Woolworths Holdings Limited · JSE:WHL
Woolworths — H1 2019 Earnings Presentation
64 slides from Woolworths's earnings presentation, February 2019
Slide 1: Unaudited Interim Group Results for the 26 Weeks Ended 23 December 2018
WOOLWORTHS HOLDINGS LIMITED UNAUDITED INTERIM GROUP RESULTS FOR THE 26 WEEKS ENDED 23 DECEMBER 2018 AND CASH DIVIDEND DECLARATION
Slide 2: 2019 Interim Results
WOOLWORT HS HOL DI NG S L I M I T E D 2019 Interim Results 1 WHL 1 / 2019
Slide 3: Presentation Outline
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2019 ANALYST PRESENTATION PRESENTATION OUTLINE 01 / Review of the period 02 / Financial review 03 / Strategy update 04 / Outlook 2
Slide 4: Review of the Period
REVIEW OF THE PERIOD Ian Moir WHL 3 / 2019
Slide 5: Group Performance
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2019 ANALYST PRESENTATION GROUP PERFORMANCE • Cyclical challenges and structural changes continued • Impact of Black Friday • Sales growth impacted by one day less of pre-Christmas trade, compared to LY • Woolworth FBH had positive sales growth in Q2 due t
Slide 6: South African Macro Environment
SOUTH AFRICAN MACRO ENVIRONMENT Real annual GDP growth % • SA exited from technical recession 6% 5% 4% experienced in 2018 H1 in H2 3% Forecast • However, growth momentum remained weak and well below estimated 2% 1% 0% potential growth rate 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Slide 7: Woolworths Fashion, Beauty and Home performance
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2019 ANALYST PRESENTATION • Sales 2.0% lower (1.6% lower adjusting for earlier close), with comparable sales 2.4% lower, price movement of 1.7% for FBH (0.8% for Fashion), and 0.6% new space • Q1 negatively impacted by poor product execution and smaller cl
Slide 8: Woolworths Food performance
• Consistent growth ahead of market • Sales up 6.3% (7.0% up adjusting for earlier close) • Price movement of 1.2%, with comparable sales up 4.2% and 1.4% net new space • Volume growth driven by low inflation, higher levels of promotions and price investment • Strong online sales growth, up 17.8% on
Slide 9: Market Share
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2019 ANALYST PRESENTATION MARKET SHARE % Woolworths Food market share (12mma) market % share growth 10.0 10.0 9.0 9.8 8.0 9.6 7.0 6.0 9.4 5.0 4.0 9.2 3.0 2.0 9.0 1.0 8.8 0.0 Jul 18 Aug 18 Sep 18 Oct 18 Nov 18 Dec 18 Woolworths Food 12mma market share Marke
Slide 10: Australian Macro Environment
AUSTRALIAN MACRO ENVIRONMENT Real annual GDP growth % % 5 • Despite low interest rates and strong job growth, consumer spending remained 4.5 4 Forecast 3.5 3 2.5 depressed by high levels of indebtedness, 2 1.5 a cooling housing market and low 1 0.5 wage growth 0 2007 2008 2009 2010 2011 2012 2013 20
Slide 11: David Jones performance
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2019 ANALYST PRESENTATION • Total sales up 1.0% (1.5% up adjusting for earlier close), with sales performance weakening in last 6 weeks of Q2 in line with the market • Comparable sales up 0.9% (1.3% up adjusting for earlier close), growth from new stores o
Slide 12: Country Road Group performance
• Sales up 2.3% (3.0% up adjusting for earlier close), comparable sales up 0.5% • Improved Country Road performance and continued strong performance from Witchery, Politix and Mimco • Gross profit margin up 0.3% to 64.0%, due to strong focus on full-priced sales and good inventory management • Conti
Slide 13: Financial Review
