Woolworths Holdings Limited · JSE:WHL
Woolworths — FY2005 Earnings Presentation
54 slides from Woolworths's earnings presentation, August 2005
Slide 1: Investment Analyst Presentation
investment analyst presentation WOOLWORTHS HOLDINGS LIMITED. v4 | | august
Slide 2: Another year of continued growth
woolworths holdings limited another year of continued growth • Revenue up 15.1% to R13.0bn • Operating profit up 24.3% - R1.3bn • Operating profit margin widened from 9.0% to 9.7% • Net profit before tax up 23.7% - R1.1bn • Headline earnings per share up 22.0% - 92.1cps (pre adj: 95.0cps) • Distribu
Slide 3: Progress
woolworths holdings limited progress • Enhance shareholders’ ROE • Woolworths card book securitised • Share repurchase returned R1bn to shareholders • Focus on customers • Good volume growth in clothing and home • Strong gains in food market share • Continued store growth • Focus on value and in
Slide 4: Trading environment – South Africa
woolworths holdings limited trading environment – south africa • Consumer confidence levels remain high • Stable interest rate environment • Wage increases remain above inflation • Growth in emerging market with increasing access to credit • Robust real retail sales growth momentum
Slide 5: Results: income statement
woolworths holdings limited results income statement Jun-05 Jun-04* %Chg Rm Rm Revenue 12,988.9 11,281.7 15.1% Turnover 12,220.7 10,648.8 14.8% Cost of merchandise 8,207.6 7,091.4 15.7% Gross Profit 4,013.1 3,557.4 12.8% Other revenue 768.2 632.9 21.4% Expenses 3,517.1 3,173.1 10.8% Operating profit
Slide 6: Results: expenses analysis
woolworths holdings limited results expenses analysis R262.1 R609.8 R1,449.6 R1,195.6m R3,517.1m m m m 16.0% 14.0% 14.1% 12.0% 12.6% 10.0% 11.2% 10.8% 8.0% 6.0% 4.0% 3.5% 2.0% 0.0% Depreciation Occupancy Employment Other Total
Slide 7: Expenses analysis: impact of AC105 leases
woolworths holdings limited results expenses analysis Impact of change in interpretation of AC105: Leases • Lease expense/income recognised on a straight-line basis over the lease term for fixed-escalation rentals • Results in an equal impact/charge to the income statement irrespective of the fact t
Slide 8: HEPS and dividend cover
woolworths holdings limited results HEPS and dividend cover 2 2.1 1.9 130.0 1.7 110.0 90.0 92.1 95.0 70.0 75.5 78.6 50.0 61.1 64.8 42.4 46.2 30.0 10.0 2002 2003 2004 2005 *HEPS HEPS prior adj *Distribution Cover *Prior year figures restated for AC105 Compound HEPS growth: 33.3% (5 years)
Slide 9: Results: balance sheet
woolworths holdings limited results balance sheet Jun-05 Jun-04 %Chg Rm Rm Assets Property, plant and equipment 1,314.6 1,192.4 10.2% Export partnerships 79.3 171.6 -53.8% Inventory 683.0 576.4 18.5% Financial services assets 3,596.4 2,905.0 23.8% Accounts receivable 1,138.5 832.8 36.7% Cash 225.5 1
Slide 10: Financial services results: securitisation
financial services results securitisation • R2,416m of in-store card book receivables securitised in Account On Us (Pty) Ltd • Funded by: • R1,900m AAA rated notes issued • R335m subordinated loan from Woolworths • Balance funded by originator facility • Legal ownership of the receivables rests with
Slide 11: Results: cash flow
woolworths holdings limited results cash flow Jun-05 Jun-04 Rm Rm Cash inflow from trading 996.5 794.4 Net interest received 488.1 435.1 Working capital movements -228.4 -7.5 Increase in borrowings 1,434.4 429.7 2,690.6 1,651.7 Utilised by: Tax paid -314.6 -331.5 Distribution paid -384.2 -271.7 Cape
Slide 12: Cash flow (cont.)
