receive discounted rates. The 2-year extendable loan incentivizes the group to meet sustainability targets set out over a 4-year time period. The targets are ambitious, innovative and forward thinking and key priorities in our sustainability journey. We know as both customers and shareholders, you care about the environment. And we want you to know that the way that we source, package and ship the products we sell is ambitiously ethical and sustainable. Under these new loan conditions, we will be strengthening that commitment. We're committing to sustainable packaging to ensure that more of our packaging is compostable or recyclable at curbside or in store. We are also committing to annual greenhouse emissions reduction targets across the group. This will help us to achieve our science-aligned target to reduce our Scope 1 and 2 emissions by 42% by 2030. Likewise, this loan recognizes the performance of our ethical sourcing practices. It also incentivizes better traceability across our supply chain to help ensure that the products we sell are created in a way that treats workers and the environment ethically. Diversity and inclusion also play a key part in our approach to sustainable business. The loan incentivizes The Warehouse Group to achieve 2 gender goals, diversity of gender with a target of 50% women in senior leadership by 2025 and gender pay equity for all across our whole workforce. I will just summarize the key divisional performance from our 2021 Annual Results. Our core brands reported significant increases in annual sales. The Warehouse up 5.8%, Warehouse Stationery up 2.2%, Noel Leeming up 11.7%, and Torpedo 7 up a staggering 22.2%. Total group sales were up 5.8% to $3.4 billion. Total group adjusted operating profit or EBIT was $240.6 million, up from $49.3 million in FY '20. Again, all our 4 core brands contributed to this result, with The Warehouse up 241.7% to $187.6 million; Warehouse Stationery up 96% to $34.3 million; Noel Leeming up 89.9% to $64.9 million and Torpedo 7 up 118.6%, turning around a loss to a profit of $3.3 million. After a flat year of sales in FY '20, we are pleased to deliver sales growth of 5.8% of The Warehouse to $1.8 billion. Gross profit margin was significant with an improvement of 430 basis points to 42.2%. Customers continue to embrace online shopping and Click & Collect delivery options. The Warehouse online sales increased 4.8% compared to the prior year and make up 6.3% of total sales. The introduction of same-day Click & Collect service at the warehouse contributed to an increase of Click & Collect fulfillment of an incredible 37.9% increase for the year. Warehouse Stationery also had a pleasing result with 2.2% growth in sales to $274.6 million. Gross profit margin also saw a significant improvement, up 580 basis points to 48.3%. While online sales were flat year-on-year as we cycle through the anniversary of the first lockdown, customers are choosing more and more to collect their online orders in-store with Click & Collect sales up 64.4%. Noel Leeming delivered yet another record year in both sales and operating profit, with sales exceeding $1.1 billion, up 11.7% on prior year and gross profit margin up 140 basis points to 23.3%. Online shopping is a significant channel for Noel Leeming and while online sales decreased 6.4% as we cycle the FY '20 lockdown periods, sales penetration remained above the 10% mark, which is almost double pre-pandemic levels. Our 1-hour Click & Collect offering for Noel Leeming saw Click & Collect sales increasing by 9.3% to 62% of online sales. Torpedo 7 continues the growth trajectory we have seen in recent years, with sales growth of 22.2% to $158.7 million, and gross profit margin increased 1,500 basis points to 37.9%, driving the Torpedo 7 turnaround to profitability with FY '21 operating profit of $3.3 million, a significant improvement compared to an operating loss of $17.7 million in FY '20. Torpedo 7 online sales were up 18.6% on the prior year and now makes up 28.8% of total sales. Torpedo 7 customers also embraced Click & Collect services, which increased 26.1% and making up 43.1% of online sales. Slide 20 shows the weekly sales trend during FY '21. As you can see, COVID-19 lockdown periods have had a significant impact on sales when compared to the equivalent weeks in the prior year. This resulted in decreased sales in August 2020 when Auckland was placed into Level 3 lockdowns, but a growth in sales year-on-year in March to May 2021 compared to March to May 2020, being the first nationwide Level 4 lockdown at the start of the pandemic. I will update you for the first quarter of this financial year shortly. Capital expenditure in FY '21 was $85 million, up from $63.1 million in FY '20. While this was less than our guidance range of $100 million to $130 million, this is significantly higher than annual capital expenditure over the past 5 years as we invest in operational change and growth. The group's major investments during the year were in core systems, including ERP finance and inventory systems, warehouse management system and cloud-based master data management. Significant investment was made in customer-focused digital initiatives, including the group e-commerce platform for our brand sites and further development of TheMarket.com. Store renewals included the new Warehouse Stationery and Noel Leeming stores at Ormiston, the Noel Leeming Silverdale expansion, a new Torpedo 7 store in Napier. In addition to Ormiston, 7 SWAS stores were opened during the year, including Masterton, Lyall Bay, Whanganui, Oamaru, Riccarton, Te Awamutu and New Plymouth The Valley. We expect capital expenditure in FY '22 to be in the range of $115 million to $135 million and to remain at this level for the coming years. Group sales in the first quarter ending 31st of October 2021 were impacted due to COVID-19 lockdown levels from 18th of August, including Level 4 for 2 weeks New Zealand-wide and 5 weeks in Auckland, with Auckland remaining in Level 3 and northern end Waikato switching between Level 2 and Level 3 for the remainder of the quarter. Group sales for the quarter were $630.7 million, a decline of 14.6% on the same quarter in FY '21. Our customers moved swiftly to our digital channels to purchase the items they needed to work and school from home and managed from their homes resulting in online sales growth of 118.2% and representing 30.1% of group sales. The reduced sales due to COVID-19 lockdown did result in a buildup of winter seasonal stock requiring increased clearance sales, resulting in a gross profit margin of 32.9%, down 200 basis points from the same quarter last year. There has also been a change in product mix with the limitations of lockdown shopping. The Warehouse recorded sales of $298.2 million in the quarter, down 21.4% on the same quarter last year, and online sales growth of 164.1%. Warehouse Stationery sales were $48.2 million, a decline of 22% and online sales growth of 91.8% compared to the same quarter last year. Noel Leeming sales were $238.7 million, a decline of 4.8%. However, these sales were up 6.1% compared to the same quarter in FY '20. Noel Leeming online sales saw a growth of 148.5% with a strong uptake in 1-hour Click & Collect offering. And lastly, Torpedo 7 recorded sales growth of 1.2% to $34.2 million compared to the same quarter last year and more than 43% growth compared to FY '20 due to growth in both store and online channels. Torpedo 7 online sales increased 73% compared to the same quarter last year. As we have moved into Level 3, Step 2 in the second quarter, our group stores in the Waikato traded 30% up year-on-year in the first week as customers return to shopping in store, and our Auckland stores have traded significantly higher than this. Group-wide total sales demonstrated growth of 19% in the second week of the quarter, of which Auckland stores were opened for half of this week. And lastly, an update on a few changes in our senior leadership team. Tim Edwards left the company in September after holding positions as CEO of Noel Leeming, CEO of Torpedo 7 and most recently as Chief Sales Officer, supporting the business through a period of significant transformation. Following Tim's departure, Jonathan Waecker's remit has been extended to include responsibility for group sales, and he has been appointed Chief Customer and Sales Officer. Ian Carter has been appointed as Chief Operations Officer. Ian joined The Warehouse Group in December 2019 and was most recently Tribe Lead group sales. Chief Digital Officer, Michelle Anderson, leaves us at the end of the year after 15 years with the business, most recently leading the development and execution of digital customer experiences and data strategy across the group. We are pleased to appoint Sarah Kearney as our new Chief Digital Officer. Sarah joined The Warehouse Group in August 2017 as Group General Manager, e-commerce, and was most recently Tribe Lead customer engagement. We also farewelled Nicholas Falconer in October after 3 years in the business as Chief of Staff. Nick was instrumental in guiding our business strategy, implementing our transformation program and our ship -- and our shift to agile business structure. Our purpose at The Warehouse Group is helping Kiwis live better every day. We are building an ecosystem of brands, products and services that help to serve this purpose. It was pleasing to see our transformation and strategy delivering a record result in FY '21. We have started FY '22 with the constraints of trading in various levels of lockdown across the country, but our strategy has allowed us to pivot and trade as best we can within these constraints, and we are positioned well with our stores, our people and stock levels to make the most of increased demand, with retail now open. We have a tremendous team of people who have proved so resilient and have enabled The Warehouse Group to operate through the ups and downs of the last 18 months and who we will continue to support through uncertain times. I would also like to thank you, as shareholders, for your continued support and I hope you share my excitement for the year ahead. I'll ask Joan to return to the lectern to conduct the formal part of today's business. Thank you. Joan?