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2019 ANALYST PRESENTATION FINANCIAL REVIEW Reeza Isaacs
Slide 14: Financial Overview
FINANCIAL OVERVIEW Adjusted profit HEPS – before tax HEPS Adjusted diluted Turnover and -9.2%* to R2.7 billion -2.9% to 200.4 cps -9.2% to 202.9 cps concession sales +1.9% to R39.4 billion EPS Interim dividend ROE 197.5 -15.2% 16.6% at cps to 92.0 cps from 20.1% * -6.6% adjusting for earlier close W
Slide 15: Group Income Statement
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2019 ANALYST PRESENTATION GROUP INCOME STATEMENT Dec 2018 Dec 2017 % Solid performance from Food and WFS; Rm Rm change shortfall in FBH Woolworths Fashion, Beauty Tough December; Elizabeth Street and Home 915 1 038 (11.8) impact; lost day due to earlier Wo
Slide 16: Income Statement – Fashion, Beauty and Home
INCOME STATEMENT Dec 2018 Dec 2017 % -1.6% adjusting for earlier close; comp Rm Rm change sales -2.4%; smaller winter clearance; Turnover 7 078 7 223 (2.0) -3.3% at 20 weeks; 6 weeks up 0.9% (2.3% adjusting for earlier close); price Cost of sales 3 741 3 856 (3.0) movement 1.7% (Fashion 0.8%) Gross
Slide 17: Income Statement – Food
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2019 ANALYST PRESENTATION INCOME STATEMENT Dec 2018 Dec 2017 % Rm Rm change Turnover and concession 7.0% growth adjusting for earlier close; sales 15 762 14 824 6.3 comp sales up 4.2%; price movement of 1.2%; strong volume growth Concession sales (366) (33
Slide 18: Financial Services Income Statement
Dec 2018** Dec 2017 % Rm Rm change Average financial services assets 10 943 10 522 4.0 Book growth driven by credit card Lower interest yields due to rate cut in % % March 2018; 0.3% adjusted for IAS 39 Income Statement to book to book Interest income 1 050 19.2 1 086 20.6 (3.3) Improved portfolio s
Slide 19: Book Performance
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2019 ANALYST PRESENTATION BOOK PERFORMANCE 11 089 10 584 9 938 10 163 10% 9 221 8% 5.9% 6% 4.8% 4.8% 5.0% 4.5% 4% 3.5% 2% 0% Dec 14 Dec 15 Dec 16 Dec 17 Dec 18 Gross book value (Rm) Impairment charge (%) – IAS 39* Impairment charge (%) – IFRS 9* * Includes
Slide 20: Income Statement – David Jones (A$)
INCOME STATEMENT Dec 2018 Dec 2017 % 1.5% adjusting for earlier close; A$m A$m Change comp sales up 0.9%; online sales up Turnover and concession sales 1 121 1 109 1.0 46.1%; tough last 2 weeks in December; Concession sales (379) (382) (0.8) Elizabeth Street disruption Turnover – own buy 742 727 2.1
Slide 21: Income Statement – Country Road Group (A$)
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2019 ANALYST PRESENTATION INCOME STATEMENT Dec 2018 Dec 2017 % A$m A$m change Turnover 555 542 2.3 Comp stores sales up 0.5%; online growth 20.0%; 3.0% adjusting for Cost of sales 200 197 1.5 earlier close Gross profit 355 345 2.9 Up 30 bps despite CR Summ
Slide 22: Net Finance and Other Costs
NET FINANCE AND OTHER COSTS Dec 2018 Dec 2017 Capital Rate* Rm Rm Reduction in gearing and decrease in ZAR long-term debt R8.67bn 8.98% 410 448 SA margins AUD long-term debt A$447m 4.41% 119 98 Increased gearing, higher base rates Net finance costs 529 546 and margins in Australia Other costs 4 6 Ne
Slide 23: Group Balance Sheet
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2019 ANALYST PRESENTATION GROUP BALANCE SHEET Constant Dec 2018 Dec 2017 % currency Rm Rm change % change Assets Property, plant and equipment 14 360 13 556 5.9 1.7 Intangible assets 13 749 13 046 5.4 0.8 Investments in joint ventures 793 1 064 (25.5) (25.
