Woolworths Limited HY16 Earnings Announcement
26 February 2016
HALF YEAR PROFIT/(LOSS) AND DIVIDEND ANNOUNCEMENT FOR THE 27 WEEKS ENDED 3 JANUARY 2016
Rebuilding the business
• New Group CEO appointed
• HY16 NPAT before Significant Items1 within guidance
• Progress in multi-year journey in Australian Supermarkets
• Decision taken on Home Improvement and BIG W CEO in place
• Board renewal well progressed
Net Profit After Tax attributable to shareholders of Woolworths Before Significant Items1, down 33.1%
Net Loss After Tax attributable to shareholders of Woolworths, down 176.0%
FY16 Half Year Key Financial Highlights
Before Significant Items1
• Sales of $32.0 billion, down 1.4% or up 1.2% excluding Petrol2
• Earnings Before Interest and Tax of $1,456.6 million, down 31.6%
• Net Profit After Tax attributable to shareholders of Woolworths of $925.8 million, down 33.1%
• Earnings Per Share of 73.4 cents, down 33.5%
• Fully franked HY16 dividends of 44 Cents Per Share, down 34.3%
After Significant Items1
• Net Loss After Tax attributable to shareholders of Woolworths of $972.7 million, down 176.0%
Note: This announcement contains certain non-IFRS measures that Woolworths believes are relevant and appropriate to understanding its business. Refer to Appendix One for further information.
Woolworths Limited (Woolworths) today reported net profit after tax (NPAT) attributable to shareholders of Woolworths of $925.8 million before significant items1 for HY16 which was within the guidance range provided at the Q1’16 sales update in October.
Chairman, Gordon Cairns, said: “We are rebuilding the Woolworths business. While we have made progress, it will be a three to five year journey and there is much to do.
“When I joined the Board as Chairman in September last year I said the most pressing issue was to appoint a new CEO. We have today announced the appointment of Brad Banducci as CEO and Managing Director of Woolworths Limited.
“The Board undertook a rigorous international search process to find the best person to rebuild Woolworths and return it to sustainable growth. Brad has had 25 years in retail, including 15 years consulting to some of the world’s leading retailers. He has successful private equity experience with Cellarmasters. Brad has been at Woolworths for five years during which time he led Dan Murphy’s to become one of Australia’s great retailers. For the last 12 months he has been leading the turnaround of our Supermarkets business.
“Grant O’Brien leaves Woolworths today and the Board thanks him for his service and wishes him the best for the future.
“At the AGM I outlined clear business priorities to rebuild Woolworths, with a particular focus on our Supermarkets business to ensure we are competing vigorously. This is underway with significant investment in improving the customer experience.
“Our second priority is to optimise our portfolio. The decision to exit Home Improvement will allow Woolworths to focus its energy and resources on strengthening and executing its plans in its core businesses. Sally Macdonald’s appointment will allow Woolworths to benefit from the potential upside we see in BIG W.
“The third priority is leadership. We have announced a new CEO for the Group and for BIG W.
“The fourth priority was board renewal. We recently welcomed two new Independent Directors. Holly Kramer’s background in retail and Siobhan McKenna’s private equity and media expertise complement and strengthen the Board’s existing skills.
“The final priority is to embrace a listening culture. This transformation is fundamental and will ensure that the strategies and programs we implement will enhance value for our shareholders.
“An additional priority to those identified at the AGM is disciplined capital management. The Board is committed to a solid investment grade credit rating. We need to prioritise from growth capex to stay-inbusiness capex as we seek to accelerate the renewal of our store network. To provide some funding flexibility we have introduced a 1.5% discount on the Dividend Reinvestment Plan. Finally, given the importance of dividends to many of our shareholders we have decided to maintain our 70% payout ratio.
“There is a lot of hard work ahead of us but we are very clear on our priorities and are confident we have the leadership team to get us there,” Mr Cairns said.
Woolworths CEO, Brad Banducci, said: “Woolworths is going through a period of significant change. This result reflects the impact of those changes, most notably the considerable investment in price, service and customer experience across Australian Supermarkets. The reported earnings result is also heavily impacted by the decision taken to exit the Home Improvement business and the subsequent provision for the impairment of assets, lease liabilities and other exit costs.
“Australian Food, Liquor and Petrol reported a decrease in earnings before interest and tax of 31.7% on the prior year reflecting subdued sales growth driven primarily by deflation from significant investment in better prices for our customers. Sales momentum improved slightly during Q2’16 with December our best trading month of the half. Importantly, we delivered a materially improved Christmas for our customers on last year. However, trading remains volatile and there remains a lot more to do.
“Liquor continued to perform strongly and gain market share with all formats (Dan Murphy’s, BWS and Online) delivering an improved sales performance. Monthly sales in our retail liquor businesses exceeded $1 billion for the first time in December.
“Countdown Supermarkets delivered EBIT in New Zealand Dollars slightly above the prior year in a competitive market driven by a strong focus on costs.
“General Merchandise delivered an improved sales result during the second quarter with comparable sales growth of -1.7%. However, comparable sales for the half were still negative resulting in a lower profit than the prior year.
“Hotels delivered an improved sales performance during the half. Earnings were impacted by noncomparable costs on the prior year disposal of 54 freehold properties. Excluding these items, EBIT was up marginally on the prior year.
“Today Woolworths announced a provision for the impairment of assets, lease liabilities and other exit costs reflecting its announcement on 18 January that we intend to exit Home Improvement. The valuation process of Lowe’s shareholding is underway and will be determined by an independent expert process unless a negotiated outcome can be reached. The sale process of Masters and Home Timber and Hardware has commenced and is expected to continue into FY17.
“Looking forward, we expect trading conditions to remain competitive as we continue on the journey of rebuilding Woolworths,” Mr Banducci said.
“The Board has announced an interim dividend of 44 cents per share, a 34.3% decrease on the prior half year but in line with the historical payout ratio,” Mr Cairns said.