Woolworths : FY16 Full Year Earnings Announcement

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

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.

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

Significant Items1 (before tax) (958.6) (423.2) n.c