Woolworths Group Ltd · ASX:WOW
Woolworths — H1 2006 Earnings Presentation
56 slides from Woolworths's earnings presentation, Feb 27, 2006
Slide 1: ASX cover letter for half year results presentation
WOOLWORTHS LIMITED A.B.N 88 000 014 675 27 February 2006 The Manager Companies Australian Stock Exchange Company Announcements Office Level 4 20 Bridge Street SYDNEY NSW 2000 Dear Sir/Madam Re: Woolworths Limited Half Year Results Presentation and Interim Dividend Announcement I attach a copy of mat
Slide 2: Results Presentation Half Year ended 1 January 2006
WOOLWORTHS LIMITED Results Presentation Half Year ended 1 January 2006 ROGER CORBETT Chief Executive Officer TOM POCKETT Chief Financial Officer 27 FEBRUARY 2006 1 Woolworths Limited
Slide 3: Company Results
WOOLWORTHS LIMITED Company Results Half Year ended 1 January 2006 ROGER CORBETT Chief Executive Officer TOM POCKETT Chief Financial Officer 27 FEBRUARY 2006 1 Woolworths Limited
Slide 4: Highlights for the First Half
Highlights for the First Half • This is an excellent result for Woolworths with sales up 18.4%, and strengthening second quarter comparable store sales, EBIT up 31.5% and NPAT up 22.1%. • The result reflects: - Proven ability to concentrate on the needs of our customers, whilst undertaking significa
Slide 5: Sales
SALES Upper single digit growth % (2) 21 19.1 (1) 18 16.1 18.4% 15.0 15 14.1 $ billions 12.8 7.0% 6.4% 12 13.4% 10.9% 9 6 3 HY 2002 HY 2003 HY 2004 HY 2005 HY 2006 (1) Includes ALH for 2 months. (2) Includes Foodland (NZ) business and 20 Australian ex-FAL store results from 2 November 2005, and ALH
Slide 6: EBIT
EBIT 1000 (3) 902.4 800 (1) (2) 31.5% $ millions 691.1 686.4 613.8 600 539.7 12.6% 475.3 13.7% 13.5% 400 18.9% 200 HY 2002 HY2003 HY 2004 HY 2005 HY 2005 HY 2006 A-GAAP A-IFRS A-IFRS (1) Includes ALH for 2 months. (2) Refer Appendix for reconciliation of HY05 A-GAAP to A-IFRS EBIT. (3) IncludesFoodl
Slide 7: EBIT Margin
EBIT MARGIN Margin has increased an average of 18bps per period over the last 7 half years. EBIT margin excluding Hotels for the half year 2006 is 4.4%, an increase of 12bps underpinned by supermarkets. 4.90% (1) 4.73% 4.70% 4.50% Percentage 4.29% 4.26% 4.30% 4.08% 4.10% 3.90% 3.81% 3.73% 3.70% 3.50
Slide 8: Profit After Tax
PROFIT AFTER TAX (3) (1) (2) 543.1 450 440.9 444.8 22.1% 420 397.8 10.8% 390 360 349.6 13.8% $ Million 330 300 295.5 18.3% 270 24.3% 240 210 180 150 HY 2002 HY 2003 HY 2004 HY 2005 HY 2005 HY 2006 A-GAAP A-IFRS A-IFRS (1) Includes ALH for 2 months. (2) Refer Appendix for reconciliation of HY05 A-GAA
Slide 9: Earnings Per Share
EARNINGS PER SHARE 55 (1) 49.92 50 44.18 42.87 45 40.41 16.5% 40 34.54 9.4% Cents 35 17.0% 29.56 30 16.8% 25 29.9% 20 15 10 HY 2002 HY 2003 HY 2004 HY 2005 HY 2005 HY 2006 A-GAAP A-IFRS A-IFRS (1) Includes Foodland (NZ) business and 20 Australian ex-FAL store results from 2 November 2005, and ALH re
Slide 10: CODB / Sales
CODB / SALES Our targeted CODB reduction of 20 basis points continues to be achieved 23% after excluding Petrol and Hotels Down 402 Down 16pts 22% 21.62% in HY06 pts in 7 half years 21.31% % 21% 20.82% 20.22% 20.25% 20.09% 20% 19% HY 2002 HY 2003 HY 2004 HY 2005 HY 2005 HY 2006 A-GAAP A-IFRS A-IFRS
Slide 11: Gross Profit Margin
GROSS PROFIT MARGIN Continued shelf price reductions offset by improved buying and shrinkage along with the benefit flowing from the 26% reduction of direct store deliveries Up 31 pts in HY06 25.35% 80% OF COST REDUCTION TO 25.12% CUSTOMERS IN LOWER PRICES Down 274 pts in 7 half 25% 24.90% 24.82% ye
Slide 12: Sales Summary
