Woolworths : Final profit and dividend announcement for the 52 weeks ended 25 June 2017

23 August 2017

Moving from turnaround to transformation

NPAT from continuing operations of $1,422.1 million, down 3.6%

Basic EPS from continuing operations of 110.8c, down 5.1%

Group NPAT of $1,533.5 million

Dividend per share of 84c, up 9.1%

Solid progress on key priorities:

• New Purpose, Ways-of-Working and Core Values, reinforced by shared short-term and long-term incentives is contributing to a material improvement in culture
• Customers are recognising the improvements we are making with Voice of Customer (VOC) scores improving consistently throughout the year in Australian Food, with store-controllable VOC of 81% in June 2017
• Sales momentum in Australian Food, with Q4'17 Easter adjusted comparable sales growth of 6.4%. H2'17 EBIT up 13% despite materially higher team incentive payments and investment in team member training
• Record Net Promoter Score (NPS) and VOC scores in Dan Murphy's and BWS during the year with solid growth in a competitive market
• BIG W turnaround plan approved by the Board, new MD and senior team in place, and implementation underway
• WooliesX created via integration of Digital and Loyalty, focused on meeting the needs of our connected customers
• Exit of Home Improvement substantially finalised and EziBuy sold

More to do:

• Maintaining strong customer, team and sales momentum in Australian Food
• Accelerating growth from digital and improving the customer home delivery and store pick up experiences in Food and Drinks
• Delivering Woolworths Supermarkets Renewal 3.0 and accelerating Renewal and Upgrade programs
• Restoring BIG W sales momentum
• Rolling out 1Store, Space Management and Forecasting technology upgrade programs

FY17 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. The prior year comparative has been restated to reflect the current year presentation of Petrol as a discontinued operation.

n.m. : not meaningful

Brad Banducci, Woolworths Group CEO, said: 'FY17 was a year of rebuilding the foundations of our business and we are pleased with our progress over the last 12 months, particularly in the second half. Encouragingly, we still see many opportunities to improve our business going forward and are focused on our five key priorities. Our first priority is to build a customer and store-led culture and team. The key highlight in FY17 was the meaningful improvement in customer and team scores across the Woolworths Group. Over 116,000 employees provided feedback in our recent VOT survey with our sustainable engagement scores improving by five points over the last year to 82%.The improvement in safety was another highlight with a 20% improvement across Woolworths Group.

'Australian Food sales increased by 4.5% over the year with the fourth quarter the strongest at 7.2% (Easter adjusted). Comparable sales increased by 3.6% for the year and 6.4% Easter adjusted in the fourth quarter. EBIT for the year declined by 2.4% but increased by 13% in H2'17 with the strong improvement in sales and gross margin being partially offset by higher investment in price, service and team member incentives and training . Excluding incremental short-term incentives in FY17, EBIT increased by 8.3% for the year.

• Woolworths Supermarkets sales growth continues to be driven by customer transactions with an increase in the number of items per basket also assisting in the second half. Along with Sales, EBIT and VOC, Working Capital and Safety make up our five short-term incentive measures. An increased focus on inventory management delivered a 1.8 day reduction in day's stock on hand leading to strong cash generation for the year. In addition to the improvements in VOC and VOT, our Voice of Supplier (VOS) is up 20 points since the initial survey in August 2016.
• In FoodCo and Metro, we rebranded, repositioned and reformulated approximately 3,000 products into Essentials and Woolworths. In April we launched 'The Bunch' which now has over 7,000 members and is already Australia's largest food customer sampling community. We opened 6 Metro stores during the year and rebranded 3 small supermarkets to end the year with 23 stores in the Metro format. Metro stores delivered comparable sales growth of 17% during the year as we focused on meeting our in-store customers need for increasing convenience.
• WooliesX - in the fourth quarter, we brought together our Loyalty and Digital businesses to create a new business called WooliesX. WooliesX will allow Woolworths to maximise the combined wealth of insights and technical expertise currently in the group as we look to accelerate our growth from digital over the next three years. Online growth in Australian Food was 15.8% for the year and we reached the milestone of 10 million Woolworths Rewards members in the last week of the financial year.

'Endeavour Drinks delivered sales growth of 4.3% with EBIT growth of 3.9% with Dan Murphy's and BWS both again delivering positive comparable sales growth. EBIT grew at a slightly lower rate than sales as we continued to invest to retain our leading position in a low growth, competitive market. Online remained a key area of focus during the year with Dan Murphy's Online a highlight with growth of approximately 25%.

'New Zealand Food sales growth improved in the second half leading to growth of 2.1% for the year. In New Zealand dollars, New Zealand Food's EBIT decreased by 1.4% for the year and increased by 2% in H2'17. EBIT growth was subdued as we invested in price and service to improve the offer for our customers. We will continue to invest in our customer offer in FY18 which will impact profit in the short-term.

'In our portfolio businesses:

• BIG W's loss before interest and tax of $150.5 million was extremely disappointing but also reflects the investment we began to make in the second half as we implement our new turnaround plan. The plan has been approved by the Board and its implementation is underway. David Walker was appointed Managing Director BIG W after acting in the role since November 2016. FY18 will continue to be a year of investment for BIG W and we do not expect a reduction in losses as we continue to invest to improve the customer shopping experience, including re-establishing price trust.
• ALH Hotels reported a 2.4% increase in comparable sales with an 11.7% increase in EBIT for the year with strong second half growth as we cycled a period of higher promotional activity in the prior year.
• Despite the distraction of the announced sale of our Petrol business to BP, it delivered a strong improvement in customer satisfaction (VOC), maintained strong team engagement (VOT) scores and delivered strong EBIT growth during the year. The sale remains subject to regulatory approval.On 4 August, Lowe's one third share in the Home Improvement joint venture was acquired for $250.8 million. We expect to complete the Home Consortium transaction in late September which will finalise the sale of 61 freehold properties and the transfer of 20 leaseholds to Home Consortium.

'In summary, we are pleased with the progress we made in FY17 and are excited about our ability to further improve our business and customer and team experiences in FY18. We are moving from a turnaround phase, focused on fixing our business foundations, to a transformation phase, focused on leveraging team work, digital and insights to materially improve our business. I would like to thank our entire team for their efforts over the last 12 months and look forward to their support in FY18', 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, including good progress in setting the Group strategy, driving an improvement in culture and renewing the focus on capital management. We are confident of further progress in FY18 but have much more to do in our transformation.

'The Woolworths Board has announced a final dividend of 50 cents per share taking the total dividend for the year to 84 cents, a 9.1% increase on the prior year. In determining the final dividend, the Board has considered the improved trading performance in the second half, strong cash generation during the year leading to a significant reduction in net debt and the $134 million net profit after tax for Home Improvement in the second half which is not expected to recur. The Board remains committed to a solid investment grade credit rating', Mr Cairns said.