Thank you, Nick. We now come to the matters requiring resolutions, which are outlined in the Notice of Meeting. And as I indicated, 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 discussion of all resolutions. We will invite questions for each resolution. [Operator Instructions] We now move to the reelection of directors. These resolutions have the unanimous support of the Board. And as set out in the notice of meeting, we have 4 directors who are eligible for reelection. Tony Balfour, John Journee, Will Easton and Rachel Taulelei. All directors offer themselves up for reelection at this meeting. Proxy voting for these resolutions will be shown on the presentation screen. We'll now move to the first resolution, which is the reelection of Tony Balfour as a director. Tony has been a Director of the Board of The Warehouse Group since October 2012, and Tony also Chairs the People and Remuneration Committee. He has significant global retail and e-commerce experience. He has a strong track record in a diverse range of industries. Most recently, he was General Manager Markets for Icebreaker clothing, with responsibility for the company's global business units in New Zealand, Australia, U.S.A., Canada, Europe and Asia, as well as the launch of the company's rapidly growing e-commerce and retail business units. His prior experience includes senior roles in Monster.com and Seek.com, both very successful online recruitment platforms. And he spent 9 years in global senior roles with Nike, including as GM of Asia Pacific. I'll now ask Tony to make a brief statement to the meeting. Tony?

