Woolworths Holdings Limited · JSE:WHL
Woolworths — FY2008 Earnings Presentation
62 slides from Woolworths's earnings presentation, August 2008
Slide 1: Audited group results for the year ended 30 June 2008
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Slide 2: Economy under stress
woolworths holdings limited economy under stress Retail sales declining - top end hit hard - international - flight to value Interest rate increases Return of inflation Accelerating food/fuel prices Debt servicing burden Largest fall in consumer confidence in 24 years
Slide 3: Spending power per LSM
woolworths holdings limited spending power per LSM Real growth in spending power per LSM – 2008 25% 19.5% 20% 15.0% 15% 13.2% 10% 6.1% 5% 0% -0.4% -5% -10% -6.7% -6.7% -6.2% -8.0% -8.6% -15% LSM 1 LSM 2 LSM 3 LSM 4 LSM 5 LSM 6 LSM 7 LSM 8 LSM 9 LSM 10 Source: Cadiz Securities Note: The same CPIX for
Slide 4: Review of the year
woolworths holdings limited review of the year Downturn from second quarter Took action - significant cost tightening in second half Clothing and General merchandise 12mma market share - sharper opening price points Clothing and - strengthened headquarters assortments footwear Food (per RLC) (
Slide 5: Review of the year (continued)
woolworths holdings limited review of the year (continued) Financial services - no growth in gross book - bad debts deteriorated - but early signs of stabilisation Country Road - record profit growth - showing resilience
Slide 6: A year of change
woolworths holdings limited a year of change The business needed change in - merchandise strategy - people - pace Further heightened by consumer recession
Slide 7: Financial review
financial review Norman Thomson
Slide 8: Financial overview
woolworths holdings limited financial overview Turnover up 15.5% to R20.1 billion (up 13.7% excluding week 53) Profit before tax, exceptional items and non-comparable BEE charge up 6.2% to R1.6 billion (up 0.5% excluding week 53) Adjusted headline earnings per share up 4.3% Effective tax rat
Slide 9: Income statement
woolworths holdings limited income statement Jun 2008 Jun 2007 % Rm Rm change Revenue 21 754 18 642 16.7 Turnover 20 065 17 377 15.5 Cost of sales 13 077 11 400 14.7 Gross profit 6 988 5 977 16.9 Other revenue 1 689 1 265 33.5 Expenses 6 616 5 396 22.6 Operating profit 2 061 1 846 11.6 Finance costs
Slide 10: Income statement commentary
woolworths holdings limited income statement commentary 1. Gross profit margin – increased due to Country Road 2. Operating margin – impacted mainly by bad debts 3. Taxation – The effective tax rate increased by 8.1%. This was mainly due to: STC on share buyback 1.3% Impact of Country Road deferred
Slide 11: Segmental analysis
woolworths holdings limited segmental analysis Jun 2008 Jun 2007* % Rm Rm change SA Retail 1 298 1 220 6.4 H1 654 667 (1.9) H2 560 553 1.3 Week 53 84 - Financial Services 160 192 (16.7) H1 68 89 (23.6) H2 92 103 (10.7) Country Road 101 55 83.6 H1 48 30 60.0 H2 53 25 112.0 Profit before BEE, exceptio
Slide 12: SA retail income statement
woolworths holdings limited SA retail income statement Jun 2008 Jun 2007 % Rm Rm change 53 weeks 52 weeks Revenue 18 242 16 100 13.3 Turnover 18 129 16 005 13.3 Cost of sales 12 333 10 833 13.8 Gross profit 5 796 5 172 12.1 Other revenue 113 95 18.9 Expenses * 4 611 4 034 14.3 Operating profit 1 298
Slide 13: SA retail income statement commentary
woolworths holdings limited SA retail income statement commentary 1. Turnover 53 weeks 52 weeks Total Comparable Total Comparable Clothing and GM up 6.1% 3.1% 4.4% 1.6% Food up 18.8% 9.9% 16.7% 7.8% Total up 13.3% 7.3% 11.4% 5.3% 2. Gross profit – 0.3% drop in the gross profit margin due to mark-dow
Slide 14: Financial services income statement
