Woolworths Holdings Limited · JSE:WHL
Woolworths — Debt Investor Presentation (September 2018)
55 slides from Woolworths's debt investor presentation, September 2018
Slide 1: 2018 Annual Results
WOOLWORT HS HOL DI NG S L I M I T E D 2018 Annual Results 1
Slide 2: Presentation Outline
PRESENTATION OUTLINE 01 / Review of the year 02 / Financial review 03 / Strategy update 04 / Outlook 2
Slide 3: Review of the Year
REVIEW OF THE YEAR Ian Moir
Slide 4: Group Performance
GROUP PERFORMANCE • Cyclical challenges and structural changes continued • Extremely tough trading conditions in both markets • Poor product execution in Clothing in Woolworths • Continued market-leading sales growth in Woolworths Food • Significant disruption from transformational initiatives in Da
Slide 5: South African Macro Environment
SOUTH AFRICAN MACRO ENVIRONMENT Real annual GDP growth % 6% 5% 4% • A turbulent year with political uncertainty 3% 2% 1% and low economic growth impacting 0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 consumer confidence in H1 • Improved economic outlook and political -1%
Slide 6: Woolworths Fashion, Beauty and Home performance
• Sales 1.5% lower, with comparable sales 4.1% lower, price movement of 0.8%, and 2.5% net new space • Poor brand and product execution in clothing, particularly in womenswear • Improved womenswear ranges delivered in H2, but overall sales in clothing impacted by a more constrained consumer and prom
Slide 7: Woolworths Food performance
• Consistent growth ahead of market for the past 8 years • Sales up 8.4%, with comparable sales up 4.8% and 3.5% net new space • Price movement of 3.2%, 2.1% in H2 • Positive volume growth of 1.6% in comparable stores, 2.2% in H2 • Strong online sales growth, up 17.6% on LY • Gross profit margin dec
Slide 8: Market Share
MARKET SHARE Woolworths vs market growth (3mma) 14% 12 12% 10 10% 8 8% 6 6% 4 4% 2% 2 0% 0 Sept 17 May 18 Nov 17 Mar 18 Aug 17 Dec 17 Oct 17 Apr 18 Feb 18 Jan 18 Jun 18 Jun 17 Jul 17 Woolworths weighted price movement CPI (Food & Non-alcoholic Beverages) Woolworths sales growth (3mma) Market growth
Slide 9: Australian Macro Environment
AUSTRALIAN MACRO ENVIRONMENT Real annual GDP growth % % 5 4.5 4 3.5 3 • Despite low interest rates and strong job growth, consumer spending remained 2.5 2 1.5 1 0.5 depressed by high levels of indebtedness, 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 a cooling housing mar
Slide 10: David Jones performance
• A significantly disruptive and difficult year, with major disruption from transformational initiatives and tough economic conditions • Total sales 0.9% lower, with comparable sales 0.4% lower • Sales improved progressively from mid-November – H2 total sales up 2.2% and comparable sales up 2.7% • S
Slide 11: Country Road Group performance
• Sales up 1.7%, comparable sales 1.8% lower (excluding Politix acquired in November 2016) • Strong performance from Witchery, Mimco and Politix offset by poor performance in Country Road • Gross profit margin up 2.5% to 62.8% due to strong focus on full-priced sales and good inventory management •
Slide 12: Financial Review
FINANCIAL REVIEW Reeza Isaacs
Slide 13: Financial Overview
FINANCIAL OVERVIEW Adjusted profit HEPS – before tax HEPS Adjusted diluted Turnover and -13.8 to R4.8 billion % -17.7 to 346.3 cps % -12.8 to 364.1 cps % concession sales +1.6 % to R75.2 billion EPS at Total dividend ROE* -369.5 -23.6 % 18.0 % cps to 239.0 cps from 20.8% * DJ asset impairment added
Slide 14: Group Income Statement
GROUP INCOME STATEMENT Good performance from Food and WFS; further decline in FBH Jun 2018 Jun 2017 % Rm Rm change Improved H2 sales growth; costs and Woolworths Fashion, Beauty disruption of various transformational and Home 1 707 2 168 (21.3) initiatives Woolworths Food 2 167 1 977 9.6 Slowdown in
Slide 15: Fashion, Beauty and Home Income Statement