Hello, everyone. It's a very chilly morning here in Central Otago where I'm recording this. It's about 2 degrees at the moment. And snow in the mountains, so very strange November, which really just goes to show it's been a very strange year altogether. But I would have to say it's been the most exciting year that I've had at The Warehouse. The team has really come together and produced quite a stunning performance for the last fiscal year. And despite the few speed bumps with lockdowns, et cetera, at the start of this fiscal year, I'm very confident that the team is going to deliver another outstanding year in FY '22. I'm really excited by a couple of things at The Warehouse. One is the team that Nick and his senior team have built. It really is a world-class team. I've been lucky enough to be around some world-class teams in my time overseas with the likes of Nike and in the Internet world. And when I get together with Nick and his team, it's a very exciting place to be, lots of great ideas. The execution is fantastic. And the spirit and the camaraderie and the focus is also brilliant. So it's a very exciting place to be around. And around the Board table, I am super excited by the people that I sit with. Joan has built what I think is a very powerful and very constructive Board group of people. And some of the recent additions have been really made a difference to the team. And so I feel that the best is still ahead of us, even though we've had a great 12, 18 months in these circumstances. I'm absolutely convinced that the best is still ahead of us. And I'm super excited to stand for another 3 years on the Board. So thank you for your indulgence, and I look forward to serving The Warehouse and the team and most importantly, New Zealand for the next couple of years. Thank you very much.

So do we have any questions on the reelection of Tony? His real name is Antony, but we call him Tony as a director. Any questions, team? We appear to have no questions on Tony's reelection. So I now move that Antony Balfour be reelected as a director of the company. The poll on the election of Tony Balfour will be conducted at the end of the formal business. We now move to the second resolution, which is the reelection of John Journee. John has been a Director of the Board of The Warehouse Group since October 2013. John has had an extensive retail career, which includes executive experience across sectors that span general merchandise, fashion apparel, FMCG, consumer electronics, telecommunications, hospitality and electricity retailing. Over his 30-year career, he spent 15 years with The Warehouse Group, starting out as a joint venture partner back in 1990 and then progressing through senior roles in operations, marketing, merchandise, international sourcing and business development. John has also held CEO roles with Noel Leeming and food service distributor, Southern Hospitality. I'll now ask John to make a brief statement to the meeting. Thank you, John.

[Foreign Language] I feel privileged to be able to present myself for reelection to The Warehouse Group Board. My involvement with our company started 31 years ago when I became branch manager of The Warehouse in Glenfield. Since then, my career has included 14 years with The Warehouse Group in various executive roles and 4 years as CEO of Noel Leeming Group. When The Warehouse acquired Noel Leeming in 2012, I rejoined The Warehouse and soon after transitioned to my current governance role. One of the dominant themes in business today is the rapid and constant change, disruption and uncertainty that we and our customers face, understanding the strategic implications of these changes and guiding the company's responses is a key focus for me and all the companies I'm involved with. Despite these changes, some things don't change, foremost amongst these fundamental constants is the critical importance of the people that look to us to meet their needs, desires and expectations, not just our customers, but our team and our business partners and our communities. Increasingly, our people expect that companies they engage with to take into consideration the environmental and social impacts of their operational and investment decisions. I'm very proud of The Warehouse's leadership position in this area over many years and their recent establishment of the Environmental and Social Sustainability Board Committee as a further catalyst for improvement in this area. In closing, my wife and I have been shareholders of The Warehouse Group since 1992. And you'll be encouraged to understand that she regularly reminds me of her high expectations for continued sustained shareholder returns. I thank you for your consideration, and I look forward to your support.