Slide 24: Net Gearing
NET GEARING H1 2019 FY 2018 WHL Net debt (Rm) (11 673) (11 837) Interest-bearing term debt (13 287) (13 715) Net cash and cash equivalents 1 614 1 878 Unutilised committed facilities – Group 9 033 10 216 Net debt to EBITDA (times) 1.5 1.5 SA Net debt (Rm) (7 919) (8 289) Positive free cash flow; liq
Slide 25: Covenants
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2019 ANALYST PRESENTATION COVENANTS Dec 2018 Dec 2017 Bank limit SA Bank covenants Net debt to EBITDA (times) 1.5 1.4 3.0 Interest cover (times) 6.3 6.4 3.5 Covenants in SA and Australia are well within bank limits with sufficient Australia Bank covenants
Slide 26: Capital Expenditure
CAPITAL EXPENDITURE Spend Forecast R1 138m (Dec 2017: R1 317m) FY19: R3 160m Rm Rm 1 500 3 200 R3 160m Significant strategic capex in FY18 and FY19. Post FY20 A$11m R2 626m normalised annual 1 200 R2 591m A$9m Group capex to be in 2 400 the region of R2.7bn 900 A$56m A$51m 1 600 600 800 300 R619m R5
Slide 27: Cash Generation for the 26 Weeks
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2019 ANALYST PRESENTATION CASH GENERATION FOR THE 26 WEEKS ENDED 23 DECEMBER 2018 Rm 4 500 125 148 3 968 3 600 (737) (559) 2 500 1 755 1 800 (1 190) (202) 900 296 (1 257) – Cash Working JV Net finance Taxation Mainte- Free cash Expansion Dividends Decrease
Slide 28: Free Cash Flow and Dividends
FREE CASH FLOW AND DIVIDENDS FY 2017 FY 2018 H1 2019 Rm Rm Rm Free cash flow pre working capital and capital expenditure 5 356 5 288 2 869 Working capital movements (615) (305) 148 Cash generated by operations 4 741 4 983 3 017 Capital expenditure (2 413) (2 005) (938) Strategic capex, business acqu
Slide 29: Earnings and Distribution
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2019 ANALYST PRESENTATION EARNINGS AND DISTRIBUTION cents times • Group interim and final dividend 300 2.5 to be based on a cover ratio of 1.45x Woolworths South Africa (WSA) 2.18 253.5 earnings for c.2 years, in order to 242.6 1.90 1.90 1.80 1.90 2.0 redu
Slide 30: Strategy Update
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2019 ANALYST PRESENTATION STRATEGY UPDATE Ian Moir
Slide 31: Turning the fashion business around
• The critical priority is to turn the fashion business around • We must rebuild our customers’ faith in womenswear, the cornerstone of our business • Get back to being famous for key categories and beautiful basics • We will edit and re-invent our brands and showcase our Woolworths brand with pride
Slide 32: Fashion, Beauty and Home strategic priorities
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2019 ANALYST PRESENTATION • Target customers who want wearable fashion and timeless classics • Inspire our customers with innovative product through seamless collaboration of design, buying, planning and technology • Become obsessed and famous for quality
Slide 33: Woolworths Food strategic priorities
• Absolute focus on delivering ‘the difference’ through best-in-class, innovative product with an obsession to achieve an unattainable quality difference on our products • Strengthen the value perception to make Woolworths more affordable, with ongoing price investment in our iconic lines, everyday
Slide 34: David Jones strategic priorities
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2019 ANALYST PRESENTATION • Improve margin and inventory management • Further cost reduction • Build stronger brand exclusivity, including CRG brands • Further expansion of private label • Continue to build a differentiated Food offer • Roll-out of new loy
Slide 35: Real Estate Strategy
REAL ESTATE STRATEGY 2.2% (5.0%) (5.2%) (20.7%) vs FY18 (14.3%) FY18 FY19 FY20 FY21 FY22 – 26 Target FY 26 * Note: space % increase/(decrease) based on gross lettable area WHL 35 / 2019
Slide 36: Country Road Group strategic priorities
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2019 ANALYST PRESENTATION • Continue to implement customer-led strategies and clear visions for each brand • Refresh Country Road brand vision and product direction, particularly in womenswear • Drive full-price sales with targeted, loyalty-based promotion
Slide 37: Outlook
