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Full Year Net Operating Profit After Tax Up 17.5%

MEDIA RELEASE.

Group Full Year Net Operating Profit After Tax Up 17.5%

The Warehouse New Zealand Is Making Significant Progress Against Its Strategy

Auckland, 9 September 2005 – The board of The Warehouse Group Limited announced a full year net operating profit after tax of $71.9m, an improvement of 17.5 percent on last year. After the inclusion of a non-cash write-off of goodwill, attributable profit after tax was $39.0m. Total group revenue was $2.224b, down 1.5 percent on last year. Adjusted for AUD currency differences, sales were flat on last year. Earnings before interest and tax (EBIT) for the group was up 13.8 percent to $129.1m. Operating cashflow improved 73.3% to $153.5m.

In announcing the full year result for the period ending 31 July 2005, Chairman Keith Smith says, “The Warehouse New Zealand has made the tough decisions required to address challenges in the current operating model and the business is making significant progress against its strategy. The Warehouse Australia continues to perform to expectations. We have also focused on inventory management and investment disciplines and this has resulted in a healthy improvement in operating cashflow.” The Warehouse New Zealand reported a 0.4 percent increase in sales ($1,483.7m). EBIT was down 8.4 percent ($138.6 m), however, performance improved during the year with results for the second half of FY05 proving better than the first. The weaker result relates to the first half performance with EBIT in the second half of the year in line with the prior comparable period.

Group Chief Executive Ian Morrice says, “The Warehouse New Zealand result reflects our decision to end short term discounting in favour of offering customers our every day best price. Customers can be confident that The Warehouse New Zealand is committed to reducing prices on an ongoing basis. While the change in promotions has the effect of reducing sales that short term discounting provided, the transition is part of our commitment to putting the customer first and achieving long term sustainable profit growth.” In March this year, The Warehouse New Zealand communicated a three year strategy to refresh its customer offer – from source of supply to shelf. Mr Morrice says significant progress in relation to the strategy includes:

- The new Te Rapa store which opened in July 2005 is clear evidence of significant steps to improve our customer experience – elements of which are being evaluated and rolled out to the rest of the store network. Since opening, the Te Rapa store has performed beyond expectations and customer feedback has been very positive

- Restructured clothing, footwear and manchester to improve quality, style and colour coordination resulting in much better value for our customers

- Introduced a strategic supplier management programme and established a direct sourcing office in Shanghai – both aimed at leveraging buying scale economies to drive lower cost of goods, product innovation and quality, and improve availability of product in stores

- Supply chain initiatives have already delivered over 20 percent lower stock holding levels in same stores and improved product availability by over 10 percentage points in the last year

- Completed a review of marketing and implementing changes to pricing, promotions, customer communications and brand management.

The Warehouse Australia posted a significant turnaround, with last year’s A$32.2m loss reduced to a loss of A$5.4m in FY05 and the business generating positive operating cash flow.

Mr Smith said that notwithstanding the improvement in trading performance of The Warehouse Australia, in advance of the adoption of International Financial Reporting Standards (IFRS), the Board has resolved to write-off the carrying value of the intangible assets attributable to the Australian business. The write-off of $32.9m is non cash and will have no impact on the quantum of dividends paid to shareholders. Annual goodwill amortisation of $6.9m will discontinue, effective from the start of the FY06 financial year.

Warehouse Stationery’s performance was disappointing with flat sales and a significant drop in earnings largely due to inventory write-downs as the business rationalises its category mix. However the business had a significant improvement in second half FY05 operating performance, with second half sales 4.7% ahead of last year and second half EBITA up 16.6% against the prior comparable period.

In summary, Mr Smith says, “Today’s result is in line with our expectations. Significant progress has been made, but there is still much to do to. We continue to pursue our commitment to putting the customer first and driving business activity from that principle in order to deliver on our promise of making the desirable affordable.” The Directors have declared a final dividend of 4.0 cents per share, which is unchanged from last year. This will be paid on 21 November 2005 with the entitlement date being 11 November 2005.

In relation to The Warehouse Australia, we confirm we are in continuing discussions with a number of parties and will inform the market if any agreements are reached.

ENDS

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