Woolworths Holdings Limited · JSE:WHL
Woolworths — H1 2018 Earnings Presentation
63 slides from Woolworths's earnings presentation, February 2018
Slide 1: Unaudited Interim Group Results for the 26 Weeks Ended 24 December 2017
WOOLWORTHS HOLDINGS LIMITED UNAUDITED INTERIM GROUP RESULTS FOR THE 26 WEEKS ENDED 24 DECEMBER 2017
Slide 2: Interim Results 2018 Analyst Presentation
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2018 ANALYST PRESENTATION WHL 1 / 2018
Slide 3: Presentation Outline
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2018 ANALYST PRESENTATION PRESENTATION OUTLINE 01 / Review of the period 02 / Financial review 03 / Strategy update 04 / Outlook 2
Slide 4: Review of the Period
REVIEW OF THE PERIOD Ian Moir WHL 3 / 2018
Slide 5: Group Performance
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2018 ANALYST PRESENTATION GROUP PERFORMANCE • Turnover up 2.5%, adjusted profit before tax down 8.8% • Headline earnings per share declined by 15.0% • Interim dividend declined to 108.5 cps, in line with dividend cover policy • Continued strong and above m
Slide 6: South African Macro Environment
SOUTH AFRICAN MACRO ENVIRONMENT Real annual GDP growth % 6% 5% 4% 3% FORECAST 2% 1% 0% -1% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 • A difficult half due to political uncertainty, credit -2% rating downgrades, low growth in disposable Avg 2007 – 2016 income, high unemploymen
Slide 7: Woolworths Fashion, Beauty and Home performance
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2018 ANALYST PRESENTATION • Sales 0.2% lower, with comparable sales 3.4% lower and 3.6% net new space – Poor performance in Womenswear, particularly Edition – Lingerie, Kidswear, Home and Menswear performance in line with market – Strong sales growth in Be
Slide 8: Woolworths Food performance
• Market-leading sales growth • Sales up 9.4%, with comparable sales up 5.3% and 6.8% net new space • Positive volume growth of 0.9% in comparable stores • Gross profit margin maintained at 25.0%, despite competitive pricing and increased promotional activity • Operating profit up 15.9% WHL 7 / 2018
Slide 9: Market Share
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2018 ANALYST PRESENTATION MARKET SHARE Woolworths vs market growth (3mma) 14% 12 12% 10 10% 8 8% 6 6% 4 4% 2% 2 0% 0 Dec 16 Jan 17 Feb 17 Mar 17 Apr 17 May 17 Jun 17 Jul 17 Aug 17 Sept 17 Oct 17 Nov 17 Dec 17 Woolworths price movement CPI (Food & Non-alcoh
Slide 10: Australian Macro Environment
AUSTRALIAN MACRO ENVIRONMENT Real annual GDP growth % % 5 4.5 4 FORECAST 3.5 3 • Growth hampered by muted consumer 2.5 2 sentiment, low wage growth, 1.5 1 0.5 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 underemployment and high Avg 2007 – 2016 levels of indebtedness Westpac-Me
Slide 11: David Jones performance
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2018 ANALYST PRESENTATION • Total sales 3.8% lower, with comparable sales 3.3% lower • Improvement in last 6 weeks of the period, with comparable sales up 0.6% – Relevant market share growth in every month of Q2 • Strong online sales growth of 21%, c.6% of
Slide 12: Country Road Group performance
• Sales up 5.2%, comparable sales 1.0% lower (excluding Politix acquired in November 2016) • Trading in line with market • Gross profit margin up 3.1%, due to more full priced sales and sourcing gains • Continued strong online sales growth, up 28%, now >18% of Australasian sales • Net space reductio
Slide 13: Financial Review
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2018 ANALYST PRESENTATION FINANCIAL REVIEW Reeza Isaacs
Slide 14: Financial Overview
FINANCIAL OVERVIEW Adjusted profit HEPS – before tax Adjusted diluted HEPS Turnover and -8.8% to R3.0 billion -8.8% to 223.4 cps -15.0% to 206.3 cps concession sales +2.5% to R38.8 billion EPS at Interim dividend ROE* -505.9 cps -18.4% to 108.5 cps 20.1% from 22.8% * Impairment added back WHL 13 / 2
