Woolworths Holdings Limited · JSE:WHL
Woolworths — FY2007 Earnings Presentation
64 slides from Woolworths's earnings presentation, August 2007
Slide 1: Audited group results for the year ended 30 June 2007
audited group results for the year ended 30 June 2007 Analyst presentation – August 2007
Slide 2: Highlights
woolworths holdings limited highlights • Revenue up 23.1% to R18.6 bn • Operating profit up 23.8% to R1.8 bn • Operating margin increased slightly from 9.8% to 9.9% • Profit before tax and exceptional items up 17.7% to R1.5bn • Diluted headline earnings per share up 21.8% to 125.5cps • BEE employee
Slide 3: Trading environment
woolworths holdings limited trading environment • Consumer confidence high but weakening towards the end • Further hikes in interest rates (3 x 50bp) • Rising inflation, particularly food • Evidence of slowing consumer spend – Car sales – Slowing retail market growth rates • Despite this, our tradin
Slide 4: Trading performance
woolworths holdings limited trading performance • Robust trading across all divisions – Clothing and home turnover +16.2% – Food turnover +25.6% – Financial Services revenue +35.4% – Country Road turnover (A$) +15.8% • But challenges: – Impact of credit environment – usury rate freeze and increased
Slide 5: Market share gains
woolworths holdings limited market share gains • Clothing 12mma market share growth from 15.1% to 15.5% – Stronger second half performance – 3mma market share increased from 16.0% to 16.6% • Food 12mma market share growth from 8.5% to 9.2% – Momentum maintained despite rising inflation – 3mma market
Slide 6: Woolworths Retail: clothing and general merchandise
woolworths retail clothing and general merchandise • Good performances from menswear, childrenswear and footwear Market share performance (12mma) – Embedded taste-level in menswear Jun 06 Jun 07 – Outstanding value in childrenswear – Cross-shop strategy delivering in womenswear W-Collection lingerie
Slide 7: Woolworths Retail: food
woolworths retail food • Good food journey continues – Growth across all categories – Strong investment plans agreed with supplier base AC Nielsen market share: 12mma – Inflation a concerning issue Jun 04 7.4% • Convenience reinforcing the main shop concept – Branded products 7.0% (Jun 06: 6.6%) – 1
Slide 8: Woolworths Financial Services
woolworths financial services financial services • Demand for credit continued – Good growth across the board – both in customer numbers and book growth – Solid growth in non-interest income Total book growth (net books) • Evidence of tightening environment – Less aggressive growth in second half –
Slide 9: Country Road
country road country road • Good retail growth • Brand re-positioned • Pricing now more competitive (-10% on -11%) • Exit of wholesale complete Retail 1st sales growth (A$) • 74 concession stores rolled out – Control of brand Jun 04 -2.9% – Reduction in complexity Jun 05 11.0% Jun 06 8.1% Jun 07 16.
Slide 10: Financials: Woolworths Holdings
financials: woolworths holdings Norman Thomson
Slide 11: Income statement
woolworths holdings income statement June 2007 June 2006 % Chg Rm Rm Revenue 18 641.9 15,144.8 23.1% Turnover 17,376.9 14,208.0 22.3% Cost of sales 11,399.9 9,340.4 22.0% Gross profit 5,977.0 4,867.6 22.8% Other revenue 1,265.0 936.8 35.0% Expenses 5,396.5 4,314.1 25.1% Operating profit 1,845.5 1,49
Slide 12: A robust performance despite once-off transition costs and tightening credit
woolworths holdings a robust performance despite once-off transition costs and tightening credit environment • Good turnover growth in all segments – all delivering market share gains. • Gross profit margins have been maintained despite once-off transition costs and changes in the business mix. • Re
Slide 13: Turnover growth robust across all divisions