woolworths holdings limited results cash flow (cont.) growth in woolworths financial services assets capex spend R385.9m R722.0m Visa - Other - R139.5m R7.4m IT - R142.8m Personal WW Card- Loans - Retail - R427.0m R155.5m R235.7m
Slide 13: Return on equity / WACC
woolworths holdings limited results return on equity / wacc 40.0% 35.0% 30.0% 25.0% 17.5% 16.3% 20.0% 13.8% 13.8% 15.0% 11.3% 10.0% 5.0% 12.3% 18.3% 24.7% 27.4% 33.5% 0.0% 2001 2002 2003 2004 2005 ROE WACC
Slide 14: Woolworths retail income statement
woolworths retail results income statement (excluding financial services) Jun-05 Jun-04 * Rm Rm %change Revenue 11,288.4 9,751.2 15.8% Turnover 11,227.0 9,705.3 15.7% Cost of merchandise 7,738.9 6,655.4 16.3% Gross profit 3,488.1 3,049.9 14.4% Other revenue 61.4 45.9 33.8% Expenses 2,683.5 2,405.2 1
Slide 15: Woolworths retail balance sheet
woolworths retail results balance sheet (excluding financial services) Jun-05 Jun-04 %Chg Rm Rm Property, plant and equipment, investments deferred tax, loans and goodwill 1,620.0 1,618.7 0.1% Inventory 563.0 472.6 19.1% Accounts receivable 528.9 407.6 29.8% Cash 163.5 138.0 18.5% Total Assets 2,875
Slide 16: Woolworths operations turnover analysis
woolworths operations turnover analysis Jun-05 Jun-04 %Chg Rm Rm Clothing & home 5,349.5 4,792.2 11.6% Corporate (retail) 4,710.0 4,215.4 11.7% Franchise (wholesale) - local 473.7 387.5 22.2% Franchise (wholesale) - international 165.8 189.3 -12.4% Foods 5,666.0 4,747.1 19.4% Corporate (retail) 5,40
Slide 17: Financial services income statement and balance sheet
financial services results income statement & balance sheet Jun-05 Jun-04 Rm Rm %change Revenue 773.9 647.3 19.6% Expenses 400.1 330.9 20.9% Operating profit 373.8 316.4 18.1% Finance costs 149.0 104.1 43.1% Net profit before tax 224.8 212.3 5.9% Tax 64.3 62.5 2.9% Net profit after tax 160.5 149.8 7
Slide 18: Country Road income statement
country road results income statement Jun-05 Jun-04 A$m A$m %change Revenue 211.2 194.5 8.6% Turnover 208.5 191.3 9.0% Cost of merchandise 99.6 89.4 11.4% Gross profit 108.9 101.9 6.9% Other revenue 2.7 3.2 -15.6% Expenses 107.6 101.6 5.9% Operating profit 4.0 3.5 14.3% Finance costs 0.8 1.0 -20.0%
Slide 19: Country Road balance sheet
country road limited results balance sheet Jun-05 Jun-04 A$m A$m Assets Property, plant and equipment 27.2 25.7 Trademarks* 10.9 11.2 Inventory 23.1 23.4 Accounts receivable 11.6 11.1 Cash 11.9 11.3 84.7 82.7 Equity and liabilities Shareholders funds 55.9 52.7 Accounts payable and provisions 28.8 30
Slide 20: : g ie is
: g ie is
Slide 21: Clothing and home turnover & growth
clothing and home turnover & growth R5,350m 25.0% R4,792m R4,280m 5,000 20.0% R3,834m R3,259m 4,000 17.7% 15.0% 3,000 10.0% 12.4% 11.6% 12.0% 11.6% 10.2% 2,000 9.0% 8.3% 5.0% 6.5% 1,000 3.0% 0.0% 0 2001 2002 2003 2004 2005 Comparable growth Sales growth Turnover (Rm) • Sales growth of 11.6% (2004: 1
Slide 22: Clothing and home inflation and volumes
clothing and home turnover & growth 13% 9.3% 13.2% 11% 9% 10.4% 9.6% 7% 5% 3% 4.1% 1% -1% -0.1% -2.1% -3% 1H04 2H04 1H05 2H05 Inflation Volumes • Product deflation with volume growth
Slide 23: Clothing RLC market share
clothing rlc market share • Market share to June 2005 – 12 month moving average • this year 15.6% • last year 16.3% (June 2004) – 3 month moving average • this year 16.4% • last year 16.2% (June 2004) *Prior year figures include an additional trading week for some of the competitors
Slide 24: Clothing and home implementation
clothing and home implementation Value = innovation, quality and price • Strategic sourcing unit to drive value and differentiation • Technological innovation • Supplier base rationalised • Appropriate imports Category (deflation)/inflation Total -1.1% Childrenswear -7.9% Homeware -4.5% Menswear -0.
