Woolworths Holdings Limited · JSE:WHL
Woolworths — H1 FY2008 Earnings Presentation
58 slides from Woolworths's earnings presentation, February 2008
Slide 1: Group results for the 26 weeks ended 23 December 2007
group results for the 26 weeks ended 23 December 2007 analyst presentation – February 2008
Slide 2: Tough times
woolworths holdings limited tough times Consumer confidence declining Q2 retail market growth rates lowest in 5 years Impact of rate hikes and implementation of NCA on credit extension - Three further 50bp increases in interest rates since June 2007 Rising inflation, particularly food and fu
Slide 3: Review of the period
woolworths holdings limited review of the period Woolworths customers heavily affected Sharp downturn in Q2 Investments too bullish Late to react - Opening price points - Range definition Bad debt continues to grow
Slide 4: Platform for the future
woolworths holdings limited platform for the future Unique business Strategy relevant and updated New leadership and talent Better focus on positioning Extra discipline, especially on costs
Slide 5: Financial review
financial review Norman Thomson
Slide 6: Financial overview
woolworths holdings limited financial overview Turnover up 16.1% to R9.8 billion Profit before tax, exceptional items and non-comparable BEE charge down 2.1% to R769 million Headline earnings per share excluding BEE impact down 5.9% Diluted headline earnings per share down 12.3% to 55.6cps
Slide 7: Income statement
woolworths holdings limited income statement Dec 2007 Dec 2006 % Rm Rm change Revenue 10 557.1 8 970.4 17.7 Turnover 9 756.5 8 406.5 16.1 Cost of sales 6 357.6 5 522.8 15.1 Gross profit 3 398.9 2 883.7 17.9 Other revenue 800.6 563.9 42.0 Expenses 3 188.2 2 490.0 28.0 Operating profit 1 011.3 957.6 5
Slide 8: Income statement commentary
woolworths holdings limited income statement commentary 1. Turnover Total Comparable stores Clothing and GM up 7.3% 4.7% Food up 18.8% 9.7% Total SA Retail up 13.7% 8.5% Country Road (A$) up 35.0% 16.5% 2. Gross profit – Gross profit grew faster than sales due to greater contribution and increased m
Slide 9: Segmental analysis
woolworths holdings limited segmental analysis Dec 2007 Dec 2006 % Rm Rm change SA Retail 674.1 680.9 (1.0) Financial Services 46.9 73.6 (36.3) Country Road 48.1 31.2 54.2 Profit before BEE, exceptional item and tax 769.1 785.7 (2.1)
Slide 10: SA retail income statement
woolworths holdings limited SA retail income statement Dec 2007 Dec 2006 % Rm Rm change Revenue 8 926.3 7 845.9 13.8 Turnover 8 867.7 7 801.3 13.7 Cost of sales 6 013.8 5 271.6 14.1 Gross profit 2 853.9 2 529.7 12.8 Other revenue 58.6 44.6 31.4 Expenses * 2 238.4 1 893.4 18.2 Profit before exception
Slide 11: SA retail income statement commentary
woolworths holdings limited SA retail income statement commentary 1. Turnover Total Comparable stores Clothing and GM up 7.3% 4.7% Food up 18.8% 9.7% Total up 13.7% 8.5% 2. Gross profit – Changes in the sales mix resulted in a 0.2% drop in the gross profit margin. 3. Other revenue – Other revenue is
Slide 12: SA retail operating expenses
woolworths holdings limited SA retail operating expenses Rm 6.7% 18.2% 2 300 R126.7m R2 238.4m 2 250 2 200 3.9% 0.7% 2 150 R13.9m R73.2m 2 100 4.3% 2 050 R80.5m 2.7% 2 000 R50.8m 1 950 R1 893.3m 1 900 1 850 1 800 Central costs Op costs Dec Comparable Op costs Dec comparable Distribution Depreciation
Slide 13: SA retail operating expenses commentary
woolworths holdings limited SA retail operating expenses commentary 1. Non-comparable stores 25 new corporate stores opened since 1 July 2006 2. Comparable stores • More staff for better service • Fewer vacancies in management structures • Improved pipeline of trainee managers • Investment in stor
Slide 14: Financial services income statement
woolworths holdings limited financial services income statement Dec 2007 % to Dec 2006 % to % Rm book Rm book change Income Interest received 651.4 23.0 445.6 18.9 46.2 Other income - external 95.0 3.4 78.0 3.3 21.8 Other income - internal 46.5 1.6 46.9 2.0 (0.9) 792.9 28.0 570.5 24.2 39.0 Expenses
Slide 15: Financial services commentary