SALES SUMMARY $ Millions HY05 HY06 Increase (27 weeks) (27 weeks) % (1) (2) Supermarkets and Liquor 12,090 13,938 15.3 Petrol 1,627 2,206 35.6 Total Supermarkets 13,717 16,144 17.7 BIG W General Merchandise 1,670 1,796 7.5 Consumer Electronics 546 641 17.4 Total General Merchandise 2,216 2,437 10.0
Slide 13: EBIT Summary
EBIT SUMMARY (1) HY05 HY05 HY06 Change EBIT ($million) A-GAAP A-IFRS A-IFRS A-IFRS Before After Goodwill Goodwill (2) (2) (3) Food and Liquor 564.0 551.0 553.1 681.0 +23.1% Petrol 22.2 22.2 22.2 22.4 +0.9% Supermarkets Division 586.2 573.2 575.3 703.4 +22.3% BIG W 100.6 100.6 100.6 104.5 +3.9% Consu
Slide 14: Total Supermarkets Incl Petrol
TOTAL SUPERMARKETS INCL PETROL (1) (2) (3) HY05 HY05 HY06 Change A-GAAP A-IFRS A-IFRS A-IFRS Sales ($m) 13,717.7 13,717.7 16,144.2 +17.7% Gross Margin (%) 23.36 23.35 22.72 -0.63%pts Cost of Doing Business (%) 19.18 19.17 18.36 -0.81%pts EBIT to sales (%) 4.18 4.18 4.36 +0.18%pts EBIT ($ million) 57
Slide 15: Supermarkets - Australia
SUPERMARKETS - AUSTRALIA Strong profit growth built on solid sales growth underpinned by continued cost reductions • Australian Supermarket division sales for the half year increased 12%. • Australian Food and Liquor comparable store sales grew 3.7%. Q1 was 3.2% strengthening in Q2 to 4.2%. • Inflat
Slide 16: Supermarkets – New Zealand
SUPERMARKETS – NEW ZEALAND • New Zealand total sales for the half increased by 4.3% over the equivalent period last year. • Comparable store sales in New Zealand grew 4.3%. Q1 was 2.8% strengthening in Q2 to 5.8%. • In New Zealand overall food inflation was between 1.5% and 2.0% in the half, with CP
Slide 17: Liquor
LIQUOR All liquor operations (Dan Murphy’s, BWS and attached liquor) recorded strong growth in revenue and earnings in a competitive market • Comparable store sales in all our liquor businesses were strong. • Dan Murphy‘s continued to expand with 8 stores opened in the half bringing total number of
Slide 18: Petrol
PETROL Our petrol division, strengthened by our alliance with Caltex, continues to be a good supplemental offer with petrol sites conveniently located near our Supermarkets • Petrol sales of $2.2bn increased by 35.6% for the half. • Strong volume growth with litres increasing 15.4%. • EBIT was impac
Slide 19: BIG W
BIG W Solid result – Tighter trading conditions. Customer acceptance of Everyday Low Price (EDLP) remains strong HY05 HY05 HY06 Change A-GAAP A-IFRS A-IFRS A-IFRS Sales ($ million) 1,669.9 1,669.9 1,796.4 +7.6% Comparable store sales increased 2.2% (Q1 1.2%, Q2 2.9) reflecting a strong December trad
Slide 20: Consumer Electronics
CONSUMER ELECTRONICS Excellent formats taking full advantage of technological evolution HY05 HY05 HY06 Change A-GAAP A-IFRS A-IFRS A-IFRS Sales ($ million) 545.8 545.8 641.0 +17.4% Comparable store sales up 11.8% for the half year (Q1 11.2%, Q2 12.3%). Gross margin (%) 29.67 29.67 28.90 -0.77%pts Co
Slide 21: Hotels
HOTELS HOTELS HY05 HY05 HY06 Change (1) (2) (3) A-GAAP A-IFRS A-IFRS A-IFRS (2 months) (2 months) (6 months) Sales ($ million) 97.5 97.5 405.9 +316.3% Gross margin (%) 82.33 82.36 82.85 +0.49%pts (4) Cost of Doing Business (%) 67.05 74.87 62.84 -12.03%pts EBIT to sales (%) 15.28 7.49 20.01 +12.52%pt
Slide 22: Hotels
HOTELS • Hotel sales of $406m represents “on premise” sales revenue from ALH/MGW/BMG for the 27 weeks. Sales growth increased by 4.2% over the equivalent period last year in line with expectations. • Hotel sales have been driven by continued growth in major markets including Queensland and Victoria.
