Woolworths : FY16 Full Year Earnings Announcement

25 August 2016

FINAL PROFIT AND DIVIDEND ANNOUNCEMENT FOR THE

52 WEEKS ENDED 26 JUNE 2016

Early signs of progress in transformation

Net Profit After Tax (NPAT) from Continuing Operations attributable to shareholders of Woolworths Before Significant Itemsof $1,558.2 million

NPAT from Continuing Operations attributable to shareholders of Woolworths of $803.5 million

Group Net Loss After Tax (NLAT) attributable to shareholders of Woolworths of $1,234.8 million

• Solid progress on key priorities:
  • Regaining competiveness: lower prices, better service, fruit and veg and improved store experience
  • Customers noticing the difference - Record Voice of Customer scores in Food
  • Strong customer response to new format stores
  • New operating model moving shared services closer to stores and customers
  • Cultural change underway with team engagement improving
• Addressing key issues:
  • New store rollout slowed with focus on renewing existing store network
  • Progress on exit of Home Improvement business
  • Decisive action taken on BIGW to position the business for success going forward
• More to do:
  • Improving team capabilities in key areas
  • Improving supplier engagement and joint business planning
  • Delivering productivity dividend from IT systems implementation

FY16 KEY FINANCIAL HIGHLIGHTS

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

Brad Banducci, Woolworths Group CEO, said: 'FY16 was a year of unprecedented change for Woolworths. The decisions we have taken and investments we have made have had a material impact on our FY16 results but have been necessary to begin the rebuilding of Woolworths.
'We are seeing early signs of progress as we work to restore our competiveness and improve our culture in Australian Food. We have also addressed significant issues facing the Group with the decision to exit Home Improvement and decisive action taken on BIGW to reposition the business.
'Top of my five priorities is getting our customers to put us 1st and making the right business decisions to enable this to happen. We are regaining competitiveness with improving customer metrics and sales and transaction growth demonstrating our customers are recognising our investment in lower prices, better service, fresh fruit and veg and improved store experience. Our improving team engagement scores show we are also changing our culture for the better.
'While we are seeing early signs of momentum, we are not underestimating the size of the task that lies ahead, especially given the highly competitive nature of the markets in which we operate. As we have consistently said, this is a three to five year journey.
'Sales improved over the year for our Australian Food business with comparable sales in the fourth quarter the strongest for the year driven by strong comparable transaction growth. However, underlying earnings from Australian Food & Petrol were down 40.8% on last year reflecting lower sales growth driven primarily by our investment in lower prices and a decline in items per basket.
'We are committed to strengthening our leading position in Drinks. To give this important part of our business more visibility, this year we have separated out the trading performance of Endeavour Drinks Group for the first time. Endeavour delivered sales growth of 4.7% in a very competitive market.
'In New Zealand dollars, New Zealand Food's earnings were marginally below last year primarily due to additional investment in team hours and higher performance-based bonuses for our team.
'During the year we made major changes to the way we operate our business to meet our priority of empowering our portfolio businesses to pursue strategies to better deliver shareholder value and to take out all unnecessary bureaucracy and cost.
'We appointed Colin Storrie as Group Portfolio Director in July to provide greater support and oversight of our portfolio businesses. Boards are now in place for all these businesses.
'We also announced that we had separated EziBuy from BIGW and are currently exploring options to sell EziBuy. BIGW reported a loss before interest and tax before significant items1 of $14.9 million largely due to lower sales and extensive clearance activity.
'Hotels earnings were impacted by non-comparable costs on last year's disposal of 54 freehold properties and increased costs of promotional activity.
'Yesterday, we announced three transactions to facilitate our exit from the Home Improvement business. Home, Timber and Hardware has been sold to Metcash, Hydrox has received an underwritten recovery on Masters inventory and we have granted an exclusive call option over our two third share in Hydrox to Home Consortium. All Masters stores will cease trading on or before 11 December 2016.
'We expect trading conditions to remain highly competitive in FY17 but are confident that we have a clear plan and set of priorities, and we are encouraged that we finished FY16 with some early signs of momentum' Mr Banducci said.
Woolworths Chairman, Gordon Cairns, said: 'We have addressed a number of key issues during the year to position the business for the future and we are making good progress. We are rebuilding our team with a number of key hires during the year with more to come. We are confident of further progress in FY17 and are on track in our three to five year transformation.
'The Board has announced a final dividend of 33 cents per share taking the total dividend for the year to 77 cents, a 44.6% decrease on the prior year but in line with the historical payout ratio on Group Net Profit After Tax Before Significant Items. The DRP will be settled through the issue of new shares and underwritten to 50%. The Board remains committed to a solid investment grade credit rating' Mr Cairns said.

