Woolworths Holdings Limited · JSE:WHL
Woolworths — FY2016 Earnings Presentation
65 slides from Woolworths's earnings presentation, 2016
Slide 1: Woolworths Holdings Limited 2016 Annual Results
WOOLWORTHS HOLDINGS LIMITED 2016 ANNUAL RESULTS WHL / 1
Slide 2: Review of the year, Financial review, Strategy update, Outlook
01 / Review of the year 02 / Financial review 03 / Strategy update 04 / Outlook WHL / 2
Slide 3: Review of the Year
REVIEW OF THE YEAR
Slide 4: Diversified Earnings Base
DIVERSIFIED EARNINGS BASE Operating profit by geography Turnover by segment 15% 19% 30% 36% Woolworths Clothing & GM Woolworths Food* David Jones* Operating profit by category Operating profit by segment Country Road Group Woolworths Financial Services** 14% 33% Clothing and General Merchandise Food
Slide 5: Review of the Year
REVIEW OF THE YEAR • Good performance in Woolworths Clothing & GM, Turnover up 16.4 % despite late start to winter impacting Q4 • Another above market performance from Woolworths Food • Strong performance from Woolworths Financial Services, although growth impacted by NCAA • David Jones performing w
Slide 6: Woolworths Clothing & GM performance
• Clothing & GM sales up 9.6% (8.2% excluding sales in David Jones), with comparable sales up 4.4% – Q4 impacted by late start to winter • Gross profit margin increased from 47.4% to 48.3%, benefiting from sourcing gains offsetting rand weakness • O perating margin maintained at 16.8%, with operatin
Slide 7: Woolworths Food performance
• Another strong performance well ahead of the market, with total sales up 11.9% and comparable sales up 5.7% • Growth ahead of the market every month since September 2011 • Gross profit margin down slightly from 25.7% to 25.5%, with investment in price in key categories in H2 • O perating margin in
Slide 8: Woolworths vs market growth
Woolworths vs market growth (3mma) 16% 14% 12% 10% 8% 6% 4% 2% 0% Jan 15 Feb 15 Mar 15 Apr 15 May 15 Jun 15 Jul 15 Aug 15 Sep 15 Oct 15 Nov 15 Dec 15 Jan 16 Feb 16 Mar 16 Apr 16 May 16 Jun 16 Woolworths price movement CPI (Food & Non-alcoholic Beverages) Woolworths sales growth (3mma) Growth in Niel
Slide 9: David Jones performance
• 52-week sales growth of 8.4%, with comparable sales up 7.0%, well above market • Gross profit margin impacted by late winter markdown; lower intake margin on A$ weakness and inclusion of clearance month of July in FY2016 • O nline sales up 35.2% to 3.6% of sales • Profit of A$170 million (A$202 mi
Slide 10: Country Road Group performance
• Total turnover up 5.5%; comparable sales down 3.9% • S pace increase 6.3% (weighted: 10.4%) • Gross profit margin down from 60.9% to 59.4% –H igher markdowns caused by range issues, late winter and high levels of promotional activity in the market • O perating margin reduced from 11.7% to 9.7%, wi
Slide 11: Reeza Isaacs
Reeza Isaacs WHL / 11
Slide 12: Financial Overview
FINANCIAL OVERVIEW Adjusted profit HEPS – Diluted before tax up up Group turnover and concession sales up 14.7 to R6.0 billion % 23.3 to 452.5 cps % HEPS – Adjusted Diluted up 16.4 % to R72.1 billion 8.9 to 453.4 cps % Total dividend per share up ROE 26.7 to 313.0 cps % 25.6 % WHL / 12
Slide 13: Group Income Statement
GROUP INCOME STATEMENT Jun 2016 Jun 2015 % Rm Rm change Woolworths Clothing & GM 2 306 2 095 10.1 Woolworths Food 1 826 1 580 15.6 Good Clothing & GM performance WFS (50% of PAT) 248 221 12.2 despite late winter; another strong contribution from Food and WFS Woolworths 4 380 3 896 12.4 Up 5.6% in A$
Slide 14: Income Statement
INCOME STATEMENT Jun 2016 Jun 2015 % Rm Rm change 4.4% in comp stores with price movement Turnover 13 701 12 499 9.6 of 6.2%. Includes 50% of private label in DJ Cost of sales 7 085 6 574 7.8 Sourcing gains offsetting rand weakness; Gross profit 6 616 5 925 11.7 positive impact from rest of Africa O
