Woolworths Holdings Limited · JSE:WHL
Woolworths — H1 2006 Earnings Presentation
50 slides from Woolworths's earnings presentation, February 2006
Slide 1: Investment Analyst Presentation February 2006
february 2006 investment analyst presentation updated: restatement of June 2005 numbers for IFRS
Slide 2: Investing for growth
woolworths holdings limited investing for growth • Revenue up 16.7% to R7.4bn • Operating profit up 19.6% to R730m • Operating profit margin widened from 9.6% to 9.8% • Tax rate of 31.5% (Dec 2004: 29.4%) • Headline earnings per share up 19.6% to 53.1cps (pre STC: 55cps +23.9%) • Reduction in weight
Slide 3: Trading environment – South Africa
woolworths holdings limited trading environment – south africa Fundamental structural change in South African economy continues • Economic growth supporting job creation • Expected tax cuts and social grants • Continued low inflation environment • Stable interest rates Retail • Good Christmas tradin
Slide 4: Income statement
woolworths holdings limited results income statement Dec 2005 Dec 2004* % Chg Rm Rm Revenue 7,415.3 6,353.1 16.7% Turnover 6,995.0 6,016.6 16.3% Cost of merchandise 4,710.1 4,036.0 16.7% Gross Profit 2,284.9 1,980.6 15.4% Other revenue 420.3 336.5 24.9% Expenses 1,974.9 1,706.7 15.7% Operating profi
Slide 5: Expenses analysis
woolworths holdings limited results expenses analysis R132.9m R337.2m R805.1m R699.7m R1,974.9m 25.0% 20.0% 21.6% 15.0% 15.7% 14.1% 10.0% 11.6% 5.0% 7.5% 0.0% Depreciation Occupancy Employment Other Total
Slide 6: Adoption of IFRS
woolworths holdings limited results adoption of IFRS Dec-05 Dec-04 Rm Rm IFRS adjustments 2.3 ( 10.8) Share based payments ( 8.1) ( 4.8) Depreciation on properties & motor vehicles 2.7 3.5 Foreign exchange translation differences 2.0 1.6 Provisioning for doubtful debts 5.7 ( 11.1) Non-IFRS adjustmen
Slide 7: HEPS and dividend cover
woolworths holdings limited results HEPS and dividend cover cps 3.1 Cover (x) 60 3.1 3.5 2.8 50 2.5 3 2.2 2.5 40 2 30 53.1 1.5 20 44.4* 40.2 33.5 1 10 20.9 24.0 7.5 10.5 13.0 18.5 0.5 0 0 Dec 2001 Dec 2002 Dec 2003 Dec 2004 Dec 2005 HEPS DPS Dividend cover • HEPS compound annual growth rate: 27.4% (
Slide 8: Balance sheet
woolworths holdings limited results balance sheet Dec 2005 Dec 2004* % Chg Rm Rm Assets Property, plant and equipment 1,421.2 1,262.4 12.6% Investment property 72.2 56.7 27.3% Export partnerships 62.4 164.4 -62.0% Inventory 865.7 801.4 8.0% Financial services assets 4,010.6 3,388.4 18.4% Accounts re
Slide 9: Cash flow
woolworths holdings limited results cash flow Dec 2005 Dec 2004 Rm Rm Cash inflow from trading 515.1 494.8 Net interest received 232.9 225.5 Working Capital movements 90.0 -118.1 Increase in borrowings 216.0 407.1 1,054.0 1,009.3 Utilised by : Tax paid -228.9 -170.3 Distribution paid -282.3 -221.8 C
Slide 10: Cash flow (cont.) – financial services assets growth
woolworths holdings limited results cash flow (cont.) growth in woolworths financial services assets R366.5m Personal Loans- R72.7m WW Card, R197.8m (Dec 04: R95.7m) (Dec 04: R302.9m) VISA- R95.9m (Dec 04: 57.8m)
Slide 11: Cash flow (cont.) – capex spend
woolworths holdings limited results cash flow (cont.) Dec 04 capex spend: R292.7m projected to Jun 06: R655.5m Other – R71.2m Retail – R159.8m Other – R190.9m Retail – R350.7m IT- R61.7m IT- R113.9m
Slide 12: Return on equity / WACC
