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oolworths - Audited Group Results For The Year Ended 30 June 2005
Release Date: 25/08/2005 08:00:41 Code(s): WHL
Woolworths - Audited Group Results For The Year Ended 30 June 2005
Woolworths Holdings Limited
(Incorporated in the Republic of South Africa)
Registration number: 1929/001986/06
Share code: WHL ISIN: ZAE000063863
2005 HIGHLIGHTS
* Revenue up 15.1%
* Operating profit up 24.3%
* HEPS up 22.0%
* ROE up to 33.5%
* Distribution per share up 40.3%
AUDITED GROUP RESULTS FOR THE YEAR ENDED 30 JUNE 2005
INCOME STATEMENT
Year ended
30 June
2005 2004 %
Note Rm Rm change
Revenue 12 988.9 11 281.7 15.1
Turnover 12 220.7 10 648.8 14.8
Cost of merchandise 8 207.6 7 091.4 15.7
Gross profit 4 013.1 3 557.4 12.8
Other revenue 768.2 632.9 21.4
Expenses 3 517.1 3 173.1 10.8
Depreciation 262.1 232.8 12.6
Occupancy cost 609.8 589.0 3.5
Employment cost 1 449.6 1 303.2 11.2
Other operating cost 1 195.6 1 048.1 14.1
Operating profit 1 264.2 1 017.2 24.3
Finance costs 152.7 108.7 40.5
Net profit before exceptional
items 1 111.5 908.5 22.3
Exceptional items - (10.1)
Net profit before tax 1 111.5 898.4 23.7
Tax 2 307.7 257.4 19.5
Net profit after tax 803.8 641.0 25.4
Outside shareholders` interest (2.2) (0.7)
Net profit attributable to
ordinary shareholders 801.6 640.3 25.2
Reconciliation of headline
earnings
Attributable earnings 801.6 640.3 25.2
Reversal of provision
for impairment of property (15.5) -
Profit on disposal of investment
in unit trust (7.9) -
(Profit)/loss on disposal of
property, plant and
equipment net of outside
shareholders` interest (0.9) 0.1
Provision for impairment of plant
and equipment 0.5 -
Foreign exchange loss realised
on repayment of
loan by subsidiary 4.1 -
Goodwill amortisation - 10.1
Headline earnings 781.9 650.5 20.2
Headline earnings per share
(cents) 92.1 75.5 22.0
Diluted headline earnings
per share (cents) 3 89.7 73.4 22.2
Earnings per share (cents) 94.4 74.3 27.1
Diluted earnings per share (cents) 3 92.0 72.3 27.2
Distributions per share (cents) 4 54.0 38.5 40.3
Distribution cover (based on
earnings per share) 4 1.7 1.9
Number of shares in issue
(millions) 787.2 868.3 (9.3)
Weighted average number of
shares in issue
(millions) 849.4 861.2 (1.4)
GROUP ANALYSIS
Revenue
Turnover 12 220.7 10 648.8 14.8
Woolworths 11 238.6 9 715.4 15.7
- Clothing and home 5 349.5 4 792.2 11.6
- Foods 5 666.0 4 747.1 19.4
- Logistics services and other 223.1 176.1 26.7
Country Road 982.1 933.4 5.2
Interest 641.7 543.4 18.1
Other revenue 126.5 89.5 41.3
12 988.9 11 281.7 15.1
Operating profit
Retail
Woolworths 866.0 690.6 25.4
Country Road 24.4 10.2 139.2
Financial services 373.8 316.4 18.1
1 264.2 1 017.2 24.3
BALANCE SHEET
At
30 June
2005 2004
Note Rm Rm
ASSETS
Non-current assets 1 942.7 1 873.9
Property, plant and equipment 1 314.6 1 192.4
Investments 2.6 18.6
Loans to customers 198.7 162.5
Participation in export partnerships 79.3 171.6
Other loans 146.9 143.9
Deferred tax 200.6 184.9
Current assets 5 094.6 3 992.3
Inventories 683.0 576.4
Woolworths card debtors 5 2 561.8 2 148.2
Credit card receivables 309.6 178.7
Accounts receivable 777.0 459.4
Loans to customers 526.3 415.6
Tax 11.4 26.0
Cash 225.5 188.0
Total assets 7 037.3 5 866.2
EQUITY AND LIABILITIES
Capital and reserves 2 116.4 2 602.0
Ordinary shareholders` interest 2 090.2 2 581.3
Outside shareholders` interest 26.2 20.7
Non-current liabilities 3 081.4 725.2
Interest-bearing borrowings 6 2 400.0 -
Non-interest bearing liabilities 417.3 387.4
Post-retirement medical-aid liability 174.0 151.2
Deferred tax 90.1 186.6
Current liabilities 1 839.5 2 539.0
Accounts payable 1 274.7 1 132.9
Provisions 117.5 113.6
Tax 245.1 154.6
Interest-bearing borrowings 202.2 1 137.9
Total equity and liabilities 7 037.3 5 866.2
Net asset book value - per share (cents) 265.5 297.3
GROUP ANALYSIS
Total assets 7 037.3 5 866.2
Woolworths 6 652.6 5 539.7
Country Road 384.7 326.5
Inventories 683.0 576.4
Woolworths 563.0 472.6
Country Road 120.0 103.8
Approved commitments for capital expenditure 643.2 298.5
Woolworths 598.2 259.1
Country Road 45.0 39.4
CASH FLOW STATEMENT
Year ended
30 June
2005 2004
Rm Rm
Cash flow from operating activities
Cash inflow from trading 996.5 794.4
Working capital movements (228.4) (7.5)
Cash applied to financial services assets (722.0) (709.8)
Cash generated by operating activities 46.1 77.1
Interest received 638.0 540.9
Finance costs paid (149.9) (105.8)
Tax paid (314.6) (331.5)
Cash generated by operations 219.6 180.7
Distributions to shareholders (384.2) (271.7)
Net cash outflow from operating activities (164.6) (91.0)
Cash outflow from investing activities (312.6) (393.2)
Cash flow from financing activities
Shares issued 63.2 54.5
Shares repurchased (1 002.0) -
Notes issued 1 900.0 -
Non-current borrowings raised 500.0 -
Capital restructuring costs (18.4) -
Net cash inflow from financing activities 1 442.8 54.5
Increase/(decrease) in cash and cash equivalents 965.6 (429.7)
Cash and cash equivalents at the beginning of the year (949.9) (514.7)
Effect of foreign exchange rate changes 7.6 (5.5)
Cash and cash equivalents at the end of the year 23.3 (949.9)
GROUP ANALYSIS
Cash generated by operations - before tax 534.2 512.2
Woolworths 482.3 472.8
Country Road 51.9 39.4
STATEMENT OF CHANGES IN ORDINARY SHAREHOLDERS` INTEREST
Year ended
30 June
2005 2004
Rm Rm
Ordinary shareholders` interest at the beginning of
the year 2 581.3 2 169.4
As previously reported 2 412.4
Change in accounting treatment of operating leases (243.0)
Movements for the year:
Share premium arising from shares issued under share
purchase scheme 63.2 54.5
Shares repurchased (1 002.0) -
Recognised gains and losses 447.7 357.4
Distributable reserves 412.5 379.7
Net profit attributable to ordinary shareholders 801.6 640.3
Costs of capital restructuring (18.4) -
Distributions to shareholders (384.2) (271.7)
Net fair value adjustment on financial instruments 13.5 11.1
Non-distributable reserves
Exchange differences on translation of foreign
entities 35.2 (22.3)
Ordinary shareholders` interest at the end of the year 2 090.2 2 581.3
SEGMENTAL ANALYSIS
Operating results Revenue Net profit before tax
2005 2004 % 2005 2004 %
Rm Rm change Rm Rm change
Retail
Woolworths 11 288.4 9 751.2 15.8 866.0 680.5 27.3
Country Road 995.1 948.6 4.9 20.7 5.6 269.6
Financial services 773.9 647.3 19.6 224.8 212.3 5.9
Intragroup (68.5) (65.4)
Total group 12 988.9 11 281.7 15.1 1 111.5 898.4 23.7
Balance sheets Capital and reserves Return on Equity
2005 2004 % 2005 2004
Rm Rm change % %
Retail
Woolworths 923.7 655.6 40.9 77.3 81.6
Country Road 234.2 173.0 35.4 10.3 3.9
Financial services 958.5 1 773.4 (46.0) 11.2 9.3
Total group 2 116.4 2 602.0 (18.7) 33.5 27.4
Notes
1. The financial statements comply with South African Statements of Generally
Accepted Accounting Practice. Accounting policies used are consistent with
those applicable for the June 2004 financial statements, except as follows:
- On 2 August 2005 the South African Institute of Chartered Accountants
issued Circular 7/2005 dealing with the requirements of AC105 - Leases, in
respect of operating leases which include fixed rental increases.
AC105 states that lease expense/income should be recognised on a straight-line
basis over the lease term unless another systematic basis is more representative
of the time pattern of the user`s benefit. It is now considered that the
definition of a `user`s benefit` is only affected by factors that impact the
physical usage of the property. The straight-line method results in an equal
impact in the income statement in each reporting period irrespective of the fact
that cash flows differ.
The impact of this change in interpretation on opening retained profits and
current year performance is set out below:
2005 2004
Rm Rm
Effect on opening retained profit - (243.0)
Effect on current year profit (24.6) (26.5)
Effect on earnings per share and headline earnings
per share (cents per share) (2.9) (3.1)
The effects disclosed are net of deferred tax at the rates prevailing during the
relevant year.
Two elements of the 2004 income statement have been reclassified for
comparability to the 2005 performance. Provisions raised for onerous lease
contracts of R6.3m before tax have been reclassified from exceptional items to
occupancy costs in order that they be included in operating results. In
addition, certain operational costs of our distribution subsidiary have been
reclassified from cost of sales to other operating costs. The 2004
reclassification amounts to R170.8m. This has the effect of increasing the prior
year gross margin from 31.8% to 33.4%.
2. The effective tax rate of 27.7% (2004: 28.7%) is mainly due to the
utilisation of tax losses in subsidiaries and the reduction of the corporate tax
rate from 30% in 2004 to 29% in the current year.
3. The difference between earnings per share and diluted earnings per share
results from outstanding options.
4. Distributions comprise the interim distribution of 18.5c per share, paid on
14 March 2005 and the final distribution of 35.5c per share declared on 24
August 2005. The distribution cover, based on EPS, has been reduced to 1.7 times
(1.8 times excluding the operating lease accrual) from 1.9 times in respect of
the 2004 year (2 times excluding the operating lease accrual).
5. In February 2005 R2 323.6m of Woolworths card debtors were sold to Account On
Us (Proprietary) Limited (`Account On Us`) as part of an asset-backed note
programme. Under the programme, card debtor receivables are sold on a daily
basis from Woolworths (Proprietary) Limited to Account On Us. At the balance
sheet date the Woolworths card debtors includes R2 415.8m sold to Account On Us.
Account On Us is consolidated into the group results under SIC 12 (AC412).
6. Non-current interest-bearing borrowings includes R1 900m of notes issued
under an asset-backed note programme referred to in note 5 above.
7. Gross capital expenditure on property, plant and equipment
2005 2004
Rm Rm
Woolworths 344.1 392.5
Country Road 41.8 33.9
385.9 426.4
8. Unutilised banking facilities amount to R2 773.9m (2004: R1 098.7m). In terms
of the Articles of Association, there is no limit on the group`s authority to
raise interest-bearing debt.
9. The group`s annual financial statements have been audited by the group`s
joint auditors Ernst & Young and SAB & T Inc and a copy of their unqualified
report is available for inspection at the company`s registered office.
ANOTHER YEAR OF CONTINUED GROWTH
COMMENTARY
Group results
The board is pleased to announce another set of solid results. Headline earnings
per share for the financial year to June 2005 increased by 22.0% from 75.5 cents
to 92.1 cents per share, achieving a five-year compound growth of 33.3%. Return
on equity grew to 33.5% in 2005 from 10.7% in 2000. A dividend payment of 15.5
cents per share and a final distribution from the share premium account of 20
cents per share is declared taking total distributions for the year to 54 cents
per share, up 40.3% from last year.
Trading environment
In South Africa, trading conditions remained buoyant throughout the year as the
emerging black market and general consumer confidence continued to be strong
through lower interest rates, low inflation and an increase in disposable
income.
Financial review
Group revenue increased by 15.1% to R13.0bn.
Operating profit for the group increased by 24.3% to R1.3bn on the back of
strong food sales, interest income growth and good cost control. The group`s
gross profit percentage decreased from 33.4% to 32.8% due to mix changes in our
different businesses and markdowns in the clothing divisions of Woolworths and
Country Road. Finance costs increased by 40.5% primarily due to the change in
capital restructuring resulting from the R1bn share repurchase undertaken in the
last quarter. This is in line with our objective to optimally gear our financial
services business.
Operational review
WOOLWORTHS
Retail
Net profit before tax in the retail segment grew by 27.3% to R866m.
Clothing and Home sales grew by 11.6% and by 8.3% in comparable stores with an
average deflation rate of approximately 1% over the financial period. The growth
in sales in the second half improved. We are implementing a buying process to
further enhance our quality differentiation and improve range structuring. Our
sourcing strategy remains to support the South African clothing industry where
possible. We procure abroad where we cannot find the right prices or capacity
locally.
Foods performed exceptionally well throughout the year with sales growing by
19.4% and 11.4% in comparable stores with an average inflation rate of 3% over
the period. During the period market share increased to 8.0%. The continued
strong growth was fuelled by our roll-out of stores, our relentless pursuit of
our good food strategy and our drive to ensure that Woolworths becomes our
customers` main shop. Our convenience food stores are now successfully
penetrating more middle income residential areas.
Real estate
Ten full line stores and nine food stores were opened during the period,
resulting in a 7.5% footage increase in Foods and 4.4% in Clothing and Home over
the period.
Franchise
Franchise stores within South Africa performed well, whilst trade in the rest of
Africa was mixed. Trading in the Middle East continued to be tough, but
encouraging results have been experienced in the last few months as improvements
in our supply chain resulted in more appropriate seasonal ranges being offered.
Financial services
Our in-store card, credit card and personal loan books grew by 23.8%. Net profit
before tax increased from R212.3m to R224.8m despite the impact of lower
interest rates, an increase in interest paid in respect of the securitisation
and a strategic decision to grow credit more aggressively resulting in an
acceptable increase in bad debt. Net bad debts on the total book were well
managed representing 2.4% of advances.
The debt ratio at year-end increased from 39% to 68% as a result of the balance
sheet restructure. The resulting increase in ROE from 9.3% to 11.2% did not
reflect the full annualised effect as the restructure occurred during the last
quarter.
COUNTRY ROAD
Sales in Country Road were 9% higher in Australian dollar terms, with volume
growth in excess of 30%. Margins were impacted by significant one-off costs
associated with the transition to the new design processes, as well as higher
markdowns taken to clear winter stocks following an unseasonably warm winter.
Net profit before tax increased from A$2.5m to A$3.2m after taking into account
the change in accounting for distribution costs which had a once-off enhancement
of A$0.9m.
Prospects
We expect our portfolio of businesses to again show solid growth in the year
ahead, although we do not expect consumer growth to be at the same level of the
last two years. The return on equity will improve with the full impact of the
balance sheet restructure.
Empowerment plans
Woolworths continues to be engaged in the black economic empowerment process. We
are presently developing a plan around staff ownership, the majority of whom are
black. We will approach shareholders on this during the cause of this financial
year.
DA Hawton SN Susman
Chairman Chief executive officer
Cape Town, 24 August 2005
Dividend payment and cash distribution Notice is hereby given that the directors
declared a final dividend of 15.5 cents per share and a cash distribution of 20
cents per share for the six months ended 30 June 2005. The cash distribution
will be made by way of a reduction in the share premium account. Both the
dividend payment and the cash distribution will be made in terms of the general
authority to make payments to shareholders, granted at the annual general
meeting held in November 2004.
Shareholders are advised that the last day to trade in order to participate in
the dividend payment and cash distribution will be on Friday, 9 September 2005.
The shares will trade `ex` the dividend and distribution on Monday, 12 September
2005 and the record date will be Friday, 16 September 2005. The amounts will be
payable on Monday, 19 September 2005.
Share certificates may not be dematerialised or rematerialised between Monday,
12 September 2005 and Friday, 16 September 2005 both days inclusive.
CL Lowe
Group secretary
Cape Town, 24 August 2005
Directorate and statutory information
Non-executive directors: Buddy Hawton (Chairman), Mair Barnes (British),
Nigel Colne (British), Nolitha Fakude, Brian Frost, Mike Leeming,
Chris Nissen, Sindi Zilwa
Executive directors: Simon Susman (CEO), Richard Inskip, Norman Thomson
Group secretary: Cherrie Lowe
Share code: WHL & ISIN: ZAE000028288
Registered address (postal and physical): PO Box 680
Cape Town 8000
Woolworths House
93 Longmarket Street,
Cape Town 8001
Registration number: 1929/001986/06
Auditors: Ernst & Young and SAB & T Inc
Bankers: Standard Bank of South Africa Limited
Transfer secretaries: Computershare Investor Services 2004 (Pty) Ltd,
70 Marshall Street,
Johannesburg 2001
Visit our Investor Relations site: www.woolworthsholdings.co.za