Slide 23: Foodland Acquisition
FOODLAND ACQUISITION Woolworths has acquired Foodland Limited’s New Zealand business plus 20 Australian ex-FAL stores and two development sites • The acquisition consideration was approximately $2.6 billion with Woolworths obtaining control on 2 November 2005. • We recognise the strength of the New
Slide 24: Taverner Acquisition
TAVERNER ACQUISITION Further strategic acquisition strengthens the ALH Group • The ALH Group (formerly Bruandwo) acquired the Taverner Hotel Group for $377.8m on 6 February 2006. • Taverner operates 33 leasehold hotels, in Victoria (18), South Australia (12) and New South Wales (3) and has approxima
Slide 25: Taverner Acquisition
TAVERNER ACQUISITION • The Taverner acquisition consolidates Woolworths’ position in a highly fragmented industry. • Key areas of synergies include: - Head office and overhead savings - Liquor buying and food buying - Retail re-branding and re-merchandising - Insurance savings - Dan Murphy rollout p
Slide 26: ALH Integration
ALH INTEGRATION • During the half year significant progress has been made on integrating the ALH, BMG and MGW business. Bruandwo has been renamed the ALH Group. • All corporate functions have been rationalised and the operational teams consolidated and rationalised with Woolworths trading terms and
Slide 27: Shareholder Payouts
SHAREHOLDER PAYOUTS Franking credits available for Total $4,200m distribution at 1 January 2006, $541m (prior to interim dividend) Share buy-backs and 941 other capital 1000 management will resume following the 800 integration of the ALH Group and Buy-Back 604 Foodland into WOW $ millions 534 600 Bu
Slide 28: Dividends Per Share
DIVIDENDS PER SHARE INTERIM 28 28 24 16.7% 24 21 14.3% 20 18 Cents 16.7% 16 15 20.0% 12 25.0% 8 4 HY 2002 HY 2003 HY 2004 HY 2005 HY 2006 26 Woolworths Limited
Slide 29: Balance Sheet
BALANCE SHEET 2005 2005 (1) 2006 A-GAAP A-IFRS A-IFRS 2/01/05 2/01/2005 1/01/2006 $million $million $million Inventory 2.441.8 2,433.7 2,832.1 Up due to inventories acquired relating to FAL. Trade Payables (2,913.5) (2,913.5) (3,480.3) Inventory days down 2.2 days (excluding FAL). Net investment in
Slide 30: Capital Management
Capital Management • Woolworths currently sets its capital structure with the objective of maintaining its credit ratings of A- from Standards and Poors and A3 from Moody’s Investor Services. • Two significant debt transactions were undertaken during the half year: - Medium Term Notes of A$300 milli
Slide 31: Cash Flow Half Year
CASH FLOW HALF YEAR HY05 HY06 Change A-IFRS A-IFRS % $m $m EBITDA 881.4 1,154.8 +31.0 Net reduction in working capital and other operating cash flows 64.9 205.6 946.3 1,360.4 +43.8 Interest paid (including cost of WINs) (62.1) (113.3) +82.4 Taxation Paid (201.8) (229.2) +13.6 Total cash provided by
Slide 32: Days Stock on Hand (Half Year)
DAYS STOCK ON HAND (HALF YEAR) 46 On track to achieve our full year reduction of 1 to 2 days 44 42.9 42 Reduction of 2.2 days 40 38.2 Days (2) 38 (1) 37.3 36.3 (3) 36 35.4 35.1 34 32 30 HY 2002 HY 2003 HY 2004 HY 2005 HY 2005 HY2006 10.9 days reduction over past 7 half years equals $800m cash flow b
Slide 33: Return on Equity (Half Year)
(1) RETURN ON EQUITY (HALF YEAR) 40% 29.60% 30% 26.60% (3) 28.05% Percentage (2) 24.41% 21.50% 20% (4) 14.18% 10% 0% HY 2002 HY 2003 HY 2004 HY 2005 HY 2005 HY 2006 A-GAAP A-IFRS A-IFRS (1) Based on closing Shareholders funds. (2) Decline in ROE in HY03 due to the effect of changes in Australian Acc
Slide 34: Return on Funds Employed (Half Year)