woolworths holdings limited results return on equity / wacc Number of shares 40.0% 120 95.9m 35.0% 82.4m 100 30.0% 33.1m 80 25.0% 17.5% 60 20.0% 16.3% 13.8% 13.8% 15.0% 11.3% 11.3% 40 10.0% 20 5.0% 12.3% 18.3% 24.7% 27.4% 33.5% 37.2% 0.0% 0 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Dec-05 ROE WACC Share bu
Slide 13: Woolworths retail income statement
woolworths retail results income statement (excluding financial services) Dec 2005 Dec 2004 * % Chg Jun 2005 * Rm Rm Rm Revenue 6,511.2 5,559.1 17.1% 11,288.4 Turnover 6,482.5 5,539.6 17.0% 11,227.0 Cost of merchandise 4,479.6 3,813.7 17.5% 7,738.9 Gross Profit 2,002.9 1,725.9 16.0% 3,488.1 Other re
Slide 14: Woolworths retail balance sheet
woolworths retail results balance sheet (excluding financial services) Dec 2005 Dec 2004 * Jun 2005 * Rm Rm Rm Assets Property, plant and equipment, investments, deferred tax, loans and goodwill 1,828.3 1,671.1 1,688.0 Inventory 711.0 705.4 563.0 Accounts receivable 759.4 549.8 528.9 Cash 225.7 121.
Slide 15: Turnover analysis
woolworths operations turnover analysis Dec 2005 Dec 2004 * % Chg Jun 2005 * Rm Rm Rm Clothing & home 3,024.3 2,685.1 12.6% 5,349.5 Corporate (retail) 2,644.4 2,364.5 11.8% 4,730.8 Franchise (wholesale) - local 278.3 233.0 19.4% 452.8 Franchise (wholesale) - international 101.6 87.6 16.0% 165.9 Food
Slide 16: Financial services income statement
financial services results income statement Dec 2005 Dec 2005 Dec 2004 Dec 2004 Jun 2005 Jun 2005 Rm % to Book Rm % to Book Rm % to Book Income 430.0 22.8% 354.3 23.4% 773.9 22.6% Interest received 344.6 18.3% 283.9 18.8% 626.8 17.6% Other income - external 48.7 2.6% 35.8 2.4% 78.6 2.3% Other income
Slide 17: Woolworths credit statistics
financial services woolworths credit statistics Dec Dec 2005 2004 Store card sales as a % of total sales 32.5% 34.4% Average yield 18.3% 18.8% Weighted average usury rate 20.0% 20.5% Average cost of funds 7.7% 8.0%
Slide 18: Country Road income statement
country road results income statement Dec 2005 Dec 2004* % Chg A$m A$m Revenue 105.1 104.0 1.1% Turnover 104.2 103.1 1.1% Cost of merchandise 47.4 48.7 -2.7% Gross profit 56.8 54.4 4.4% Other revenue 1.0 0.8 25.0% Expenses 55.0 53.5 2.8% Operating profit 2.8 1.7 64.7% Finance costs 0.5 0.4 25.0% Net
Slide 19: Country Road balance sheet
country road limited results balance sheet Dec 2005 Dec 2004* A$m A$m Assets Property, plant and equipment 28.6 26.4 Trademarks** 10.9 11.1 Inventory 33.2 22.0 Accounts receivable 9.4 12.2 Cash 12.2 14.4 94.3 86.1 Equity and liabilities Shareholders funds 53.6 54.3 Accounts payable and provisions 40
Slide 20: Clothing and home
clothing and home
Slide 21: Clothing and home turnover & growth
clothing and home turnover & growth R3,024m 30.0% R2,686m 3000 R 2,423m 25.0% R 2,185m R1,864 m 20.0% 2000 15.0% 17.2% 13.7% 10.0% 12.7% 12.6% 1000 10.9% 10.9% 5.0% 8.1% 7.9% 8.4% 8.2% 0.0% 0 Dec 2001 Dec 2002 Dec 2003 Dec 2004 Dec 2005 Comparable growth Sales growth Turnover (R'm) • Sales growth of
Slide 22: Clothing RLC market share
clothing rlc market share • Market share to Dec 2005 – 12 month moving average • this year 15.3% • last year 15.7% – 3 month moving average • this year 13.4% • last year 13.8% • Continued stabilisation of market share trend
Slide 23: Delivering on design-led process
clothing and home delivering on design-led process Womenswear • Continued market share gains 9 • Design-led process bedded down and showing results 9 • Consistent taste-levels across the ranges 9 Menswear • Implementation of design-led process underway 9 • Focus on consistent taste-level 8 Childrens
