Ann: ADDRESS: KRK: AGM reports by Chairman and MD

• Release Date: 15/02/12 10:47
• Summary: ADDRESS: KRK: AGM reports by Chairman and MD
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KRK
15/02/2012 08:47
ADDRESS

REL: 0847 HRS Kirkcaldie & Stains Limited

ADDRESS: KRK: AGM reports by Chairman and MD

Chairman's address to the Annual General Meeting of Kirkcaldie & Stains
Limited

The financial year ended 31 August  2011 was a difficult year for the Company
as a whole. The Retail business experienced a reduced level in sales revenue
(Retail sales have fallen from the prior year by 2.7% or $1.0 million). In
addition the earthquake strengthening and refurbishment work in the Harbour
City Centre reduced property income in line with expectations and prior
advice.

The Retail Company.

Shoppers have been and still are extremely cautious with spending and this
will continue and also impact on this year - so we are experiencing more of
the same. Management have remained focused on controlling and reducing
expenditure where possible and reviewing all merchandise to ensure margins
are realistic.

We have continued implementing our new customer management system which
includes an integrated point of sale and inventory management system for our
retail business. The new software allows us to gain valuable data from our
retail sales and will enhance our ability to manage the business and assist
in buying and merchandising decisions. It will also enable us to manage our
customer base for online sales. This new system has been progressively rolled
out to departments during 2011 and will be fully functional by August 2012.
Although we are already noticing some benefits in the departments that
currently have the system, the full impact of the benefits will not occur
until the 2013 year.

The Property Company

The property company which owns the Harbour City Centre contributed $623,000
profit to the Groups pre tax result. The property vacancy rate has increased
from 7.1% in August 2010 to 13.9% at August 2011 primarily due to the
earthquake strengthening works which are nearly complete ( the vacancy rate
is now 5.3%). The work will be finished next month at a cost within budget,
and the long term lease agreements with key anchor tenants and higher overall
rental yields will begin on the 1st April 2012. So in fact the August 2012
year will enjoy 5 months of these higher rents. Once again the full impact of
the lower occupancy and higher rents will not occur until the 2013 year.

The Group.

The pre tax loss for the Group of $54,000 is a decrease of $1.4m on last year
and is almost entirely due to the loss in rents during the Harbour City
Centre earthquake strengthening.

The Group's balance sheet remains strong with shareholders funds of $20
million. The Group at balance date had cash of $2.7 million and a positive
cashflow. The value of the Harbour City Centre is included in our accounts at
cost of $23.2 million, however, the latest independent valuation of the
building on completion is $48.65 million. The property company has spent in
excess of $6 million on capital works in the Harbour City Centre but will
receive higher rental yields in the future which show a good return on this
capital expenditure.
In addition, the space occupied by Kirkcaldie & Stains has been consolidated
and includes a Lambton Quay frontage for our cuisine, home wares and food
departments.

The retail and the property business are intrinsically linked. We have been
able to maximise the rentals from the property business due to the retail
business being flexible with its' tenancies in the Harbour City Centre.The
retail business has taken additional space in the Harbour City Centre to
facilitate our long term property requirements. In addition, the retail
company pays market rentals to the property company for the retail space,
corporate office and stock marking areas which are in the back of the old
building.

The Directors have declared and paid dividends during the financial year
totalling eight cents which have been fully imputed. This is the same level
of dividends as the prior year.

The current financial year will be another difficult year for the Company and
both the Management team and the Directors will be focussed on ensuring that
the Company is well placed to take advantage of the end of the current
recessionary environment.

The Future

You will have seen where the company has received an indication of interest
in purchasing the retail business from a group of unknown investors. We have
had a discussion with a representative of this group but to date have not
received any indicative offer.

At the back of and adjacent to the Harbour City Centre is our older building
which presently is a car park and stock storage and mark up rooms. This
building is a potential development site and your directors are currently
exploring the range of options for dealing with this site.

As soon as we have anything further to report regarding these two
opportunities we will of course make the appropriate NZX announcements.

I will now call upon Mr Milford, the Managing Director, to address you.

Mr Falcon Clouston
Chairman
Kirkcaldie & Stains Limited

Managing Director's AGM Speech 2012

Good evening Ladies and Gentlemen,

Our annual report for the financial year ending the 31st August 2011 reported
an after tax loss for the Group of $56,000 which is an improvement of
$1,811,000 on the prior year. Last year, however, there was an increase in
tax expense of $3.0 million relating to the changes in building depreciation
rules.

Looking at the results on a pre tax basis, the Group reported a loss this
year of $54,000 which is a decrease of $1,428,000 from the prior year.