woolworths holdings limited financial services commentary 1. Average gross financial services assets - Average gross financial services assets grew by 20.1% but slowed rapidly towards the end of the period. 2. Interest received - Average interest yields increased by 4% contributing, along with book
Slide 16: Country Road income statement
woolworths holdings limited country road income statement Dec 2007 Dec 2006 % A$m A$m change Revenue 146.4 108.5 34.9 Turnover 145.7 107.9 35.0 - Retail 110.0 90.6 21.4 - Concession 35.7 - - Wholesale and franchise - 17.3 Cost of sales 56.9 45.5 25.1 Gross profit 88.8 62.4 42.3 Other revenue 0.7 0.6
Slide 17: Country Road commentary
woolworths holdings limited country road commentary 1. Turnover - Comparable retail store sales up by 16.5% 2. Gross profit - Gross profit margin grew by 3.1%, mainly due to the conversion to concession but also includes the impact of better sourcing and a more disciplined mark down policy. 3. Expen
Slide 18: Balance sheet
woolworths holdings limited balance sheet Dec 2007 Dec 2006 % Rm Rm change Assets Property, plant and equipment 2 017.3 1 801.5 12.0 Investment property 105.9 109.0 (2.8) Goodwill 23.0 23.0 - Export partnerships 69.9 71.2 (1.8) Inventory 1 473.2 1 175.1 25.4 Financial services assets 5 558.7 4 991.7
Slide 19: Balance sheet commentary
woolworths holdings limited balance sheet commentary 1. Inventory - Inventory has increased due to - Switch to imports and direct sourcing in Clothing and General merchandise (take ownership of stock earlier) - Increased long life holdings in Food to bolster availability - Impact of concession in Co
Slide 20: Cash generation
woolworths holdings limited cash generation 1 400 R1 162.4m 1 200 (R99.7m) 1 000 (R362.0m) R35.3m 800 600 (R237.7m) 400 (R244.9m) 200 (R384.8m) 0 (200) (R88.8m) (400) (600) EBITDA Working Capex Disposals Interest paid Tax Dividends Financial capital and paid services non cash assets flow items Fin
Slide 21: Investment in the business
woolworths holdings limited investment in the business Financial services assets Capex 700 R88.8m (Dec 06: R576.5m) R362.0m (Dec 06: R409.3m) 550 600 500 350 320.3 400 Rm Rm 300 189.4 115.3 167.8 36.6 200 49.6 150 88.4 84.3 100 210.1 170.3 6.0 0 (1.5) -50 Dec 2006 Dec 2007 Dec 2006 Dec 2007 WW card
Slide 22: Return on equity
woolworths holdings limited return on equity 40% 37.5% 34.8% 35.1% 33.5% 35% 27.4% 27.8% 30% 24.7% 25% 18.3% 20% 17.5% 15% 16.3% 10% 12.3% 13.8% 13.8% 13.3% 13.2% 11.3% 11.8% 12.5% 5% 0% Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Dec-06 Dec-07 roe wacc
Slide 23: Interim earnings
woolworths holdings limited interim earnings cps times 70 3.5 3.0 60 3.0 50 2.3 2.2 2.5 2.2 40 1.9 2.0 64.4 30 56.9 1.5 53.1 46.7 20 40.2 1.0 10 0.5 13.0 18.5 24.0 29.5 29.5 0 - 2003 2004 2005 2006 2007 HEPS DPS Dividend cover Diluted HEPS down by 7.5 cents but dividend held at 29.5 cents, thereby
Slide 24: Guidance and expectations
woolworths holdings limited guidance and expectations 53 week trading year in 2008 Inflationary pressures to continue, especially in food Sales growth will remain tight Continued investment in optimal trading space (Clothing 4.3%; Food 21.4%) Profits in the second half will remain under pr
Slide 25: Retail review
retail review Andrew Jennings
Slide 26: Retail - review
woolworths holdings limited woolworths retail - review Market shifted - Sales far below expectation - Increased promotional activity Lessons learned - Better Value: Woolworths perceived as expensive • Opening price points not competitive enough - Range differentiation: Core clothing ranges not s
Slide 27: Retail - deliverables
woolworths holdings limited woolworths retail - deliverables Time horizon Customer focus ongoing Quality : Value ongoing Improved productivity 12 - 18 months Range differentiation 6, 12 and 18 months Improved availability 12 - 18 months Greater speed to market in Clothing and GM 12 - 24
Slide 28: Retail - investment in talent
woolworths holdings limited woolworths retail - investment in talent Investment in talent with local and international retail experience - Head of Clothing and General Merchandise Planning - Head of General Merchandise - Commercial Head of Food - Upweighting of qualified designers Merchant Acade
Slide 29: Retail - investment in structures and processes