Slide 15: Income Statement
INCOME STATEMENT Jun 2016 Jun 2015 % Rm Rm change Turnover and concession sales 25 504 22 796 11.9 Comp store sales up 5.7% with price movement of 6.7% Concession sales (548) (444) 23.4 Turnover – own buy 24 956 22 352 11.6 Cost of sales 18 586 16 598 12.0 Impacted by price investment and lower Gros
Slide 16: Income Statement
INCOME STATEMENT Consolidated pro-forma Jun 2016 % Jun 2015 % % income statement Rm to book Rm to book change Interest income 1 993 20.0 1 718 18.6 16.0 Interest paid 580 5.8 497 5.4 16.7 Net interest income 1 413 14.2 1 221 13.2 15.7 Portfolio book growth as well as rate increases Impairment charge
Slide 17: Book Performance
BOOK PERFORMANCE 9 990 10 000 9 743 10% 8 821 7 958 8 000 8% 6 872 6 000 5.4% 5.7% 6% 4.8% 4 000 4% 3.2% 3.0% 2 000 1 870 1 927 1 930 1 914 1 834 2% – 0% Jun 12 Jun 13 Jun 14 Jun 15 Jun 16 Gross book value (Rm) Total active accounts (000’s) Impairment charge* (%) * Includes collection costs WHL / 17
Slide 18: Income Statement
INCOME STATEMENT 12 months 11 months* Jun 2016 Jun 2015 A$m A$m Turnover and concession sales 2 192 1 885 Sales growth of 8.4% on a 52-week basis, with comp stores up 7.0% Concession sales (758) (609) Turnover – own buy 1 434 1 276 Cost of sales 782 670 Gross profit – own buy 652 606 Change in conce
Slide 19: Income Statement
INCOME STATEMENT Jun 2016 Jun 2015 % A$m A$m change Turnover 1 005 952 5.5 Comparable stores 3.9% lower Cost of sales 408 372 9.7 Impacted by declining A$ but mainly due Gross profit 597 580 2.9 to higher markdowns Other revenue 4 4 – Expenses 504 473 6.6 Store costs 369 340 8.5 Impact of new space
Slide 20: Net Finance and Other Costs
NET FINANCE AND OTHER COSTS Jun 2016 Jun 2015 Capital Rate** Rm Rm ZAR senior debt* R10bn 9.29% 900 806 AUD senior debt* A$516m 4.31% 239 220 Short-term facilities 47 218 Equity bridge – 134 Net finance costs 1 186 1 378 Less: Non-recurring finance costs – (164) Other costs 22 2 Net finance and othe
Slide 21: Group Balance Sheet
GROUP BALANCE SHEET Constant Jun 2016 Jun 2015 % currency Rm Rm change % change Assets Property, plant and equipment and investment properties 17 451 14 538 20.0 4.0 New stores and project costs Intangible assets 18 965 15 700 20.8 3.4 Investments in JVs and associate 978 894 9.4 9.4 Impacted by spa
Slide 22: Cash Generation for 12 Months to June 2016
CASH GENERATION FOR 12 MONTHS TO JUNE 2016 9 000 8 940 229 8 000 (311) 7 000 (1 168) 6 000 (1 536) 5 000 4 000 3 000 (2 914) 2 000 1 000 535 (2 464) (35) (206) – Cash inflow Working JV dividend Finance Taxation Net capex Dividends Share scheme Net Net increase from trading capital and interest costs
Slide 23: Capital Expenditure and Depreciation
CAPITAL EXPENDITURE DEPRECIATION CAPEX Jun 2016 Jun 2015 % R3 104m (Jun 2015: R2 849m) Rm Rm change 3 200 Woolworths 848 772 9.8 David Jones 642 529 21.4 2 800 517 Country Road Group 335 225 48.9 2 400 Total Group 1 825 1 526 19.6 936 2 000 1 088 1 600 496 1 200 CAPEX FOR FY2017 800 1 499 1 417 Wool
Slide 24: Earnings and Distribution
EARNINGS AND DISTRIBUTION cents times 1.45 1.45 1.45 1.45 1.5 480 1.35 455.6 DAVID JONES 400 348.6 369.7 1.2 ACQUISITION 320 324.9 313.0 0.9 IS EARNINGS 240 255.1 223.3 240.0 247.0 NEUTRAL IN 160 189.0 0.6 FY2016 80 0.3 – – Jun 12 Jun 13 Jun 14 Jun 15 Jun 16 HEPS* DPS** Distribution cover * HEPS bas
Slide 25: Return on Equity
RETURN ON EQUITY 60% 54.2% 49.5% 47.9% 50% 46.3% 46.7% 40% 30% 26.3% 25.6% 20% 13.2% 12.4% 13.4% 12.0% 12.7% 10% 0% Jun 12 Jun 13 Jun 14 Jun 15 Jun 16 ROE ROE excluding David Jones goodwill WACC WHL / 25
Slide 26: Strategy Update
STRATEGY UPDATE
