Chief Executive Officer’s Report

Chief Executive Officer’s report

This has been a year of transition, from fundamental business transformation into the exciting growth phase that is now underway. The trading environment in the last 12 months was challenging and consumer confidence remained fragile on the back of successive interest rate rises and continuing global economic uncertainty. We, like other discretionary retailers, faced the significant hurdle of achieving sales growth on top of last year’s performance, which was boosted by Federal Government stimulus spending.

Against that backdrop Myer delivered total sales of $3.3 billion, an increase of 0.7% or 0.5% on a like-for-like basis. This performance reflects the strength of our merchandise offer and the work we have done to offer customers freshness and fashionability, no matter what their budgets. It also reflects our ability to plan and execute innovative programs to drive sales, including secret sales, targeted MYER one promotions and Project Blue Sky, a collaborative program run between Myer, our suppliers and media partners in early 2010. This was the second program of its kind run by Myer and was a huge success, with participating suppliers recording sales over 10% above non-participating suppliers.

Despite the challenging sales environment, we reported strong growth in profitability, with Earnings Before Interest and Tax (EBIT) up 14.9% to a record $270.9 million, well ahead of the forecast given in our Prospectus. This performance is testament to the strength, efficiency and flexibility of our business model and the resilience and determination of our team. It reflects the work we have done to improve our merchandise offer, with an excellent performance from Myer Exclusive Brands, which now contribute over 17% of sales. It also reflects continuing benefits from our efficient, low-cost supply chain, such as our ability to source product more cheaply and quickly. A strong focus on shrinkage, and the introduction of CCTV in our stores, resulted in reductions in theft, and our strong culture of cost control continued during the year.

EBIT margin grew to 8.3%, an excellent result, above the Prospectus forecast of 7.8%. Net Profit After Tax was up 55.1% to $168.7 million as a result of strong operating performance, working capital management and lower interest costs as a result of the Company’s lower debt position after refinancing at IPO. Cash flow continued to be strong, and we finished the period with $106 million in cash and a clean inventory position. Our continuing focus on cost control across all areas of the business resulted in a further decline in our cash cost of doing business to 29.4% of sales.

During 2010 we invested around $118 million in major projects, including our new point-of-sale (POS) system and CCTV, refurbished stores at Blacktown, Castle Hill and Northland, and our new stores at Top Ryde in New South Wales and Robina in Queensland which will open in October 2010. In addition, we have spent over $15 million improving visual merchandise and brand presentation.

After three and a half years of focusing on fundamental business transformation during the turn-around phase, we are now embarking on the next stage of Myer’s journey – the growth phase. By Christmas, we will have opened two new stores, relaunched our newly refurbished stores in Canberra (Australian Capital Territory), Garden City (Western Australia) and Newcastle (New South Wales), and unveiled the majority of the new Myer Melbourne (Victoria), which will be a truly world-class department store.

In the year ahead, one area of major focus will be improving our customer service. Our new POS system is already providing a real boost to service in the stores where it has been introduced. The work we have done to improve our buying and ranging is starting to show through, and we have made a solid start to the Spring/Summer 2010 season. You will increasingly see us setting the trends, delivering newness and fashionability, and re-establishing our position as the home of Australian fashion. There is a lot of work still to do, but the business is positioned to grow, and our team is focused and energised as never before.