Surplus After Tax

The Groups surplus after tax, before unusual items for 2003 was $10,224,000, down 16.7% on the previous year. The surplus after unusual items was $11,570,000, down 8.9%. The unusual item was the profit on the sale of the Australian Head Office building amounting to $1,326,000 after tax. The main drivers behind the profit decrease were:

• The movement in the exchange rate between Australia and New Zealand for translating the Australian profits (last year .82 versus this year .89). The total impact on our groups result has been NZ$668,000.
• One-off restructuring costs of NZ$510,000.
• Additional Head Office rental costs of A$310,000 as a result of the decision to sell off the Australian Head Office building and pay a special dividend to shareholders.
• Additional interest costs of some
  NZ$350,000 as a result of the payment of the special dividend to shareholders.
• The EBIT loss of NZ$1,802,000 relating to the commencement of operations in Canada.

Total sales in New Zealand increased by 4% for the year with same store sales increasing by 1% compared with 13% for the previous year. In Australian dollars,total sales in Australia increased by 12.8% to A$123,452,000,and same store sales increased by 5.7% compared with 6.4% for the previous year.

Depreciation and amortisation charged to profit was $5,070,000 compared to $4,855,000 in 2002. Our interest costs for the year were $2,677,000 compared to $2,014,000 for the previous year and were covered 7.2 times by earnings compared with 10.3 times the previous year.

Our rental and operating lease costs increased from $13,274 million (6.2% of revenue) to $14,598 million (6.5% of revenue).

The Groups taxation charge decreased from $5,992,000 to $5,067,000 due to the reduction in profit. The effective tax rate for the year was 30.5% (2002 32.1%), which was favorably affected by a write back of deferred tax in New Zealand.

Net cash flow from operating activities for 2003 was $6,789,000,down 23.4% on the previous year. Key drivers were:

• Receipts from customers increased by 3.9% to $240,854,000,reflecting increased sales in both New Zealand and Australia.
• The establishment of the Canadian operation resulted in an outflow of NZ$3,900,000 for the year.
• Payments to suppliers and employees increased from $214,300,000 to $225,027,000 reflecting the increased number of stores operating and also higher operating costs in Australia.
• Interest costs paid increased by $679,000 reflecting the decision of the Board to restructure the balance sheet and pay out a special dividend during the year.

Cash outflow relating to investing activities was $4,841,000 compared to $4,448,000 the previous year. Key drivers were:

• Sale and lease back of the Australian Head Office building which realised $5,172,000 in cash.
• Cash paid for new store fit outs and refurbishments were up from $6,256,000 to $10,313,000 reflecting the increased number of new stores opened this year (15 versus 5 in 2002).
  

Cash flow relating to financing activities changed to a net inflow of $78,000 from an outflow of funds of $4,087,000 in 2002. Key drivers were:

• There was a net increase in borrowings of $14,656,000 during the year.
• Dividends paid increased to $14,266,000 (including the 20 cents per share special dividend), from $5,978,000 in 2001/02.
• Net outflow of $312,000 relating to the management share purchase scheme.

Net assets decreased from $53,328,000 to $50,048,000 reflecting an increase in total assets to $109,228,000 from $96,413,000,and offset by an increase in total liabilities from $43,085,000 to $59,180,000.

Long-term borrowings increased from $27,965,000 to $42,299,000 reflecting the increased number of stores opened and the decision to pay a special dividend to restructure the balance sheet. The net debt to debt plus equity ratio increased from 34% in 2001/02 to 44.5% in 2002/03. Key factors in the increase in total assets of $12,815,000 were:

• Debtors increasing by $3,208,000 reflecting the higher percentage of sales on credit in Australia.
• Inventories increased by $4,678,000 reflecting the 15 new stores opened during the year.
• Total property plant and equipment increased from $16,449,000 to $21,877,000, again reflecting the increased number of stores and the expansion to Canada.
  

The working capital ratio decreased from 5.6:1 to 5.4:1.

EVENTS AFTER BALANCE DATE
There were no events after balance date requiring disclosure.

SHAREHOLDERS RETURNS

• Declared dividends total 37cents per share compared to 17cents for 2001/02. The 37cents includes the 20cent dividend paid in October 2002.
• Shares traded between $4.00 and $6.45 ending at $4.60 at 30 June 2003
• Average return on equity 22%, - 2001/02, 23.9%.