Slide 27: Strategy Update
STRATEGY UPDATE • Group Focus – Stronger, more profitable customer relationships – Towards connected retail – Drive synergies and efficiencies – E mbed the Good Business Journey throughout the business • Woolworths • Country Road Group • David Jones More detail on company strategies is available in
Slide 28: Woolworths strategy: quality, connected retail, affordability
• Continue our obsession with quality • Embed connected retail experience for customers – Leverage single view of customer –C ontinue to innovate WRewards programme and integrate with WFS product offer – Improve online customer journey, including opening of Clothing & GM “dark store” – Tier and scal
Slide 29: Lead in relevant, quality fashion
• Lead in relevant, quality fashion – Attract younger, more modern, black customers while maintaining our older, very loyal more classic customer • Move from private label to private brand Clothing & GM business – Introduce premium David Jones Collection and tween brand • Own innovation • Drive cros
Slide 30: Improve core business performance of Country Road
• Improve core business performance of Country Road – New Managing Director, Head of Planning and Head of Design appointed – N ew systems and processes leading to faster speed to market and enhanced in-season trading • Increase focus on design in Country Road and Witchery womenswear • Introduce more
Slide 31: Country Road Group sourcing, loyalty and online
• Leverage Group sourcing to maximise margin • Enhanced loyalty programme across CRG brands • Continue to lead online performance, with sales target of 20% by 2020 • D rive efficiencies in the Melbourne-based Omni-channel Fulfilment Centre WHL / 31
Slide 32: David Jones transformation initiatives
• Transformation initiatives on track to deliver synergy benefits • Leverage single view of customer enabled by Customer Relationship Management (CRM) programme • Continue to strengthen and grow appropriate private label offering (DJ and WSA brands) and CRG concession brands • Implement new value ch
Slide 33: Food
FOOD • Clear opportunity in Australian market for a premium food offer under the David Jones brand • Leveraging Woolworths SA’s capability, skills and experience • Initial focus on food service (café, food “to go”) whilst fresh produce and prepared meal catalogues are built • Build supply chain with
Slide 34: Elizabeth Street Redevelopment
ELIZABETH STREET REDEVELOPMENT • Market Street building sold for A$360 million • U p to A$200 million to be invested in Elizabeth Street in FY2018 and FY2019 to create a world- class 39 000m2 department store on 11 levels • Offering the best of fashion and food in the southern hemisphere • Three yea
Slide 35: Australasian Head Office
AUSTRALASIAN HEAD OFFICE • David Jones head office to be relocated to Melbourne and consolidated onto a new campus with Country Road Group • Phase 1: DJ to relocate to Melbourne by mid 2018; Phase 2: CRG to move by end 2018 • Employee support to be provided for relocation, retention and retrenchment
Slide 36: Financial Effects of David Jones Initiatives
FINANCIAL EFFECTS OF DAVID JONES INITIATIVES David Jones Food • Capital investment: A$75m – A$100m over 3 years • Expected A$5 – 10m deficits in FY2017 and FY2018, achieving profitability from FY2019 Market Street sale • Proceeds on sale of A$360m will reduce gearing ahead of investment from Q4 FY20
Slide 37: Financial Effects of David Jones Initiatives
FINANCIAL EFFECTS OF DAVID JONES INITIATIVES Elizabeth Street redevelopment • Capital investment will be up to A$200m: FY2017: A$50m; FY2018: A$100m; FY2019: A$50m • Disruption to trade in FY2018 and FY2019 Australasian head office • All costs of relocation and new office fit-out to be covered by Vi
