Chairman''s address to the Annual Meeting of Kirkcaldie & Stains Limited
12 February 2013
Good Evening Shareholders - the financial year to the 31st August 2012 was a
very tough year as disclosed in our annual report. Economic conditions are
going to continue to inhibit discretionary consumer spending for some time
and Wellington, which has been subject of large scale Government and Private
sector restructuring, is no exception. In addition to this economic
uncertainty is the accelerating development of the Internet and this is
providing consumers with increasing opportunities to buy international brands
online. The combination of these two factors has had a very significant
impact on the buying behaviour of our customers.
John Milford will cover the results and progress of the Retail Company
following my address.
The Property Operations
The property operations reported a pre tax profit of $908,000 compared to
$626,000 in the previous year. This is an increase of 45% which was the
result of the reinstatement or rental income from the new Country Road store
which opened in November 2011 and from the reinstatement in April 2012 of
rental income from the redeveloped and earthquake strengthened space leased
to Contact Energy. This positive increase in the property Company''s result
was despite a significant increase in insurance premiums; our insurance
premium which includes material damage and business interruption increased by
over 200%.
In September 2012 the property company entered into a long term agreement
with Contact Energy for the lease of 5 floors of the Harbour City Centre
(HCC) The agreement requires a $6.5 million refurbishment of levels 4 and 5
and the common areas of the building. This work commenced in October last
year and is due for completion by 1st May this year. This development will
have a negative impact on the property company for the 2013 year as two
floors will have been vacant for 8 months while the redevelopment takes
place. By the end the financial year to 31 August 2013 the property company
will have spent over the last two years in excess of $12 million on the HCC,
if we include the earthquake strengthening, the Country Road and Contact
Energy re-developments. Had we not spent this development money then we
would not have been able to attract our long term blue chip tenants. I would
also like to point out that in addition to what we have spent on the
building, both tenants have spent considerable money themselves on the
fit-outs of their new premises and this has and will create further value for
our shareholders.
Building Sale
In October last year we received an unsolicited conditional offer for the HCC
building. This ran on for several weeks while the prospective purchaser
undertook their due diligence investigation. Unfortunately this did not lead
to an unconditional contract for shareholder consideration and the offer
lapsed. The building is currently not listed for sale and in the next few
months we will continue to concentrate on the Contact Energy re-development
program. Later in the year when the harbour City Centre is fully let we will
revisit our options.
Restructuring our two businesses
On the 21st of December 2012 the company announced it had appointed external
parties to provide advice to the company on the corporate restructuring
options to facilitate the separation of Kirkcaldie and Stains Properties
Limited which owns the HCC, from its parent company Kirkcaldie & Stains
Limited. If the restructuring proposal proceeds it is likely to involve
shareholders receiving shares in Kirkcaldie & Stains Properties Limited and
therefore holding shares in both companies. The restructuring will be subject
to shareholder approval and the company will appoint an advisory firm to
assist shareholders in their decision making process. While these plans are
at a very preliminary stage and the Directors are seeking advice on the
options, we envisage being able to update shareholders on these plans before
the end of April.
Dividend
Given the disappointing result overall the Directors resolved not to pay a
final dividend for the year end 2012.
150 Year Milestone
Kirkcaldie & Stains Limited was established in 1863 by John Kirkcaldie a
Scotsman who had served his apprenticeship as a draper, and Robert Stains, an
Englishman who had worked in the retail trade in London. 150 years ago they
established their business in Wellington together and initiated a tradition
that is still upheld today. I cannot recall another Wellington company that
has achieved this 150 year milestone. We are immensely proud of this
achievement - it is one of Wellingtons most recognisable, trusted and iconic
brands.
We intend to celebrate this milestone in style later in the year and we will
have many events throughout the whole year.
The Coming Year
As I have indicated earlier this coming year is and will continue to be
tough. On the property side rental income has been reduced significantly
because of the Contact re-development program. We had another alarming
increase in our insurance costs. In the past 3 years our total insurance
premiums for material damage and business interruption alone have risen from
$235k to in excess of $1 million. We have also experienced double digits
growth in council rates due to a combination of a general rates increase and
an increase of over $7 million in the capital value of the HCC building.
On the retail side we are experiencing tough trading conditions and we
continue to try to maintain our turnover and take costs out of the business.
As Mr Milford will shortly explain in his address, we have several
initiatives at hand which will help reduce our ongoing fixed costs. These
include exiting our retail trading in the HCC building and consolidating it
into the main store, and moving our corporate office, mark-up and stock
storage out of the Wellington CBD. These initiatives will achieve
considerable saving in the rent paid by the retail business. We are also
aiming to charge the property company for the actual time spent in dealing
with property matters. In the past the retail business has been subsidising
the cost of running the property business which has not helped the retail
result.
Management and Staff
I and my fellow directors would like to thank our management and staff for
their hard work and dedication during the past difficult year. When times are
tough it is hard to keep focused especially when the results continue to
languish. I am positive conditions and our outlook is improving so thank you
all for your patience.
Thank you
Mr Falcon Clouston
Chairman
Kirkcaldie & Stains Limited
ENDS
End CA:00232856 For:KRK Type:ADDRESS Time:2013-02-13 08:43:00