KEY PRIORITIES

We are focused on five key priorities across the Group. Progress against those priorities over the last 12 months has been as follows:

1. Building a customer and store-led culture and team

• Implemented revised short term and long term performance measures aligned with our business transformation
• New Operating Model implemented with key shared service functions much closer to the customer
• All new Support Office team members now spend a week in-store ('Woolies Welcome')
• New tools for stores to provide feedback to Support Office
• New Chief Supply Chain Officer appointed (Paul Graham) and Chief Information and Chief People Officer appointments expected in the next few weeks
• More work to do on team capabilities, especially in Stores and Buying

2. Generating sustainable sales momentum in Food

• Strong Voice of the Customer results in June with record Overall Customer Satisfaction
• Comparable transaction growth of 1.4% in Q4'16 with positive item growth from June
• More competitive prices across the store with average prices 2.3% lower in FY16 and over $500 million investment in FY16 relative to FY15
• Incremental investment in team hours, particularly on the weekend
• Significant progress in new own brand strategy with Essentials and Woolworths brand transitions well underway
• More work to do on Supplier engagement and joint business planning

3. Evolving our Drinks business to provide even more value and convenience to customers

• Strong performance from 11 new Dan Murphy's opened during the year
• Dan Murphy's business model continues to evolve with investment in a new in-store wine format, My Dan Murphy's loyalty program and the launch of Dan Murphy's Wine Cellar
• Strong double digit sales growth from Dan Murphy's online
• BWS local empowerment-driven business model resonating with customers and team alike

4. Empowering our portfolio businesses to pursue strategies to deliver shareholder value

• Colin Storrie appointed Group Portfolio Director and Boards established on all portfolio businesses
• Separation well underway with Sourcing, Quality, Logistics, Property and IT all being integrated back into the individual businesses
• Exploring options for the sale of EziBuy
• BIGW early in its turnaround, with lots more to do

5. Becoming a lean retailer through end-to-end process and systems excellence

• Merchandising platform now stable, SuccessFactors Human Capital Management system now live, 1 Store Program in roll-out
• End-to-end process improvement initiatives underway across the business - Faster Fresh, meat processing model, on-shelf availability, store IT support, store maintenance
• Over 500 support office and supply chain roles to be removed
• More work to do on generating a productivity dividend from new IT systems implementation

BUSINESS PERFORMANCE

Earnings/(Loss) Before Interest and Tax (EBIT/LBIT)

Net Profit/(Loss) After Tax (NPAT/NLAT) Attributable to Shareholders of Woolworths

GROUP INCOME STATEMENT PERFORMANCE*

Sales from Continuing Operations were $58.1 billion, a decrease of 1.2% in FY16 driven primarily by lower sales in Petrol. Excluding Petrol, sales increased 0.6% on the prior year. FY16 sales by quarter are provided in Appendix Three.

Gross profit from Continuing Operations (before significant items) as a percentage of sales decreased 65 bps on the prior year to 26.9% driven primarily by the significant price investment in Australian Supermarkets during the year.

Cost of doing business from Continuing Operations (CODB) (before significant items) as a percentage of sales increased 169 bps on the prior year to 22.5% due to subdued sales growth limiting the ability to fractionalise costs, incremental investment in store labour in Australian and New Zealand Food and higher team performance-based bonuses. This was partially offset by cost savings generated primarily through improved efficiency across support functions.

