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www.woolworthsgroupplc.com 2008 ANNUAL REPORT AND ACCOUNTS
> Retail Woolworths Our stores comprise traditional Woolworths outlets located in small towns and city suburbs, targeted at meeting basic everyday shopping requirements, as well as larger stores located on prime shopping streets in major regional shopping centres. The product offer covers Toys, Children’s Clothing, Events, Confectionery, Home and Entertainment; larger stores include a more comprehensive range of Home and Children’s Clothing.
Through its website and catalogue, The Big Red Book, Woolworths offers customers a multichannel shopping solution across a broad range of products. Orders can be placed at home or in-store with delivery to either the customer’s home or for collection in-store.
www.woolworths.co.uk > Entertainment Wholesale and Publishing
2 | Entertain Contents The Group holds a 40 per cent share in this joint venture, 02 Financial and Operational Highlights combining the former VCI audio and video business with 03 Chairman’s Statement BBC Worldwide’s video publishing arm. Recent video titles include “Clarkson – Supercar Showdown” and “Top Gear – Directors’ Report 2 |Entertain Interactive DVD” and on audio, the “100 Hits” range. Business Review www.2entertain.co.uk 04 Our Resources 10 Chief Executive’s Report 16 Finance Director’s Report 20 Risk Factors Entertainment UK Limited (‘EUK’) 21 Corporate Social Responsibility EUK is the UK’s leading distributor of entertainment products, 22 Board of Directors generating an annual turnover in excess of £1.1 billion. EUK’s product portfolio covers all of the major 24 Corporate Governance entertainment formats – music, DVD, games and books – 28 Other Information as well as mobile phones. In turn, these products are 31 Directors’ Remuneration Report supplied to some of the country’s best known store groups 40 Statement of Directors’ Responsibilities and online retailers. 41 Independent Auditors’ Report 42 Group Income Statement www.entuk.co.uk Group Statement of Recognised Income and Expense 43 Group Balance Sheet 44 Group Cash Flow Statement Bertram Group Limited 45 Notes to the Group Accounts Bertram Group consists of the following three divisions: 82 Five Year Record 83 Independent Auditors’ Report Bertrams | THE, the UK’s leading book wholesaler with a 84 Company Balance Sheet growing number of international customers. 85 Notes to the Company Accounts 91 Shareholder Information Bertram Publisher Services provides distribution services to a wide range of client publishers.
Bertram Library Services, an industry leading supplier of TOTAL HOME ENTERTAINMENT books, tapes, CDs, games and many other audio-visual products to public libraries, schools, universities and THE educational institutions in the UK and around the world.
www.bertrams.com Woolworths Group plc 01. Annual report and accounts 2008
WOOLWORTHS GROUP PLC is principally a UK retailer and Entertainment distributor focused on the home, family and entertainment.
Woolworths offers its customers value-for-money on an extended range of products. It is built around the well known Woolworths brand which is represented in towns and cities throughout the UK.