Thank you, John. Do we have any questions on the reelection of John Journee as a director? We have no questions. So I now move that John Journee be reelected as a director of the company. And the poll on the reelection of John Journee will be conducted at the end of formal business. We now move to the third resolution, which is the reelection of Will Easton. Will Easton has been a Director of the Board of The Warehouse Group since October 2018. Will is a seasoned business leader and he has an extensive track record of driving growth across emerging markets and technologies. He's currently Managing Director of Facebook, now that's called Meta now for Australia and New Zealand, and he was previously Vice President at Facebook for Asia Pacific emerging markets. Other roles in his portfolio include the Regional Director at Google for Mobile and Social in the Asia Pacific region, and he was Director of Sales at Microsoft in the Consumer Products division. Will has a real passion for the retail industry and has worked closely with retailers throughout his career. He started his career with Coca-Cola as a retail sales manager and believes that there are more opportunities than risks in retail, provided that retailers focus on improving organizational designs. So I'm now going to ask Will to make a brief statement to the meeting. Will?

Good morning. I hope everyone is well and thank you for the opportunity to put myself forward for reelection to The Warehouse Board. It's an opportunity I'm very excited about, having spent the last 3 years gaining a deep level of understanding of the business and building a clear view on the significant opportunities that lie ahead. Since joining the Board, I've grown to understand the real uniqueness of The Warehouse Group, and it's a company that I've been very, very proud to be a part of and represent. The company has a unique and incredible culture and a set of values with a real deep sense of belief that its #1 priority is to continually improve on how it better services every day New Zealanders. And what I think truly sets the business apart from many other organizations is the fact these values are reflected and hold true in every part of the company, whether you're sitting on the Board, part of the operations and support teams, helping run the logistics center or working in store. When you look around Asia Pacific and arguably around the world, there is no question The Warehouse Group is one of the clear standouts in relation to its vision, strategy and speed to market. It's been really impressive to see the way the business has successfully transitioned from a bricks-and-mortar retailer to a true omnichannel retailer, which now provides arguably the best e-commerce and digital offerings in New Zealand. The company has also made a number of very smart investments into a new set of technologies and infrastructure that will ensure the organization is future fit and well positioned to build clear competitive advantage. As a member of the Board, I've been really proud to be a part of this journey and feel I've played an important part in supporting the leadership team and the Board in the significant progress the business has made in the last 3 years, whilst also ensuring we're set up for success in the long term. Moving forward, it's going to be incredibly important that The Warehouse continues to innovate and stay one step ahead of the curve. We are currently living through arguably one of the most transformational periods of time in relation to new technologies and services. Over the next 10 years, we will see more innovation than we have in the last 50 years as technology becomes cheaper, quicker and integrated into pretty much every part of most retail organizations' business processes, from e-commerce, customer service, marketing, logistics and in-store. As someone who has spent over 20 years working for some of the largest technology companies in the world, from Microsoft, to Google and Facebook to Meta, combined with the knowledge I've built around The Warehouse Group, I feel really confident that I've got a lot of value to continue to offer the Board and the broader organization. Whether that be in relation to optimizing the opportunities that lie ahead on the digital and technology side of the business or helping position The Warehouse Group as a truly world-class omnichannel retailer that best services New Zealanders and delivers long-term sustainable value to shareholders. Thank you once again for the opportunity to be a part of the Board over the last 3 years. I'm hopeful I get another 3 years by reelection to be part of a company that I've grown to admire, respect and believe has a fantastic future ahead.