(1) RETURN ON FUNDS EMPLOYED (HALF YEAR) 30% 24.59% 24% 21.40% 21.40% Percentage (2) 18.42% 17.00% 18.17% 18% (3) 12.42% 12% 6% 0% HY 2002 HY 2003 HY 2004 HY 2005 HY 2005 HY 2006 Proforma A-GAAP A-IFRS A-IFRS ex-FAL Assets & Earnings (1) This measures the pre-tax return on funds employed regardless
Slide 35: Four Year Report Card
FOUR YEAR REPORT CARD HY02 HY03 HY04 HY05 HY06 A-GAAP A-IFRS Sales will grow in the upper single digits supported by bolt on acquisitions. 13.4% 10.9% 6.4% 7.0% 18.4% EBIT will outperform sales growth driven by cost savings. 18.9% 13.5% 13.7% 12.6% 31.5% EPS will outperform EBIT growth assisted by c
Slide 36: Growth
GROWTH Woolworths has and will continue to lay foundations for growth Project Refresh – Lower costs • Stage 1: underpinned cost savings to date. • Stage 2: our new logistics program provides us with a significant strategic advantage which will underpin our ability to reduce costs over the next 5 yea
Slide 37: Growth
GROWTH Increased emphasis on private branded goods • Woolworths product range features the major industry brands and a strong private label business. Woolworths “Homebrand” is at the leading price point in the market with the best quality at that price point. • Woolworths ‘Homebrand’ continues to be
Slide 38: Growth
GROWTH Continuing opportunity to grow market share • Market share of Food, Liquor & Grocery (FLG) remains below 30% and still low by world standards. • Independent grocers and speciality food stores hold just under 50%. Continue to grow core business • Lower prices. • Expand new and existing categor
Slide 39: Project Refresh
PROJECT REFRESH Overview • “Refresh” level 1 initiatives since 1999 underpin a reduction in CODB of 3.78% of sales, giving cumulative savings of $3.6 billion to the end of FY05 (based on our 1999 cost structure). We are on track to deliver a further $1.3 billion in savings in FY06. • Targeting furth
Slide 40: Project Refresh
PROJECT REFRESH Cumulative savings $8.0 billion over 9 years Level III - Development 24.5% Level II - Logistics 24.10% 18.75% Level14.10% I - Reorganisation 2.68% / line items 99 00 01 02 03 04 05 06 07 08 09 38 Woolworths Limited
Slide 41: Project Refresh savings
PROJECT REFRESH 9 year cumulative savings = $8.0 billion Savings in years FY06 to F08 = $4.4b 1633 (1) Cum savings to end of FY05 = $3.6billion 1,600 1456 3.78% of sales using 1999 as (1) PA Savings $ millions the base year 1296 Level II 1150 1,200 Increasingly logistics driven 796 800 632 517 Level
Slide 42: “Refresh” Level II
“REFRESH” LEVEL II • Significant progress has been made to date as we move toward the completion phase. • The technology required to support our new supply chain is critical to its success and was complex in its design. We have now passed the high risk stage of our IT rollout with far better results
Slide 43: “Refresh” Level II continued
“REFRESH” LEVEL II continued • Rollout of our new DC network well underway with 4 new RDCs being operational this financial year: - Perth was completed ahead of schedule and is now fully operational. This site forms the “blueprint” for our future RDC transitions. - Adelaide RDC is now fully operatio
Slide 44: Guidance FY06
GUIDANCE FY06 Sales • For FY06 we expect that sales growth including Foodland and Taverner to be in the range of 15% to 20%. Earnings • For FY06, we anticipate that NPAT (excluding Foodland and Taverner) will increase in the lower double digits (10% to 15%). Furthermore we expect that Foodland and T
Slide 45: Company Results
WOOLWORTHS LIMITED Company Results Half Year ended 1 January 2006 ROGER CORBETT Chief Executive Officer TOM POCKETT Chief Financial Officer 27 FEBRUARY 2006 43 Woolworths Limited
