Woolworths Holdings Limited · JSE:WHL
Woolworths — H1 FY2009 Earnings Presentation
58 slides from Woolworths's earnings presentation, February 2009
Slide 1: Group results for the 26 weeks ended December 2008
” group results ‘ for the 26 weeks ended December 2008 analyst presentation — February 2009 WOOLWORTHS HOLDINGS are I L
Slide 2: "Business unusual"
woolworths holdings limited “b i “business unusual” l” Continuation of market deterioration from October 2007 Compounded by collapse in global economy - Need to refine our positioning in the market Significant changes in consumer behaviour - Deleveraging - Realignment of needs back to necessit
Slide 3: Review of the period
woolworths holdings limited review i off the h period i d Woolworths Retail - Sales growth below expectations 12mma market share - Repositioning of opening price points Clothing and - Cl h and Clothing dG Generall merchandise h d footwear Food (per RLC) (per Nielsen) • Underestimated demand for va
Slide 4: Review of the period (continued)
woolworths holdings limited review i off the i d (continued) h period ( i d) Country Road - Business repositioned - Excellent sales performance in tough trading conditions - R Record d profit f growthh - Becoming a material profit contributor Financial Services - Successful implementation of ABS
Slide 5: Norman Thomson
WOOLWORTHS HOLDINGS snare W | L Norman Thomson ¥ f : ) ry a vi? ip geet ;* . ier + : ‘
Slide 6: Financial overview
woolworths holdings limited fi financial i l overview i Retail turnover up 8.1% to R10.5 billion Profit before tax and exceptional items up 18.1% to R878 million Effective tax rate decreased from 36.9% to 32.9% (excluding STC on special dividend) Diluted headline earnings per share up 11.5%
Slide 7: Group income statement
woolworths holdings limited group income i statement Dec 2008 Dec 2007 % Rm Rm change SA Retail 635.4 611.8 3.9 Country Road 90.9 48.2 88.6 Financial Services 119 6 119.6 71 7 71.7 66 8 66.8 Q1 – 100% subsidiary 92.2 Q2 – JV (after tax) 27.4 Net group interest 32.4 11.9 >100 Profit before exceptiona
Slide 8: Group income statement commentary
woolworths holdings limited group income i statement commentary 1. Financial Services – consolidated in Q1 and equity accounted in Q2 (see separate slide) 2 2. Net group interest – net group interest excludes WFS, WFS and is earned on excess cash (net of remaining term borrowings) after the 1 Octobe
Slide 9: SA retail income statement
woolworths holdings limited SA retailil income i statement Dec 2008 Dec 2007 % Rm Rm change Revenue 9 384.9 8 913.8 5.3 Turnover 9 338.1 8 867.6 5.3 Cost of sales* 6 779.2 6 363.1 6.5 Gross profit 2 558.9 2 504.5 2.2 Other revenue 46.8 46.2 1.3 Expenses 1 970.3 1 938.9 1.6 Store costs 1 267.3 1 139.
Slide 10: SA retail income statement commentary
woolworths holdings limited SA retailil income i statement commentary 1. Turnover Total Comparable stores Clothing and GM (0.6%) (4.1%) Food 9.5% 0.3% Total 5.3% (1.6%) 2. Gross profit – 0.8% drop in margin due to margin pressures in Food, offset by higher margin in Clothing. Margin now includes Foo
Slide 11: Country Road income statement
woolworths holdings limited country road d income i statement Dec 2008 Dec 2007 % A$m A$m change Revenue 178.7 178 7 146 4 146.4 22.1 22 1 Turnover 177.7 145.7 22.0 - Retail 130.0 110.0 18.2 - Concession 41.8 35.7 17.1 - Wholesale 59 5.9 - Cost of sales 70.1 56.9 23.2 Gross profit 107.6 88.8 21.2 Ot
Slide 12: Country Road commentary
woolworths holdings limited country road d commentary 1. Turnover Total Comparable stores Retail 18.2% 12.8% Concession 17.1% 11.1% 2 2. Gross profit – well controlled margins 3. Expenses – well controlled, but impacted by the accounting for long-term incentives 4. Operating margin – getting near th
Slide 13: Financial services income statement
woolworths holdings limited fi financial i l services i iincome statement Dec 2008 % to Dec 2007 % to % Rm book Rm book change Interest income 752.5 26.2 651.4 22.9 15.5 Interest paid 308.1 10.7 241.2 8.5 27.7 Net interest income 444.4 15.5 410.2 14.4 8.3 Impairment charge 210.2 7.3 261.2 9.2 (19.5)
Slide 14: Financial services commentary
woolworths holdings limited fi financial i l services i commentary 1. Gross financial services assets – fairly static, in line with sales growth in Woolworths and tighter NCA requirements. This is the biggest challenge in this business. Note that no longer carried on WHL balance sheet. 2. Interest i