Through Entertainment UK, Bertram Group and 2 entertain, Woolworths Group also has leading positions in UK Entertainment and Books wholesale distribution and publishing. 02. Woolworths Group plc Annual report and accounts 2008
> Group revenue increased by 8.5 per cent Financial to £2,969.6 million Highlights > Adjusted profit* before taxation increased £6.5 million to £28.3 million > Profit before taxation decreased £4.3 million to £11.7 million > Adjusted basic earnings per share** increased to 1.4 pence per share from 1.2 pence per share > Basic earnings per share decreased to 0.5 pence per share from 0.9 pence per share > Net debt at the year-end of £123.7 million 2008
> Entertainment Wholesale business enhanced Operational by supply to new customers including Asda and Zavvi (formerly Virgin Megastores) and the planned Highlights integration of THE and Bertram Group > Bertrams acquisition cleared following investigation by the Competition Commission > Woolworths like-for-like sales down 3.2 per cent > Multichannel revenue increased by 5.2 per cent > Woolworths gross margin increased by 101 basis points > Entry price point range launched with 1,417 items branded Worthit!, generating 11.6 per cent of transactions in peak week
* Throughout this document, adjusted profit before taxation is calculated as set out on page 17. ** Throughout this document, adjusted basic earnings per share is as calculated in note 9 to the financial statements. Woolworths Group plc 03. Annual report and accounts 2008
Chairman’s Statement
Against a difficult trading For the Entertainment Wholesale The Board has taken the environment, we have managed business, it was a year of major decision to cut the dividend. substantial change across change. Over a period of 18 Taking into account the the Group as a whole. Profit months we have gone from a Group’s plans, the Board is before tax and exceptional business with one dominant recommending a final dividend items increased to £14.9m third party customer, the main of 0.17 pence per share. At this from £7.3m in the prior year. contract with whom terminated lower level the full year dividend Adjusted profit (which is in May 2007, to one with six of 0.6 pence per share is before tax, exceptional items, significant third party customers. covered 2.4 times by adjusted adjustment for fixed rental At the same time we have earnings and provides a base uplifts and amortisation of become far less dependent on from which to grow it as certain intangible assets) the CD market and more performance improves. The increased from £21.8 million exposed to the growing books Board believes that payment to £28.3 million for the 52 and computer games markets. of a dividend at this level weeks to 2 February 2008. Sales increased by 36.6 per represents an appropriate cent to £1,176.6 million and balance between providing a We are pleased to report that adjusted profit was broadly return to shareholders and the retail business returned to unchanged. preserving the financial flexibility profitability this year. Whilst like- necessary to support the plans for-like sales were down 3.2 per 2 entertain, our joint venture and ongoing development of cent, gross margin improved by with BBC Worldwide had an the business over both the short 101 basis points and costs outstanding year. Adjusted and longer term. were contained below the rate attributable profit increased by of retail cost inflation. The £6.7 million due to a number On behalf of the Board I would business did benefit by £10.9 of successful releases, most like to thank our colleagues in million (2007: £5.8 million) from notably “Planet Earth” in the business for their sheer the full year effect of relifing America. enthusiasm, hard work and certain fixed assets; and from dedication. It is evident that they In January 2008 we announced property profits, some are committed to the future that we had completed a £5.0 million higher than last success of the business. refinancing of the Group. The year. Nonetheless, adjusted new £350 million asset based profit improved by £16.3 million lending facility and the £35 to £3.4 million. million 2nd lien loan provide us with long term finance, the level of which flexes with our working capital requirements. Richard North Chairman 2 April 2008 04. Woolworths Group plc Annual report and accounts 2008
Directors’ Report Business Review Our Resources
The Directors are pleased to present their report and the consolidated financial statements of the Company and its subsidiaries for the financial year ended 2 February 2008.
Woolworths Group plc is principally a UK general retailer and entertainment distributor focused on the home and family. The Group is comprised of two main divisions; Retail, and Entertainment Wholesale and Publishing. The key assets of these divisions are reviewed over pages 04-09. > Retail
Stores Since opening its first store in 1909, Woolworths has become a familiar feature on the UK’s high streets. Over four million people shop in our stores each week. There are today 801 Mainchain stores located in small towns and city suburbs, targeted at meeting basic everyday shopping requirements, as well as larger stores located on prime shopping streets in major regional shopping centres. The product offer covers Toys, Children’s Clothing, Events, Confectionery, Home and Entertainment. In Woolworths’ out-of- town stores, a wider selection of Toys, Outdoor goods, kids’ bedroom ranges and Entertainment products can be found. With its rich and well-loved heritage, Woolworths continues to refresh its store formats and the shopping environment to meet its customers’ requirements.
Mainchain Out-of-town Total Number of stores: 801 17 818 Average sq ft: 8,359 50,763 9,240
Through its website and catalogue, The Big Red Book, Woolworths offers customers a multichannel shopping solution across a broad range of products. Orders can be placed at home or in-store with delivery to either the customer’s home or for collection in-store. Woolworths Group plc 05. Annual report and accounts 2008
> Since opening its first store in 1909 Woolworths has become a familiar feature on the UK’s high streets. Over 4 million people shop in our stores each week.
> Woolworths offers its customers value-for-money on an extended range of products.
> The product offer includes Toys, Children’s Clothing, Events, Confectionery, Home and Entertainment.
