Ann: ADDRESS: KRK: 2015 Annual Meeting of Shareholders - Chairman Address

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18/02/2015 08:31
ADDRESS
NOT PRICE SENSITIVE
REL: 0831 HRS Kirkcaldie & Stains Limited

ADDRESS: KRK: 2015 Annual Meeting of Shareholders - Chairman Address

Chairman's Address to the Annual Meeting of Kirkcaldie & Stains Limited (the
Company)

17 February 2015

Good Evening Ladies and Gentlemen
As we signalled last year at the time of the sale of the Harbour City Centre,
the 2014 financial year closed with a significant loss. The Group posted a
total pre-tax loss of $6,583,000 after recognising impairment losses of
$1,463,000 in the Company (which operates the retail business) and a fair
value loss of $4,292,000 in the Company's property-holding subsidiary
company.
The most significant event for the 2014 year was the sale of the Harbour City
Centre.
As you are all aware on 23 September 2014 the Company's shareholders approved
the sale of the Harbour City Centre at a special meeting, and on 7 October
the transaction was settled.  The net proceeds of $16.8m, after repaying the
bank loan that was taken out when the Centre was bought, were placed on
deposit with three registered banks and none of these funds have been used to
support the retail business.
At the special meeting, the Board concluded by saying that we were cautiously
optimistic about the future and that we were planning for the retail
operations to improve in the 2015 financial year. We went on to say that,
while there was still some uncertainty around the retail business, the
quantum of the net proceeds from the property sale provided an opportunity to
consider a return of capital to shareholders.

Current Year's Retail Performance

We set a realistic budget for the 2015 financial year and I am pleased to say
that for the five months to 31 January 2015 we are slightly ahead of budget.
However the summer sale this month (February) is slightly down on last year
and the budgeted figures. We remain hopeful that the remaining winter months
to August 2015 will be steady.
As I mentioned at last year's special meeting, we have engaged two separate
consultants to review the Retail business. One consultant was asked
specifically to consider our online offering, whilst the other had a wider
brief to look at the big picture options for our retail business.
The online consultant, who has vast experience in e-commerce and marketing,
reviewed our online store and made recommendations on where to make the best
use of resources and where to invest and undertake new initiatives to drive
growth.
The report has only just been received and is currently being considered. For
the moment I can say that it does identify where the online store offering
fits within our overall retail business model and highlights the key projects
to be tackled if the online store is to deliver sustainable, acceptable
growth.
We will need to carefully consider the costs vs. the benefits of implementing
the online strategy.
We also engaged Mary Devine (ex Managing Director of Ballantynes and
currently a director of Briscoe Group) to conduct a wider strategic review of
our retail operations. We asked Mary to give us options on how we can improve
the retail performance.
Once again we have only just received her preliminary report, and it is
premature to provide any indication of its conclusions.
What I can say is that she identified the same three options recognised by
the Board.
Her view is that we either:
1. Focus on a retail turnaround of the existing business. This is a 3 to 5
year plan and will require an investment of considerable resources.
2. A combination of downsizing our retail offer and aligning us with an
external provider to facilitate the use of direct distribution channels. This
option will require less fit out expenditure and allow a leaner head office
support structure.
3. Divest ourselves of the business.

Each of these options is being weighed by the Board to ensure the best
outcome for shareholders.
In doing so we particularly recognise that retail is a changing and fast
moving environment and the department store model is under significant
pressure. Any significant investment in the retail business will need to be
carefully assessed and we will need to be satisfied that this would deliver
acceptable returns to shareholders.

Capital Repayment

The Board is very conscious of shareholder expectations that we return a
substantial portion of our cash deposits to shareholders. As we signalled at
our last meeting, there are three key potential ways to return funds to
shareholders, being by:
1. paying a dividend;
2. repurchasing shares; or
3. through a Court approved scheme of arrangement.

The Board is currently working through the issues associated with each option
to determine the most tax efficient and cost effective method of returning
funds. As the Company does not currently hold any imputation credits, any
dividend payment would be taxable to shareholders. In addition, a Court
approved restructure is likely to involve significant costs.
At this stage, it is therefore our preference that any return of capital will
be through an off-market pro rata share repurchase, which would partly
utilise the Company's available subscribed capital. This would be relatively
cost effective and tax efficient. However, the Board is conscious of the need
to ensure that all shareholders receive the same result, that issues do not
arise under the Takeovers Code for our largest shareholders, and that the
performance of the business is appropriately taken into account. As a result,
any final decision on the method to adopt will be carefully considered by the
Board and will continue to be influenced by our retail trading results and
the timely receipt of the final instalment of $4.75m from the sale of the
Harbour City Centre.

The final instalment from the sale of the Harbour City Centre is not due
until October this year and while we might make a conditional announcement in
advance of receiving that money, our current expectation is that any
repayment will be closely tied to the receipt of that instalment.  Post
receipt of the final instalment the Company will have approximately $23m in
cash, so a repayment seems appropriate at this stage and with all conditions
being satisfied.

John Milford's Resignation and a New Director

As you will be aware Mr John Milford, our Managing Director, has resigned and
will leave the Company at the end of this month. John has been with our
company for eight years and during this time has undertaken and overseen many
changes and projects, including the redevelopment of the Harbour City Centre
and the implementation of the integrated POS and merchandise system.  John
has agreed to remain as a director for the next few weeks pending the
appointment of a new director.
I am sure you as shareholders and the Board thank John for his outstanding
contribution and we wish he and Jan all the very best for the future.
We are currently assessing a number of candidates for the Board and expect to
be able to make an announcement in the next few weeks.

Appointment of a New Chief Executive Officer

We have initiated a search process for our new CEO, and we are very pleased
with the response and quality of interest. From the Board's perspective, it's
about finding the right candidate to take this business to a new level and
our focus is on getting the right person to do this.
The response to our search campaign has been far greater than anticipated and
whilst this is very pleasing from the perspective of choice, it also
necessitates more time on our part in reviewing and assessing to select the
right person.
We may appoint an acting CEO in the meantime as John leaves our employment at
the end of February.

Staff

It has been another very tough year and I wish to thank all our staff for
their commitment and loyalty.
I would also like to thank my fellow directors, customers and shareholders
for their continuing support in challenging times.

Thank you
Mr Falcon Clouston
Chairman
End CA:00260760 For:KRK    Type:ADDRESS    Time:2015-02-18 08:31:48