Slide 15: Financial services book performance
woolworths holdings limited fi financial i l services i bbookk performance f Store Card Personal Loans VISA Card 4 000 3 801 14% 4 000 14% 4 000 14% 3 618 3 500 12% 3 500 12% 3 500 13.5% 12% 3 000 10% 3 000 10% 3 000 10% 2 500 2 500 2 500 10.9% 6.6% 6.9% 8% 8% 8% 2 000 2 000 5.1% 5.0% 2 000 1 585 1
Slide 16: Financial services review
woolworths holdings limited fi financial i l services i review i JJV has as gone go well w Benefit from implementing Barclays/ABSA policies and aligning provisioning Trading is in line with expectations Bad debts remain stable, particularly with store card and personal loans, but remain a co
Slide 17: Balance sheet
woolworths holdings limited b l balance sheet h Dec 2008 Dec 2007 % Rm Rm change Assets Property, plant and equipment, intangible assets, loans and other 2 393.9 2 216.1 8.0 assets Investment in WFS JV 503.3 503 3 - Inventory 1 551.8 1 473.2 5.3 Financial services assets - 5 558.7 Accounts receivabl
Slide 18: Balance sheet commentary
woolworths holdings limited b l balance sheet h commentary 1. Property, plant and equipment – grown in line with capex (refer to investment slide) 2. Investment in WFS JV – represents our equity in the JV (minimum 8%) 3. Inventory – was well managed in both Country Road and South Africa, with lower
Slide 19: Cash generation
woolworths holdings limited cashh generation i 4 500 R3 697m 4 000 3 500 3 000 ((R750m)) (R153 ) (R153m) 2 500 2 000 1 500 R1 151m 1 000 (R26m) (R410m) (R225m) 500 (R102m) (R285m) 0 EBITDA Working Interest paid Tax Net capex Dividends Cash flow Special Share capital and paid from WFS dividend repurc
Slide 20: Investment in the business
woolworths holdings limited i investment in i the h bbusiness i Capex (Rm) R294.7m (Dec 07: R362.0m) 115.3 61 8 61.8 36.6 84.2 210.1 148 7 148.7 Dec 2007 Dec 2008 Retail IT Other (including property) Increase in IT includes residual investment in data warehouse and IPEX
Slide 21: Return on equity
woolworths holdings limited return on equity i 37.5% 40% 34 8% 34.8% 35 1% 35.1% 33.5% 35% 29.6% 27.4% 27.6% 27.8% 30% 24.7% 25% 18.3% 20% 17.5% 15% 16 3% 16.3% 10% 12.3% 13.8% 13.8% 14.8% 14.5% 13.3% 12.5% 13.2% 11.3% 11.8% 5% 0% Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Dec-06 Dec-07
Slide 22: Earnings and dividend
woolworths holdings limited earnings i and d di dividend id d cps times 70 3.0 2.5 60 2.2 2.5 2.2 50 19 1.9 20 2.0 2.0 40 64.4 1.5 62.8 30 56.9 53.1 46.7 1.0 20 10 0.5 18.5 24.0 29.5 29.5 31.5 0 - 2004 2005 2006 2007 2008 HEPS DPS Dividend cover
Slide 23: Outlook
woolworths holdings limited outlook l k Inflationaryy ppressures in Clothingg due to currency. y Inflationaryy pressures p in Food will continue in Q3, then ease Sales growth will remain muted Retail gross margin to be held at current level Tight control of costs to continue Certain WFS re
Slide 24: SA retail – store growth
woolworths holdings limited SA retailil – store growthh Projected Projected Growth to growth to growth to D 2008 Dec J 2009 Jun J 2010 Jun (12 mths) (6 mths) (12 mths) Number of stores Corporate stores Full-line 8 6 11 Food standalone 20 4 8 Trading space Corporate stores Clothing and General mercha
Slide 25: Retail review
5% organic pure ) cotton piquet knit golfer retail review Andrew Jennings
Slide 26: Retail turnover
woolworths holdings limited retailil turnover Clothing and General merchandise Food 30% 30% 25.9% 25% 25% 20.9% 20.6% 18 8% 18.8% 20% 20% 14.4% 15.1% 15% 10.9% 12.6% 15% 12.8% 12.2% 9.8% 9.7% 9.5% 8.4% 8.2% 7.3% 10% 10% 4.7% 5% 5% 0.3% 0% 0% -0.6% -5% -4.1% -5% Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec
Slide 27: Retail overview
woolworths holdings limited retailil overview i Clothing C ot g and a General G a merchandise c a s - Under bought and oversold on value and core products - Womenswear – overall disappointing performance – swimwear, activewear, Twist and Re traded well - Menswear – focus on essentials, success of
Slide 28: Retail overview (continued)
woolworths holdings limited i (continued) retailil overview ( i d) Food - Repositioned pricing - Continue to drive the Woolworths difference - Benefit of promotions - Availability and waste improving – remain a challenge - Impact of change in product mix – price movement less than inflation Stor