woolworths retail turnover growth was robust across all divisions and grew faster than the market R’m 18,000 +38.1% 16,000 14,000 -0.1% 12,000 +5.2% 25.6% 10,000 -12.8% 22.5% -4.4% 8,000 +35.9% 19.4% 19.2% 6,000 20.6% 28.7% 16.2% 4,000 12.4% 12.0% 11.6% 2,000 11.6% 17.7% Jun 2002 Jun 2003 Jun 2004 J
Slide 14: Gross margins maintained despite one-off transition costs
woolworths retail gross margins were maintained despite being impacted by one-off transition costs Segmental Gross Margins Woolworths Holdings 34.4% 34.3% Woolworths retail 32.3% 32.8% Country Road (A$) 58.1% 53.7% • Group gross margin improvement due to Country Road: – Growing its contribution to t
Slide 15: Operating expenses impacted by investment, credit environment and exchange rate
woolworths holdings operating expenses impacted by investment, tighter credit environment and rand/A$ exchange rate R’m 5396.6 5,600 118.2 133.7 5,400 315.6 Non comparable 5,200 135.0 5,000 381.3 4,800 4,600 92.9 39.5 4,400 4 314.1 4,200 14.6% 13.7% 22.4% 62.4% 21.8% 4,000 June 2006 Depreciation Occ
Slide 16: Operating margin buoyed by Country Road
woolworths retail operating margin buoyed by excellent performance from country road and was maintained despite investment in operations Segmental retail operating margins Segmental retail ROE Jun 07 Jun 06 Jun 07 Jun 06 Woolworths Holdings 9.9% 9.8% Woolworths Holdings 35.1% 34.8% Woolworths retail
Slide 17: Strong cash generation allows for capex and high dividend payout
woolworths holdings strong cash generation allows for capex investment as well as high dividend payout R’m 3,000.0 2,500.0 - 550.4 328.2 2,000.0 2 216.8 146.2 - 649.1 1,500.0 - 366.6 1,000.0 - 565.0 500.0 - 1 182.4 0.0 500.0 1,000.0 EBITDA Disposals Working Dividends Capex Interest Tax Applied to Ca
Slide 18: Investment focused on capacity and store expansion
woolworths holdings our investment in the business is focused on improving capacity and store expansion programme Financial services assets: Capex spend: R1182.4m (Jun 06: R882.2m) R649.1m (Jun 06: R637.9m) R’m R’m 1,400 700 1,200 600 199.5 1,000 500 294.9 320.6 800 166.7 349.2 400 600 302.5 300 112
Slide 19: Financial services performance impacted by tighter credit environment
woolworths financial services financial services performance was impacted by the tighter credit environment and increased costs associated with the NCA June 2007 June 2006 % to Book % to Book % Chg Rm Rm Income Interest received 1,008.5 19.9% 754.5 19.0% 33.7% Other income - external 172.2 3.4% 108.
Slide 20: Financial services performance commentary
woolworths holdings financial services performance was impacted by the tighter credit environment and increased costs associated with the NCA • Growth in average gross books was driven by new customer acquisition and increased sales. • The good growth in interest income was driven by a combination o
Slide 21: Our ROE continues to add significant value
woolworths holdings our ROE continues to add significant value 40% 35.1% 34.8% 33.5% 35% 27.4% 30% 24.7% 25% 18.3% 20% 17.5% 15% 16.3% 10% 12.3% 13.8% 13.8% 13.3% 11.3% 11.8% 5% Jun 01 Jun 02 Jun 03 Jun 04 Jun 05 Jun 06 Jun 07 roe wacc • Interest rate increases have increased our WACC
Slide 22: Consistently delivering sustainable earnings growth
woolworths holdings consistently delivering sustainable earnings growth 130 4 120 3.5 110 100 3 90 80 2.1 2.5 2.0 70 1.7 1.7 127.8 2 60 1.7 50 105 1.5 89.4 40 75.5 30 61.1 1 20 0.5 10 29.0 38.5 54.0 63.0 76.0 Jun 03 Jun 04 Jun 05 Jun 06 Jun 07 HEPS DPS Dividend cover • 5 year compound HEPS growth of
Slide 23: Guidance and expectations
woolworths holdings guidance and expectations • Retail gross margin to be maintained despite increasing food contribution • Operating costs to reflect an increased level of investment • Bad debts to remain under pressure • Upward inflation pressure will continue particularly in foods • Capex of R625