Thank you, Will. Do we have any questions of Will's reelection? No questions. Thank you. I will now move that Will Easton be reelected as a director of the company, and the poll on the reelection of Will, will be held at the end of the formal business. We now move to the fourth resolution, which is the reelection of Rachel Taulelei. The Board announced the appointment of Rachel back in February this year, and she is now standing for reelection at this meeting. Rachel is a very prominent business leader and a strong advocate for the Maori economy, values-based business models and our food and beverage industry. Her commitment to kaitiakitanga has been evident throughout her career as Founder of sustainable seafood company, Yellow Brick Road in 2006 to her time as CEO of Maori-owned food and beverage company, Kono, and now in her current role as the Founder of business design and brand strategy firm, Oho. She has held a number of other governance roles with a particular expertise in primary industry. She presently Chairs the Wellington Regional Stadium Trust and serves as a member on the Board of the Young Enterprise Trust, acts as an adviser to venture capital firm Movac, and until very recently was Chair of the APEC Business Advisory Council. So I'll now ask Rachel to make a brief statement to the meeting. Rachel?

[Foreign Language] Greetings, everyone. My name is Rachel Taulelei, and I hail from the mighty metropolis of Otaki, about an hour north of Wellington. It is my privilege today to be addressing you and seeking your support for my appointment to the Board of The Warehouse Group. I come to the Board with a range of experiences from a number of areas. Firstly, from within the public sector, where I was Trade Commissioner for New Zealand Trade and Enterprise in the U.S. for a number of years and held the country's portfolio for food and beverages. From the start-up world, as I was founder of sustainable seafood company, Yellow Brick Road, and most recently of cultural design agency, Oho, and from whanau-owned food and beverage company, Kono, where I was the Chief Executive. I also hold a number of governance roles, including Chair of The Warehouse Group's Environmental and Sustainability Subcommittee; Chair of the Wellington Regional Stadium Trust, better known as Sky Stadium; and Moana, our largest Kiwi-owned fishing entity. I'm a Director of ANZCO Foods, was a member of the Prime Minister's Business Advisory Council and a long-standing Trustee of the Young Enterprise Trust and perhaps my hardest role as a Secretary of [Foreign Language]. It's a combination of these experiences, lived experiences and learnings that I bring to the table. I'm deeply invested in values-led business models, those in which people are at the heart of every decision that we make and in which we maintain a long term and holistic view of wellness and sustainability. I'm drawn to businesses who prioritize equity and opportunity, those in which we strive to knock the ball out of the park commercially whilst prioritizing our role as kaitiaki, caring for people and place. Like many of you, I have grown up with The Warehouse being a formative part of my community. And it's with this in mind that I would very much appreciate your support today so I might play a positive role in the future of the group [Foreign Language].

Thank you, Rachel. Do we have any questions on Rachel's reelection? So I now move that Rachel Taulelei be reelected as a Director of the company, and the poll on the reelection of Rachel Taulelei will be conducted at the end of formal business. We now move to the fifth resolution, which is the approval of an increase in directors' fees. I discussed details of Resolution 5 earlier in the meeting. And as mentioned, the last increase in directors' fees was back in 2013. And we've based our request on an independent report on comparator companies and after canvassing a number of key shareholders on their view of a proposed increment to the existing fees. The resolution proposes that would effect from the 1st of December 2021 the total directors' fee pool be increased by $90,000 from $900,000 per annum to $990,000 per annum, exclusive of GST. With up to such an amount to be divided amongst the directors for their services as the directors of the company see fit at the time. Proxy voting in respect of this resolution is shown on the presentation screen. The directors make no recommendation in relation to this resolution, given their personal interest in this matter. And they will not be voting in respect of this resolution. The company will not take into account any votes cast by any associated person of any director. However, the company will not disregard a vote cast by a director as a proxy for a person who is entitled to vote in accordance with the expressed directions on the proxy form. Are there any questions on the increase in directors' fees? We have no questions. Therefore, I now move that with effect from the 1st of December 2021 that the total directors' fee pool be increased by $90,000 from $900,000 per annum to $990,000 per annum. The poll on approving the increase in directors' fees will be conducted at the end of formal business. I now turn to the sixth and final resolution. 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 PwC in the financial year ended first of August 2021, was -- sorry, I'm going to put my glasses on for that, was $876,000, I nearly gave you a discount -- which was $876,000, which was $697,000 was in respect of auditing the 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? There are no questions, so 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 auditor's remuneration will be conducted at the end of formal business. Now to voting. I'll now explain the voting procedure. All resolutions are ordinary resolutions, which will be passed if approved by a simple majority, so that's more than 50% of the votes of shareholders entitled to vote and voting in personal proxy or by representative. To vote, simply select your voting direction from the options shown on screen. You can vote for all resolutions at once or by each resolution, and 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 up until the time I declare the voting closed. I remind you that you're voting on each separate resolution as detailed in the notice of meeting. 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 position with respect to discretionary proxies held by myself and my fellow directors are shown on screen. I will act as a shareholders' proxy, where that shareholder has completed the proxy form that 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. 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.