Slide 29: Driving implementation
woolworths holdings limited d i i iimplementation driving l i 2007/2008 - Understanding the business - Planning new processes, procedures and strategies 2008/2009 - Re-organisation - More consistent and disciplined ways of working - Talent recruitment and development - Control 2009/2010 - Impl
Slide 30: Retail – deliverables
woolworths holdings limited woolworths l h retailil – deliverables d li bl Timelines Progress 1. Customer understanding ongoing 2. Q Qualityy : Value ongoing g g 3. Range differentiation and innovation complete 4 Improved 4. I d availability il bili S Summer 09 5. Talent upgrade / skills base comple
Slide 31: Customer – the relationship journey
woolworths holdings limited 1 customer – the 1. h relationship l i hi jjourney Retail strategy Loyalty relationship Woolworths: the shop CLOTHING FOOD BEAUTY HOME WFS CONNECT Lifestyle segmentation HEADQUARTER ASSORTMENTS DESTINATION FOR SPECIAL OCCASIONS GOOD-BUSINESS JOURNEY MILESTONES UNIQUE, FRE
Slide 32: Quality:value – Clothing pricing
woolworths holdings limited 2 quality:value 2. li l – Clothing Cl hi Clothing pricing % price movement FY2009 FY2008 1st half 0.0% 9.6% 2nd half 7.3% Customer buying more value items Held prices - improved margin Summer 25 value lines - 86% sell through and sold 3.1m 3 1m units, units a 40% in
Slide 33: Quality:value – Food
woolworths holdings limited 2 quality:value 2. li l – Food F d 12% 10% 8% 6% 4% 2% 0% -2 % -4 % Promotions started -6 % 12-Mar-08 26-Mar-08 09-Apr-08 23-Apr-08 07-May-08 21-May-08 04-Jun-08 18-Jun-08 02-Jul-08 16-Jul-08 30-Jul-08 13-Aug-08 27-Aug-08 10-Sep-08 24-Sep-08 08-Oct-08 22-Oct-08 05-Nov-08
Slide 34: Quality:value – Food comparable sales
woolworths holdings limited 2 quality:value 2. li l – Food F d Comparable Food sales - weekly increase 30% 25% 20% 15% 10% 5% 0% -5% Promotions started -10% -15% Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Weekly increase 10 week average
Slide 35: Range differentiation – segmentation in womenswear
woolworths holdings limited 3 range differentiation 3. diff i i – segmentation i iin womenswear Classic Modern Contemporary SA Best Designers Modern Better classic collection Woolworths headquarters q assortments Good Modern classic collection Process implemented across all product groups Embedd
Slide 36: Innovation – Food
woolworths holdings limited 3 iinnovation 3. i – Food F d Four clear pillars Everyday Gastronomic Reasons to R Health the difference adventure celebrate Continued re-engineering for innovation and value - 824 new lines launched from Jul – Dec 08 (LY: 543) - 444 lines upgraded from Jul – Dec 08 (
Slide 37: Great new product launches: Organics
woolworths holdings limited 3 great new product 3. d launches: l h Organics O i
Slide 38: Great new product launches: Cooks Essentials
woolworths holdings limited 3 great new product 3. d llaunches: h Cooks C k Essentials E i l
Slide 39: Great new product launches: Earth Friendly range
woolworths holdings limited 3 great new product 3. d launches: l h Earth E h Friendly F i dl range
Slide 40: Improved availability
woolworths holdings limited 4 iimproved 4. d availability il bili Clothing - Sizing an issue - New cluster work to align merchandise with customer profile - Demand increase in value and core products – underestimated in Summer 08 Food - Forecasting system shifted from bottom up to top down • Sto
Slide 41: Talent upgrade / skill base
woolworths holdings limited 5 talent 5. l upgrade d / skill kill base b Keyy p people op in pplace ac - New head of product development in Food - New Director of Stores - New design talent Continuous upskilling - Merchant academy for buying and planning - now includes supplier component and focu
Slide 42: Speed to market in Clothing and General merchandise
woolworths holdings limited 6 speed 6. d to market k ini Clothing Cl hi andd General G l merchandise h di Sourcing Sou c g st strategy at gy up update at - 6 months into 3 year plan - Well on track - Continuous review of supplier base locally and overseas to drive best quality, technology and valu
Slide 43: Improved productivity