Slide 24: Strategy and prospects
strategy and prospects
Slide 25: Woolworths Retail – clothing, food and general merchandise
woolworths retail – clothing, food and general merchandise kvi and new foods stores w-collection clothing and home beauty financial VISA services LSM 6 7 8 9 10 • Integrating strategy into common view of the customer • Evolution of our business model
Slide 26: Woolworths Retail
woolworths retail Andrew Jennings
Slide 27: Building on a solid foundation
woolworths retail – clothing, food and general merchandise building on a solid foundation • Observations, thoughts and opportunities – Respected brand with talented and passionate people – Product focused organisation • Lots of work to be done in clothing and home over next 3 years • World class foo
Slide 28: Refining with a customer focus
woolworths retail – clothing, food and general merchandise refining with a customer focus lifestyle food fashion healthy convenience loyal classic shopping habits merchandise (frequency and spend) opportunity modern classification one-off contemporary age gender race demographics
Slide 29: Our classic customer
woolworths retail – clothing, food and general merchandise our classic customer timeless subtle refined quality authentic
Slide 30: Our modern customer
woolworths retail – clothing, food and general merchandise our modern customer trend right versatility time-strapped
Slide 31: Our contemporary customer
woolworths retail – clothing, food and general merchandise our contemporary customer fashionable connected social outspoken design-led
Slide 32: Refining with a customer focus: 9 box grid
woolworths retail – clothing, food and general merchandise refining with a customer focus lifestyle food fashion good price tiering healthy better convenience best loyal classic shopping habits merchandise (frequency and spend) opportunity modern classification one-off contemporary age gender race d
Slide 33: Merchandising to meet needs
woolworths retail – clothing, food and general merchandise merchandising to meet needs – initially in clothing and home only Classic 50% Modern 30% Contemporary 20% Best 20% Better 40% Main range Main range Good 40% Main range Main range womenswear Brands – Exclusive – Consistent handwriting offers
Slide 34: Refining with a customer focus: store formats
woolworths retail – clothing, food and general merchandise refining with a customer focus lifestyle food fashion good price tiering healthy better convenience best loyal classic shopping habits merchandise (frequency and spend) opportunity modern classification one-off contemporary age full line gen
Slide 35: Delivering to the customer
woolworths retail – clothing, food and general merchandise delivering to the customer • Format strategy – Space, range, catalogue and layout suited to customer profile – Authoritative offerings – Driving improved trading densities – Pharmacy trial • Modernisations – Store of the future – Sandton • D
Slide 36: Looking forward – clothing and general merchandise
woolworths retail – clothing, food and general merchandise looking forward – clothing and general merchandise • Consolidate our successes – Large market share ranges – headquarters assortments – The heart of our business – Should grow, at least, in line with market growth – Make impregnable to compe
Slide 37: Looking forward – food
woolworths retail – clothing, food and general merchandise looking forward - food • Consolidate our successes – Dominate key categories and plan to maintain dominance eg fresh produce – Focus on convenience – Manage inflationary pressures – value for money – Good food journey • Grow our opportunitie
Slide 38: Looking forward – selling