Slide 24: Delivering on strategic sourcing
clothing and home delivering on strategic sourcing Value = innovation, quality and price Category (deflation)/inflation Total -1.9% Womenswear 1.5% Menswear -3.6% Homeware -5.1% Childrenswear -8.8% -10% -5% 0% 5%
Slide 25: Market positioning
clothing and home market positioning • Classic wardrobe building blocks Fashion 20% • LSM 9-10 taste level • Accessible to aspirational LSM 6-8 via technological fabric innovation and price tiering Key 80% Core Good Better Best LSM 6 LSM 10
Slide 26: Foods
WY ao O LL
Slide 27: Foods turnover & growth
foods turnover & growth R3,329m 35.0% R2,753m 30.0% R2,282m 3000 R1,548m R1,939m 25.0% 20.0% 2000 15.0% 10.0% 1000 5.0% 14.8% 23.4% 17.5% 25.3% 7.3% 17.7% 12.8% 20.6% 12.2% 20.9% 0.0% 0 Dec 2001 Dec 2002 Dec 2003 Dec 2004 Dec 2005 Comparable growth Sales growth Turnover • Sales growth of 20.9% (Dec
Slide 28: Foods RLC market share
foods rlc market share • Market share to Dec 2005 – 12 month moving average • this year 8.2% • last year 7.7% – 3 month moving average • this year 8.6% • last year 7.9%
Slide 29: Woolworths Foods moving average market share
foods rlc market share Woolworths Foods 3 month moving average market share 9.0% 8.6% 8.5% 8.4% 8.3% 8.1% 8.1% 8.0% 8.0% 8.0% 7.9% 7.9% 7.9% 7.8% 7.8% 7.8% 7.7% 7.6% 7.6% 7.6% 7.5% 7.5% 7.5% 7.4% 7.3% 7.3% 7.2% 7.2% 7.1% 7.0% 6.5% D J F M A M J 04 J A S O N D J F M A M J 05 J A S O N D Source: AC Ni
Slide 30: Widening the gap
foods widening the gap The good food journey – value, innovation, convenience • Improving the value offering • Better value packs • Promotional activity • Price competitive branded and main-shop lines • Continued product innovation • Improved taste and flavour • Authenticity Availability in Foods •
Slide 31: Increasing market penetration
foods increasing market penetration • Completing the shop • Branded 6.4% (Dec 04: 5.6%) • Extend main-shop basket, range improvements • Store rollout accelerated to attract “new” customers • Urban densification • “Convenience” locations • Cannibalisation impact manageable • Over 100 new stores in ne
Slide 32: Selling
selling
Slide 33: Trading space
woolworths operations trading space Projected Dec-04 Dec-05 % Chg Jun-06 m2 m2 m2 Total Footage 382,979 411,072 7.3% 426,295 Clothing and Home 298,619 314,890 5.4% 324,583 Corporate 217,848 230,431 5.8% Franchise SA 46,985 50,370 7.2% Franchise International 33,786 34,089 0.9% Foods 82,225 92,551 12
Slide 34: Store type
woolworths operations store type Projected Dec-05 Dec-05 % Chg Jun-06 Jun-06 2 2 m no. m no. Total Stores 411,072 297 12.9% 426,295 318 Corporate 313,412 165 14.6% 324,621 175 Full-line 278,719 89 8.5% 287,809 93 Clothing 8,925 7 40.0% 7,458 6 Foods 25,768 69 21.1% 29,354 76 Franchise SA 56,595 69 1
Slide 35: Financial services – Visa credit card
money bac wvouchers everytime you shop financial services Visa Credit Card
Slide 36: Woolworths card
financial services woolworths card 3,000 2,500 2,787 2,423 2,000 1,901 1,500 1,508 1,000 1,223 1,309 1,163 1,029 1,066 974 500 0 Dec 01 Dec 02 Dec 03 Dec 04 Dec 05 Book Value (R'm) Number of Customers ('000) • Book value growth of 15.0% to R2.8bn (Dec 2004 : R2.4bn) • Customer numbers growth of 12.6
Slide 37: Personal loans