This year was my most challenging as Managing Director of the Company. The
huge undertaking to strengthen the Harbour City Centre to 100% code whilst
still occupied by us and our tenants started in January 2011.  Working
closely with Wellington based earthquake strengthening experts and the L T
McGuinness building company, work proceeded at a considerable pace.  In
addition to strengthening all six floors using a combination of enlarging
structural columns and using prior earthquake strengthening braces, the
building was pinned to the bedrock some 18 metres below the surface.  We
created a new 1000 square metre tenancy for Country Road and their new brand
Trenery as well as a smaller but air conditioned and newly shop fitted
Cuisine and Kitchenware Kirkcaldies department.  The redevelopment and
earthquake strengthening project is due to be completed by the end of March
this year on time and within budget.  The impact of this project on the
results is obvious.  The loss of rental revenue has significantly impacted on
the short term results.   The longer term benefit of secured blue chip
tenants and the investment the earthquake strengthening will be reflected in
the valuation of the building.

The other significant challenge has been the retail environment, and the
Wellington economy in the current year was difficult, with a number of
retailers in  near vicinity to us closing down. We finished the year with a
decrease in sales of 2.7% compared to the previous year. If concession sales
were included in our sales, there would be an increase of 3.7%.  Customers
have been very cautious in their spending with many preferring to retire debt
rather than spend disposable income. The Government's focus on reducing
spending always impacts on the Wellington community due to its dependency on
Government.

Inventory levels have increased this year from $6.6 million to $7.8 million
and a restructure of the business during the year has seen a greater focus
placed on buying the right goods at the right price.

Management has remained focused on the expenditure incurred to run the
business and was able to hold business expenses and achieve a slight
reduction of $47,000 on the year before. It is however, getting tougher to
make further cuts in expenditure without compromising service.

We have continued to secure new merchandise brands such as Lacoste, Gazman,
DQ, Relay and Freya. During the year we opened two new concessions - Charlie
Brown and Dermalogica which have been very successful. We also extended the
Witchery concession to include Witchery kids and Witchery man.

This year we have launched another excellent finance offer with our Black
Fashion Card which allows our customers to purchase their new season
wardrobes twice a year and pay for their purchases over the following four
months.

The point of sale and retail management system continues to be rolled out
across the store. We have been developing interfaces to the back office
systems and new reporting tools which will aid efficiencies and improve
decision making on merchandise purchasing.

This new financial year started with the major Wellington events - Wellington
on a Plate and WOW being brought forward due to New Zealand hosting the Rugby
World Cup.  The major Wellington events continue to promote very good trading
conditions for Kirks however the Rugby World Cup was disappointing from a
revenue perspective.  The increase in cruise ship visitations is also
encouraging.

Following the election the November/December and January's trading conditions
proved positive with a gradual improvement in Kirks' own sales and a
significant contribution from concessions.  Our percentage increase year to
date to January 2012 for Kirks is +3.4%, concessions +41.9%, total +6.8%
compared to the same period last year.

The start of the new calendar year has the Management team focussed on
bringing the retail business back into profitability.  We are undertaking the
following actions:

o The accelerated roll-out of the IT systems to be completed by August this
year.  This will give us the much needed information to allow us to
pro-actively manage our business on a day to day basis and to assist us in
planning ahead for the future.
o The complete up-grading and building of an on-line platform in the next six
to nine months allowing our customers to shop on line at their convenience
starting with our Cosmetic area.  We will be leveraging our 70,000 people
data base to kick start this business.
o We have undertaken and actioned a further review of our expenses
particularly in the back office areas to align with revenue.  This has lead
to rationalisation and seeking alternative ways of saving money.
o We have reviewed and changed our marketing strategy for our fashion
departments to focus our efforts on exposing to the public the brands and
merchandise we have to offer.  We have secured this year thirty new brands
across ladies, mens, childrens and lingerie.
o The Cosmetic area continues to perform well for Kirks with our Dermalogica
counter recently introduced achieving the No.1 sales position for the brand
in New Zealand.  We can announce that we will be opening a new Kiehl's
counter in March which will be exclusive to Kirks in Wellington.  This brand
performs very successfully in David Jones and is also opened in Smith and
Caughey and Ballantynes.
o Physical work in the store this year will be limited to a re-lay of the
Childrenswear department so the team will be focussed on maximising
profitable sales with a minimum of disruption.

The retail trade and Kirkcaldies face a number of challenges whether it is
the lack of customer confidence to spend discretionary dollars, rising costs,
our insurance premiums have increased by 150%, our depreciation and
amortisation have increased by half a million dollars a year or the trend to
shopping on line.   We need to find solutions and alternatives to ensure
Kirkcaldies remains relevant in the retail market place.

I would like to take this opportunity of thanking the Kirks team who have
undergone significant change in the way we do business and have handled it
magnificently. I would especially like to mention Mr Rod Spencer who is
retiring from Kirkcaldies in March after over 40 years with the company. I
would like to thank our customers for constantly giving us feedback on what
they want and need and their patronage and I would like to thank you the
shareholders for your continued support of the Company. We look forward to
2013 with great excitement as this will be our 150th year trading as
Kirkcaldie & Stains Ltd.  We have an exciting programme that will include all
our staff, customers and shareholders.

Thank you very much.

Mr John Milford
Managing DIrector
Kirkcaldie & Stains Limited
End CA:00219535 For:KRK    Type:ADDRESS    Time:2012-02-15 08:47:40