woolworths holdings limited financial services income statement Jun 2008 % to Jun 2007 % to % Rm book Rm book change Income Interest received 1 339 23.5 1 009 19.9 32.7 Other income - external 233 4.1 172 3.4 35.5 Other income - internal 91 1.6 94 1.9 (3.2) 1 663 29.2 1 275 25.2 30.4 Expenses 1 002
Slide 15: Financial services commentary
woolworths holdings limited financial services commentary 1. Gross financial services assets – grew by 12.6% on average, but closing books flat on last year 2. Interest received – driven by average book growth and increase in yields of 3.6% 3. Other income - external – continued focus on non-interes
Slide 16: Country Road income statement
woolworths holdings limited country road income statement Jun 2008 Jun 2007 % A$m A$m change Revenue 293.4 240.4 22.0 Turnover 290.4 237.6 22.2 - Retail 215.4 188.6 14.2 - Concession 72.3 30.0 141.0 - Wholesale and franchise 2.7 19.0 (85.8) Cost of sales 113.0 99.5 13.6 Gross profit 177.4 138.1 28.5
Slide 17: Country Road commentary
woolworths holdings limited country road commentary 1. Turnover – Comparable retail store sales up by 8.4%. Concession sales are for a full year vs 5 months last year. Wholesale now wound down. 2. Gross profit – Gross profit margin grew by 3.0%, mainly due to lower mark-downs and better sourcing 3.
Slide 18: Balance sheet
woolworths holdings limited balance sheet Jun 2008 Jun 2007 % Rm Rm change Assets Property, plant and equipment, intangible assets and loans 2 329 1 890 23.2 Investment property 106 106 - Export partnerships 66 70 (5.7) Inventory 1 371 1 203 14.0 Financial services assets 5 420 5 722 (5.3) Accounts
Slide 19: Balance sheet commentary
woolworths holdings limited balance sheet commentary 1. Property, plant and equipment – refer to investment slide 2. Inventory – increased in line with turnover 3. Financial services assets – down on last year due to low card sales and conservative account acquisition 4. Cash and borrowings – increa
Slide 20: Cash generation
woolworths holdings limited cash generation 3 000 2 500 R2 368m (R638m) 2 000 R70m (R490m) 1 500 (R747m) 1 000 (R636m) 500 0 (500) (R379m) (R200m) (R24m) (1 000) EBITDA Capex Disposals Interest Tax Dividends Working Share Applied to paid paid capital and buybacks FS assets similar movements
Slide 21: Investment in the business
woolworths holdings limited investment in the business Financial services assets Capex R24m (Jun 07: R1 182m) R638m (Jun 07: R649m) 1 200 700 1 000 600 126 500 321 800 91 633 400 Rm 600 Rm 300 50 400 349 200 421 200 279 200 100 87 0 0 (28) (35) Jun 2008 Jun 2007 (200) Jun 2008 Jun 2007 WW card Perso
Slide 22: Real estate plan – delivers on viabilities
woolworths holdings limited real estate plan – delivers on viabilities Actual vs viability pre-tax cash return on investment (CROI) 100% (net of transfers) 85.9% 80% 63.1% 60% 40% 30.5% 20% 17.2% 0% (4.8%) (5.7%) Actual CROI Viability CROI -20% 1 2 3 years open Number of stores 2005 15 15 15 2006 28
Slide 23: Real estate plan – delivers on viabilities (continued)
woolworths holdings limited real estate plan – delivers on viabilities (continued) Actual vs viability projected internal rate of return (IRR) (net of transfers) 35% 30% 25% 20% 15% Risk premium 10% 5% WACC 0% Actual IRR Viability IRR Required return Year opened Number of stores Additional m2 2005 1
Slide 24: Food store profitability
woolworths holdings limited Food store profitability – peaks in years 4 - 5 Food stores 110 000 18% 100 000 Latent profit 16% 90 000 14% 80 000 12% 70 000 R/m2 10% 60 000 8% 50 000 40 000 6% 30 000 4% Trading density Direct profit on sales 20 000 2% < 1 year 1 full year 2 full years 3 full years 4 f
Slide 25: Return on equity
woolworths holdings limited return on equity 40% 35.1% 34.8% 33.5% 35% 27.4% 27.6% 30% 24.7% 25% 18.3% 20% 17.5% 15% 16.3% 13.8% 13.8% 14.8% 10% 12.3% 13.3% 11.3% 11.8% 5% 0% Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 ROE WACC