Slide 46: Appendices
Appendices 44 Woolworths Limited
Slide 47: Capital Expenditure (Including Foodland and Taverner)
CAPITAL EXPENDITURE (INCLUDING FOODLAND AND TAVERNER) HY06 F06 F07 F08 F09 F10 Actual Forecast Forecast Forecast Forecast Forecast (1) (2) New Stores/Acquisitions 76 191 175 150 140 140 Store Refurbs/Extensions 167 327 315 300 300 300 Stay in Business 37 93 110 115 115 115 IT 75 178 210 100 100 100
Slide 48: Australian Equivalents of IFRS (AIFRS)
AUSTRALIAN EQUIVALENTS OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (AIFRS) The main AIFRS adjustments with respect to FY05 are summarised below: Key Impact Area Net Profit After Tax Retained Earnings FY05 at transition FY05 AGAAP Balance (as disclosed in the 2005 Annual Report) 791.6 978.0 Total
Slide 49: HY05 A-GAAP to A-IFRS Reconciliation
HY05 A-GAAP TO A-IFRS RECONCILIATION HY05 HY05 $m $m EBIT AGAAP (as previously reported) 691.1 HY05 AIFRS Adjustments Share based payments (5.3) Property, plant and equipment (9.9) Depreciation savings 1.6 Defined benefit plan 3.6 Operating lease straight line expense 2.8 Goodwill amortisation 17.6
Slide 50: AIFRS Balance Sheet Impact
AIFRS BALANCE SHEET IMPACT AIFRS Balance Sheet Impact FY05 HY05 $m $m Net assets as reported under A-GAAP 2,197.1 1,848.6 Net assets as reported under A-IFRS 2,000.2 1,616.4 Net movement (196.9) (232.2) Major adjustments giving rise to a decline in net assets of include: Reduction in receivables ari
Slide 51: ALH Group (Previously Bruandwo)
ALH GROUP (PREVIOUSLY BRUANDWO) Arrangements with BMG • 75/25 equity ownership. • ALH has total assets of approximately $2.5 billion and comprises the business of ALH, BMG, MGW and Taverner. • BMG contributed: - 50% share of MGW (enterprise value $365m) as at 24 December 2004. - Majority BMG assets
Slide 52: ALH Group (Previously Bruandwo)
ALH GROUP (PREVIOUSLY BRUANDWO) Incentive arrangements with BMG are • Threshold hurdle is 10% ROE (1) if achieved. • Annual earnings incentive is a further 8.3% of the excess over 10%. • Capital incentive upon termination after 1 July 2011 of an additional 5% of the equity value increment. • Capital
Slide 53: Five Year Analysis
FIVE YEAR ANALYSIS PROFIT AND LOSS 2006 (A-IFRS) 2005 (A-IFRS) 2005 (A-GAAP) 2004 (A-GAAP) 2003 (A-GAAP) 2002 (A-GAAP) Weeks 27 27 27 28 28 28 SALES ($ million) Food and liquor 13,938.5 (1) 12,090.5 12,090.5 11,860.0 11,216.7 10,177.5 Petrol 2,205.9 1,627.2 1,627.2 1,069.3 833.9 503.5 Total supermar
Slide 54: Balance Sheet and Cash Flow
2006 (A-IFRS) 2005 (A-IFRS) 2005 (A-GAAP) 2004 (A-GAAP) 2003 (A-GAAP) 2002 (A-GAAP) WEEKS 27 27 27 28 28 28 BALANCE SHEET ($million) FUNDS EMPLOYED Inventory 2,832.1 2,433.7 2,441.8 2,042.7 2,064.1 2,082.2 Accounts Payable (3,480.3) (2,913.5) (2,913.5) (2,032.4) (1,919.2) (2,237.2) Net investment in
Slide 55: Shareholder Value, Financial Strength, Notes to Statistics
SHAREHOLDER VALUE 2006 (A-IFRS) 2005 (A-IFRS) 2005 (A-GAAP) 2004 (A-GAAP) 2003 (A-GAAP) 2002 (A-GAAP) WEEKS 27 27 27 28 28 28 ROFE (8) Pre tax return on funds employed % Normal 12.42 18.07 17.00 24.59 21.40 21.38 DU PONT ANALYSIS (abnormals excluded) (%) EBIT to sales 4.73 4.26 4.29 4.08 3.81 3.73 S
Slide 56: Top 20 WOW Holders
TOP 20 WOW HOLDERS AT 20/02/06 Name Units %IC Rank J P MORGAN NOMINEES AUSTRALIA LIMITED 160,348,719 13.78 1 NATIONAL NOMINEES LIMITED 126,653,045 10.88 2 WESTPAC CUSTODIAN NOMINEES LIMITED 104,087,692 8.94 3 ANZ NOMINEES LIMITED (CASH INCOME ACCOUNT) 32,279,231 2.77 4 CITICORP NOMINEES PTY LIMITED