woolworths holdings limited woolworths retail - investment in structures and processes Re-organised design, buying and planning structures and processes in Clothing and GM - Separation of buying and planning - Upgrading and integrating design - Refocus on sourcing Optimise the benefits of IT inv
Slide 30: Stores - deliverables
woolworths holdings limited stores - deliverables Customer focus - Understand local customer needs - Improve service levels Talent / skills - Selling Team Employment Proposition (STEP) to be further advanced Range differentiation - Woolworths brand definition in stores Improve productivity -
Slide 31: Clothing and general merchandise - review
woolworths holdings limited clothing and general merchandise - review Market share performance (6mma) Highlights Dec 06 Dec 07 - Childrenswear – good value and range womenswear - Footwear and accessories – launch of accessories lingerie shop in 26 stores - Womenswear - Re denim and WCollection men
Slide 32: Clothing and general merchandise - deliverables
woolworths holdings limited clothing and general merchandise - deliverables Customer focus Quality : Value - Focus on entry price points - Simplify price architecture Range differentiation - Woolworths hero and sub-brands e.g. WCollection, Re and Supersport - Launch new hero brands in Septembe
Slide 33: Clothing and general merchandise - box grid
woolworths holdings limited clothing and general merchandise - 9 box grid Womenswear example Classic Modern Contemporary 50% 30% 20% Best 20% (April ’08) SA Des ig ners Better (Sept ’08) 40% WW headquarters WW headquarters new line (Sept ’08) assortments assortments Good (Sept ’08) 40% WW headquarte
Slide 34: Food - review
woolworths holdings limited food - review Highlights - Good market share gains • Fresh produce AC Nielsen market share: 6mma • Dairy - Quality : Value Dec 04 7.9% • KVI pricing strategy • Value offerings - Innovation Dec 05 8.3% • 543 (14%) new lines and 413 (10%) lines upgraded - Convenience Dec
Slide 35: Food - deliverables
woolworths holdings limited food - deliverables Shift in strategy: the mind of a supermarket - the soul of a deli Customer focus Quality : Value - Extra focus on KVI prices - More promotions - Manage inflationary pressures Range differentiation - Ongoing innovation – 1 083 (22%) new and upgr
Slide 36: Retail - outlook
woolworths holdings limited woolworths retail - outlook Great business – updating solid strategy Now comes down to: - Disciplined execution - Pace of responsiveness to customers’ needs - Upgrading talent and skills - Maximising benefits from current and new systems - Ruthlessly managing costs an
Slide 37: Financial services
financial services Richard Inskip
Slide 38: Financial services - review
woolworths holdings limited financial services - review Evidence of tough environment Total book growth (net books) - Slower customer acquisition - Lower book growth Dec 04 31.2% - Yields increased Dec 05 18.4% - Deterioration in bad debts - Increased cost of collections Dec 06 24.5% – added 25% m
Slide 39: Financial services - strategy
woolworths holdings limited financial services - strategy ? swipe card MySchool card in store card classic VISA card gold VISA card premium 328 000 540 000 1 585 000 140 000 28 000 credit card 4.5 million customers: a card for all personal loans non-interest revenue products e.g. insurances MySchool
Slide 40: Financial services - store card
woolworths holdings limited financial services - store card 4 000 3 735 10.0% 3 428 9.0% 3 500 8.0% 2 898 3 000 2 601 7.0% 2 500 6.0% 1 999 5.2% 2 000 5.0% 1 576 1 585 4.0% 1 500 1 309 1 163 1 066 3.0% 1 000 2.8% 2.8% 2.0% 500 2.0% 1.7% 1.0% 0 0.0% Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Gross book value
Slide 41: Financial services - personal loans
woolworths holdings limited financial services - personal loans 2 000 10.0% 1 800 9.0% 1 600 8.0% 1 400 7.0% 1 200 1 135 6.0% 1 020 1 000 5.0% 840 800 722 3.9% 4.0% 600 528 2.4% 2.2% 3.0% 2.6% 400 1.1% 2.0% 157 178 186 200 117 137 1.0% 0 0.0% Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Gross book value (Rm)
Slide 42: Financial services - VISA card
woolworths holdings limited financial services - VISA card 2 000 10.0% 9.3% 1 800 9.0% 1 600 8.0% 1 400 7.0% 1 200 5.3% 6.0% 1 062 1 000 5.8% 5.0% 5.5% 802 800 4.0% 4.3% 600 3.0% 427 400 262 2.0% 144 154 168 200 92 1.0% 40 56 0 0.0% Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Gross book value (Rm) Number of