Slide 26: Earnings and dividend
woolworths holdings limited earnings and dividend cps times 140 3.5 127.8 130 3.0 120 115.7 3.0 110 105.0 100 2.3 2.5 89.4 2.2 2.2 90 80 75.5 1.9 2.0 70 61.1 1.6 1.6 60 1.5 50 1.5 40 1.0 30 20 0.5 10 29.0 38.5 54.0 63.0 76.0 79.0 0 - 2003 2004 2005 2006 2007 2008 HEPS DPS Dividend cover Dividend cov
Slide 27: Guidance and expectations
woolworths holdings limited guidance and expectations Inflationary pressures to continue, especially in Food Sales volume growth will remain muted Continued investment in optimal trading space (Clothing 6.1%; Food 14.2%) Retail gross margin to be maintained Expenses in SA Retail will conti
Slide 28: Financial services
financial services
Slide 29: Financial services – review
woolworths holdings limited financial services – review Continued tough environment Flat book growth Stabilising bad debt charge in H2 - increased capacity in collections area - minimum payment % changed for VISA card Increased non-interest revenue from collections, fees and balance protecti
Slide 30: Financial services – store card
woolworths holdings limited financial services – store card 4 000 12% 3 743 3 708 3 500 3 109 10% 3 000 2 696 8% 2 500 2 269 2 000 6.73% 6% 1 600 1 579 1 393 1 500 1 217 4% 1 125 1 000 3.65% 2.77% 2% 500 2.28% 1.74% 0 0% June 04 June 05 June 06 June 07 June 08 Gross book value (Rm) Number of custome
Slide 31: Financial services – personal loans
woolworths holdings limited financial services – personal loans 4 000 12% 10% 3 000 8% 2 000 6% 4.86% 1 129 1 094 4% 930 1 000 763 1.98% 608 1.82% 1.55% 2.67% 2% 127 147 169 190 184 0 0% June 04 June 05 June 06 June 07 June 08 Gross book value (Rm) Number of customers (000's) Net bad debt * (%) * 12
Slide 32: Financial services – VISA card
woolworths holdings limited financial services – VISA card 4 000 12% 10.87% 3 500 10% 3 000 8% 2 500 2 000 6.76% 6% 4.60% 1 500 5.13% 4% 1 065 978 1 000 3.81% 629 2% 500 326 187 129 169 162 50 79 0 0% June 04 June 05 June 06 June 07 June 08 Gross book value (Rm) Number of customers (000's) Net bad d
Slide 33: Financial services – cash flow from ABSA deal
woolworths holdings limited financial services – cash flow from ABSA deal Rm Rm Proceeds for 50%+ of equity 875 Profit on disposal Financial services assets 5 600 Book value of equity sold 50% of 16% (448) Gearing 84% 4 704 Proceeds 875 Total cash proceeds 5 579 Transaction costs (estimate) (30) Tra
Slide 34: Retail review
retail review Andrew Jennings
Slide 35: Driving change
woolworths holdings limited driving change The business needed change - accelerated by consumer recession Merchandise strategy - driven by deeper customer analytics - focused on value/innovation and segmentation - delivering availability People - talent - skills Pace - speed to market - prod
Slide 36: Retail – deliverables
woolworths holdings limited woolworths retail – deliverables Timelines Progress 1. Customer understanding ongoing 2. Quality : Value ongoing 3. Range differentiation and innovation 6, 12, 18 months 4. Improved availability 6-12 months 5. Talent upgrade / skills base ongoing 6. Greater speed to marke
Slide 37: Customer – the cube
woolworths holdings limited 1. customer – the cube lifestyle segmentation - e.g. kids come first price tiering good instant gourmet better finest cross shopper best loyal shopping habits classic (frequency and opportunity merchandise spend) modern classification one off contemporary age full line ge
Slide 38: Customer – Clothing and Home segmentation
woolworths holdings limited 1. customer – Clothing and Home segmentation LSM 9-10 Protect at all costs and entrench WW across all lifestyle needs Finest Cross Shopper Become fashion destination 14% of ‘non-food’ revenue All About Me 22% of ‘non-food’ revenue Regain Loyalty Comfy Conservatives 19% of
Slide 39: Quality:value – Clothing