I'm now going to open up the meeting for general discussion. So first of all, we'll ask the team. I'm going to bring up my screen. Do we have any initial questions that you can call out for me while I bring this up? Thank you. Okay. First question, can we read it out, please?

Okay. The first question comes to us from Courtney in Blenheim. Did I hear correctly that gender pay equity will not come fully into effect until 2025? And if so, why not immediately, considering great profit increase?

Thank you, Carly. Lovely to hear from you. I wish you were here in person. You did hear correctly. We've set a target as part of our sustainability linked loan that we will get full gender pay equity by 2025. I have to say that we received a report the other day that shows that at our support office, we're getting very close to that. But it's obviously a longer journey to get to full parity across the entire organization when you're talking about 11,000.

Yes. So I've got some updated information on that. And since the year-end, and Joan is quite correct in the figures that she stated for last year, we've invested a further $1.3 million in getting to gender pay equity, and we are now within 1% of gender pay equity. Now it's a bit of a difficult area because we've gotten to gender pay equity before the gap has rewidened. With everything we've done now in SSO with our contribution model as part of Agile, it will keep pace. But it's something that we'll continue to keep our eyes on. But we're almost there, and we're totally committed to getting there.

Yes. So we'll get there, Carly, very shortly. Next question. I think this one I've got Warehouse be strategically investing and operating in response to the upcoming traffic light system of living with COVID Delta, especially when there'll be more positive cases within staff or as a venue of interest. And that's from Samuel. Do you want to answer that? Yes.

So I'll be glad to answer that one as well. So overall, keeping our people safe is our biggest priority, but also making sure that our customers can shop safely and that we operate our supply chain and don't put our suppliers at risk is also paramount importance. So as the government has said many times, vaccination is the front line of protection, and we're committed to having a vaccinated workforce. We started by incentivizing the workforce. We've been very active in various different vulnerable communities in terms of incentives and prizes. We supported the initiative at the airport, for example, Super Saturday. And we did offer our own team $100 incentive to get vaccinated. And a good 2/3 of our team have already taken up that offer. We're bringing in a vaccine mandate that will take effect 16th of January. And so that's, of course, the main priority. In addition to that, we have been working remotely in our SSO office as per guidance, for the most part. And then with regards to customers, we have extended our opening hours in order to make sure that we can maintain the mandated safe distancing requirements and the numbers of people were allowed in, which is calculated on a per store space basis. We also insist on mask mandates, which is in line with government guidelines. In terms of investments, we've invested heavily in our Click & Collect capability. And as I said, it's getting on for nearly half of the e-commerce business. And so as part of that, we've recently implemented something called SocialQ, which allows customers to be able to pick slots when they want to go and collect things. And our online business has ramped up and it was 30% of the total business. In addition, in stores, we'd already put some perspex dividers in for our manned cash registers. In addition, we're putting some further perspex dividers in to be able to get full usage out of our self-serve cash registers. The supply chain, our DC/FC is obviously in a very vulnerable part of New Zealand. And so we've been very rigorous about implementation of safety protocols. We have also invested in rapid antigen testing. We are paying our people while we do that. Every 2 days, they are rapid antigen tested on their way into our NIDC and NIFC facilities. And we make sure that social distancing and mask wearing is also very much enforced. We have made a significant investment in the market, which gives further access to 2.5 million items, meaning that people can get them to go straight to their homes from all over the world and not even have to go out to risk that. But overall, I wanted to take this as an opportunity to thank our team for all of their hard work and resilience. It's been a very difficult time to operate a retail business, and it's not getting any easier. But we feel confident that we're able to trade safely, protect our team, our customers and our supply chain.

Thank you, Nick. The next question is for you too. There are actually 3 questions, A, B and C part regarding TheMarket.com business. The points made that it's grown impressively in its product range and active customer base. Question A part is, is the business cash flow breaking even yet; B, could you give some color to the potential size or value of the business; and C, when is this business expected to be a meaningful contributor to the company in terms of revenue or profit?