woolworths holdings limited 7 iimproved 7. d productivity d i i Improve productivity - Expense control Real estate - format - Shift to fewer bigger stores - 14 modernisations this year Clothing and Home cluster strategy - Stock efficiency - Alignment of customer, store and stock profile Deli
Slide 44: Trading in tough times
woolworths holdings limited trading di iin toughh times i Focus on value and quality whilst strengthening innovation Improve availability Utilise customer information to drive promotions and store catalogue Continue to manage stock tightly I Improve margin i Continue to manage cost growt
Slide 45: Country Road
WOOLWORTHS HOLDINGS sara | [ | i [=e — | aa y) : : | —_— J a —= ——” ———=== Sa — { rs i “=6COU Cl 11 j tt 11 ‘tt 1 wi wih ~~ ! LA country road
Slide 46: Country Road – review
woolworths holdings limited country road d – review i Repositioning pos t o g has as worked wo - Prices down 40% over 3 years - Volumes up well over 100% Growing profit contributor Strategic opportunity - Both Country Road (modern) and Trenery (classic) have very good long-term growth opportun
Slide 47: Country Road – outlook
woolworths holdings limited country road d – outlook l k Australian economy expected to slow further in H2 Bold long-term plans but very tight short-term management
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Slide 49: Outlook
woolworths holdings limited outlook l k Environment v o t unpredictable u p ctab South Africa and Australia are intrinsic long-term growth economies Big shift in consumer spending to value - Both Woolworths and Country Road can provide excellent value for money offer within our quality ethos
Slide 50: Additional info
additional. info
Slide 51: Group income statement
woolworths holdings limited group income i statement Dec 2008 Dec 2007 % Rm Rm change Revenue 11 134.6 10 557.1 5.5 Turnover 10 547.7 9 756.5 8.1 Cost of sales* 7 258.9 6 706.9 8.2 Gross profit 3 288.8 3 049.6 7.8 Other revenue 586.9 800.6 (26.7) E Expenses 2 829.6 829 6 2 864.4 864 4 (1 2) (1.2) Op
Slide 52: SA retail – balance sheet
woolworths holdings limited SA retailil – balance b l sheet h Dec 2008 Dec 2007 % Rm Rm change Assets Property, plant and equipment, investments, deferred tax, loans and ggoodwill 2 051.3 2 544.7 ((19.4)) Inventory 1 323.8 1 273.7 3.9 Accounts receivable 1 433.8 571.2 >100 Cash 376.6 441.4 (16.7) 5
Slide 53: SA retail – revenue analysis
woolworths holdings limited SA retailil – revenue analysis l i Dec 2008 Dec 2007 % % Rm Rm change price movement Clothing and General merchandise 3 691.5 3 714.5 (0.6) 0.0 Corporate (retail) 3 228.0 3 251.8 (0.1) Franchise (wholesale) – local 358 5 358.5 349 6 349.6 (3 5) (3.5) Franchise (wholesale)
Slide 54: SA retail – trading space
woolworths holdings limited SA retaill – trading d space Projected % Projected Dec 2008 Dec 2007 % JJun 2009 change JJun 2010 % m2 m2 change m2 (6 mths) m2 change Total footage 499 888 466 693 7.1 514 749 3.0 551 778 7.2 Clothing and General merchandise 359 321 343 837 4.5 368 278 2.5 391 183 6.2 Co
Slide 55: SA retail – number of stores
woolworths holdings limited SA retailil – number b off stores Projected Projected ggrowth to ggrowth to As at As at Growth Jun 2009 Jun 2010 Dec 2008 Dec 2007 (12 mths) (6 mths) (12 mths) No. No. No. No. No. Total stores 407 372 35 17 27 Corporate 244 216 28 10 19 Full-line 113 104 9 6 11 Clothing a
Slide 56: Financial services – contribution to sales
woolworths holdings limited fi financial i l services i – contribution ib i to sales l % of sales spent p on Woolworths cards Dec 2008 Dec 2007 Clothing and General merchandise 35.2% 39.4% Food 18.9% 22.0% Total 25.6% 29.7%
Slide 57: Country Road – balance sheet
woolworths holdings limited country road d – balance b l sheet h Dec 2008 Dec 2007 % A$m A$m change Assets Property, plant and equipment 42.3 34.3 23.3 Trademarks * 11.2 11.2 - Inventory 34.1 32.5 4.9 Accounts receivable 27.5 13.2 >100 Cash 31.6 18.7 69.0 146.7 109.9 33.5 Equity and liabilities Shar
Slide 58: Country Road – income statement (in rands)
woolworths holdings limited country road d – income i statement (i (in rands) d) Dec 2008 Dec 2007 % Rm Rm change Revenue 1 212.2 884.4 37.1 Turnover 1 205.6 880.1 37.0 Cost of sales 479.7 343.7 39.6 Gross profit 725.9 536.4 35.3 Other revenue 6.6 4.3 53.5 p Expenses 641.3 491.9 30.4 Store costs 453
Woolworths Holdings — H1 FY2009 Earnings Presentation on 6ix