FASHION, BEAUTY AND HOME INCOME STATEMENT Jun 2018 Jun 2017 % Rm Rm change Comp store sales down 4.1%; price Turnover 13 687 13 894 (1.5) movement 0.8%; womenswear and Edition still in recovery Cost of sales 7 297 7 244 0.7 Gross profit 6 390 6 650 (3.9) 120 bps lower; higher levels of markdowns and
Slide 16: Food Income Statement
INCOME STATEMENT Jun 2018 Jun 2017 % Rm Rm change Turnover and concession sales 30 019 27 688 8.4 Strong volume growth; comp store sales Concession sales (687) (613) 12.1 up 4.8%, with price movement of 3.2% Turnover – own buy 29 332 27 075 8.3 Margin 10 bps down; continued price Cost of sales 21 98
Slide 17: Financial services income statement
Jun 2018 Jun 2017 % Rm Rm change Book growth driven by Credit Card Average financial services assets 10 659 10 194 4.6 portfolio growth % % Income Statement to book to book Interest income 2 166 20.3 2 123 20.8 2.0 Interest paid 640 6.0 633 6.2 1.1 Lower net yield due to 2 repo rate adjustments Net
Slide 18: Book Performance
BOOK PERFORMANCE 12 12% 10 716 9 743 9 990 10 320 10 10% 8 821 8 8% 6.3% 6 5.7% 6% 5.4% 5.2% 4.8% 4 4% 2 1 930 1 914 1 834 1 779 1 745 2% 0 0% Jun 14 Jun 15 Jun 16 Jun 17 Jun 18 Gross book value (Rm) Total active accounts (000’s) Impairment charge* (%) * Includes collection costs 18
Slide 19: David Jones Income Statement
INCOME STATEMENT Jun 2018 Jun 2017 % Full year comp sales down 0.4%; H2 sales A$m A$m Change up 2.2% and 2.7% in comp stores; online Turnover and concession sales 2 212 2 214 (0.1) up 21.4% Concession sales (763) (750) 1.7 Turnover – own buy 1 449 1 464 (1.0) Cost of sales 829 832 (0.4) Gross profit
Slide 20: Country Road Group Income Statement
INCOME STATEMENT Jun 2018 Jun 2017 % A$m A$m change Turnover 1 074 1 056 1.7 Comp sales down 1.8% impacted by CR womenswear; online up 20.8% Cost of sales 400 419 (4.5) Up 250 bps from higher full-priced sales Gross profit 674 637 5.8 and reduced promotions; sourcing gains Other revenue 5 4 25.0 Exp
Slide 21: Net Finance and Other Costs
NET FINANCE AND OTHER COSTS Jun 2018 Jun 2017 Capital Rate* Rm Rm Reduction in gearing and decrease in SA ZAR long-term debt R9.4bn 8.88% 870 935 base rates and margins AUD long-term debt A$431m 4.48% 183 197 Average debt marginally higher; lower Net finance costs 1 053 1 132 average base rates and
Slide 22: Group Balance Sheet
GROUP BALANCE SHEET Constant Jun 2018 Jun 2017 % currency Rm Rm change % change Assets Property, plant and equipment 13 959 13 846 0.8 (0.7) Intangible assets 13 410 19 595 (31.6) (32.7) Decrease due to impairment of DJ assets Investments in joint ventures 978 1 015 (3.6) (3.6) Inventories 7 542 6 9
Slide 23: Net Gearing
NET GEARING Jun Jun 2018 2017 WHL Net debt (Rm) (11 837) (11 538) Liquidity remains strong with significant Interest-bearing term debt (13 715) (13 325) unutilised committed facilities Net cash and cash equivalents 1 878 1 787 Unutilised committed facilities – Group 10 216 11 033 Net debt to EBITDA
Slide 24: Capital Expenditure
CAPITAL EXPENDITURE Spend Forecast R2 626m (Jun 2017: R2 591m) FY19: R3 358m Significant strategic Rm Rm capex in FY18 and FY19. Post FY20, 3 000 3 500 R3 358m normalised annual Group capex to be in 3 000 the region of R2.7bn 2 500 A$26m A$34m R2 626m R2 591m 2 500 2 000 A$124m A$98m 2 000 1 500 1 5
Slide 25: Cash Generation for the 52 Weeks Ended 24 June 2018
CASH GENERATION FOR THE 52 WEEKS ENDED 24 JUNE 2018 Rm 7 371 325 7 500 (305) 6 500 (1 181) 5 500 (1 037) 4 500 3 588 3 500 (1 585) 2 500 (1 004) 1 500 500 (500) (2 782) (198) Cash Working JV Net finance Taxation Mainte- Free cash Expansion Dividends Increase inflow capital dividend costs and nance f
Slide 26: Free Cash Flow and Dividends
FREE CASH FLOW AND DIVIDENDS Jun 2016 Jun 2017 Jun 2018 Rm Rm Rm Free cash flow pre working capital and capital expenditure 6 276 5 356 5 288 Working capital movements (311) (615) (305) Cash generated by operations 5 965 4 741 4 983 Capital expenditure (2 849) (2 413) (2 005) Strategic capex, busine
Slide 27: Earnings and Distribution