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2019 ANALYST PRESENTATION 04 OUTLOOK Ian Moir
Slide 38: Outlook and Trade in First Eight Weeks of H2
OUTLOOK South Africa • Despite lower interest rates and muted inflation, consumer spending expected to remain constrained • Price movement in H2 expected to be 4.0% for Food and 5.5% for FBH (4.5% for Fashion) • Food expected to continue to grow volumes and market share • FBH expected to improve wit
Slide 39: Medium-Term Targets
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2019 ANALYST PRESENTATION 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
Slide 40: WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2019 ANALYST PRESENTATION
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2019 ANALYST PRESENTATION
Slide 41: Trading Space
TRADING SPACE Projected Projected Projected Dec 2018 Dec 2017 % Jun 2019 % Jun 2020 % Jun 2021 % 000m2 000m2 change 000m change** 2 000m2 change 000m2 change Woolworths Fashion, Beauty and Home 481 480 0.6 484 1.0 487 0.6 492 1.0 South Africa 436 438 (0.5) 440 0.9 440 – 443 0.7 Rest of Africa 45 42
Slide 42: Projected Trading Space Additions/Reductions
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2019 ANALYST PRESENTATION PROJECTED TRADING SPACE ADDITIONS/REDUCTIONS Woolworths Fashion, Country Beauty Woolworths David Road 000m 2 and Home Food Jones Group Dec 2018 481 252 480 126 Additions 8 4 7 1 Reductions (5) – (2) (4) Jun 2019 484 256 485 123 Ad
Slide 43: Store Locations
STORE LOCATIONS Projected Projected Projected Dec 2018 Dec 2017 Growth Jun 2019 Growth*** Jun 2020 Growth Jun 2021 Growth Woolworths Fashion, Beauty and Home 282 282 – 279 (3) 282 3 282 – South Africa 217 220 (3) 216 (2) 216 – 212 (4) Rest of Africa 65 62 3 63 (1) 66 3 70 4 Woolworths Food 437 426 1
Slide 44: Contribution to Sales
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2019 ANALYST PRESENTATION CONTRIBUTION TO SALES % of sales spent on Woolworths cards Dec 2018 Dec 2017 Fashion, Beauty and Home 21.7% 21.7% Food 9.4% 9.4% Aggregate Woolworths card contribution 13.3% 13.5% Credit card 2.5% 1.9% Aggregate Woolworths card an
Slide 45: Total Card Sales in Woolworths
TOTAL CARD SALES IN WOOLWORTHS % 17.8% 20 16.8% 16.2% 15.7% 15.4% 3 893 15 3 652 3 664 3 762 3 463 10 5 0 Dec 14 Dec 15 Dec 16 Dec 17 Dec 18 Total card sales in Woolworths (Rm) Contribution (%) WHL 47 / 2019
Slide 46: David Jones Income Statement (in Rands)
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2019 ANALYST PRESENTATION INCOME STATEMENT (IN RANDS) Dec 2018 Dec 2017 % Rm Rm change Turnover and concession sales 11 485 11 594 (0.9) Concession sales (3 883) (3 997) (2.9) Turnover – own buy 7 602 7 597 0.1 Cost of sales 4 260 3 913 8.9 Gross profit –
Slide 47: David Jones Balance Sheet
BALANCE SHEET Dec 2018 Dec 2017 % A$m A$m change Assets Property, plant and equipment 859 821 4.6 Goodwill and brands 568 568 – Intangible assets 92 81 13.6 Inventories 355 326 8.9 Trade and other receivables, tax and deferred tax 140 130 7.7 Cash and cash equivalents 33 26 26.9 Total assets 2 047 1
Slide 48: Country Road Group Income Statement (in Rands)
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2019 ANALYST PRESENTATION INCOME STATEMENT (IN RANDS) Dec 2018 Dec 2017 % Rm Rm change Turnover 5 696 5 657 0.7 Cost of sales 2 054 2 058 (0.2) Gross profit 3 642 3 599 1.2 Other revenue 13 11 18.2 Expenses 3 029 3 000 1.0 Store costs 2 171 2 120 2.4 Other
Slide 49: Country Road Group Balance Sheet
BALANCE SHEET* Dec 2018 Dec 2017 % A$m A$m change Assets Property, plant and equipment 136 147 (7.5) Intangible assets 369 376 (1.9) Inventories 120 121 (0.8) Trade and other receivables, tax and deferred tax 89 54 64.8 Cash and cash equivalents 50 34 47.1 Total assets 764 732 4.4 Non-current and cu
Slide 50: Disclaimer
WOOLWORTHS HOLDINGS LIMITED INTERIM RESULTS 2019 ANALYST PRESENTATION 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 ac
Slide 51: Unaudited Interim Group Results for the 26 Weeks Ended 23 December 2018
WOOLWORTHS HOLDINGS LIMITED UNAUDITED INTERIM GROUP RESULTS FOR THE 26 WEEKS ENDED 23 DECEMBER 2018 AND CASH DIVIDEND DECLARATION WHL 53 / 2019
Slide 52: Commentary