Slide 38: Outlook
Ian Moir WHL / 38
Slide 39: South Africa
SOUTH AFRICA • Domestic headwinds expected to continue • Some relief from positivity post local elections, recent improvement in rand and end of drought • Pressure on SA consumer persists, although upper LSM consumer remains resilient • First eight weeks of trading have improved from Q4 in Clothing
Slide 40: Australia
AUSTRALIA • Continued GDP growth despite impact of weaker commodity prices and China’s economic slowdown • Consumer confidence has improved since the election • Lower footfall across the market as we exit unprecedented levels of discounting and promotional activity caused by late winter • First eigh
Slide 41: Medium-Term Targets
MEDIUM-TERM TARGETS Medium- Achieved term in target FY2016 FY2019 OPERATING PROFIT MARGIN 16.8% 18% 7.3% 7% * 7.2% 10% 9.7% 12% RETURN ON EQUITY 26.9% 22% * Department store operating profit as a percentage of turnover and concession sales WHL / 41
Slide 42: Strategy Appendix
STRATEGY APPENDIX
Slide 43: Group Focus: Stronger, more profitable customer relationships
GROUP FOCUS 1 Customer insights and data will drive and inform all our business decisions which will shift us from being a customer centric business to a customer driven Group. Group focuses – Deepen customer understanding, particularly in David Jones BUILD STRONGER, – Lead the market in customer ex
Slide 44: Group Focus: Towards connected retail
GROUP FOCUS 2 We are creating a relevant, personalised connected retail experience for customers across all retail channels. Group focuses – Increased focus on the customer and integrated, customer- focused technology to move from a channel to connected retail TOWARDS experience CONNECTED – Digitall
Slide 45: Group Focus: Drive synergies and efficiencies
GROUP FOCUS 3 Through closer integration throughout our business and by leveraging our southern hemisphere scale, we will drive efficiencies and add to profitability. Group focuses – Leverage Group sourcing DRIVE SYNERGIES – Closer collaboration between companies, focusing on Group AND EFFICIENCIES
Slide 46: Group Focus: Embed sustainability
GROUP FOCUS 4 We are driving a consistent, Group-wide Good Business Journey strategy. Group focus area – Ethical trade – Sustainable farming and sourcing of raw materials EMBED SUSTAINABILITY – Scarce water resources THROUGHOUT – Energy efficiency and security THE BUSINESS – Reducing waste across ou
Slide 47: Woolworths
WOOLWORTHS
Slide 48: Woolworths: customer relationships and connected retail
• Build stronger, more profitable customer relationships – Deliver a single view of the customer – Continue to innovate our WRewards programmes and offer compelling benefits – D rive cross shop between Clothing & GM and Food and within the product areas • Towards connected retail – Embedding connect
Slide 49: Woolworths: fashion leadership and food
• Be a leading fashion retailer in the southern hemisphere – Attract younger, more modern, black customers while maintaining our older, very loyal, more classic customer – Lead the market in relevant, quality fashion and innovation – Offer more segmented, branded directed customer experience, includ
Slide 50: Woolworths: WFS and synergies
• Transform the WFS customer experience – Being customer and retail focused – Putting mobile first • Drive synergies and efficiencies – Commit to strategic partnerships – Scale our supply chain, IT infrastructure and sourcing – Offer modern, compelling, connected employment experience WHL / 50
Slide 51: David Jones
DAVID JONES
Slide 52: David Jones: customer relationships and connected retail