EARNINGS AND DISTRIBUTION cents times 500 1.45 1.45 1.45 1.45 1.5 1.34 455.6 420.9 400 1.2 369.7 348.6 346.3 313.0 313.0 300 0.9 240.0 247.0 239.0 200 0.6 100 0.3 – – Jun 14 Jun 15 Jun 16 Jun 17 Jun 18 HEPS* DPS** Distribution cover * HEPS based on weighted average number of shares ** DPS based on c
Slide 28: Strategy Update
O03 Wer STRATEGY | . UPDATE an ay
Slide 29: Fix the Fashion offer
• Fix the Fashion offer • Balance clearly-segmented sub-brands with the Woolworths brand to ensure each customer segment has the right brand and the right offer • Better management oversight and improved disciplines in the design review process and critical path management • Ensure every brand is un
Slide 30: Woolworths Food strategy
• Absolute focus on delivering ‘the difference’ through best-in-class, innovative product with uncompromising quality and provenance • Strengthen the value perception to make Woolworths more affordable, with ongoing price investment in our iconic lines, everyday low prices and promotional activity •
Slide 31: David Jones strategy: transformation completed
• Major transformational initiatives now completed including introduction of new systems, new online platform, repositioned Food business and re-located head office • O ptimise new merchandise planning and finance systems, allowing for better planning, assortment and buying decisions • Enhance the d
Slide 32: David Jones: store refurbishment and private label
• Refurbish Elizabeth Street store by investing A$200m and a further A$200m from concession partners to create a world-class department store – due for completion in FY2019 • Luxury ‘Shoe Heaven’ floor and immersive children’s world to open by December 2018 • Both new offerings underpinned by unique
Slide 33: Department Store Exclusivity
– DEPARTMENT STORE EXCLUSIVITY • The key to future department store success is through brand exclusivity and private label • Exclusivity provides brand differentiation and builds brand equity, by creating a compelling assortment by curating a desirable and exclusive offer • We already have key exclu
Slide 34: Country Road Group strategy
• Continue to implement customer-led strategies and clear visions for each brand, informed by customer segmentation • Refresh Country Road brand vision and product direction, particularly in womenswear • Continue to drive full-price sales with targeted, loyalty-based promotions and less generic disc
Slide 35: Outlook
04 OUTLOOK Ian Moir
Slide 36: Outlook
OUTLOOK South Africa • Despite lower interest rates and muted inflation, consumer spending expected to remain constrained • Price movement in H1 expected to be 3% for Food and 5% for Fashion, Beauty and Home Australia • Growth and consumer sentiment expected to slowly improve on back of supportive e
Slide 37: Trading for the First Seven Weeks
TRADING FOR THE FIRST SEVEN WEEKS FY2019 First 7 weeks FY2018 sales H2 sales growth growth -1.7% -2.9% +7.6% +7.5% +3.7% +2.2% +2.1% -1.7% 37
Slide 38: Medium-Term Targets
MEDIUM-TERM TARGETS FY2021 OPERATING PROFIT MARGIN 14% – 16% 7% * 6% – 8% 12% RETURN ON EQUITY 27.5% * Department store operating profit as a percentage of turnover and concession sales 38
Slide 39: Questions? Thank You
QUESTIONS? THANK YOU
Slide 40: Disclaimer
DISCLAIMER Shareholders are advised that the information in this presentation has not been reviewed and reported on by Woolworths Holdings’ external auditors and it does not constitute a profit forecast. Woolworths Holdings has acted in good faith and has made every reasonable effort to ensure the a
Slide 41: Additional Info
ADDITIONAL INFO
Slide 42: Trading Space
TRADING SPACE Projected Projected Projected Jun 2018 Jun 2017 % Jun 2019 % Jun 2020 % Jun 2021 % 000m2 000m2 change 000m2 change 000m2 change 000m2 change Woolworths Fashion, Beauty and Home 479 468 2.5 486 1.5 488 0.4 494 1.2 South Africa 436 426 2.5 441 1.1 442 0.2 446 0.9 Rest of Africa 43 42 2.4
Slide 43: Projected Trading Space Additions/Reductions