COMMENTARY Group sales for the 26 weeks ended 23 December 2018 Country Road Group increased by 1.9% (+2.7% in constant currency) compared Country Road Group sales increased by 2.3%, and by 0.5% to the 26 weeks ended 24 December 2017. Sales growth in comparable stores. Gross profit margin improved by
Slide 53: Changes to the Board of Directors
CHANGES TO THE BOARD OF DIRECTORS As previously advised on the JSE Stock Exchange News • M r Susman will become Honorary President upon Service, the following changes to the Board of Directors conclusion of the 2019 WHL Annual General Meeting, were effected during the period: following his stepping
Slide 54: Interim Group Statement of Comprehensive Income
INTERIM GROUP STATEMENT OF COMPREHENSIVE INCOME Restated* 52 weeks 26 weeks 26 weeks to 24 Jun to 23 Dec to 24 Dec 2018 2018 2017 % Rm Notes Rm Rm change 70 572 Revenue 37 016 36 147 2.4 75 232 Turnover and concession sales 39 383 38 645 1.9 (6 640) Concession sales (3 368) (3 471) (3.0) 68 592 Turn
Slide 55: Interim Group Statement of Financial Position
INTERIM GROUP STATEMENT OF FINANCIAL POSITION At 24 Jun At 23 Dec At 24 Dec 2018 2018 2017 Rm Notes Rm Rm ASSETS 28 650 Non-current assets 29 145 27 901 13 959 Property, plant and equipment 3 14 360 13 556 13 410 Intangible assets 3 13 749 13 046 978 Investment in joint ventures 793 1 064 59 Fair va
Slide 56: Interim Group Statement of Cash Flows
INTERIM GROUP STATEMENT OF CASH FLOWS 52 weeks 26 weeks 26 weeks to 24 Jun to 23 Dec to 24 Dec 2018 2018 2017 Rm Notes Rm Rm Cash flow from operating activities 7 371 Cash inflow from trading 3 968 4 301 (305) Working capital movements 148 (17) 7 066 Cash generated by operating activities 4 116 4 28
Slide 57: Interim Group Statement of Changes in Equity
INTERIM GROUP STATEMENT OF CHANGES IN EQUITY Total Total Total 52 weeks Share- Non- 26 weeks Share- Non- 26 weeks to 24 Jun holders of controlling to 23 Dec holders of controlling to 24 Dec 2018 the parent interests 2018 the parent interests 2017 Rm Rm Rm Rm Rm Rm Rm Shareholders’ interest at 19 066
Slide 58: Interim Segmental Analysis
INTERIM SEGMENTAL ANALYSIS Restated 52 weeks 26 weeks 26 weeks to 24 Jun to 23 Dec to 24 Dec 2018 2018 2017 % Rm Notes Rm Rm change REVENUE 68 592 Turnover 36 015 35 174 2.4 13 687 Woolworths Fashion, Beauty and Home 7 078 7 223 (2.0) 29 332 Woolworths Food 15 396 14 488 6.3 429 Woolworths Logistics
Slide 59: Notes
NOTES 1. STATEMENT OF COMPLIANCE AND BASIS OF PREPARATION The interim Group Financial Statements have been prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (IFRS) and interpretations adopted by the Inte
Slide 60: Notes (Continued)
NOTES (CONTINUED) 6. ACCOUNTING POLICIES The adoption of certain new standards, which became effective in the current period, has resulted in minor changes to accounting policies and disclosure, none of which have a material impact on the financial position or performance of the Group, except as dis
Slide 61: Notes
NOTES 8. CONTINGENT LIABILITIES Group companies are party to legal disputes and investigations that have arisen in the ordinary course of business. Whilst the outcome of these matters cannot readily be foreseen, they are not expected to have any material financial effect. 9. PRO FORMA FINANCIAL INFO
Slide 62: Notes (Continued)
NOTES (CONTINUED) 12. EVENTS SUBSEQUENT TO THE REPORTING DATE No event material to the understanding of these interim Group Financial Statements has occurred between the end of the financial period and the date of approval. 13. APPROVAL OF INTERIM GROUP FINANCIAL STATEMENTS The interim Group Financi
Slide 63: Directorate and Statutory Information
DIRECTORATE AND STATUTORY INFORMATION NON-EXECUTIVE DIRECTORS REGISTERED ADDRESS Simon Susman (Chairman), Hubert Brody (Deputy Chairman), Woolworths House, 93 Longmarket Street Zarina Bassa, Tom Boardman (Lead Independent Director), Cape Town 8001, South Africa Andrew Higginson (British), Nombulelo
Slide 64: Interim results key figures
Turnover and Headline earnings concession sales per share +1.9% to R39.4 billion -2.9% to 200.4 cps Adjusted diluted headline earnings per share Earnings per share -9.2% to 202.9 cps at 197.5cps Interim dividend per share Return on equity -15.2%to 92.0 cps 16.6% from 20.1%