> Ladybird is one of the best selling childrenswear brands in the UK. Focusing on clothing for children age 1-10 years, the brand offers fun, fashionable clothing at affordable prices. 06. Woolworths Group plc Annual report and accounts 2008
Directors’ Report Business Review
Our Resources – Retail (cont’d)
Colleagues The quality of Woolworths’ colleagues, in-store, in our distribution centres and at Head Office is vital to the Group’s success. Employing around 30,000 people, we place an emphasis on high standards of customer care and service, so our colleagues’ development and training is a priority. We encourage and enable our people to develop their knowledge, skills and career options across all facets of our business. We offer high quality business education and practical training in specific skills. Woolworths offers a leadership programme for graduates (Woolworths Group Leadership Programme). WGLP is a development framework for people with potential to become future business leaders. It develops people within chosen functional areas, including Business Development, Marketing, Commercial, Retail, Supply Chain and Distribution, Finance, Human Resources or IT. For more information on a career at Woolworths, go to www.woolworthscareers.co.uk.
Brands Ladybird – Dating back to the 1950s, Ladybird-branded Children’s clothing is now synonymous with Woolworths, which secured exclusive rights to the brand in 1984. Ladybird clothes are popular, modern and continue to appeal to today’s parents and their children. Chad Valley – the Chad Valley brand first appeared on toys in around 1920 and was acquired by Woolworths in 1988. Today it comprises an extensive range of high quality, value-for-money toys and games suitable for all children. Worthit! – A range of entry price items, under consistent Worthit! livery, launched in the early part of 2007. The range currently includes over 1,000 products spread across every category in store and includes seasonal items. The Worthit! brand presents a very clear statement about the competitiveness of Woolworths’ prices. Licences Through our focus on ‘Kids and Celebrations’, Woolworths strives to be the natural partner of choice for leading Children’s brands from around the world. By developing bespoke strategies with licensors, Woolworths has created exclusive branded promotions and products which offer a clear point of difference to customers.
Supply Chain Before products can reach our stores, they must be sourced, purchased, transported and stored. As a general merchandise retailer, this is a complex business involving buying and logistics teams located at Head Office and at Woolworths Group Asia Limited, our Hong Kong based sourcing facility. Separate buying teams are in place for each product category and include category planners, buyers, merchandisers, marketeers and supply chain specialists. Our strategy is to reduce costs by buying directly from suppliers or from low cost manufacturers in Asia, Eastern Europe Castleton and the Middle East. In addition, this means that new product innovation can be delivered more quickly through closer cooperation Bedford with manufacturers. Woolworths’ distribution network principally Swindon consists of three core distribution centres through which merchandise is distributed to the individual stores. Woolworths Group plc 07. Annual report and accounts 2008
Directors’ Report Business Review Our Resources
> Entertainment Wholesale and Publishing
Broad Market Reach Through Entertainment UK and Bertram Group, we have leading positions in UK Entertainment and Books wholesale distribution. As intermediaries between suppliers and retailers we aggregate entertainment hardware, software and books from the world’s leading publishers and manufacturers into a single store shipment for our customers.
Value Added Services We add value through managing the retailer’s inventory and, using our detailed know-how and market research, assist our customers in determining the best range of product required. We then source this product, receive stock at our distribution sites, pick and aggregate orders and packages for individual customers. We offer sale or exchange rights to customers, marketing or promotional management, store fixtures and point of sale design, in-store merchandising and dedicated call centres dealing with customer queries. We also provide technical support and fulfilment to online retailers and digital distribution solutions to support their multichannel strategies. 08. Woolworths Group plc Annual report and accounts 2008
Directors’ Report Business Review Our Resources – Entertainment Wholesale and Publishing (cont’d)
Customer and Supplier We value our long-standing and trusted relationships with the Relationships music, film, books and games publishing communities. We make it our business to understand their market, products and priorities and strive to bring vision and innovation to the retail supply chain. All of our customers are important to us and we have structured EUK, and Bertrams | THE to meet the varied needs of independent stores, major entertainment and bookselling chains along with the supermarket sector. We are proud to include Sainsbury’s, Zavvi, Morrisons, Asda and Tesco amongst our customers.