Slide 15: Group Income Statement
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2018 ANALYST PRESENTATION GROUP INCOME STATEMENT Dec 2017 Dec 2016 % Strong performance in Food, Rm Rm change underperformance in FBH Woolworths Fashion, Beauty Tough trading environment exacerbated and Home 1 038 1 195 (13.1) by disruption, transformation
Slide 16: Impairment
IMPAIRMENT • Purchase price A$2.1 billion • Slowdown in sales in FY2017 and H1 2018 – recognition of deterioration in trading environment, both cyclical and structural • Based on a considered view of cash flows – Assumed no recovery in the retail sector in the short term – Poor or delayed execution
Slide 17: Fashion, Beauty and Home Income Statement
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2018 ANALYST PRESENTATION FASHION, BEAUTY AND HOME INCOME STATEMENT Dec 2017 Dec 2016 % Rm Rm change Turnover 7 223 7 238 (0.2) Comp store sales down 3.4%; declining volumes and low price movement at 0.7% Cost of sales 3 856 3 784 1.9 Gross profit 3 367 3
Slide 18: Woolworths Food Income Statement
INCOME STATEMENT Dec 2017 Dec 2016 % Rm Rm change Strong volume growth; good availability; Turnover and concession sales 14 824 13 548 9.4 comp store sales of 5.3%, with price Concession sales (336) (292) 15.1 inflation of 4.4% Turnover – own buy 14 488 13 256 9.3 Cost of sales 10 872 9 943 9.3 Marg
Slide 19: Financial Services Income Statement
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2018 ANALYST PRESENTATION Dec 2017 Dec 2016 % Rm Rm change Closing book up 4.1% (post NCAA impact Average financial services assets 10 345 10 056 2.9 on new business and credit limit increases) % % Income Statement to book to book Interest income 1 086 21.
Slide 20: Book Performance
BOOK PERFORMANCE 12 12% 9 938 10 163 10 584 10 10% 9 221 8 359 8 8% 6 5.9% 6% 4.8% 5.0% 4.8% 4.3% 4 4% 2 1 926 1 918 1 888 1 802 1 766 2% 0 0% Dec 13 Dec 14 Dec 15 Dec 16 Dec 17 Gross book value (Rm) Total active accounts (000’s) Impairment charge* (%) * Includes collection costs WHL 19 / 2018
Slide 21: David Jones Income Statement
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2018 ANALYST PRESENTATION INCOME STATEMENT Dec 2017 Dec 2016 % Comp sales 3.3% lower; difficult trading A$m A$m Change conditions; timing of winter sale; reduced Turnover and concession sales 1 109 1 143 (3.0) promotional activity; disruptions due to Conce
Slide 22: Country Road Group Income Statement
INCOME STATEMENT Dec 2017 Dec 2016 % A$m A$m change Turnover 542 515 5.2 Comp store sales down 1.0%; online up 28%; impact of non-comp Politix sales Cost of sales 197 203 (3.0) Up 310 bps; gains from higher full priced Gross profit 345 312 10.6 sales, reduced promotions; sourcing gains Other revenue
Slide 23: Net Finance and Other Costs
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2018 ANALYST PRESENTATION NET FINANCE AND OTHER COSTS Dec 2017 Dec 2016 Capital Rate* Rm Rm Reduction in gearing and decrease in SA ZAR long-term debt R9.65bn 9.03% 448 478 base rates and margins AUD long-term debt A$378m 3.75% 98 113 Lower due to strength
Slide 24: Group Balance Sheet
GROUP BALANCE SHEET Restated Constant Dec 2017 Dec 2016 % currency Rm Rm change % change Assets Property, plant and equipment and investment properties 13 556 13 892 (2.4) – Decrease due to re-assessment of DJ Intangible assets 13 046 19 895 (34.4) (32.6) assets Investments in JVs and associate 1 06
Slide 25: Net Gearing
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2018 ANALYST PRESENTATION NET GEARING H1 2018 FY 2017 SA funding sources expanded throughout WHL Net debt (Rm) (11 661) (11 538) the period with the first issuance of Interest-bearing term debt (13 326) (13 325) R1 750m under the Domestic Medium-Term Net c
