Woolworths Group Ltd · ASX:WOW
Woolworths — H1 2005 Earnings Presentation
50 slides from Woolworths's earnings presentation, Feb 28, 2005
Slide 1: Results Presentation Half Year ended 2 January 2005
Results Presentation Half Year ended 2 January 2005 Roger Corbett Chief Executive Officer Tom Pockett Chief Financial Officer 28 February 2005 1 Woolworths Limited
Slide 2: Highlights for the First Half
Highlights for the First Half • Total sales for this half compared with last year up 9.2% to $16,441m on a 28 week comparable basis. • Earnings before Interest and Taxation (EBIT) $691.1m. • EBIT up 12.5% on a 28 week comparable basis. • Net operating profit after tax and servicing income notes $440
Slide 3: Profit After Tax (After WINS)
PROFIT AFTER TAX (AFTER WINS) (1) (2) 440.9 452.2 450 420 397.8 13.7% 10.8% 390 349.6 360 13.8% $ Million 330 295.5 18.3% 300 270 237.7 24.3% 240 210 12.3% 180 150 HY 2001 HY 2002 HY 2003 HY 2004 HY 2005 HY 2005 Statutory Statutory Proforma (28 weeks) (27 weeks) (28 weeks) (1) Represents a 27 week h
Slide 4: Earnings Per Share Before Goodwill
EARNINGS PER SHARE BEFORE GOODWILL 50 (1) (2) 44.18 45.05 45 40.41 11.5% 40 9.3% 34.54 35 17.0% Cents 29.56 30 16.8% 25 22.75 29.9% 20 21.9% 15 10 HY 2001 HY 2002 HY 2003 HY 2004 HY 2005 HY 2005 Statutory Statutory Proforma (28 weeks) (27 weeks) (28 weeks) (1) Represents a 27 week half and includes
Slide 5: Sales
SALES 18.0 Upper single digit growth % (1) 16.4 (2) 16.1 15.0 15.0 14.1 12.8 12.0 11.2 $ billions 9.0 6.0 3.0 HY 2001 HY 2002 HY 2003 HY 2004 HY 2005 HY 2005 Statutory Statutory Proforma Increase on (28 weeks) (27 weeks) (28 weeks) previous year + 9.2% + 13.4% + 10.9% + 6.4% + 7.0% + 9.2% (1) Repres
Slide 6: Sales Summary
SALES SUMMARY HY04 HY05 HY05 $ Millions Statutory Statutory Proforma(1) Increase(1) (28 weeks) (27 weeks) (28 weeks) (28 weeks) (2) Supermarkets and Liquor 11,860 12,090 12,447 4.9% Petrol 1,069 1,627 1,683 57.4% Total Supermarkets 12,929 13,717 14,130 9.3% BIG W General Merchandise(3) 1,559 1,670 1
Slide 7: CODB / Sales (Excl Wholesale)
CODB / SALES (EXCL WHOLESALE) 23% Costs = The Key Enabler 22.36% 22.10% 22% Down 347 21.48% Percentage Down 92 pts pts in 5 half in HYO5 years 21% 20.85% (1) 20.24% (2) 19.93% 20% 19% HY 2001 HY 2002 HY 2003 HY 2004 HY 2005 HY 2005 Statutory Statutory Proforma (28 weeks) (27 weeks) (28 weeks) (3) Re
Slide 8: Gross Profit Margin (Excl Wholesale)
GROSS PROFIT MARGIN (EXCL WHOLESALE) 27% 88% OF COST REDUCTION TO CUSTOMERS IN LOWER PRICES Down 79 pts in HY05 26.01% 25.91% 26% Percentage 25.36% Down 286 pts in 5 half years 24.94% 25% (1) 24.44% (2) 24.15% 24% 23% HY 2001 HY 2002 HY 2003 HY 2004 HY 2005 HY 2005 Proforma Statutory Statutory (28 w
Slide 9: EBIT
EBIT DOUBLE DIGIT GROWTH % ASSISTED BY COST REDUCTIONS (1) (2) 691.1 690.7 700.0 613.8 539.7 475.3 $ millions 500.0 399.6 300.0 100.0 HY 2001 HY 2002 HY2003 HY 2004 HY 2005 HY 2005 Statutory Statutory Proforma (28 weeks) (27 weeks) (28 weeks) Increase + 11.5% + 18.9% + 13.5% + 13.7% +12.6% + 12.5% (
Slide 10: EBIT Margin
EBIT MARGIN Margin has increased an average of 15bps per period over the last 5 half years 4.30% 4.29%(1) (2) 4.20% 4.08% 4.10% Percentage 3.90% 3.81% 3.73% 3.70% 3.55% 3.50% 3.30% HY 2001 HY 2002 HY 2003 HY 2004 HY 2005 HY 2005 Statutory Statutory Proforma (28 weeks) (27 weeks) (28 weeks) (1) Repre