Yes. Again, happy to take that. We're really pleased with the progress of the market. It is the fastest-growing website, e-commerce website in New Zealand, up I think more than double, 207% year-on-year. And so it is a business that we are investing in. We said when we launched it that it will be 3 to 5 years before we hit breakeven. We're still definitely on track in that time frame. We're not giving a potential valuation of that business yet. We are 2 years in and we're seeing massive growth, particularly in the customer metrics. We're understanding a lot better the cost per acquisition, and we're driving better retention and have 50,000 members of Market Club, for example, the paid membership model. So great progress, a long way to go, but a very important part of our ecosystem.

Thank you. Now another three-part question. So this is regarding significant ramp-up in future CapEx to $125 million per year on average. So point A, the current, sorry, are the current improved profit margin sustainable? Can the cost of doing business percentage be expected to trend down or sorry, no, that's the next one. Will it be fully funded by operating cash flow, which has averaged about $200 million per annum in the last 2 years? Will it affect future dividend payouts? The FY '21 dividend payment was $106 million on $0.305 per share -- was actually $0.355 per share we paid out this year. And see how soon do you expect the company to start seeing the positive impact of the increased CapEx? So Jonathan, do you want to go first, wouldn't it?

Yes, sure. So in terms of the cash flow question, yes, CapEx at $125 million, that is significantly above what we have been investing in the past and above depreciation, which has been running at circa $55 million to $60 million. So on dividend, on adjusted net profit after tax, at 70%, we will potentially start to use some of our debt facilities. But based on the current modeling, we think we can still get further working capital benefits. And if we do use debt as per the presentation, we've got significant undrawn facilities. So we're not seeing that as something that will be of concern, and we'll still be targeting the targeted liquidity of $350 million to $450 million. So in terms of impacting future dividend payouts, I wouldn't see that having any impact on meeting the targeted dividend policy of paying 70% of adjusted net PAT. In terms of how quickly we expect to see payoff, I mean, the range of investment is quite broad. Some of the investment is around infrastructure. So some of this has value drops in the near term. Some of it will have longer-term payoffs as we continue to develop our digital capabilities and what we're able to deliver to customers. Some of the investment is deferred. Our CapEx around core infrastructure, be it refits of stores or legacy systems. And that is just as much about staying in business CapEx as it is about investing in future capability.

Yes. Let me add a little bit more color to that one. There is clearly an infrastructure and systems debt that we are in the process of repaying. I'd say we're about halfway through that process. But we are starting to get some tangible deliveries out of that. Good example I can give you is, we recently replatformed The Warehouse website. Noel Leeming is also live now. That investment in replatforming enabled us to pivot during the pandemic when we had split levels of operation in different parts of the country. We wouldn't have been able to have made those distinctions under the old system. That enabled us to take share and to be able to continue to trade and certainly supply our customers. There's examples all the way through. We got a significant benefit from the implementation of our warehouse management system as it relates to our North Island Fulfillment Centre, which is how we fulfill online orders. And compared to some of the problems we had a couple of years ago, that's been relatively seamless. And a lot of the disruptions have happened outside of the business with things like New Zealand Post delays and all the rest of it. But that fulfillment side of it from our end has been very good.

Thank you, Nick. Now I'll get you guys to read out the next question because we have a black bar across the main part of the question on the next one for us.

Yes. They can't hear us when we read it so you're going to have to.

Okay.

All right. Our next question comes to us from Sui Chung. Three questions in relation to the inflationary pressures that are now raging everywhere. First question, are the current improved profit margin sustainable? Second question, can the cost of doing business percentage be expected to continue to trend down? Third question, how much pricing power does the company have? For example, is the company in a market position strong enough to increase selling prices?

Okay. Can you take that one, Nick?

Yes. Sure. So again, in case you couldn't hear, there's 3 questions rolled into one around inflationary pressures. Firstly, are the current profit margins sustainable, can CODB percentage be expected to continue to trend down and how much pricing power does the company have, i.e., is the company in a market position strong enough to increase selling prices. So with regards to the first one, there's no question that after the first COVID lockdown, there was a very strong bounce back in demand, but our doubling of profit wasn't just around the strength of demand. And frankly, we are starting to see the benefit of all of the transformation work that our team has been engaged in for the last 3 or 4 years. And the strength of those profit margins has come from better buying from taking a lot of our sourcing direct instead of using agents and the consolidation of SKU count, which has enabled us to have more buying power across fewer items and consolidating that sourcing into fewer bigger suppliers. The CODB side, that comes as a result of a lot of the process improvement work that we did. Some of that is the sort of low-hanging fruit, and we've reduced the hours and reduced task accordingly. In the stores, for example, we will continue to get benefit as the investments in infrastructure come on stream. We have had to do a lot of stuff manually because it wasn't automated because the systems weren't up to date. So there is a continued benefit from that. It is true that there continue to be on costs. And we've seen rapid increases in the minimum wage. We are seeing inflationary pressures on costs and especially from the shipping part of the business. We've used our presence in Asia to be able to manage some of those costs with our direct relationships on our bought forward capacity. Spot purchases of shipping capacity have continued to hurt us. And that's of everyone, not just in New Zealand but globally, but we continue to manage that. With regards to pricing power, I talked about it. We've reduced our SKU count over the last few years by 75%. That gives us more buying power. We remain relatively small on the global stage, but we've built very good relationships with our suppliers, and we continue to leverage those and really seeing the benefit.