Slide 26: Capital Expenditure
CAPITAL EXPENDITURE Spend Forecast R1 317m (Dec 2016: R1 197m) FY18: R3 795m Rm Rm 1 400 4 500 Significant strategic A$11m 4 000 1 200 R3 795m capex in FY18 and A$16m 3 500 FY19. Post FY20, 1 000 normalised annual A$56m 3 000 R2 871m Group capex is R2 591m expected to be in 800 A$33m 2 500 the regio
Slide 27: Cash Generation for the 26 Weeks
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2018 ANALYST PRESENTATION CASH GENERATION FOR THE 26 WEEKS ENDED 24 DECEMBER 2017 Rm 4 301 136 4 500 (17) 3 500 (704) (548) 2 500 2 272 (896) 1 500 (662) 500 (500) (1 735) (125) Cash inflow Working JV dividend Finance Taxation Mainte- Free cash Expansion D
Slide 28: Free Cash Flow and Dividends
FREE CASH FLOW AND DIVIDENDS FY 2016 FY 2017 H1 2018 Rm Rm Rm Free cash flow pre capital expenditure and working capital investment 6 276 5 356 3 199 Working capital movements (311) (615) (17) Cash generated by operations 5 965 4 741 3 182 Capital expenditure (2 849) (2 413) (1 451) Impact of strate
Slide 29: Earnings and Distribution
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2018 ANALYST PRESENTATION EARNINGS AND DISTRIBUTION cents times 300 1.90 1.90 1.90 1.90 2.0 1.80 253.5 242.6 1.6 206.3 200 183.6 194.1 1.2 133.0 133.0 108.5 0.8 100 96.4 96.5 0.4 – – Dec 13 Dec 14 Dec 15 Dec 16 Dec 17 HEPS* DPS** Distribution cover * HEPS
Slide 30: Strategy Update
STRATEGY UPDATE Ian Moir WHL 29 / 2018
Slide 31: Fashion, Beauty and Home strategy
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2018 ANALYST PRESENTATION • Fix Womenswear – Improve design and buying with new design structure and new appointments – Celebrate the Woolworths brand – Sub-brands only where they add value and are customer relevant – Be a destination for the 35–55 year ol
Slide 32: Woolworths Food strategy
• Absolute focus on delivering ‘the difference’ through best-in-class, innovative product with uncompromising quality • Strengthen the value perception and make Woolworths more affordable, with ongoing price investment in our iconic lines, everyday low prices and promotional activity • Refresh and m
Slide 33: David Jones strategy: systems and private label
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2018 ANALYST PRESENTATION • New merchandise and finance systems (launched in July 2017), allowing better buying and planning decisions • New and improved David Jones private label designed by CRG launching in February 2018 • Improve WSA brands performance
Slide 34: David Jones strategy: digital, real estate and cost
• Enhance the digital experience to deliver online sales of 10% by 2020 – Launch new website on common, regional platform in April 2018 – Leverage Omni-channel Fulfilment Centre and regional supply chain expertise • Refurbish Elizabeth Street store, creating a world-class department store • Optimise
Slide 35: David Jones Food strategy
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2018 ANALYST PRESENTATION • Provide market leading Food experience by continuing to trial, evaluate and refine Food design formats and offers – Opened flagship Foodhall in Bondi Junction (August 2017) and Food Market in Wollongong (October 2017) – Malvern
Slide 36: Country Road Group strategy
• Customer-led strategies and clear vision for each brand based on clear customer segmentation • Design-led approach – Focus on delivering fashionable ranges with quality, innovation and value – Increase speed-to-market through new sourcing routes and more flexibility in buying decisions • Assume re
Slide 37: Outlook
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2018 ANALYST PRESENTATION 04 OUTLOOK Ian Moir
Slide 38: Outlook
OUTLOOK South Africa • Positive political developments, moderating inflation, strong exchange rate and potentially lower interest rates to further boost confidence • Offset by higher taxes, high unemployment and muted credit extension continuing to weigh on consumer spending • Price movement in H2 e