financial services personal loans 900 800 817 700 600 670 500 502 400 400 300 357 200 100 79 96 117 137 157 0 Dec 01 Dec 02 Dec 03 Dec 04 Dec 05 Book Value (R'm) Number of Customers ('000) • Book value growth of 21.9% to R817m (Dec 2004 : R670m) • Customer numbers growth of 14.6% to 157’000 (Dec 200
Slide 38: Visa credit card
financial services visa credit card 450 400 411 350 300 250 200 234 150 100 132 50 95 92 25 40 56 0 Dec 02 Dec 03 Dec 04 Dec 05 Book Value (R'm) Number of Customers ('000) • Book value growth of 75.6% to R411m (Dec 2004: R234m) • Customer numbers growth of 64.3% to 92’000 (Dec 2004 : 56’000)
Slide 39: Net bad debt – month moving average
financial services net bad debt – 12 month moving average 7.0% 6.0% 5.8% 5.0% 5.5% 4.0% 4.3% 4.0% 3.0% 3.4% 3.5% 3.5% 2.6% 2.8% 2.0% 2.4% 2.4% 1.9% 2.0% 1.0% 1.7% 1.1% 0.0% Dec 01 Dec 02 Dec 03 Dec 04 Dec 05 Woolworths card Personal Loans Visa • Net bad debt levels in line with controlled growth str
Slide 40: External non-interest revenue
financial services external non-interest revenue 60.0 50.0 48.7 40.0 30.0 35.8 20.0 25.4 19.2 10.0 11.2 0.0 Dec 01 Dec 02 Dec 03 Dec 04 Dec 05 Non-interest Income (R'm) • Non-interest revenue growth of 36.0% to R48.7m (Dec 2004: R35.8m) • Main revenue streams: Credit Life Insurance and Lost Card pro
Slide 41: Building a credit-granting business
financial services building a credit-granting business • Customer acquisition and retention • Relationship building through loyalty • VISA card growth • Grow non-interest revenue • Cross-sell potential • Expand product range
Slide 42: Operations
operations
Slide 43: Process simplification
operations process simplification Systems underway: • Foods planning: 75% rolled out (Jun 05: 50%) Rollout complete Feb 06 • Clothing buying systems 4 buying groups complete (Jun 05: 1 buying group) Rollout complete by Mar 06 • Retek Rollout to commence Apr 06 Total 5 year investment: R500m (current
Slide 44: Supply chain logistics
operations supply chain logistics • Continued reduction in distribution costs per unit – Labour productivity and cost reductions – Accuracy and controls • Capacity growth in all regions – Montague Gardens – Gauteng Campus – Maxmead Total 3 year investment: R450m (R178m to Jun 06) (R218m to Jun 07)
Slide 45: Country Road
country road
Slide 46: Country Road performance
country road performance • Sales up 1.1% to A$104.2m • Retail 1st sales up 6.6% • Wholesale sales down 16% • Second year of strong volume performance • 46.8% growth in volumes over the 2 periods (21.2% compound growth) • Improved profitability of wholesale sales Volume performance • Operating profit
Slide 47: Country Road strategy
country road strategy • Strategy bedded down • Continued improvement in fashionability and ranges • Improvements in buying process • Stronger retail growth • Aspirational accessibility beginning to pay off
Slide 48: Strategy & prospects
Strategy & prospects
Slide 49: Woolworths' current and potential customers
strategy and prospects woolworths’ current and potential customers opportunity foods clothing and home opportunity financial services opportunity LSM 6 7 8 9 10
Slide 50: Strategy and prospects
strategy and prospects • Clothing and Home three-year process well underway • Foods growth accelerated • Financial Services sustainable annuity growth • Country Road delivering on target • Manage cost growth in low inflation environment • Continue to deliver real growth in earnings