Strong Profit Rise by Postie Plus Group

NZX/MEDIA STATEMENT
22 SEPTEMBER 2006.

Strong Profit Rise by Postie Plus Group

2005/06 2004/05
Operating Revenue $125.5m $114.3m

Net Profit before Tax $5.84m $2.56m

Net Profit after Tax $3.93m $1.67m

The Christchurch-based national retailer Postie Plus Group Ltd has delivered a pleasing result for the year ended 31 July 2006 that has answered earlier concerns directors held of the Group being adversely affected by a slowing economy.

Net profit after tax rose 135.3% to $3.93m, which compares with $1.67m last year.

Earnings per share have improved to 9.81 cents per share from 4.17 cents per share in 2005.

Net earnings before taxation were $5.84m, compared with $2.56m in 2005.

“It is a major turnaround from last year’s result and demonstrates that the business strategy set by the board and implemented by our senior management team is effective,” said the chairman, Mr Peter van Rij. “It is a great credit to all of our staff across our 116 stores nationally to achieve such a strong result against the generally weaker trend in retailing.”

“The directors are very pleased with the pre-tax profit in particular having provided earnings guidance to the market in March of a result ‘in excess of $5m’ that subsequently we warned might be under threat from highly competitive and difficult market conditions.”

“The result is all the more remarkable considering the aberration of trading in the month of April which was adversely affected by abruptly lower consumer demand. As it has played out, our fears were completely allayed by a robust increase in fourth quarter sales that proved to be much more than a return to normal trading patterns.”

As reported earlier, an outstanding 23% surge in July quarter sales to $38.2m, carried annual sales upwards by 9.80% to $125.51m, which compared with $114.31m last year.

“That substantial lift reflected exceptional growth across all brands and confirmed Postie Plus Group’s resilience in fast-changing economic conditions.”

“This is the first annual result since Mr Ron Boskell was appointed chief executive and it reflects well on his leadership – especially when we encountered the unexpected April ‘pot-hole’ in our earnings -- and the effectiveness of a new line-up of senior managers.”

The directors have declared a fully imputed final dividend of 4.0 cents per share. In conjunction with an interim dividend of 3.0 cents per share, total dividend for the year is 7.0 cents per share, compared with 3.0 cents last year. This represents a dividend payout rate of approximately 71%. The final dividend will require $1.6m.

Record date for dividend entitlements will close at 5pm on 10 November 2006 and payment will be made on 12 December 2006.

“The year was extremely challenging and consumer spending was erratic. Presented with the reality of a very soft patch in early winter, going with the flow was simply unacceptable and from management down, PPGL staff worked with skill, innovation and sheer spirit to reverse adverse trends and build a solid result,” said the chief executive Mr Ron Boskell.

“We have the right product in market at the right time and keep a sharp focus on our costs.”

“The year saw consumers barraged by rising household costs for mortgage repayments, electricity, rates, food and the huge 55% leap in fuel costs. In those circumstances, only the country’s historically low levels of unemployment has kept consumer confidence from faltering.

“Our 2006 result is absolute endorsement of the attractiveness of our value-for-money proposition. Quality products for middle New Zealanders at fair prices.

“In Spring 2005 PPGL committed to a stronger emphasis on clearing stock lines. Consequently, the Group was ready for the slowdown, with each trading division, Postie+, Arbuckles and Baby City, benefiting from clean stock positions. Whilst we achieved a sales gain of 10% we have kept our inventory level unchanged, but considerably fresher than ever previously.

PPGL is in the position it planned for; opening each season with minimal carry over from the previous corresponding season. This enables PPGL to provide fresh stocks on a regular basis to its customers and protect gross margin in a very competitive market.

Mr Boskell said PPGL continue to develop the market position of the trading divisions with new initiatives. The programme of relocating and/or refurbishing existing stores saw several locations refreshed during the year.

“We were able to sustain progressive modernisation of store layouts whilst controlling capital expenditure to $2.6m (2005: $4.8m). New stores were opened at 9 locations and post-balance date we have opened a further 5 stores.

“We are very excited at the prospects for our new in-house brand development programme with the encouraging response to the ‘Who’s Henri? fashion apparel brand in a trial specialty store located in the Rotorua CBD.”

BRAND COMMENTARY

The Postie Plus Group operates three principal retail brands:

Postie+

This chain of 70 stores nationwide has traded well in demanding conditions with its ‘value-for-money’ proposition particularly well supported in the current economic climate. An active programme of refurbishment has reinforced positive market acceptance for the brand.

Arbuckles

The Arbuckles chain of 32 manchester and homeware stores but progress has been made with the introduction of attractive new store layouts that enable the chain to better display its range of quality merchandise.

Baby City

This chain of 13 nursery and children’s apparel stores is a market leader and achieved good sales growth.

FINANCIAL POSITION

The group’s financial position remains robust as at 31 July 2006:

2005/06 2004/05

Current Assets $28.35m $28.58m
Inventories $25.79m $25.04m
Non-Current Assets $15.84m $17.98m

Current Liabilities $15.68m $19.57m
Borrowings $14.75m $18.61m

POST BALANCE EVENTS

PPGL has moved to revitalise its marketing and brand promotion both internally and externally with the appointment of the advertising agency Young & Rubicam.

Brand development saw the launch of the ‘Who’s Henri?’ apparel brand which will be rolled out in further store openings on completion of the trial at Rotorua.

The acquisition of the Classmates school uniform operation from EziBuy has further strengthened our national presence in this market, where PPGL enjoys increasing success with the existing SchoolTex brand.

In addition PPGL has commenced the move to world-class sales and financial reporting systems with the order for a SAP software platform servicing all 116 stores. “It will bring our operations onto a superior common platform that will enhance our inventory management systems and assist us in purchasing and sales forecasting,” said Mr Boskell.

OUTLOOK

“PPGL will continue to implement a growth strategy across every part of the business during the current year to consolidate the significant achievements of the July 2006 year,” said Mr van Rij.

“Exciting new formats are being rolled out to support fresh-each-season offers of quality merchandise at attractive price points.”

“Brand development is strategic to our growth and new developments will be implemented over coming months.”

“Behind the scenes we are building a business based on best practice information and supply chain technology.”

ENDS

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