Slide 39: Medium-Term Targets
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2018 ANALYST PRESENTATION MEDIUM-TERM TARGETS FY2020 OPERATING PROFIT MARGIN 16% – 17% 7% * 6% – 8% 12% RETURN ON EQUITY 27.5% * Department store operating profit as a percentage of turnover and concession sales
Slide 40: WHL 39 / 2018
WHL 39 / 2018
Slide 41: WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2018 ANALYST PRESENTATION
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2018 ANALYST PRESENTATION
Slide 42: Additional Info
ADDITIONAL INFO
Slide 43: Trading Space
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2018 ANALYST PRESENTATION TRADING SPACE Projected Projected Projected Dec 2017 Dec 2016 % Jun 2018 % Jun 2019 % Jun 2020 % 000m2 000m2 change 000m2 change* 000m2 change 000m2 change Woolworths Fashion, Beauty and Home 480 463 3.6 481 2.7 486 1.0 496 2.1 So
Slide 44: Projected Trading Space Additions/Reductions
PROJECTED TRADING SPACE ADDITIONS/REDUCTIONS WSA Fashion, Country Beauty WSA David Road 000m 2 and Home Food Jones Group Dec 2017 480 249 467 121 Additions 4 3 9 2 Reductions (3) (2) – (2) Jun 2018 481 250 476 121 Additions 8 10 30 2 Reductions (3) (1) (15) (3) Jun 2019 486 259 491 120 Additions 12
Slide 45: Store Locations
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2018 ANALYST PRESENTATION STORE LOCATIONS Projected Projected Projected Dec 2017 Dec 2016 Growth Jun 2018 Growth* Jun 2019 Growth Jun 2020 Growth Woolworths Fashion, Beauty and Home 282 286 (4) 284 2 285 1 290 5 South Africa 220 219 1 219 2 218 (1) 220 2 R
Slide 46: Contribution to Sales
CONTRIBUTION TO SALES % of sales spent on Woolworths cards Dec 2017 Dec 2016 Fashion Beauty and Home 21.7% 21.8% Food 9.4% 10.2% Aggregate Woolworths card contribution 13.5% 14.4% Credit card 1.9% 1.8% Aggregate Woolworths card and credit card contribution 15.4% 16.2% WHL 45 / 2018
Slide 47: David Jones Income Statement (in Rands)
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2018 ANALYST PRESENTATION INCOME STATEMENT (IN RANDS) Dec 2017 Dec 2016 % Rm Rm change Turnover and concession sales 11 594 12 059 (3.9) Concession sales (3 997) (4 041) (1.1) Turnover – own buy 7 597 8 018 (5.3) Cost of sales 3 913 4 269 (8.3) Gross profi
Slide 48: David Jones Balance Sheet
BALANCE SHEET Dec 2017 Dec 2016 % A$m A$m change Assets Property, plant and equipment 821 838 (2.0) Goodwill and brands 737 1 344 (45.2) Intangible assets 81 43 88.4 Inventories 326 281 16.0 Accounts receivable, tax and deferred tax 130 204 (36.3) Cash 26 41 (36.6) Total assets 2 121 2 751 (22.9) No
Slide 49: Country Road Group Income Statement (in Rands)
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2018 ANALYST PRESENTATION INCOME STATEMENT (IN RANDS) Dec 2017 Dec 2016 % Rm Rm change Turnover 5 657 5 430 4.2 Cost of sales 2 058 2 143 (4.0) Gross profit 3 599 3 287 9.5 Other revenue 11 15 (26.7) Expenses 3 000 2 773 8.2 Store costs 2 120 1 966 7.8 Oth
Slide 50: Country Road Group Balance Sheet
BALANCE SHEET* Dec 2017 Dec 2016 % A$m A$m change Assets Property, plant and equipment 147 184 (20.1) Intangible assets 251 197 27.4 Inventories 121 143 (15.4) Accounts receivable, tax and deferred tax 54 75 (28.0) Cash 34 42 (19.0) Total assets 607 641 (5.3) Non-current and current non-interest bea
Slide 51: Disclaimer
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2018 ANALYST PRESENTATION DISCLAIMER Shareholders are advised that the information in this presentation has not been reviewed and reported on by Woolworths Holdings’ external auditors and it does not constitute a profit forecast. Woolworths Holdings has ac
Slide 52: Unaudited Interim Group Results and Cash Dividend Declaration