EBIT from Continuing Operations (before significant items) decreased 35.5% on the prior year to $2,563.8 million.

Net financing costs decreased 3.0% on the prior year, primarily driven by a decrease in the net interest rate on lower debt.

NPAT attributable to shareholders of Woolworths from Continuing Operations (before significant items) decreased 39.2% on the prior year to $1,558.2 million, with corresponding EPS (before significant items) down 39.5% to 123.3 cents.

On a statutory basis, after reflecting the impact of significant items1, the NLAT attributable to shareholders of Woolworths was $1,234.8 million compared to a NPAT of $2,146.0 million in FY15. The corresponding Loss Per Share (LPS) was 97.7 cents compared to EPS of 170.8 cents in FY15.

AUSTRALIAN FOOD AND PETROL

AUSTRALIAN FOOD OPERATING METRICS

AUSTRALIAN FOOD, PETROL & ENDEAVOUR DRINKS GROUP

TRADING PERFORMANCE

Australian Food sales for the year were $34.8 billion, a decrease of 0.2% on the previous year. Comparable sales declined by 1.3% in FY16 primarily driven by significant price investment. Despite an increase in average price deflation, comparable sales in Q4'16 showed the smallest decline for the year at (1.1)%. Sales per square metre declined by 3.7% compared to FY15 due to a reduction in comparable sales primarily due to price investment to restore our competitive position and an increase in overall trading space.

We returned to positive comparable transaction growth in Q2'16 with transaction growth of 2.6% in H2'16. Comparable items showed an improving trend over the second half turning positive in June. Stabilising the trend in items per basket remains a key focus area.

Customers are noticing the improvements we are making with our overall Voice of the Customer (VOC) satisfaction score improving significantly over the financial year to finish the year at record levels of 75%. The improvement was consistent with our store controllable VOC which also improved over the year with a score of 77% in June. Pleasingly, Team Attitude remains one of our highest scores with Time in Queue showing the biggest improvement following our investment in team hours and service focus. Availability and Fruit & Veg have seen some recent improvements but remain the biggest opportunities.

We continued to lower prices for our customers with a reduction in average prices of 2.3% for FY16 and a 2.7% reduction in prices in Q4'16. Excluding tobacco, average prices declined by 3.8% in the fourth quarter. In FY16, we invested over $500 million in lowering prices or not passing through cost price increases to our customers compared to FY15 despite the significant price investment that had already taken place in H2'15. We continue to reduce our reliance on promotions in favour of lower shelf prices with 1,580 products on our Price Dropped program by the end of the year.

Comparable sales for the eight weeks ended 21 August 2016 increased by 0.3%.

Our team is focused on improving sales productivity in our business and sales per square metre will be a key metric in our long-term incentive plan. Central to improving our sales productivity is our shift in focus away from expanding space to renewing our existing store fleet. We opened six renewal stores in June, and customers are responding to our improved store-experience with a 14% improvement in VOC and a 9% growth in transactions in these stores.

Petrol sales were $4.6 billion, a decrease of 18.1% on the previous year (volumes decreased by 9.1%). Sales were impacted by changes to the Woolworths - Caltex alliance in FY15 where sales from 131 Caltex operated sites were no longer recognised by Woolworths, and declining average fuel sell prices (unleaded FY16: 120.5 cpl; FY15: 134.4 cpl). We cycled the changes to the Woolworths - Caltex alliance in December.

Comparable petrol sales (dollars) decreased 11.8% for the year due to the impacts of declining global oil prices and a decline in comparable volumes of 2.4%.

Merchandise sales for the year increased 6.4% and comparable merchandise sales increased 3.7%.

Australian Food and Petrol (AUFP) gross margin decreased 82 bps due to price investment offset somewhat by lower Petrol sales which drove a change in sales mix to the higher margin in the Food business. The impact of price investment was even more pronounced in our Australian Food business where gross margin declined by 178 bps.