Thank you, Nick. Now the next question, I think we've got a black bar through it, but I think I can read it. Can you please comment on store closures, such as The Warehouse store closures in Dunedin and other areas? What steps does the group take to offer alternative employment to affected staff? What is the strategy to determine the number of store closures? Nick, that's yours.

Okay. Yes. Happy to take that one again. It's a reality of life that population and demographic changes occur. The specific question about Dunedin was as a result of customers' choice to use our South Dunedin store, not so much our central Dunedin store and it became unprofitable. Where possible, we always look to deploy our team. In some cases, we're able to do it 100%. In other cases recently, it's been about half of the team. There is a placement and post-employment support that we offer through our Future Skills Fund. We are becoming much more scientific about how we do our catchment analysis. We've applied a lot of data science. That process is improving all the time. But I think it's natural that there is a churn of store locations. It's not just a question of closing stores. We just opened up in the new development in Flat Bush, Auckland with Ormiston Town Centre because clearly there's sprawl in the Auckland population into that area. So we've also got big presence in Hutt Valley and Invercargill looking forward to the following year, Warkworth, for example. So it's very much a question of how do we serve our customers best and particularly in the context of changing dynamics between how customers want to shop with omnichannel becoming very, very important and the ability to reach beyond our physical stores.

Thank you, Nick. So the next question we have is, there has been an unusually high turnover in the senior management team recently. Could you please share some insights into the drivers behind it and whether there has been a shift in the management skill requirements?

Yes. Again, very happy to take that one. I think it's always sad to lose good people, but it is a reality of life. And particularly so as you become successful, everyone wants the people that were part of that success. So success builds a degree of vulnerability. I think what's most pleasing to me is that we've been able to develop amazingly talented people at the next level down the organization. And throughout the organization, we're becoming an organization that trains and develops our people and to be able to move so seamlessly to bring people up from the next level down and not miss a step is a testament to the strategy that we've employed. And the Board is very actively involved as well in terms of people development and succession. With regards to the skill set, clearly, agile has required a totally different approach. And rather than that historical command-and-control mechanism, it's become very important to practice what's called servant leadership. And it's very exciting to me that we built this model of what we call collective leadership where we all understand the business, we give people freedom within a framework to operate it and we take a sponsorship approach rather than telling people from the top-down what to do. That means that we're much quicker and faster at being able to respond to an ever-increasing pace of change within the business by giving people freedom within the framework in order to be able to operate seamlessly. So that's a very pleasing aspect of how we've been able to transition the business. And we've really seen amazing benefits in terms of that nimbleness and agility that we've really had to draw upon heavily in the current pandemic and all that, that's brought along.

Thank you, Nick. It appears there are no further questions, I've checked with the team. So thank you all for the questions that you've posed today. So that concludes, ladies and gentlemen, our discussion on the items of business. Now in a minute, I'm going to close the voting. So please ensure that you have cast your vote on all resolutions. And I'm now going to pause to allow you time just to finalize those votes. So we'll just pause for 60 seconds. [Voting]

Okay. I think that's 60 seconds. Voting is now closed. The results of these votes will be released to the stock exchange later today. I now also declare the meeting closed at 11:29 a.m. And I'll finish by saying, thank you for your attendance online today and for your continued interest in the company. And I know it's not normal running a full meeting, annual meeting online. And I much prefer having you in the room so I can see your hands go up and field the questions live rather than taking them off a screen. But I do thank you for taking the time to participate today. And I certainly hope that we get the opportunity to meet up with you again in person next year and have a cup of tea. So I hope you all stay safe and well. And I wish you and your families a very, very happy and festive season and a prosperous new year. Thank you.