Slide 11: EBIT Summary
EBIT SUMMARY 2004 2005 2005 EBIT ($million) Statutory Statutory Proforma (1) Change (1) (28 weeks) (27 weeks) (28 weeks) (28 weeks) Before After Before After Before After Before After Goodwill Goodwill Goodwill Goodwill Goodwill Goodwill Goodwill Goodwill (2) (2) Food and Liquor 527.5 514.8 564.0 55
Slide 12: Total Supermarkets Incl Petrol
TOTAL SUPERMARKETS INCL PETROL 2004 2005 2005 (2) (1) (1) Statutory Statutory Proforma Change (28 weeks) (27 weeks) (28 weeks) (28 weeks) Sales ($m) 12,929.0 13,717.7 14,129.8 +9.3% Gross margin (%) 24.16 23.36 23.32 -0.84%pts Cost of Doing Business (%) 20.10 19.18 19.14 -0.96%pts EBIT to sales (%)
Slide 13: Supermarkets
SUPERMARKETS Strong profit growth built on solid sales growth underpinned by continued cost reductions • Food and Liquor comparable store sales grew 2.9%. Q1 was 2.8% strengthening in Q2 to 3.0%. • Second quarter inflation declined about 0.5% on the first quarter to 1.0%. • The market remains highly
Slide 14: Liquor
LIQUOR All liquor operations (Dan Murphy’s, BWS, First Estate and attached liquor) recorded strong growth in revenue and earnings in a competitive market • Dan Murphy‘s continued to expand with 9 stores opened in the half bringing total number of Dan Murphy stores to 35. In addition to this, we open
Slide 15: Petrol
PETROL Our petrol division, strengthened by our alliance with Caltex, continues to be a good supplemental offer with petrol sites conveniently located near our Supermarkets • Petrol sales increased by 57.4% for the half. • Strong volume growth in comparable sites continues to fractionalise costs. •
Slide 16: BIG W
BIG W 2004 2005 (1) (1) Statutory Statutory Change (27 weeks) (27 weeks) Sales ($ million) 1,559.0 1,669.9 +7.1% Gross margin (%) 29.39 29.34 -0.05%pts Cost of Doing Business (%) 23.37 23.31 -0.06%pts EBIT to sales (%) 6.02 6.03 +0.01%pts EBIT ($ million) 93.8 100.6 +7.2% Funds Employed ($ million)
Slide 17: BIG W
BIG W Everyday Low Price (EDLP) offering built on ongoing cost reductions is a key driver of continuing growth in sales and earnings • Comparable store sales increased 2.4% despite the existence of weaker market trading conditions in November and through into December. • January and February compara
Slide 18: Consumer Electronics
CONSUMER ELECTRONICS 2004 2005 2005 (1) Statutory Statutory Proforma Change (28 weeks) (27 weeks) (28 weeks) (28 weeks) Sales ($ million) 487.0 545.8 565.1 +16.0% Gross margin (%) 31.46 29.67 29.59 -1.87%pts Cost of Doing Business (%) 26.35 24.28 24.30 -2.05%pts EBIT to sales (%) 5.11 5.39 5.29 +0.1
Slide 19: Consumer Electronics
CONSUMER ELECTRONICS Attractive product ranges at competitive prices drive double digit revenue and earnings growth. • Comparable store sales up 14% for the half year. • Computers, Digital Cameras and Home Entertainment categories continue to achieve strong sales growth. • Competitive pricing enable
Slide 20: ALH - A Significant Strategic Opportunity