woolworths retail – clothing, food and general merchandise looking forward - selling • Consolidate our successes – Format suited to customer profile • Grow our opportunities – Store modernisations – Improve availability of all product – Delivering consistent service • Expand our horizons – 10% space
Slide 39: Looking forward – in summary
woolworths retail – clothing, food and general merchandise looking forward – in summary deliver the woolworths difference • Build customer loyalty and grow the cross-shop – Understanding the customer – Using customer insight to drive the cross-shop – Deliver consistent shopping experience • Product
Slide 40: Woolworths Financial Services
woolworths financial services Richard Inskip
Slide 41: Store card growth
woolworths financial services store card growth 4,000 20.4% 5.0% 3,743 3,500 15.3% 4.0% 3,000 3.7% 3,109 18.8% 2,500 2,696 2.8% 29.1% 3.0% 2,269 2.3% 2,000 23.3% 14.9% 2.0% 1,758 1.7% 14.5% 2.0% 1,500 8.2% 1,600 2.5% 7.6% 1,393 1,000 1,217 1,125 1,046 1.0% 500 June 03 June 04 June 05 June 06 June 07
Slide 42: Personal loans growth
woolworths financial services personal loans growth 1,200 21.5% 4.0% 1129 1,000 3.1% 21.8% 930 3.0% 25.6% 2.7% 800 26.9% 763 2.0% 600 1.8% 2.0% 25.4% 608 1.6% 479 400 15.0% 12.5% 1.0% 15.7% 200 18.7% 21.6% 190 147 169 127 107 June 03 June 04 June 05 June 06 June 07 Gross book value (R'm) Number of a
Slide 43: VISA card growth
woolworths financial services VISA card growth 1,200 16.0% 55.6% 14.0% 1,000 978 12.0% 800 10.0% 92.9% 600 5.1% 629 5.1% 6.8% 8.0% 4.6% 6.0% 400 74.8% 3.8% 326 30.3% 4.0% 59.7% 63.7% 200 82.2% 58.0% 187 47.1% 169 2.0% 117 129 50 79 34 June 03 June 04 June 05 June 06 June 07 Gross book value (R'm) Nu
Slide 44: Non-interest revenue
woolworths financial services non-interest revenue Rm 200.0 59% 180.0 172.2 160.0 140.0 37% 120.0 100.0 46% 108.0 80.0 48% 78.6 60.0 63% 54.0 40.0 36.4 20.0 June 03 June 04 June 05 June 06 June 07
Slide 45: 4.5 million customers: a card for all
woolworths financial services ? swipe card my school card in store card classic VISA card gold VISA card premium swipe card 314 000 394 000 1 600 000 140 000 29 000 credit 314 000card 4.5 million customers: a card for all personal loans non-interest revenue products eg. insurances MySchool, loyalty
Slide 46: A new credit environment
woolworths financial services a new credit environment • National Credit Act – Successful implementation and compliant from 1 June 07 – Systems fully operational • Expected impact on credit granting – Customer acquisition to slow – Credit increases limited – Increased operational costs and turnaroun
Slide 47: Looking forward
woolworths financial services looking forward • Consolidate our successes – Recover lost margin - usury – Drive cross-sell across all products • Grow our opportunities – Increased customer information to drive retail sales via direct marketing – Grow non-interest revenue - specific focus on increase
Slide 48: Country Road
country road Simon Susman
Slide 49: Country Road strategy: looking forward
country road strategy looking forward • Consolidate our successes – Continued focus on accessibility of brand – quality, style and value • Grow our opportunities – Spread existing catalogue into chain – intensification – Build the concession business • Expand our horizons – Expand ranges to include
Slide 50: Outlook and strategy
outlook and strategy
Slide 51: Trading environment – tougher year ahead
outlook and strategy trading environment – tougher year ahead Tougher year ahead for South Africa • Rising interest rates • Food inflation growth • Pace of credit growth to slow Group longer term • Economies fundamentally sound • Consumer market still growing
Slide 52: Prospects
outlook and strategy prospects • Woolworths evolution – Better integration of strategies and customer understanding – Extract efficiencies – Continue to reinvest in real estate – Good business journey • Country Road well on track