woolworths holdings limited 2. quality:value – Clothing Clothing pricing % price movement 1st half 9.6% 2nd half 7.3% Changing customer perception through better opening price points Value positioning on 25 key lines Clear price point messaging in stores
Slide 40: Quality:value – Food
woolworths holdings limited 2. quality:value – Food Food pricing - % premium of Woolworths KVI basket (March – June 2008) 12% 10% 8% 6% 4% 2% 0% 8 8 8 8 8 8 8 8 8 08 8 8 8 08 08 08 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 n- n- n- n- pr pr pr pr pr ar ar ar ay ay ay ay -Ju -Ju -Ju -Ju -A -A -A -A -A -M -
Slide 41: Range differentiation – segmentation in women's clothing
woolworths holdings limited 3. range differentiation – segmentation in women’s clothing Classic Modern Contemporary Summer 2008 55% 35% 10% Best 6% SA Des ig ners Modern Better 35% classic collection WW headquarters assortments Modern Good classic collection 59% WW headquarters assortments
Slide 42: Range differentiation – Food
woolworths holdings limited 3. range differentiation – Food Innovation to drive category growth – still offering customer value for money. 766 new lines launched from Jul – Dec 08 (LY: 543) 379 lines upgraded from Jul – Dec 08 (LY: 413) Re-engineering core products – more pragmatic innovatio
Slide 43: Improved availability
woolworths holdings limited 4. improved availability Utilise our deeper understanding of the customer to drive - the right merchandise - right size ratios - in the right stores - at the right time Clothing - merchandise planning now standing alone - cataloguing by customer profile - new planning
Slide 44: Talent upgrade / skill base
woolworths holdings limited 5. talent upgrade / skill base Split buying and planning Upgrading design Key people in place - New heads of planning for Clothing & General Merchandise and Food - New Head of Trading for Food - New Head of Buying for General Merchandise - Re-structure of heads of b
Slide 45: Speed to market in Clothing and General merchandise
woolworths holdings limited 6. speed to market in Clothing and General merchandise Launching a more disciplined process from strategy to selling – 26 Step Woolworths Merchandise Cycle. Sourcing strategy launched - 3 year plan - continuous review of supplier base - add value to product
Slide 46: Improved productivity
woolworths holdings limited 7. improved productivity Improve productivity in comparable stores - greater focus on labour scheduling - drive store cost base down Format strategy - fewer and more profitable stores - move to larger format food stores Delivery of new planning system to leverage O2
Slide 47: Trading in a recession
woolworths holdings limited trading in a recession Understand shift in customer spending patterns Sharpen prices, but strengthen quality and innovation New ranges – Country Road, Twist, Organic, yoghurt Fitter and more competitive Food business Manage cost growth hard Temper store rollou
Slide 48: Country Road
country road Simon Susman
Slide 49: Country Road – review
woolworths holdings limited country road – review Strong sales performance - total retail sales up 14.2% vs market average of 5.2% 5 new stores and 4 store expansions Better value offer and improved fashionability Overhead costs well controlled Inventory well managed Concession now on ta
Slide 50: Country Road – outlook
woolworths holdings limited country road – outlook Australian economy slowing - tougher retail trading conditions ahead Focus on controlling costs, improving efficiencies and managing inventory 5 new stores and 5 store expansions planned in Australia Continue expansion into SA - 17 stores wi
Slide 51: The Woolworths difference
the Woolworths difference we're the world’s third largest user of organic cotton It’s part of our Good business journey to help people and planet.
Slide 52: Outlook
woolworths holdings limited outlook Tough year - and more to come Have behaved cyclically Better placed to face the recession However Long-term confidence in South Africa Believe the Woolworths brand is relevant
Slide 53: Additional information
additional information
Slide 54: Expenses
woolworths holdings limited expenses Financial SA Retail Services Country Road Intragroup Total Rm 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 Depreciation 309 265 6 6 59 46 374 317 Occupancy 695 586 8 5 371 215 1 074 806 Employment* 1 969 1 756 81 67 457 306 2 507 2 129 Bad debts/provisions -
Slide 55: SA retail – balance sheet
woolworths holdings limited SA retail – balance sheet Jun 2008 Jun 2007 % Rm Rm change Assets Property, plant and equipment, investments, deferred tax, loans and goodwill 2 536 2 380 6.6 Inventory 1 154 1 023 12.8 Accounts receivable 565 486 16.3 Cash 361 98 268.4 4 616 3 987 15.8 Equity and liabili
Slide 56: SA retail – revenue analysis
woolworths holdings limited SA retail – revenue analysis Jun 2008 Jun 2007 % % Rm Rm change inflation Clothing and General merchandise 7 410 6 985 6.1 8.5 Corporate (retail) 6 545 6 136 6.7 Franchise (wholesale) – local 659 667 (1.2) Franchise (wholesale) – international 206 182 13.2 Food 10 360 8 7
Slide 57: SA retail – trading space
woolworths holdings limited SA retail – trading space Projected Jun 2008 Jun 2007 % June 2009 % m2 m2 change m2 change Total footage 478 351 445 872 7.3 517 838 8.3 Clothing and General merchandise 348 687 332 870 4.8 370 054 6.1 Corporate 263 080 245 208 7.3 282 805 7.5 Franchise SA 57 870 57 276 1
Slide 58: SA retail – number of stores
woolworths holdings limited SA retail – number of stores Projected Jun 2008 Jun 2007 Growth June 2009 Growth No. No. No. No. No. Total stores 385 349 36 425 40 Corporate 228 200 28 256 28 Full-line 108 98 10 117 9 Clothing and General merchandise 6 5 1 6 - Food 114 97 17 133 19 Franchise SA 77 78 (1
Slide 59: Financial services – contribution to sales
woolworths holdings limited financial services – contribution to sales % of sales spent on Woolworths cards Jun 2008 Jun 2007 Clothing and General merchandise 36.6% 41.9% Food 21.1% 24.3% Total 27.2% 32.2%
Slide 60: Financial services – balance sheet
woolworths holdings limited financial services – balance sheet Jun 2008 Jun 2007 % Rm Rm change Assets Plant and equipment, deferred tax, loans and accounts receivable 196 163 9.0 Financial services assets 5 420 5 536 (2.1) Cash 299 208 43.4 5 915 5 907 (0.2) Equity and liabilities Shareholders’ fun
Slide 61: Country Road – balance sheet
woolworths holdings limited country road – balance sheet Jun 2008 Jun 2007 % A$m A$m change Assets Property, plant and equipment 33.2 30.1 10.3 Trademarks * 11.2 11.2 - Inventory 28.6 29.4 (2.7) Accounts receivable 14.4 13.7 5.1 Cash 21.8 19.3 13.0 109.2 103.7 5.3 Equity and liabilities Shareholders
Slide 62: Country Road – income statement (in rands)
woolworths holdings limited country road – income statement (in rands) Jun 2008 Jun 2007 % Rm Rm change Revenue 1 939 1 362 42.4 Turnover 1 918 1 354 41.7 Cost of sales 744 567 31.2 Gross profit 1 174 787 49.2 Other revenue 21 8 162.5 Expenses 1 093 738 48.1 Operating profit 102 57 78.9 Finance cost