AUFP CODB as a percentage of sales increased 204 bps on the prior year driven by lower sales (including the impact of the changes to the Caltex-Woolworths alliance2), investment in team hours and higher team performance-based bonuses compared to the prior year where no bonuses were paid. This was partly offset by cost savings generated through improved efficiency across store operations and support functions.

AUFP EBIT of $1,759.8 million decreased 40.8% on the previous year, with the EBIT margin decreasing 286 bps.

ENDEAVOUR DRINKS GROUP

OPERATING METRICS

TRADING PERFORMANCE

Endeavour Drinks Group (EDG) sales increased by 4.7% to $7,589 million in FY16 driven by an increase in comparable sales of 2.0% in FY16 resulting in an increase in market share. Our retail businesses (Dan Murphy's and BWS) both recorded positive comparable growth for the year. Dan Murphy's retained its market leading Net Promoter Score (NPS) with BWS also showing a strong improvement over the year. Sales per square metre increased by 0.7% driven by the increase in comparable sales.

Dan Murphy's delivered another year of strong total and comparable sales growth with 11 net new stores opened during the year. Our execution around key events was strong and Dan Murphy's online continued to deliver strong double digit sales growth. My Dan Murphy's continued to grow and evolve with 1.7 million members by the end of the year.

BWS also reported positive comparable sales growth with an improving trend in the second half as we renewed our focus on value. We opened 56 new BWS stores in FY16 and closed 24 stores.

Gross margin increased by 43bps to 23.41% due to better buying facilitated by strong volume growth despite price deflation during the year and negative category mix with beer and spirits outgrowing wine.

CODB as a percentage of sales increased by 53bps reflecting the impact of costs associated with higher store numbers as well as an increase in team performance-based bonuses as we rebuild our team incentives. Excluding the increase in bonuses, CODB was well controlled.

EBIT increased 3.0% to $483.8 million in FY16.

NEW ZEALAND FOOD

OPERATING METRICS

TRADING PERFORMANCE

New Zealand Food' sales for the year were NZ$6.1 billion, an increase of 3.8% on the previous year (2.3% increase in AUD). Sales in the first half were assisted by the bulk sales of gift cards and excluding the sales of these cards, full year sales growth was 3.1%. Easter adjusted sales for Q3 and Q4 were 3.5%and 3.6% respectively.

Comparable sales increased 1.3%for the year as customers reacted positively to our lower prices and improved service and fresh food offer. Sales per square metre declined by 0.9% with comparable sales growth more than offset by an increase in year-end trading space of 5.1%.

The Countdown Supermarkets food price index showed full year deflation of 0.3%, with lower prices across most categories. Deflation was offset by positive comparable customer growth strengthening in the second half. We exceeded our targets for the number of lines on our Price Down program with approximately 3,000 products now at a low price every day.

Gross margin increased 8 bps on the previous year largely due to a reduction in fuel discount promotions.

CODB as a percentage of sales increased 49 bpson the previous year largely due to higher team performance-based bonuses compared to FY15, new store costs and investment in store labour to improve the customer experience.

EBIT decreased 3.7% but was flat when normalised for team performance-based bonuses compared to the prior year.

ROFE was 15 bps lower than the prior year due to lower EBIT despite a 5.7% reduction in Funds Employed.

PORTFOLIO BUSINESSES

BIGW

OPERATING METRICS

TRADING PERFORMANCE

Sales for the year were $3.8 billion, a decrease of 2.8% on the previous year with comparable sales decreasing 3.3%. After a disappointing Q3'16 sales performance, comparable sales turned positive in Q4'16 as we cycled weaker sales in the prior year. Our focus in the second half was on retail execution, clearing excess inventory and implementing our new operating model for the business.

The best performing categories in the second half were Children's Books, Toys, Party and Menswear. Apparel sales continued to be challenging due to clearance activity and a winter fashion range that did not resonate with our customers.

The 210 bps gross margin decline reflects the impact of clearance activity, particularly in the second half and the impact of an extra week of Toy Sale in FY16 compared to the prior year where sales are at a lower margin.