Slide 25: Focus on the core customer – design-led buying
clothing and home implementation Focus on the core customer – design-led buying Womenswear • Classic customer • Wardrobe building blocks 20% • Number of styles Fashion • Menswear • Classic garments Key • Childrenswear 80% • Open price points down between -10% to -20% • Toddler Core • Rationalisation
Slide 26: Sustainable annuity growth
clothing and home sustainable annuity growth Availability in core • 50% of turnover on replenishment • Increase annuity opportunity Availability in Core 100% 80% 85.9% 87.0% 60% 40% 20% 0% Current Target
Slide 27: Foods
foods
Slide 28: Foods turnover & growth
foods turnover & growth R5,666m 35.0% 6,000 R4,747m 30.0% 5,000 R3,981m 25.0% R3,302m 4,000 20.0% R2,566m 3,000 15.0% 2,000 10.0% 5.0% 1,000 6.2% 6.5% 18.6% 28.7% 14.7% 20.6% 7.8% 19.2% 11.4% 19.4% 0.0% 0 2001 2002 2003 2004 2005 Comparable growth Sales growth Turnover (Rm) • Sales growth of 19.4% (
Slide 29: Foods RLC market share
foods rlc market share • Market share to June 2005 – 12 month moving average • this year 7.9% • last year 7.4% (June 2004) – 3 month moving average • this year 8.0% • last year 7.6% (June 2004) *Prior year figures include an additional trading week for some of the competitors
Slide 30: Foods RLC market share trend
foods rlc market share 8.2% 8.0%8.0% 8.0% 7.9% 7.9% 7.9% 7.8% 7.8% 7.8% 7.8% 7.7% 7.6%7.6% 7.6% 7.6% 7.5% 7.5% 7.4% 7.4% 7.3%7.3% 7.2% 7.2% 7.2% 7.1% 7.1% 7.0% 7.0%7.0% 7.0% 7.0% 6.8% 6.6% 6.4% J03 A S O N D J F M A M J J04 A S O N D J F M A M J J05 Source: AC Nielsen
Slide 31: Food retailers growth rates
foods food retailers growth rates 50.0% 41.5% 40.0% 30.0% 19.0% 19.5% 20.0% 17.3% 17.0% 15.2% 11.5% 10.1% 10.0% 6.4% 6.3% 5.1% 0.0% 0.0% -4.5% -10.0% ppm chk chy hmk ksp ppf pps sco shr spr ssp us ww Source: AC Nielsen
Slide 32: Sustainable growth and innovation
foods sustainable growth and innovation Increase market penetration • Extend our main shop concept • Extend grocery offering • Branded 6.5% (2004: 5.0%) • Continue to address the need for convenience • Store accessibility • Roll-out Woolworths food stops • Tap the emerging market
Slide 33: Widening the gap
foods sustainable growth and innovation Widening the gap • Improve value perception • Key grocery items to be below competitors everyday low prices • Continue delivering innovation • Improve meat shelf life • Good food journey • Over 100 new stores in next 4 years
Slide 34: Sustainable annuity growth: improve availability
foods sustainable annuity growth Improve availability • Demand forecasting system – Feb 06 • In line with expectations Availability in Foods 120% 100% 80% 95.2% 95.5% 82.8% 84.5% 60% 40% 20% 0% Groceries Perishables Current Target
Slide 35: Slide 35
Slide 36: Woolworths card
financial services woolworths card 3,000 2,500 2,562 2,000 2,148 1,500 1,669 1,349 1,000 1,149 1,217 1,046 1,125 979 1,020 500 0 2001 2002 2003 2004 2005 Book Value (Rm) Customers ('000) • Book value growth of 19.3% to R2.6bn (2004 : R2,1bn) • Customer numbers growth of 8.1% to 1.2m (2004 : R1,1m)
Slide 37: Personal loans
financial services personal loans 700 725 600 578 500 400 455 382 300 287 200 100 127 147 67 88 107 0 2001 2002 2003 2004 2005 Book Value (Rm) Customers ('000) • Book value growth of 25.4% to R725m (2004 : R578m) • Customer numbers growth of 15.7% to 147’000 (2004 : 127’000)
Slide 38: Visa credit card
financial services visa credit card 350 310 300 250 200 179 150 106 100 70 79 50 50 34 11 20 5 0 2001 2002 2003 2004 2005 Book Value (Rm) Customers ('000) • Book value growth of 73.2% to R310m (2004: R179m) • Customer numbers growth of 58.0% to 79’000 (2004 : 50’000)