ALH - A Significant Strategic Opportunity • Acquisition Price $1.4bn (including ALH debt) • Forecast revenue FY05 $1bn (1) • Unique asset which gives us an additional 4% of the retail liquor market • EPS and Value accretive (1) Source ALH Target’s Statement 12 August 2004 20 Woolworths Limited
Slide 21: ALH - A Significant Strategic Opportunity
ALH - A Significant Strategic Opportunity • Utilise expertise of Mathieson Group (hotels) and Woolworths (retail liquor) to improve on current offer: - Growth rates of MGW gaming significantly higher than for ALH Queensland pubs - Total on premise revenues on an annualised basis will exceed $750 mil
Slide 22: ALH - A Significant Strategic Opportunity
ALH - A Significant Strategic Opportunity • Expect gaming growth rates to remain strong particularly in QLD – Smoking bans will have a one-off impact which was built into our acquisition economics • Anticipated synergies will be probably bettered. We expect that the integration of ALH into WOW will
Slide 23: Bruandwo – an exciting joint venture
Bruandwo – an exciting joint venture Woolworths BMG Bruandwo WOW Liquor MGW ALH BMG TOTAL 555 Bottleshops 116 Bottleshops 266 Bottleshops 14 Bottleshops 951 Bottleshops 32 Hotels 135 Hotels 36 Hotels & Clubs 203 Hotels & Clubs 1,197 EGM 5,981 EGM 2,206 EGM 9,384 EGM Bruandwo joint venture operating
Slide 24: Woolworths Group Liquor and Gaming Machine Profile
Woolworths Group Liquor and Gaming Machine Profile Totals Woolworths Group Liquor and Gaming Machine Profile Bottleshops 951 Hotels 203 Gaming Machines 9,384 Bottleshops 307 Hotels 86 Northern Bottleshops 68 Gaming Machines 3,300 Territory Hotels 10 Gaming Machines - Queensland Western Australia Sou
Slide 25: ALH - Hotels
ALH - Hotels 2005 2004 2005 Change Hotels (2 months) (6 months) (6 months) (6 months) Sales ($ million) 97.5 261.5 274.8 +5.1% Gross margin (%) 82.33 82.08 82.29 +0.21%pts Cost of Doing Business (%) 67.05 68.43 68.07 -0.36%pts EBIT to sales (%) 15.28 13.65 14.22 +0.57%pts EBIT (after goodwill) ($ mi
Slide 26: Shareholder Payouts
SHAREHOLDER PAYOUTS Franking credits given to Total $3,566m shareholders at applicable tax rates total $1,280m Share buy-backs and 1000 941 other capital management will resume following the 800 integration of ALH 633 Buy-Back into WOW 604 $ millions 534 600 Buy-Back Buy-Back 141 349 346 400 251 Div
Slide 27: Dividends Per Share
DIVIDENDS PER SHARE INTERIM 24 24 21 20 14.3% 18 16.7% 16 15 Cents 20.0% 12 12 25.0% 20.0% 8 4 HY 2001 HY 2002 HY 2003 HY 2004 HY2005 27 Woolworths Limited
Slide 28: Balance Sheet
BALANCE SHEET Note: Balance sheet movements have been impacted by the following: 2004 2005 • Consolidation of ALH/MGW. Refer the following page for further details. Statutory Statutory • In addition, due to the first half of FY05 being a 27 week period compared with a 28 week period last year, inven
Slide 29: ALH/MGW Balance Sheet
ALH/MGW BALANCE SHEET Summary of the fair value of net assets of Bruandwo, which includes Australian Leisure & Hospitality Group Pty Limited and MGW Hotels Pty Limited, at the date of acquisition: $m Current assets Cash 64.1 Receivables 18.3 Inventories 63.6 Total current assets 154.2 Non-current as
Slide 30: Capital Management