CODB as a percentage of sales increased 113 bps on the prior year, driven by lower sales limiting the ability to fractionalise costs. While support office costs were well controlled, increases in store running costs on lower gross profit dollars resulted in a loss of $14.9 million for the year.

Funds Employed declined by 26.2% to $555.2 million reflecting the balance sheet impact of significant items and a strong focus on inventory.

HOTELS

TRADING PERFORMANCE

Sales for the year were $1.5 billion, an increase of 2.5% on the previous year with comparable sales increasing by 1.2%. Sales growth was driven by a strong result in Bars, Food and Accommodation with newly refurbished venues delivering an improved performance despite a subdued Victorian market.

Hotels gross margin declined by 26 bps due to a change in mix towards lower margin Bar and Food sales and the impact of higher food input costs which were not fully recovered through higher prices.

CODB as a percentage of sales increased 185 bps on the prior year, impacted by additional rental expense of
$12.1 million following the sale and leaseback of 54 freehold hotel sites in Q2'15. CODB was also impacted by increased spending on promotional activities to drive increased hotel patronage.

Reported EBIT decreased 11.1% on the previous year to $208.5 million. Excluding the impact of the additional rental expense following the sale of the hotel sites, EBIT declined 5.9% on the prior year.

DISCONTINUED OPERATIONS - HOME IMPROVEMENT

TRADING PERFORMANCE

Masters sales for the year were $1.1 billion, an increase of 21.8% on the prior year.

Masters loss before interest and tax (before significant items) decreased by 4.9% to $233.5 million driven by the strong sales performance in FY16 offset somewhat by the impact of clearance activity.

Home Timber and Hardware sales for the year were $967 million, an increase of 3.2% on the previous year driven by the sales benefit of recent acquisitions as well as comparable growth in our wholesale operations.

Home Timber and Hardware reported a 29.7% reduction in EBIT (before significant items) driven by price investment in a highly competitive market environment.

UPDATE ON EXIT OF HOME IMPROVEMENT

As announced on 24 August 2016, Woolworths has agreed three separate contracts to facilitate its exit from Home Improvement for estimated gross proceeds of $1.5 billion to Hydrox Holdings Pty Ltd (Hydrox). Estimated net proceeds of approximately $500 million are expected after wind-down costs and prior to any shareholder payments.

Masters will cease trading at all stores on or before 11 December 2016 and Woolworths will work hard to find Masters employees jobs within the Group, or will pay full redundancy where suitable roles are not available. Woolworths will honour all customer gift cards, product warranties, returns, lay-bys and contracted home improvement projects and will work constructively with all suppliers.

Metcash will acquire Home Timber & Hardware Group (HTHG) for a headline purchase price of $165 million, with the business continuing to trade. Woolworths will take assignment of three residual HTHG leases. This transaction has been approved by both shareholders in Hydrox, the joint venture company owned by Woolworths and WDR Delaware Corporation (WDR), a subsidiary of Lowe's Companies, Inc. (Lowe's)

GA Australia has provided an underwritten recovery for the value of Masters inventory and has been appointed to manage the sell-down of the inventory. The underwritten recovery is subject to certain adjustments and is estimated to deliver gross proceeds of approximately $500 million. The sell-down of the inventory will be conducted over the coming months.

Subject to Lowe's consent, Home Consortium (Aurrum Group, Spotlight Group and Chemist Warehouse) has proposed to purchase the Masters properties through acquisition of 100% of the shares in Hydrox. Woolworths has granted an exclusive call option over its two-third share in Hydrox to Home Consortium on economic terms consistent with Home Consortium's proposal. The transaction will include 40 Masters freehold trading sites, 21 Masters freehold development sites and 21 Masters leasehold sites. Home Consortium plans to repurpose the former Masters sites into multi-tenant large format centres. Woolworths will acquire three Masters freehold sites and take assignment of 12 leases to facilitate a complete exit of Hydrox. Please refer to the 'Woolworths Update on Home Improvement Exit' ASX release for further detail.