Slide 43: Financial services - non-interest revenue
woolworths holdings limited financial services - non-interest revenue Rm 100 +24% 90 94.9 +57% 80 70 76.6 60 +36% 50 +41% 48.8 40 30 +32% 35.8 20 25.4 10 0 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07
Slide 44: Financial services - deliverables
woolworths holdings limited financial services - deliverables Growth remains under pressure - Utilisation and prospecting campaigns refined - Conservative affordability model under review Tighten up on bad debt and collection strategies - Scorecard cutoffs increased - Increased collection capaci
Slide 45: Financial services - outlook
woolworths holdings limited financial services - outlook Customers remain under pressure Continued slow growth in customer numbers Bad debt and collections remain challenging
Slide 46: Country Road
country road Simon Susman
Slide 47: Country Road
woolworths holdings limited country road Strong sales performance Retail sales growth (A$) Focus on providing better value and improved fashionability well received Dec 04 7.8% 5 new stores and 2 store expansions Dec 05 6.8% in past six months Concession – underperformance in David Dec 06 13
Slide 48: Outlook
outlook
Slide 49: Trading environment
woolworths holdings limited trading environment International uncertainty Tough year ahead for South Africa - Middle to upper income customers unsettled - Tougher debt environment Longer term - Economy fundamentally sound - Consumer market still growing
Slide 50: Looking forward
woolworths holdings limited looking forward Brand well placed Good strategy Good business journey New retail leadership team in place Focus on execution Extract efficiencies (R500m investment) Tighter cost control
Slide 51: Additional information
. i additional Informetion
Slide 52: SA retail balance sheet
woolworths holdings limited SA retail balance sheet Dec 2007 Dec 2006 % Rm Rm change Assets Property, plant and equipment, investments, deferred tax, loans and goodwill 2 544.7 2 288.5 11.2 Inventory 1 273.7 1 054.1 20.8 Accounts receivable 571.2 712.2 (19.8) Cash 441.4 296.5 48.9 4 831.0 4 351.3 11
Slide 53: SA retail revenue analysis
woolworths holdings limited SA retail revenue analysis Dec 2007 Dec 2006 % % Rm Rm change inflation Clothing and general merchandise 3 714.5 3 460.2 7.3 9.6 Corporate (retail) 3 251.8 3 057.9 6.3 Franchise (wholesale) – local 349.6 321.3 8.8 Franchise (wholesale) – international 113.1 81.0 39.6 Food
Slide 54: SA retail trading space
woolworths holdings limited SA retail trading space Projected Year-on- Dec 2007 Dec 2006 % June 2008 year m2 m2 change m2 % change Total footage 466 693 436 529 6.9 478 975 9.5 Clothing and General merchandise 343 837 327 960 4.8 351 464 4.3 Corporate 258 077 239 450 7.8 262 967 5.5 Franchise SA 56
Slide 55: SA retail number of stores
woolworths holdings limited SA retail number of stores Projected Dec 2007 Dec 2006 Growth June 2008 No. No. No. No. Total stores 372 341 31 406 Corporate 216 191 25 232 Full-line 104 97 7 108 Clothing and general merchandise 6 5 1 6 Food 106 89 17 118 Franchise SA 77 77 - 79 Franchise Engen 36 23 13
Slide 56: Financial services balance sheet
woolworths holdings limited financial services balance sheet Dec 2007 Dec 2006 % Rm Rm change Assets Plant and equipment, deferred tax, loans and accounts receivable 130.2 228.4 (43.0) Financial services assets 5 558.7 4 991.7 11.4 Cash 313.3 236.7 32.4 6 002.2 5 456.8 10.0 Equity and liabilities Sh
Slide 57: Country Road balance sheet
woolworths holdings limited country road balance sheet Dec 2007 Dec 2006 % A$m A$m change Assets Property, plant and equipment 34.3 28.9 18.7 Trademarks * 11.2 11.2 - Inventory 32.5 22.0 47.7 Accounts receivable 13.2 10.8 22.2 Cash 18.7 13.5 38.5 109.9 86.4 27.2 Equity and liabilities Shareholders’
Slide 58: Country Road income statement (in rands)
woolworths holdings limited country road income statement (in rands) Dec 2007 Dec 2006 % Rm Rm change Revenue 884.4 599.7 47.5 Turnover 880.1 596.4 47.6 Cost of sales 343.8 251.2 36.9 Gross profit 536.3 345.2 55.4 Other revenue 4.3 4.6 (6.5) Expenses 491.9 317.3 55.0 Operating profit 48.7 32.5 49.8
Woolworths Holdings — H1 FY2008 Earnings Presentation on 6ix