Capital Management • Maintain strength of balance sheet: – Funding program of approximately $1.8bn comprising acquisition cost of ALH ($1.25 billion) and debt within ALH/MGW/BMG ($550 million) well underway. – Preserve our Balance Sheet strength to retain flexibility to pursue future growth opportun
Slide 31: Cash Flow Half Year
CASH FLOW HALF YEAR HY01 HY02 HY03 HY04 HY05 HY05 (1) (2) Statutory Statutory Proforma (28 weeks) (27 weeks) (28 weeks) $m $m $m $m $m $m EBITDA 556.6 649.9 737.4 814.3 904.8 904.4 Interest paid (including cost of Income notes) (42.2) (52.7) (44.5) (51.3) (65.7) (50.8) Taxation paid (117.9) (134.3)
Slide 32: Days Stock on Hand (Half Year)
DAYS STOCK ON HAND (HALF YEAR) Anticipate full year reduction of 46 1 to 2 days 44 43.0 42.9 42 40 Increase 38.2 Days of 0.9 days 38 36.3 36 35.4 34 32 30 HY 2001 HY 2002 HY 2003 HY 2004 HY 2005 Proforma (28 weeks) 8.3 days reduction over past 5 half years equals $527m cash flow benefit 32 Woolworth
Slide 33: Return on Equity (Half Year)
(1) RETURN ON EQUITY (HALF YEAR) 40% 29.60% 30% 26.60% (3) Percentage (2) 24.41% 25.20% 21.50% 20.00% 20% 10% 0% HY 2001 HY 2002 HY 2003 HY 2004 HY 2005 HY 2005 Statutory Statutory Proforma (28 weeks) (27 weeks) (28 weeks) (1) Based on closing Shareholders funds. (2) Decline in ROE in HY03 due to th
Slide 34: Return on Funds Employed (Half Year)
(1) RETURN ON FUNDS EMPLOYED (HALF YEAR) 30% 24.59% 24.43% 24% 21.40% 21.40% 20.10% Percentage (2) 18% 17.00% 12% 6% 0% HY 2001 HY 2002 HY 2003 HY 2004 HY 2005 HY 2005 Statutory Statutory Proforma (28 weeks) (27 weeks) (28 weeks) (1) This measures the pre-tax return on funds employed regardless of h
Slide 35: Progress to Date
PROGRESS TO DATE HY01 HY02 HY03 HY04 HY05 Proforma (28 weeks) Sales will grow in the upper single digits supported by bolt on acquisitions 9.2% 13.4% 10.9% 6.4% 9.2% EBIT will outperform sales growth driven by cost savings 11.5% 18.9% 13.5% 13.7% 12.5% EPS will outperform EBIT growth assisted by cap
Slide 36: Future Growth Continued Balanced Focus
FUTURE GROWTH CONTINUED BALANCED FOCUS Focus Areas Result Continuing Growth Upper single digit sales growth Upper Improved customer offer Single Digit Lower prices Sales Bolt-on acquisitions Growth Cost Reductions Project Refresh I continues (The Enabler) Project Refresh II delivers Low Double Digit
Slide 37: Growth
GROWTH Considerable opportunities for ongoing growth in both revenues and earnings Continuing opportunity to grow market share • Market share of Food, Liquor & Grocery (FLG) remains below 30% and still low by world standards. • Independent grocers and speciality food stores hold just under 50%. Defi
Slide 38: Growth
GROWTH Considerable opportunities for ongoing growth in both revenues and earnings Premium Label • Currently under development. • At least equal to or better quality than existing category leader but at a lower price. • Launch during 2005 calendar year. New range and formats • New format rollouts (e
Slide 39: Project Refresh
PROJECT REFRESH Overview • “Refresh” level 1* initiatives since 2000 underpin a reduction in CODB of 4.03% of sales, giving cumulative savings of $3.2 billion to 2 January 2005 (based on our 1999 cost structure). • Targeting further “Refresh” savings to underpin a cost reduction of 20bpts per annum
Slide 40: Project Refresh