OVERHEADS, CASH FLOW AND BALANCE SHEET

CENTRAL OVERHEADS INCLUDING EZIBUY

Central Overheads before significant itemsincluding EziBuy were $157.8 million for the year. Excluding EziBuy, Central Overheads were $142.6 million and increased $24 million on the prior year partly driven by higher team performance-based bonuses. The loss before interest and tax for EziBuy before significant items was $15.2 million compared to EBIT of $2.6 million in the prior year.

BALANCE SHEET

Key balance sheet movements relative to the prior year were as follows:

• Closing inventory of $4,558.5 million decreased $314 million with $354 million of the decrease attributable to the impact of significant items recognised in FY16 and the reclassification of Home Timber and Hardware ('HTH') inventory within 'net assets held for sale'. Excluding the impact of the above items, inventory increased $40 million driven by the investment in inventory in 98 (net) new stores partially offset by a number of initiatives aimed at reducing inventory holdings. Closing inventory days excluding Home Improvement increased 0.7 days to 35.6 days.
• Net investment in inventory was ($250.6) million or ($521) million excluding Home Improvement and significant items, remaining broadly flat year on year with no material differences in the timing of creditor payments (FY15: ($524) million excluding Home Improvement).
• Other creditors of $1,751.5 million increased $328 million driven by an increase in accruals for short term team performance-based bonuses and other trading accruals.
• Provisions of $3,255.9 million increased $1,577 million driven by the recognition of onerous lease and other store exit cost provisions relating to significant items recognised in FY16 of $1,494 million, of which $1,150 million relates to Home Improvement. Excluding significant items, provisions increased $83 million due to an increase in provisions for employee entitlements.
• Fixed assets and investments of $8,371.3 million decreased $1,793 million driven by significant item impairment charges of $1,633 million relating to the impairment of Home Improvement assets of $1,432 million and impairments resulting from the FY16 Group wide review of $201 million, as well as the transfer of Home Improvement and other Group property assets to 'net assets held for sale' of $843 million. Excluding the impact of the above items, fixed assets and investments increased by $683 million driven by net capital expenditure of $1,713 million relating to new stores, store refurbishments and support assets offset by depreciation charges and asset disposals and retirements in the ordinary course of business.
• Net assets held for sale of $897.9 million represents assets and liabilities relating to HTH, property, plant and equipment relating to Masters and other Group properties held for sale.
• Intangible assets of $5,978.3 million decreased $266 million driven by impairment charges of $439 million primarily relating to the impairment of goodwill and other intangible assets in EziBuy and Home Improvement. Excluding these impairments, intangible assets increased $173 million primarily reflecting increased intangible assets in our New Zealand Food business attributable to the stronger New Zealand dollar.
• Total funds employed decreased $3,682 million, primarily impacted by the impairment charges and provisions recognised during the period for significant items.
• Net tax balances of $1,070.5 million increased $416 million primarily due to $260 million in net tax benefits associated with significant item expenses and a decrease in current tax payable driven by a higher tax instalment rate applying to tax payment in the first half of FY16 on lower profits.
• Other financial liabilities of $41.8 million decreased $934 million, primarily due to the $887 million movement in the valuation of Lowe's put option in our Home Improvement business.
• Shareholders' equity decreased $2,637 million to $8,470.6 million primarily reflecting losses from discontinued operations attributable to the shareholders of Woolworths of $2,038.3 million and dividend payments of $1,471.2 million, offset by the increase in issued share capital of $282.1 million reflecting shares issued under the dividend reinvestment plan and profits generated from continuing operations attributable to the shareholders of Woolworths of $803.5 million.
• ROFE before significant items was 18.49%, a decrease of 724 bps or excluding Home Improvement was 22.2%, a decrease of 1,040 bps.

CASH FLOW

Cash flow from operating activities before interest and tax decreased $1,215.8 million to $3,495.3 million and was primarily impacted by the lower trading performance and the impact of the timing of creditor payments relative to the reporting period date (approximately $155m). Significant items recognised during the year did not have a material impact on cash flows from operating activities before interest and tax.

