Woolworths Holdings Limited · JSE:WHL
Woolworths — FY2010 Earnings Presentation
61 slides from Woolworths's earnings presentation, August 2010
Slide 1: Woolworths Holdings Limited
WOOLWORTHS HOLDINGS LIMITED WHL
Slide 2: Overview
WOOLWORTHS HOLDINGS LIMITED OVERVIEW South Africa - Early signs of economic recovery - Upper income customers in a better position - Continued improvement in bad debt environment - Short-term uplift from FIFA World Cup Australia - Tough trading conditions with heavy discounting - 6 interest rate
Slide 3: Review of the Year
WOOLWORTHS HOLDINGS LIMITED REVIEW OF THE YEAR Group - Strong year - Market share gains - Adjusted HEPS up 24.7% - ROE up from 26.3% to 39.4% WHL
Slide 4: Review of the Year Continued
WOOLWORTHS HOLDINGS LIMITED REVIEW OF THE YEAR CONTINUED Woolworths Retail - Clothing and General merchandise • Gross profit margin up, particularly in second half • Price Pi inflation i fl ti managed d down d in i second d half h lf • Like-for-like volume growth in second half g operating • Stron
Slide 5: Retail Turnover Growth
WOOLWORTHS HOLDINGS LIMITED RETAIL TURNOVER GROWTH Clothing - Woolworths vs market growth (3mma) 20% 15% 10% 5% 0% -5% -10% 10% 8 9 8 Se 9 8 Ja 9 M 10 10 09 M 0 9 0 M 9 -0 -0 l- 0 l- 0 -0 -0 1 -1 -0 -0 n- n- n- - p p ov ov ar ar ay ay Ju Ju Ja Ju Se M N N Woolworths growth Market growth Clothing and
Slide 6: Retail Turnover Growth Continued
WOOLWORTHS HOLDINGS LIMITED RETAIL TURNOVER GROWTH CONTINUED Food - Woolworths vs market growth (3mma) 30% 25% 20% 15% 10% 5% 0% 8 9 8 Se 9 8 Ja 9 M 10 10 09 9 M 0 0 M 9 -0 -0 l- 0 l- 0 -0 -0 1 -1 -0 -0 n- n- n- - p p ov ov ar ar ay ay Ju Ju Ja Ju Se M N N Woolworths growth Market growth Food 12mma
Slide 7: Retail Turnover Growth Continued
WOOLWORTHS HOLDINGS LIMITED RETAIL TURNOVER GROWTH CONTINUED Total stores Comparable stores Price movement H1 H2 Total H1 H2 Total H1 H2 Total Clothing & GM 9.7% 12.7% 11 .2% 6.2% 7.2% 6.7% 11 .8% 5.6% 8.9% Food 8.9% 10.8% 9.9% 4.7% 6.6% 5.6% 6.3% 4.2% 5.2% SA Retail 9.1% 11 .6% 10.4% 5.3% 6.9% 6.1%
Slide 8: Review of the Year Continued
WOOLWORTHS HOLDINGS LIMITED REVIEW OF THE YEAR CONTINUED Country Road - Tough market - Heavy promotions impacted margin - Start-up costs of Trenery - Premium brands very successful in South Africa Financial Services - JV integration and relationship working well - Now compliant co p a with w com
Slide 9: WHL
WOOLWORTHS HOLDINGS LIMITED WHL
Slide 10: Financial Overview
WOOLWORTHS HOLDINGS LIMITED FINANCIAL OVERVIEW Group turnover up 10.5% to R23.4 billion - H2 up 11.6% Diluted headline earnings per share up 48.2% to 159.3 cps Adjusted headline earnings per share up 24.7% Total distribution to shareholders up 23.5% to 105 cps ROE increased from 26.3% to 3
Slide 11: Group Income Statement
WOOLWORTHS HOLDINGS LIMITED GROUP INCOME STATEMENT Jun 2010 Jun 2009* % Rm Rm change SA Retail 1 459 1 186 23.0 Clothing and GM 1 014 780 30.0 Food 445 406 9.6 Abnormal forex profit/(loss) 79 (79) Country Road 119 140 (15.0) Financial Services 74 129 100% subsidiary (pre tax) - 72 JV (after tax) 74
Slide 12: Group Income Statement Commentary
WOOLWORTHS HOLDINGS LIMITED GROUP INCOME STATEMENT COMMENTARY 1. SA Retail – Good profit growth driven mainly by gross profit margin expansion in Clothing and GM. GM 2. Forex – Prior year forex loss reverses in full. 3. Country Road – Tough trading, exacerbated by Trenery start-up costs. 4 Financial