Build stronger, more profitable customer relationships • – Leverage single view of customer enabled by Customer Relationship Management programme – Leverage Group expertise to deliver relevant, integrated loyalty and financial services programme • Towards connected retail – Upgrade the website platf
Slide 53: David Jones: fashion leadership and synergies
• Be a leading fashion retailer in the southern hemisphere – Become more customer centric – Optimise brand assortment – Build appropriate private label offering, including introduction of premium David Jones Collection – Optimise CRG concession brands – Implement new value chain merchandise systems
Slide 54: Country Road Group
COUNTRY ROAD GROUP
Slide 55: Country Road Group: customer relationships and connected retail
• Build stronger, more profitable customer relationships – Optimise current brand loyalty programmes – Improve functionality of CRM platform – Drive cross shopping between brands • Towards connected retail – Continue to lead online performance, with sales target of 20% online sales by 2020 – Invest
Slide 56: Country Road Group: fashion leadership and synergies
• Be a leading fashion retailer in the southern hemisphere – Increase focus on design in Country Road and Witchery womenswear – Introduce more trans-seasonal merchandise to account for changing weather patterns – Improve core business performance of Country Road – New Managing Director, Head of Plan
Slide 57: Additional Info
ADDITIONAL INFO
Slide 58: Trading Space
TRADING SPACE Projected Projected Projected Jun 2016 Jun 2015 % Jun 2017 % Jun 2018 % Jun 2019 % 000m2 000m2 change 000m2 change 000m2 change 000m2 change Woolworths Clothing & GM 459 440 4.3 472 2.8 494 4.7 509 3.0 South Africa 418 397 5.3 428 2.4 448 4.7 462 3.1 Rest of Africa 41 43 (4.7) 44 7.3 4
Slide 59: Store Locations
STORE LOCATIONS Projected Projected Projected Jun 2016 Jun 2015 Growth Jun 2017 Growth Jun 2018 Growth Jun 2019 Growth Woolworths Clothing & GM 285 279 6 288 3 297 9 301 4 South Africa 220 214 6 219 (1) 226 7 228 2 Rest of Africa 65 65 – 69 4 71 2 73 2 Woolworths Food 410 397 13 426 16 445 19 458 13
Slide 60: Contribution to Woolworths Sales
CONTRIBUTION TO WOOLWORTHS SALES % of sales spent on Woolworths cards Jun 2016 Jun 2015 Clothing & GM 22.5% 23.2% Food 10.3% 11.0% Aggregate Woolworths card contribution 14.7% 15.5% Credit card 1.6% 1.3% Aggregate Woolworths and credit card contribution 16.2% 16.8% WHL / 60
Slide 61: Income Statement (in Rands)
INCOME STATEMENT (IN RANDS) 12 months 11 months Jun 2016 Jun 2015 Rm Rm Turnover and concession sales 23 218 17 918 Concession sales (8 033) (5 788) Turnover – own buy 15 185 12 130 Cost of sales 8 283 6 357 Gross profit – own buy 6 902 5 773 Concession and other revenue 1 902 1 337 Gross profit 8 8
Slide 62: Balance Sheet
BALANCE SHEET Jun 2016 Jun 2015 % A$m A$m change Assets Property, plant and equipment 1 067 1 043 2.3 Goodwill and brands 1 344 1 344 – Intangible assets 32 13 >100 Inventories 208 199 4.5 Accounts receivable, tax and deferred tax 155 143 8.4 Cash 29 20 45.0 Total assets 2 835 2 762 2.6 Non-current
Slide 63: Income Statement (in Rands)
INCOME STATEMENT (IN RANDS) Jun 2016 Jun 2015 % Rm Rm change Turnover 10 647 9 081 17.2 Cost of sales 4 334 3 544 22.3 Gross profit 6 313 5 537 14.0 Other revenue 39 34 14.7 Expenses 5 317 4 513 17.8 Store costs 3 896 3 243 20.1 Other operating costs 1 421 1 270 11.9 Adjusted operating profit 1 035
Slide 64: Balance Sheet
BALANCE SHEET Jun 2016 Jun 2015 % A$m A$m change Assets Property, plant and equipment 158 159 (0.6) Intangible assets 161 146 10.3 Inventories 133 118 12.7 Accounts receivable, tax and deferred tax 75 67 11.9 Cash 22 12 83.3 Total assets 549 502 9.4 Non-current and current non-interest bearing liabi
Slide 65: 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