WOOLWORTHS HOLDINGS LIMITED UNAUDITED INTERIM GROUP RESULTS FOR THE 26 WEEKS ENDED 24 DECEMBER 2017 AND CASH DIVIDEND DECLARATION WHL 51 / 2018
Slide 53: Commentary
COMMENTARY Group sales for the first 26 weeks of the 2018 financial year The very challenging first quarter, and the increase in the increased by 2.5% to R38.8 billion over the prior period. cost base ahead of expected benefits, resulted in adjusted operating profit declining by 37.7% to A$66 millio
Slide 54: Outlook and Dividend Declaration
OUTLOOK In South Africa, trading conditions are expected to remain The Board remains committed to the ongoing transformation challenging in the second half, but should then improve, as of David Jones, and will continue to invest in the future of the impact of the new political leadership resonates t
Slide 55: Interim Group Statement of Comprehensive Income
INTERIM GROUP STATEMENT OF COMPREHENSIVE INCOME 52 weeks 26 weeks 26 weeks to 25 Jun to 24 Dec to 25 Dec 2017 2017 2016 % Rm Notes Rm Rm change 69 451 Revenue 36 270 35 262 2.9 74 273 Turnover and concession sales 38 768 37 819 2.5 (6 862) Concession sales (3 471) (3 586) (3.2) 67 411 Turnover 35 29
Slide 56: Interim Group Statement of Financial Position
INTERIM GROUP STATEMENT OF FINANCIAL POSITION At At Restated** 25 Jun 24 Dec At 25 Dec 2017 2017 2016 Rm Notes Rm Rm ASSETS 34 706 Non-current assets 27 901 35 208 13 846 Property, plant and equipment 3 13 556 13 814 – Investment properties – 78 19 595 Intangible assets 3 13 046 19 895 1 015 Investm
Slide 57: Interim Group Statement of Cash Flows
INTERIM GROUP STATEMENT OF CASH FLOWS 52 weeks 26 weeks 26 weeks to 25 Jun to 24 Dec to 25 Dec 2017 2017 2016 Rm Notes Rm Rm Cash flow from operating activities 8 177 Cash inflow from trading 4 301 4 803 (615) Working capital movements (17) (926) 7 562 Cash generated by operating activities 4 284 3
Slide 58: Interim Group Statement of Changes in Equity
INTERIM GROUP STATEMENT OF CHANGES IN EQUITY Total Total Total 52 weeks Share- Non- 26 weeks Share- Non- 26 weeks to 25 Jun holders of controlling to 24 Dec holders of controlling to 25 Dec 2017 the parent interests 2017 the parent interests 2016 Rm Notes Rm Rm Rm Rm Rm Rm Shareholders' interest at
Slide 59: Interim Segmental Analysis
INTERIM SEGMENTAL ANALYSIS 52 weeks 26 weeks 26 weeks to 25 Jun to 24 Dec to 25 Dec 2017 2017 2016 % Rm Notes Rm Rm change REVENUE 67 411 Turnover 35 297 34 233 3.1 13 894 Woolworths Fashion, Beauty and Home 7 223 7 238 (0.2) 27 075 Woolworths Food 14 488 13 256 9.3 597 Woolworths Logistics 332 291
Slide 60: Notes
NOTES 1. STATEMENT OF COMPLIANCE AND BASIS OF PREPARATION The interim Group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations adopted by the International Accounting Standards Board (IASB), IAS 34: Interim Financial Repo
Slide 61: Notes (Continued)
NOTES (CONTINUED) 5. CHANGE IN ACCOUNTING POLICY (CONTINUED) 5.2 New standards The adoption of certain new standards, which became effective in the current period, has resulted in minor changes to accounting policies and disclosure, none of which have a material impact on the financial position or p
Slide 62: Notes; Directorate and Statutory Information
NOTES 9. RELATED-PARTY TRANSACTIONS The Group entered into related-party transactions, the substance of which is disclosed in the Group's 2017 Annual Financial Statements. Intragroup adjustments relate to the sale of concession goods between segments and supply chain distribution adjustments. 10. EV
Slide 63: Interim results key metrics
Turnover and Adjusted diluted headline concession sales earnings per share +2.5% to R38.8 billion -8.8% to 223.4 cps Headline earnings per share Earnings per share -15.0% to 206.3 cps -246.6 % to -505.9 cps Interim dividend per share Return on equity* -18.4% to 108.5 cps 20.1% from 22.8% * Impairmen