Slide 13: SA Retail Income Statement
WOOLWORTHS HOLDINGS LIMITED SA RETAIL INCOME STATEMENT Jun 2010 Jun 2009* % Rm Rm change Turnover 20 897 18 936 10.4 Cost of sales 14 672 13 626 7.7 Gross profit 6 225 5 310 17.2 Other revenue 86 96 (10 4) (10.4) Expenses 4 858 4 233 14.8 Store costs 2 928 2 585 13.3 Other operating costs 1 930 1 64
Slide 14: SA Retail Income Statement Commentary
WOOLWORTHS HOLDINGS LIMITED SA RETAIL INCOME STATEMENT COMMENTARY 1. Turnover Total stores p Comparable stores Price movement H1 H2 Total H1 H2 Total H1 H2 Total Clothing & GM 9.7% 12.7% 11.2% 6.2% 7.2% 6.7% 11.8% 5.6% 8.9% Food 8.9% 10.8% 9.9% 4.7% 6.6% 5.6% 6.3% 4.2% 5.2% SA Retail 9 1% 11.6% 9.1%
Slide 15: SA Retail Segmental Performance
WOOLWORTHS HOLDINGS LIMITED SA RETAIL SEGMENTAL PERFORMANCE Gross margin Operating margin Jun 2010 Jun 2009 Jun 2010 Jun 2009 % % % % Clothing and GM 40.1 36.8 12.2 10.4 Food 23.2 22.6 3.6 3.6 SA Retail 29.8 28.0 7.0 6.2 Cl thi Clothing and d GM delivers d li mostt off the th margin i expansion i
Slide 16: Country Road Income Statement
WOOLWORTHS HOLDINGS LIMITED COUNTRY ROAD INCOME STATEMENT Jun 2010 Jun 2009* % A$m A$m change Turnover 372 343 8.5 Cost of sales 159 139 14.4 Gross profit 213 204 4.4 Other revenue 8 4 Expenses 203 186 9.1 Store costs 151 132 14.4 Other operating costs 52 54 (3.7) Operating profit 18 22 (18.1) Finan
Slide 17: Country Road Commentary
WOOLWORTHS HOLDINGS LIMITED COUNTRY ROAD COMMENTARY 1. Turnover A$ Jun 2010 Jun 2009 % change Comparable stores Retail 289 256 12.9% 0.8% Concession 83 79 5.1% 3.5% Wholesale - 8 (100%) 2. Gross profit – Reduction due to higher promotional activity and the negative impact of hedging against a strong
Slide 18: Financial Services Income Statement
WOOLWORTHS HOLDINGS LIMITED FINANCIAL SERVICES INCOME STATEMENT Consolidated pro forma Jun % to Jun % to % income statement 2010 book 2009 book change Rm Rm Interest income 1 167 19.5 1 432 23.9 (18.5) Interest paid 386 6.4 568 9.5 (32.0) Net interest income 781 13.0 864 14.4 (9.6) Impairment charge
Slide 19: Financial Services Commentary
WOOLWORTHS HOLDINGS LIMITED FINANCIAL SERVICES COMMENTARY 1. Average financial services assets – Flat book growth with sound acquisition growth being offset by higher attrition and NTU (not taken up) rates. 2. Net interest income – Margin squeeze resulting from rate declines, particularly in the Usu
Slide 20: Financial Services Book Performance
WOOLWORTHS HOLDINGS LIMITED FINANCIAL SERVICES BOOK PERFORMANCE 7 000 14% 6 242 6 051 5 867 6 000 12% 5 000 9.5% 10% 4 000 7.5% 8% 3 000 5.1% 6% 1 925 5 1 905 1 858 2 000 4% 1 000 2% 0 0% Jun-08 Jun-09 Jun-10 Gross book value (Rm) Total active accounts (000's) Impairment charge (%) WHL
Slide 21: Balance Sheet
WOOLWORTHS HOLDINGS LIMITED BALANCE SHEET Jun 2010 Jun % Rm 2009 change Rm Assets Property, plant and equipment, intangible assets and loans 2 628 2 571 2.2 Investment in JVs and associates 614 570 7.7 Inventory 1 676 1 723 (2.7) Accounts receivable and deferred tax 1 175 1 050 11 .9 Net cash 1 417
Slide 22: Cash Generation
WOOLWORTHS HOLDINGS LIMITED CASH GENERATION 4 000 3 500 3 000 R579m 2 500 R2 097m (R152m) 2 000 (R367m) 1 500 (R543m) 1 000 (R725m) R526m 500 (R363m) 0 EBITDA Working Interest Tax Net Distributions Net share Increase in capital and paid capex to buybacks cash other shareholders movements Improved
Slide 23: Investment in the Business
WOOLWORTHS HOLDINGS LIMITED INVESTMENT IN THE BUSINESS Capex (Rm) R607m (Jun 2009: R754m) 171 .5 11 .9 147.0 253.9 26.4 Depreciation Jun 2010 Jun Rm 2009 155.0 Rm SA Retail 366 344 316.7 278.6 Country Road 76 57 T t l group Total 442 401 Jun 2009 Jun 2010 Retail IT Other Country y Road WHL
Slide 24: Space Growth – Clothing and GM
WOOLWORTHS HOLDINGS LIMITED SPACE GROWTH – CLOTHING AND GM Slowdown in new store openings Additional store No. of new footage (m2) stores 25 000 40 35 20 000 30 15 000 25 20 10 000 15 10 5 000 5 - - Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Actual Actual Actual Actual Actual Projected Proje
Slide 25: Space Growth – Food
WOOLWORTHS HOLDINGS LIMITED SPACE GROWTH – FOOD Focus on bigger stores, including ‘superwoolies’ Additional store No. of new footage (m2) stores 25 000 40 35 20 000 30 15 000 25 20 10 000 15 10 5 000 5 - 0 J Jun-06 06 J Jun-07 07 J Jun-08 08 J Jun-09 09 J Jun-10 10 J Jun-11 11 J Jun-12 12 Actual A
Slide 26: Return on Equity
WOOLWORTHS HOLDINGS LIMITED RETURN ON EQUITY 45% 39.4% 40% 35.1% 33.5% 34.8% 35% 27.4% 27.5% 30% 24 7% 24.7% 25% 18.3% 26.3% 20% 17.5% 15% 16.3% 10% 12.3% 13.8% 13.8% 13.3% 14.8% 11 .3% 11 .8% 12.0% 11 .1% 5% 0% Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 ROE WACC WHL
Slide 27: Earnings and Distribution
WOOLWORTHS HOLDINGS LIMITED EARNINGS AND DISTRIBUTION cents times 157 2 157.2 160 2.5 140 2.0 127.8 126.4 114.9 2.0 120 0 1 .7 0 1 .7 105.0 105 7 1 .7 7 1 .5 1 .5 100 1 .5 89.4 1 .5 75.5 80 60 1 .0 40 0.5 20 38.5 54.0 63.0 76.0 79.0 85.0 105.0 0 - 2004 2005 2006 2007 2008 2009 2010 Adjusted HEPS DPS
Slide 28: Guidance
WOOLWORTHS HOLDINGS LIMITED GUIDANCE SA Retail - Sales growth in line with FY2010 excluding World Cup benefit - Gross margin maintained at current level - Continued focus on expenses - Return on sales will improve further as move towards goal of 8% in 2 years Country Road - Sales growth will rem
Slide 29: Guidance Continued
WOOLWORTHS HOLDINGS LIMITED GUIDANCE CONTINUED Financial Services - Book growth will remain challenging, but expect marginal growth in H2 - Growth strategies to bear fruit in longer term - I Impairments i t expected t d tto remain i att currentt llevels l Taxation - g The effective rate will inc
Slide 30: WHL
WOOLWORTHS HOLDINGS LIMITED WHL
Slide 31: Retail - Performance
WOOLWORTHS HOLDINGS LIMITED RETAIL - PERFORMANCE Priorities Progress 1 . Leverage customer insights Improved customer understanding has led to better profiling and cataloguing of stores, with an increasingly segmented offer. 2. Innovation – differentiation Innovation continues to drive Woolworths di
Slide 32: WHL
WOOLWORTHS HOLDINGS LIMITED WHL
Slide 33: Group Strategy
WOOLWORTHS HOLDINGS LIMITED GROUP STRATEGY Continue with current strategies, but build and evolve Pursue growth opportunities Drive productivity across the business Improve integration within the group WHL
Slide 34: Group Priorities
WOOLWORTHS HOLDINGS LIMITED 9 GROUP PRIORITIES 1. Customer segmentation g 2. Loyalty programme 3. Online strategy 4. Expand product categories with the most potential 5. Get store formats right 6. Sweat our investments 7. Value chain optimisation 8. Country Road 9. Financial Services WHL
Slide 35: Customer Segmentation
WOOLWORTHS HOLDINGS LIMITED CUSTOMER SEGMENTATION Better understand current and future customer profile Build internal capabilities to interpret customer data Drive sub-brand review to make each brand: - Simpler - Clearer - Better segmented Further enhance and drive the 9 box grid in Clothin
Slide 36: Customer Segmentation Continued
WOOLWORTHS HOLDINGS LIMITED CUSTOMER SEGMENTATION CONTINUED Classic Modern Contemporary Best Better 80% Good WHL
Slide 37: Loyalty Programme
WOOLWORTHS HOLDINGS LIMITED LOYALTY PROGRAMME CRM is a major opportunity for the brand Will be introducing a tiered loyalty programme, which will be designed to: - Build more profitable long-term relationships with more of our customers - Reward and retain our loyal customers This will provide
Slide 38: Online Strategy
WOOLWORTHS HOLDINGS LIMITED ONLINE STRATEGY Online will become a significant selling channel Aim to provide an exciting and appealing site that allows a customer experience that matches our best stores Will offer Food, Clothing, Home and Beauty on the site – the majority of our catalogue Hav
Slide 39: Expand Product Categories With the Most Potential
WOOLWORTHS HOLDINGS LIMITED EXPAND PRODUCT CATEGORIES WITH THE MOST POTENTIAL Lingerie - Have lost market share and will aggressively seek to regain this - Expanded offer with a real focus on value - Consistent service and fit, better ranges of bigger sizes and more glamour - Instore presence stro
Slide 40: WHL
WOOLWORTHS HOLDINGS LIMITED WHL
Slide 41: WHL
WOOLWORTHS HOLDINGS LIMITED WHL
Slide 42: Expand Product Categories With the Most Potential
WOOLWORTHS HOLDINGS LIMITED EXPAND PRODUCT CATEGORIES WITH THE MOST POTENTIAL Babywear - Underweight in baby compared to kidswear - Aim to create a “Baby World” for the modern mother - Broader offer that will link essentials, outerwear and footwear - Complement offer with Mothercare hards and Earl
Slide 43: WHL
WOOLWORTHS HOLDINGS LIMITED WHL
Slide 44: Expand Product Categories With the Most Potential
WOOLWORTHS HOLDINGS LIMITED EXPAND PRODUCT CATEGORIES WITH THE MOST POTENTIAL Footwear and accessories - Been growing this area strongly, but it still represents a real growth opportunity - Focus on Modern - Newness, desirability and value - Catwalk collection in 16 stores - Upgraded accessories a
Slide 45: WHL
WOOLWORTHS HOLDINGS LIMITED WHL
Slide 46: Get Store Formats Right
WOOLWORTHS HOLDINGS LIMITED GET STORE FORMATS RIGHT Introduce ‘superwoolies’ in Food through converting and expanding existing stores - Offer a comprehensive catalogue of food items as well as household and home basics - Have the mind of a supermarket and the soul of a deli O Open fewer, f but b
Slide 47: Sweat Our Investments
WOOLWORTHS HOLDINGS LIMITED SWEAT OUR INVESTMENTS Optimise trading densities - Better space and catalogue management - Address underperforming stores - Drive location/parallel planning further - Leverage marketing opportunities Get the best from new systems (IPEX) and infrastructure WHL
Slide 48: Value Chain Optimisation
WOOLWORTHS HOLDINGS LIMITED VALUE CHAIN OPTIMISATION Shorten the merchandise cycle and derisk Build rapid response capability – capitalise on early reads and maximise best sellers Fix longlife availability once and for all WHL
Slide 49: Country Road
WOOLWORTHS HOLDINGS LIMITED COUNTRY ROAD Stop the decline Focus on better balanced ranges in womenswear Open new stores and expand existing stores South African integration to continue and 2 new standalone stores Reduce cost of doing business WHL
Slide 50: Financial Services
WOOLWORTHS HOLDINGS LIMITED FINANCIAL SERVICES Integrate the business better with Woolworths Drive growth - Store card and credit card - Continue building our loans and insurance business Drive efficiency by leveraging the capabilities and expertise within the ABSA and Barclays Group WHL
Slide 51: WHL
WOOLWORTHS HOLDINGS LIMITED WHL
Slide 52: Outlook
WOOLWORTHS HOLDINGS LIMITED OUTLOOK Coming off a strong second half which was boosted by the FIFA World Cup Current trading remains positive and in line with expectations The South African economy is slowly improving but remains tough The Australian economy has been tough, but is expected to
Slide 53: WHL
WOOLWORTHS HOLDINGS LIMITED WHL
Slide 54: Group Income Statement
WOOLWORTHS HOLDINGS LIMITED GROUP INCOME STATEMENT Jun 2010 Jun 2009 % Rm Rm change Turnover 23 393 21 175 10.5 Cost of sales 15 656 14 501 8.0 Gross profit 7 737 6 674 15.9 Other revenue 270 747 (63.9) Expenses 6 178 5 784 68 6.8 Operating profit 1 829 1 637 11 .7 Finance costs 150 281 (46.6) Profi
Slide 55: SA Retail – Balance Sheet
WOOLWORTHS HOLDINGS LIMITED SA RETAIL – BALANCE SHEET Jun 2010 Jun 2009 % Rm Rm change Assets Property, plant and equipment, investments, deferred tax,, loans and g goodwill 2 358 2 369 (0.5) Inventory 1 417 1 474 (3.9) Accounts receivable 980 866 13.2 Cash 459 213 115.5 5 214 4 922 5.9 Equity and l
Slide 56: SA Retail – Revenue Analysis
WOOLWORTHS HOLDINGS LIMITED SA RETAIL – REVENUE ANALYSIS % Jun 2010 Jun 2009 % price Rm Rm change g movement Clothing and General merchandise 8 253 7 423 11 .2 8.9 Corporate (retail) 7 297 6 493 12.4 F Franchise hi ((wholesale) h l l ) – local l l 744 710 48 4.8 Franchise (wholesale) – international
Slide 57: SA Retail – Trading Space and Stores
WOOLWORTHS HOLDINGS LIMITED SA RETAIL – TRADING SPACE AND STORES % Projected % Projected % Jun 2010 Jun change/ Jun 2011 change/ Jun 2012 change/ m2 2009 growth m2 growth m2 growth m22 Trading space 525 403 507 277 3.6 547 474 4.2 570 719 4.2 Clothing & GM 375 629 362 529 3.6 386 548 2.9 397 748 2.9
Slide 58: Financial Services – Contribution to Sales
WOOLWORTHS HOLDINGS LIMITED FINANCIAL SERVICES – CONTRIBUTION TO SALES % of sales spent on Woolworths cards Jun 2010 Jun 2009 Clothing and General merchandise 30.6% 31 .3% Food 15.1% 16.6% Aggregate 21 .5% 22.4% WHL
Slide 59: Country Road – Balance Sheet
WOOLWORTHS HOLDINGS LIMITED COUNTRY ROAD – BALANCE SHEET Jun 2010 Jun 2009 % A$m A$m change Assets Property, plant and equipment 56 47 19.1 Trademarks * 11 11 - Inventory 39 39 - Accounts receivable 19 19 - Cash 3 26 (88.5) 128 142 (9 9) (9.9) Equity and liabilities Shareholders’ funds 85 75 13.3 Ac
Slide 60: Country Road – Income Statement (in Rands)
WOOLWORTHS HOLDINGS LIMITED COUNTRY ROAD – INCOME STATEMENT (IN ( RANDS)) Jun 2010 Jun 2009 % Rm Rm change Turnover 2 495 2 235 11 .6 Cost of sales 1 062 875 21 .4 Gross profit 1 433 1 360 5.4 Other revenue 52 17 >100 Expenses 1 362 1 236 10.2 Store costs 1 012 885 14.4 Other operating costs 350 351
Slide 61: Country Road – Trading Space and Stores
WOOLWORTHS HOLDINGS LIMITED COUNTRY ROAD – TRADING SPACE AND STORES % Projected % Projected % Jun 2010 Jun change/ Jun 2011 change/ Jun 2012 change m2 2009 growth m2 growth m2 m2 Trading space 41 213 36 849 11 .8 45 494 10.4 49 758 9.4 9 4 Retail 30 866 28 242 9.3 33 086 7.2 35 306 6.7 Concession 8