Slide 39: Net bad debt
financial services net bad debt 6.0% 5.0% 5.5% 5.1% 4.6% 4.0% 3.8% 3.0% 3.3% 3.1% 3.0% 2.0% 2.5% 2.3% 1.9% 2.0% 1.7% 1.8% 1.0% 1.5% 0.0% 2001 2002 2003 2004 2005 Woolworths card Personal Loans Visa • Net bad debt levels in line with expectations • Controlled growth strategy
Slide 40: Credit statistics
woolworths financial services credit statistics June June 2005 2004 Growth in credit sales 19.8% 20.6% Credit sales as % of total sales 33.7% 33.1% Average yield 17.6% 20.3% Weighted average usury rate 20.3% 23.4% Average cost of funds 8.0% 9.7%
Slide 41: Sustainable annuity growth: build a credit-granting business
woolworths financial services sustainable annuity growth Build a credit-granting business • Customer acquisition • Aggressive marketing • Launch Visa with loyalty • Grow external non-interest revenue 45.6% (2004: 48.3%) • Insurance products • New product development • Responsible credit • Conservati
Slide 42: Selling
selling
Slide 43: Trading space
woolworths operations trading space as at Projected Jun-04 Jun-05 %Chg Jun-06 %Chg m2 m2 m2 Footage 369,654 389,645 5.4% 424,822 9.0% Clothing and Home 289,430 302,259 4.4% 324,884 7.5% Corporate 208,514 221,053 6.0% Franchise - SA 45,919 47,296 3.0% Franchise - International 34,997 33,910 -3.1% Foo
Slide 44: Number of stores
woolworths operations number of stores 2004 2005 Change 2006 Change no. no. no. Total Store 255 269 14 310 41 Corporate 136 149 13 Full line 76 84 8 Clothing 6 5 -1 Foods 54 60 6 Franchise SA 63 69 6 Franchise International 56 51 -5 Engen 2 5 3 15 10 • Marginal clothing stores to have higher hurdle
Slide 45: Operations
operations
Slide 46: Process simplification
operations process simplification New systems completed to date: Point of sale Customer call centre and management system Clothing replenishment Food replenishment - 50% complete Clothing stock ownership Foods distribution systems Supplier portal Credit management H
Slide 47: Process simplification: systems underway
operations process simplification Systems underway: • Foods planning – 50% rolled out – Roll-out complete Feb 06 – In line with expectations • Retek merchandise management system – Includes store back office – Final testing phases – Roll-out to commence Apr 06 • Clothing buying systems – Womenswear
Slide 48: Supply chain logistics
operations supply chain logistics • Distribution costs per unit reduced – Labour productivity – Accuracy and controls • Capacity growth in all regions, including Gauteng campus – Development started – Phased relocation early 07 • R450m 3 year all DC’s investment programme
Slide 49: Country Road
country road
Slide 50: Country Road trading performance
country road trading performance • Australia • Warm winter • Heavy discounting • Results • Sales up 9.0% to A$208.5m • Unit sales growth in excess of 30% • Gross margin declined from 53.3% to 52.2% • Operating profits up 14.3% to A$4.0m • Increased costs from air freight amounted to A$3.0m
Slide 51: Country Road strategy
country road strategy • Strategy bedded down • Retek • Design team • Pricing • Consolidation of wholesale operation • Lead times reduced
Slide 52: Os > 1e6) oD) a (a0) ae Y
Os > 1e6) oD) a (a0) ae Y
Slide 53: Strategy and prospects
strategy and prospects • Clothing and Home further implementation • Foods sustainable growth and innovation • Financial Services sustainable annuity growth • Grow annuity parts of the business • Continue to deliver real growth in earnings
Slide 54: Investment Analyst Presentation
investment analyst presentation WOOLWORTHS HOLDINGS LIMITED. v4 | | august