Slide 53: Additional information
additional information
Slide 54: Balance sheet
woolworths holdings balance sheet June 2007 June 2006 % Chg Rm Rm Assets Property, plant and equipment 1,867.1 1,597.7 16.9% Investment property 105.9 109.0 -2.8% Goodwill 23.0 23.0 0.0% Export partnerships 70.4 71.6 -1.7% Inventory 1,202.6 841.4 42.9% Financial services assets 5,536.0 4,455.0 24.3%
Slide 55: Woolworths Retail income statement
woolworths retail income statement June 2007 June 2006 % Chg Rm Rm Revenue 16,099.5 13,288.7 21.2% Turnover 16,005.0 13,213.8 21.1% Cost of sales 10,832.7 8,885.8 21.9% Gross profit 5,172.3 4,328.0 19.5% Other revenue 94.5 74.9 26.2% Expenses 4,001.5 3,333.7 20.0% Operating profit 1,265.3 1,069.2 18
Slide 56: Woolworths Retail balance sheet
woolworths retail balance sheet June 2007 June 2006 % Chg Rm Rm Assets Property, plant and equipment, investments deferred tax, loans and goodwill 2,379.6 2,127.5 11.9% Inventory 1,023.1 707.9 44.5% Accounts receivable 485.7 618.9 -21.5% Cash 98.4 332.2 -70.4% 3,986.8 3,786.5 5.3% Equity and liabili
Slide 57: Retail revenue analysis
woolworths retail retail revenue analysis June 2007 June 2006 % Chg Rm Rm Clothing & home 6,985.0 6,012.2 16.2% Corporate (retail) 6,136.2 5,255.3 16.8% Franchise (wholesale) - local 667.0 567.6 17.5% Franchise (wholesale) - international 181.8 189.3 -4.0% Food 8,718.1 6,941.5 25.6% Corporate (retai
Slide 58: Financial services income statement
woolworths financial services income statement June 2007 June 2006 Rm % to Book Rm % to Book % Chg Income Interest received 1,008.5 19.9% 754.5 19.0% 33.7% Other income - external 172.2 3.4% 108.0 2.7% 59.4% Other income - internal 93.8 1.9% 78.9 2.0% 18.9% 1,274.5 25.2% 941.4 23.7% 35.4% Expenses (
Slide 59: Financial services balance sheet
woolworths financial services balance sheet June 2007 June 2006 % Chg Rm Rm Assets Plant and equipment, deferred tax, loans and accounts receivable 162.0 189.1 -14.3% Financial services assets 5,536.0 4,455.0 24.3% Cash 208.3 - 5,906.3 4,644.1 27.2% Equity and liabilities Shareholders’ funds 1,847.6
Slide 60: Country Road income statement (A$)
country road income statement June 2007 June 2006 % Chg A$m A$m Revenue 240.4 207.7 15.7% Turnover 237.6 205.1 15.8% - Retail 218.6 164.0 33.3% - Wholesale & franchise 19.0 41.1 -53.8% Cost of sales 99.5 94.9 4.8% Gross profit 138.1 110.2 25.3% Other revenue 2.8 2.6 7.7% Expenses 131.3 108.7 20.8% O
Slide 61: Country Road income statements (in rands)
country road income statements (in rands) June 2007 June 2006 % Chg Rm Rm Revenue 1,361.8 993.6 37.1% Turnover 1,354.0 980.7 38.1% Cost of sales 567.2 454.6 24.8% Gross profit 786.8 526.1 49.6% Other revenue 7.8 12.9 -39.5% Expenses 737.9 520.0 41.9% Operating profit 56.7 19.0 >100% Finance costs 1.
Slide 62: Country Road balance sheet
country road balance sheet June 2007 June 2006 % Chg A$m A$m Assets Property, plant and equipment 30.1 27.8 8.3% Trademarks* 11.2 11.2 0.0% Inventory 29.4 24.5 20.0% Accounts receivable 13.7 14.4 -4.9% Cash 19.3 6.8 >100% 103.7 84.7 Equity and liabilities Shareholders funds 69.0 54.0 27.8% Accounts
Slide 63: Selling: trading space
selling trading space as at Jun 06 Projected Jun-06 Jun-07 % Jun-08 % m2 m2 Chg m2 Chg Total footage 422,367 445,872 5.6% 496,146 11.3% Clothing and Home 325,302 337,027 3.6% 363,066 7.7% Corporate 239,008 249,365 4.3% 270,451 8.5% Franchise SA 53,125 57,276 7.8% 60,736 6.0% Franchise International
Slide 64: Selling: number of stores
selling number of stores Projected Jun-06 Jun-07 % Chg Store Jun-08 growth Stores 310 349 12,6% 403 54 Corporate 174 200 14,9% 243 43 Full line 94 98 4,3% 109 11 Clothing & Home 6 5 -16,7% 5 0 Food 74 97 31,1% 129 32 Franchise - SA 71 78 9,9% 81 3 Franchise - Engen 13 24 84,6% 29 5 Franchise - Inter