Excluding the impact of creditor timing and significant items, the decrease in cash flow from operating activities before interest and tax was broadly in line with the decrease in EBITDA before significant items for the Group.

Cash realisation ratio before significant items was 95.0%, impacted by the Home Improvement business. Excluding Home Improvement, our cash realisation ratio for continuing operations before significant items was 103.6% (FY15: 102.7%).

Net interest paid of $289.3 million decreased $21.0 million driven by lower average net debt funded by proceeds received from the sale of property assets.

Tax payments decreased to $848.5 million for the year (FY15: $1,055.7 million) predominately due to the Woolworths Limited tax instalments being varied to nil from March 2016 in response to the lower FY16 trading result.

Cash used in investing activities was $1,266.7 million, a decrease of $67.2 million on the prior year. During FY16, cash proceeds of $737.0 million were received from the sale of property, plant and equipment, a decrease of $188.4 million on the prior year which included proceeds from the sale of 54 Hotel property assets and proceeds from the sale of shares in The Warehouse Group. Payments for the purchase of businesses, primarily representing five Hotels in FY16, decreased by $66.0 million on the prior year.

Expenditure on property development of $473.3 million decreased $122.4 million (FY15: $595.7 million) driven by lower activity in the current period.

Investment in property, plant and equipment of $1,465.0 million included continued investment in new stores and store refurbishments and spend associated with supply chain and IT asset initiatives.

Cash contributions from Lowe's in relation to our Home Improvement business were $120.0 million and relates to H1'16.

There were no proceeds from share issues during the year as the Group had fully transitioned to the use of performance rights, which do not have an exercise price, by the end of FY15.

Our fixed charges cover ratio before significant itemsis 2.3 times.

CAPITAL MANAGEMENT

Woolworths introduced a 1.5% discount on the DRP in April and removed the participation limit. This resulted in an increase in the participation rate to 31% for the interim dividend. Woolworths will retain a 1.5% discount on the final dividend with no participation limit. Woolworths also intends to partially underwrite the final dividend to 50% with the proceeds to be used predominantly to replace Woolworths Notes II and the balance to allow for accelerated investment in its store renewal program.

Woolworths is committed to a solid investment grade credit rating and a number of actions can be undertaken to support the credit profile including the sale of non-core assets, accelerating working capital initiatives and adjusting its growth capital expenditure and property leasing profile. We are actively considering all options to enhance shareholder value in our portfolio businesses.

Dividends

The Board continues to target an after tax dividend payout ratio of 70%, subject to trading performance.

The Board has approved a final dividend per share of 33c, a decrease of 54.2% on the prior year.

The payment of the April 2016 and October 2016 dividends will return $1.0 billion and $0.4 billion in franking credits to shareholders. Woolworths expects that after these events, there will be approximately $2.3 billion of franking credits available for future distribution.

Upcoming refinancing

Woolworths has approximately AUD 381 million equivalent of US144A debt maturing in the second half of FY17. This refinancing requirement has been pre-funded by additional bank facilities totalling $2.0 billion with tenors of 3 and 5.5 years, established in April 2016. This was partially utilised to repay other debt which matured during FY16.

The five year non-call period for the AUD 700 million Woolworths Notes II ends on 24 November 2016. Pursuant to a replacement capital covenant, the Notes may be refinanced by a hybrid containing similar characteristics (50% S&P equity credit) or a combination of debt and equity in equal proportions. As described above, the equity component of the Notes will be satisfied by the shares issued under the DRP.

NEW STORE ROLLOUT PLANS FROM CONTINUING OPERATIONS

Space rollout is supported by detailed plans for the next 3 - 5 years identifying specific sites.

OUTLOOK

The focus of the Woolworths Group in FY17 will continue to be on our five key priorities. We expect the market environment to remain competitive in the year ahead but also expect to see continued progress in our turnaround following a year of significant investment in FY16. Given the lack of visibility on our FY17 financial performance at this stage of the year, and consistent with our previous announcements, we will not provide full year profit guidance.

Our Q1'17 sales release is currently scheduled for 28 October 2016.

-ends-

For further information contact: