ANNUAL REPORT 2015 WorldReginfo - 8cf57e2f-bae1-4047-a16e-d59cccae8385 ANNUAL REPORT 2015 woolworthslimited.com.au Woolworths Limited ABN 88 000 014 675 WorldReginfo - 8cf57e2f-bae1-4047-a16e-d59cccae8385 KEY FY15 FINANCIAL HIGHLIGHTS Woolworths is evolving and innovating to meet market challenges and finding new ways to delight our customers. TOTAL DIVIDENDS RETURNED TO SHAREHOLDERS IN GROUP RELATION TO FY15 SaLES $ b $ b 1.8 60.7 0.2% FY15 FULLY FRANKED EARNINGS PER SHARE DIVIDENDS PER SHARE BEFORE SIGNIFICANT ITEMS1 c c 139 1.5% 195.2 0.7% NET PROFIT AFTER TAX BEFORE SIGNIFICANT ITEMS1 $ m 2,453.3 0.1% For footnotes refer to page 25. CONTENTS Chairman’s Report 2 Home Improvement 20 Board of Directors 26 Managing Director’s Report 4 Overheads, Balance Sheet and Cash Flow 22 Management Board 30 The Results in Brief 6 Capital Management 23 Directors’ Statutory Report 31 Group Financial Performance 8 Space Roll-out Plans 23 Remuneration Report 34 Australian Food, Liquor and Petrol 10 Outlook 24 Auditor’s Independence Declaration 55 New Zealand Supermarkets 14 Material Business Risks 24 Financial Report to Shareholders 56 General Merchandise 16 Footnotes for Chairman’s and Shareholder Information and Hotels 18 Managing Director’s Report 25 Corporate Governance Statement 123 For footnotes refer to page 25. WorldReginfo - 8cf57e2f-bae1-4047-a16e-d59cccae8385 2 | WOOLWORTHS LIMITED | ANNUAL REPORT 2015 Chairman’s Report On behalf of the Board of Directors and management team, I am pleased to present you with our detailed reports for financial year 2015. GORDON CAIRNS Chairman I am delighted and excited to have joined of changes to the Woolworths–Caltex RESULTS the Woolworths Board on 1 September alliance2, the declining average fuel sale 2015. While financial year 2015 was a price, as well as a disappointing trading challenging one for the Company, I am result in Australian Food and Liquor and FY11 174.6 already working closely with my Board General Merchandise. Excluding Petrol, FY12 178.3 colleagues and management on the three sales increased 2.5% on the prior year. year journey to regain momentum across FY13 190.2 DIVIDENDS our portfolio of businesses. FY14 196.5 The Board announced a 1.5% increase In the financial year we delivered net in dividends per share to 139 cents for FY15 195.2 profit after tax before significant items1 of financial year 2015, up from 137 cents in 1 $2.45 billion in line with last year’s result, EPS (cents) before significant items financial year 2014. and dividends are slightly up on last year. In May we updated investors on the YOUR BOard Company’s strategy. Throughout the year Financial year 2015 has been one of FY11 122 we have also made a number of significant significant renewal for your Board. FY12 126 changes to our senior management On 1 September 2015, Chairman Ralph team. At the core of these changes was a Waters stepped down and retired as a FY13 133 commitment to put customers at the heart Director. Ralph served as Chairman for FY14 137 of everything we do and deliver long-term nearly three years and as a Director for value for shareholders. more than four years. I thank him for his FY15 139 FINANCIAL RESULTS service to the Company. Dividends per share (cents) Net profit after tax before significant Non-Executive Director, Mr Ian Macfarlane items1 increased 0.1% on the prior year AC, also retired from the Board in March to $2,453.3 million. On a statutory basis, 2015. This retirement formed part of after reflecting the impact of significant the Board’s succession process, and items1, net profit after tax decreased 12.5% enabled a suitable transition following to $2,146.0 million. the appointment of Mr Scott Perkins in September 2014. Group sales were $60.7 billion, representing a decrease of 0.2%. This As previously announced, the Board will was driven by lower fuel sales as a result continue to review its skills and capabilities. For footnotes refer to page 25. WorldReginfo - 8cf57e2f-bae1-4047-a16e-d59cccae8385 CHAIRMAN’S report | 3 The Board announced a 1.5% increase in dividends per share to 139 cents for financial year 2015, up from 137 cents in financial year 2014. PEOPLE Alistair McGeorge, who was Managing GrOUP SaLES DECREASED Significant changes have been made to Director of BIG W, left the company in 0.2% TO $60.7B our senior management team. August 2015, and Penny Winn is acting as Managing Director of BIG W. Penny will $ In June 2015, Chief Executive Officer leave the Company by the end of this year and Managing Director, Grant O’Brien, 60.7b to pursue a non-executive director career. informed the Board of his intention to Executive search processes for the roles of retire from the Company. Mr O’Brien Managing Director of BIG W and Director GrOUP SaLES EXCLUDING PETROL has been CEO since October 2011. On of Group Retail Services are underway. INCREASED 2.5% To $55.0B behalf of the Board, senior management and staff, I would like to thank Grant for CONCLUSION his commitment to Woolworths over Financial year 2015 will be remembered $ 28 years, and his willingness to stay at the as a year of significant change for 55.0b helm to ensure a smooth transition to his Woolworths. This was inevitable given a successor. the new retail challenges outlined by NET PROFIT afTER Tax BEFORE Given the importance of finding the management at the Investor Day in SIGNIFICANT ITEMS1 INCREASED right leader for Woolworths, the Board May 2015, and the Company’s strategy 0.1% TO $2,453.3M determined to conduct a global CEO to meet them, including accelerating search. This process is progressing well our lean retail model to compete in a $ and a range of internal and external new environment. candidates have been identified. 2,453.3m Finally, the Board would like to In February 2015, Brad Banducci acknowledge the contribution made by was appointed Managing Director, our 190,000-plus employees. Staff work Woolworths Food Group, following the hard every day to serve our customers. departure of Tjeerd Jegen. Brad was It is their unstinting commitment to our replaced as the Managing Director of customers that will ensure Woolworths Woolworths Liquor Group by Martin continues to grow and deliver Smith, former General Manager of for shareholders. Dan Murphy’s. Dave Chambers was appointed Director of Woolworths Supermarkets, with Pat McEntee appointed Acting Managing Director of Progressive Enterprises in New Zealand. For footnotes refer to page 25. WorldReginfo - 8cf57e2f-bae1-4047-a16e-d59cccae8385 4 | WOOLWORTHS LIMITED | ANNUAL REPORT 2015 Managing Director’s Report Our scale, network, supply chain and proven ability to extract operating efficiencies provide a strong competitive advantage in an era that brings new challenges. Grant O’BRIEN Managing Director and Chief Executive Officer Woolworths is a company that strives to A STRONG BUSINESS WITH deliver growth year-on-year. Whilst we LOTS OF POTENTIAL delivered a profit that was in line with last Woolworths is a strong business with We are focused year, we did not deliver growth, which lots of potential. Our scale, network, was disappointing. supply chain and proven ability to extract on maintaining We know our shareholders want operating efficiencies provide a strong consistently strong returns year in and year competitive advantage in an era that brings strong sustainable out. Despite our profit results, we have new challenges. increased our dividend to shareholders Woolworths has market leading positions returns for our on last year. in all our key markets. In Australian Our customers expect a consistently Food and Liquor we are 30 per cent shareholders great shopping experience with the best larger than our nearest competitor. Our range of products at the lowest prices Liquor business is a global leader and is in a convenient location. The challenges growing its leadership in all its Australian by ensuring of the year have renewed our focus on formats and Countdown is New Zealand’s winning customers. foremost supermarket brand. Masters customers put has the number two position in the highly attractive Home Improvement market. ALH is Australia’s largest hotels operator. us first. We are also Australia’s largest domestic online retailer. The market environment has changed dramatically with stronger competition and significant shifts in customers’ shopping behaviour. Woolworths is evolving and innovating to meet these challenges and finding new ways to delight our customers. We have a unique platform from which we serve more than 29 million customers per week. We are focused on improving the customer experience and increasing our share of wallet. We are focused on maintaining strong sustainable returns for our shareholders by ensuring customers put us first. For footnotes refer to page 25. WorldReginfo - 8cf57e2f-bae1-4047-a16e-d59cccae8385 Managing Director’S report | 5 ThIS YEar 72% OF OUR PROFIT BEFORE SIGNIFICANT ITEMS1 WILL BE RETURNED TO OUR SharEHOLDERS IN DIVIDENDS TOTALLING $1.8B $1.8b IN AUSTraLIAN FOOD AND LIQUOR WE arE 30 PER CENT LARGER ThaN OUR NEAREST COMPETITOR 30% WE UNDERSTAND 4. Accelerating the reset of BIG W. WE havE REINVESTED THE ChaLLENGES AND ARE We need to convert the capabilities of 56,000 HOURS PER WEEK IN TakING THE STEPS REQUIRED BIG W into results. We have already SErvICE IN-STORE, WITH A We recognise the challenges to realising cleared more than 80 per cent of FOCUS ON FRESH AND ON- our growth potential and have already non-productive inventory, rolled out SHELF avaILabILITY made progress towards addressing these: the new Party category to 63 stores and increased the number of products 1. We need to regain momentum in available online to more than 28,000.