PROJECTED TRADING SPACE ADDITIONS/REDUCTIONS Woolworths Fashion, Country Beauty Woolworths David Road 000m 2 and Home Food Jones Group Jun 2018 479 249 474 125 Additions 10 9 14 2 Reductions (3) (1) (2) (7) Jun 2019 486 257 486 120 Additions 5 9 13 2 Reductions (3) – (11) (3) Jun 2020 488 266 488 11
Slide 44: Store Locations
STORE LOCATIONS Projected Projected Projected Jun 2018 Jun 2017 Growth Jun 2019 Growth Jun 2020 Growth Jun 2021 Growth Woolworths Fashion, Beauty and Home 282 282 – 286 4 286 – 291 5 South Africa 218 217 1 218 – 219 1 220 1 Rest of Africa 64 65 (1) 68 4 67 (1) 71 4 Woolworths Food 430 421 9 444 14 4
Slide 45: Contribution to Sales
CONTRIBUTION TO SALES % of sales spent on Woolworths cards Jun 2018 Jun 2017 Fashion, Beauty and Home 21.4% 21.2% Food 9.1% 9.7% Aggregate Woolworths card contribution 13.1% 13.8% Credit card 2.2% 1.9% Aggregate Woolworths card and credit card contribution 15.1% 15.6% 45
Slide 46: David Jones Income Statement (in Rands)
INCOME STATEMENT (IN RANDS) Jun 2018 Jun 2017 % Rm Rm change Turnover and concession sales 22 074 22 725 (2.9) Concession sales (7 619) (7 695) (1.0) Turnover – own buy 14 455 15 030 (3.8) Cost of sales 8 249 8 524 (3.2) Gross profit – own buy 6 206 6 506 (4.6) Concession and other revenue 2 001 1 9
Slide 47: David Jones Balance Sheet
BALANCE SHEET Jun 2018 Jun 2017 % A$m A$m change Assets Property, plant and equipment 838 849 (1.3) Goodwill and brands 568 1 246 (54.4) Intangible assets 93 66 40.9 Inventories 275 224 22.8 Trade and other receivables, tax and deferred tax 75 185 (59.5) Cash and cash equivalents 37 18 >100 Total as
Slide 48: Country Road Group Income Statement (in Rands)
INCOME STATEMENT (IN RANDS) Jun 2018 Jun 2017 % Rm Rm change Turnover 10 689 10 815 (1.2) Cost of sales 3 977 4 295 (7.4) Gross profit 6 712 6 520 2.9 Other revenue 50 43 16.3 Expenses 5 730 5 576 2.8 Store costs 4 102 3 973 3.2 Other operating costs 1 628 1 603 1.6 Adjusted operating profit 1 032 9
Slide 49: Country Road Group Balance Sheet
BALANCE SHEET* Jun 2018 Jun 2017 % A$m A$m change Assets Property, plant and equipment 148 158 (6.3) Intangible assets 372 376 (1.1) Inventories 119 128 (7.0) Trade and other receivables, tax and deferred tax 84 71 18.3 Cash and cash equivalents 38 44 (13.6) Total assets 761 777 (2.1) Non-current an
Slide 50: Credit Metrics
CREDIT METRICS
Slide 51: Credit Metrics
CREDIT METRICS Jun Jun Group 2018 2017 Net debt to EBITDA 1.5 1.4 Group covenants are used internally only Net interest cover 7.5 7.3 Debt to Equity 0.9 0.6 Increase as a result of impairment Jun Jun South African Covenant Group 2018 2017 Net debt to EBITDA 1.5 1.4 SA covenant group is aligned with
Slide 52: Issuer and Guarantor Combined Income Statement
ISSUER AND GUARANTOR COMBINED INCOME STATEMENT Jun 2018 Jun 2017 Rm Rm Woolworths Holdings Ltd operating (loss)/profit (3 207) 3 288 Woolworths (Pty) Ltd operating profit 3 773 4 175 Woolworths (Pty) Ltd dividend received included in investment income 461 394 Woolworths Holdings Ltd dividends receiv
Slide 53: Issuer and Guarantor Combined Balance Sheet
ISSUER AND GUARANTOR COMBINED BALANCE SHEET Issuer Guarantor WHL Company WW (Pty) Ltd Jun 2018 Jun 2017 Jun 2018 Jun 2017 Rm Rm Rm Rm Assets Property, plant and equipment and investment properties – – 3 476 3 399 Intangible assets – – 939 953 Investments in subsidiaries and treasury shares 17 915 21
Slide 54: Maturity Profile of Long-Term Debt
MATURITY PROFILE OF LONG-TERM DEBT South Africa Rm 2 500 The maturity profile is after settlement of the FY19 Q1 and Q2 tranches. The 2 000 tranches were settled after year-end 1 500 As at FY19 Q1 48% of debt is hedged using 1 000 interest rate swaps 500 At year-end, 53% of debt was hedged – FY19 FY
Slide 55: Credit – Other Metrics
CREDIT – OTHER METRICS Debt levels Sources of funding (SA only) – Sept 2018 Jun 2018 Jun 2017 750 8% Capital Rate* Rm Rm ZAR denominated debt R9.4bn 8.88% 9 413 9 882 2 106 24% AUD denominated debt A$431m 4.48% 4 302 3 443 6 044 13 715 13 325 68% * Partially hedged all-in rate including amortisation
Woolworths Holdings — Debt Investor Presentation (September 2018) on 6ix