PROJECT REFRESH Cumulative savings $6.9 billion over 9 years Level III - Development 24.5% Level II - Logistics 24.10% 18.75% Level14.10% I - Reorganisation 2.68% / line items 99 00 01 02 03 04 05 06 07 08 09 40 Woolworths Limited
Slide 41: Project Refresh savings
PROJECT REFRESH 9 year cum savings = $6.9b Savings in years F05 to F08 = $4.5b 1,500 1336 1181 1,200 PA Savings $ millions Level II Cum savings to date = $3.2billion (1) 1039 4.03% of sales using 1999 as the 912 Increasingly logistics driven 900 base year (1) 796 632 600 517 Level I 362 Mainly line
Slide 42: “Refresh” Level II
“REFRESH” LEVEL II • Continued solid progress and on target • Have now passed the higher risk stage of our IT rollout – AutoStockR fully implemented in all stores across Australia – Stocksmart (DC forecast based replenishment) is fully operational in our DC’s resulting in reduced stock levels and im
Slide 43: “Refresh” Level II cont…
“REFRESH” LEVEL II cont… • New Warehouse Management System successfully implemented into Perth RDC with higher than forecast operational efficiencies. • Now over 100 vendors on Primary Freight with significant improvement in in- bound service levels. • A new Secondary Freight system being implemente
Slide 44: Current Trading
CURRENT TRADING Post Christmas: • Food and Liquor sales trends have continued along similar lines to those reported during the second quarter with comparable growth continuing to strengthen. • BIG W sales have improved and for January and February comparable store sales are in excess of 3.5%. • Cons
Slide 45: Guidance
GUIDANCE F04 We anticipate: Sales • Full year sales growth in low double digits after taking into account Bruandwo. Earnings • NPAT (including Bruandwo) will be in 12-15% range. • EPS will be impacted by shares issued under the Woolworths Executive Option Plan. After goodwill, EPS will be in the low
Slide 46: Appendices
Appendices 46 Woolworths Limited
Slide 47: Health Ratios
HEALTH RATIOS HY04 HY05 Statutory Proforma (28 weeks) (28 weeks) Fixed charges cover X 2.59 2.67 Covenant more than 1.75 Anticipate 1 to 2 day reduction by Days inventory (to cost of sales) Days 35.4 36.3 the end of FY05 Days creditors (to sales) Days 42.1 44.9 Return on Funds Employed (pre tax) ROF
Slide 48: Capital Expenditure
CAPITAL EXPENDITURE As per below HY05 F05 F06 F07 F08 F09 Actual Forecast Forecast Forecast Forecast Forecast New Stores/Acquisitions (excludes ALH/MGW) 81 164 151 142 140 145 (1) Store Refurbs/Extensions 148 291 245 230 235 240 Stay in Business 40 85 75 78 81 83 IT - Other 38 86 72 85 100 105 (2) I
Slide 49: Gross Profit Margin
GROSS PROFIT MARGIN 26% 85% OF COST REDUCTION TO Down 78 pts CUSTOMERS IN LOWER PRICES in HY05 25.46% 25.35% 25.12% Down 223 pts 24.90% in 5 half years 25% (1) 24.51% % (2) 24.12% 24% 23% HY 2001 HY 2002 HY 2003 HY 2004 HY 2005 HY 2005 Statutory Statutory Proforma (28 weeks) (27 weeks) (28 weeks) (3
Slide 50: CODB / Sales
CODB / SALES Costs = The Key Enabler 23% 21.91% Down 90 Down 295 22% 21.62% pts in HYO5 pts in 5 half years 21.31% % 21% 20.82% (1) 20.22% (2) 19.92% 20% 19% HY 2001 HY 2002 HY 2003 HY 2004 HY 2005 HY2005 Statutory Statutory Proforma (28 weeks) (27 weeks) (28 weeks) (3) Reductions $245 m + $317 m +