2 |Entertain
BBC Worldwide’s 2 entertain is a music and video publishing joint venture between Partner of Choice Woolworths Group and BBC Worldwide Limited, the consumer commercial arm of the BBC. The Group holds a 40 per cent share in the venture. 2 entertain Video, is the UK’s largest independent video publisher/distributor, a dynamic player in the UK market championing British programmes and talent both at home and internationally. The video division has a key licensing agreement with BBC Worldwide. In addition, the business enjoys many relationships with other key major talent and content providers in the entertainment industry.
Expertise in 2 entertain specialises in acquiring DVD publishing rights to core Packaged Media BBC productions along with those of the leading independent production houses. Through Demon Music Group, and Banana Split Productions, the venture also has leading positions in recorded music and video production respectively. With extensive experience in packaged media, and as the UK’s largest independent video publisher/distributor, 2 entertain brings industry leading expertise to the process of producing, selling, marketing and merchandising some of the UK’s best loved programming to retail. Woolworths Group plc 09. Annual report and accounts 2008
> www.woolworths.co.uk offers excellent home entertainment products including CD’s, computer games and DVD’s.
> We value our long standing relationships with the music, film, books and games publishing communities.
> 2 entertain Video, is the UK’s largest independent video publisher/distributor, a dynamic player in the UK market.
> Woolworths Group has leading positions in UK Entertainment wholesale distribution and publishing. 10. Woolworths Group plc Annual report and accounts 2008
Directors’ Report Business Review
“Overall, across the Group we believe we enter 2008/9 with the businesses strengthened relative to the prior year and well set up for the challenge ahead.”
Chief Executive’s Report
In the 52 weeks ended Adjusted profit (which is before Firstly, and most materially, just 2 February 2008, total Group tax, exceptional items, over half of the decline in like-for- revenue from continuing adjustment for fixed rental uplifts like sales was due to the decision operations was £2,969.6 million. and amortisation of certain not to chase unprofitable sales, This represents an 8.5 per cent intangible assets) was £28.3 particularly of electrical and increase over the prior year. million, an increase of 29.8 per computing products. These Each of our businesses made cent over the prior year. This markets are highly competitive, significant progress during the increase was delivered despite with the internet allowing easy year and overall the strategic a challenging external price comparisons. As a positioning of the Group has environment and in the midst consequence, gross margins been strengthened. At a sales of extensive internal change are low. Add to this the high level, this was particularly in our businesses. servicing costs of delivery, evident in our Entertainment technical support and customer Retail Wholesale distribution business, returns, and the overall net The key focus of the year at where third party sales increased profitability can be negligible Woolworths was to return the by 36.6 per cent over the prior or often negative. business to profitability and year, as new customers and establish a profit base on which Secondly, Woolworths has acquisitions were integrated into to build. The adjusted profit was historically been a leading the business. 2 entertain, our £3.4 million compared with a beneficiary of shopping voucher music and video publishing joint loss of £12.9 million in the prior redemptions bought via savings venture with BBC Worldwide, year. This turnaround came clubs. Following the bad increased its third party sales by thanks to further enhancement publicity attached to the failure 21.2 per cent, particularly helped of gross margins, rigorous of Farepak in 2006, sales of by developing international control of costs, the full year vouchers fell dramatically. We sales. Sales at Woolworths fell benefit of asset relifing, believe that this reduced like- 3.2 per cent like-for-like, continued exploitation of the for-like sales by 1.1 per cent. reflecting our key focus of not property portfolio and active chasing unprofitable sales and Thirdly, the decision was taken management away from loss- returning the Retail business to not to advertise on TV during making sales. profit. This goal was achieved the Christmas trading period to and was a key driver in Total like-for-like sales declined the same extent as prior years. delivering improved year-on-year by 3.2 per cent largely for the While this may well have held Group profits. following reasons: back sales, the overall impact on Woolworths’ profit and loss account was positive. Woolworths Group plc 11. Annual report and accounts 2008
Transport 2008 2007
Vehicle kilometres (millions) 25.9 27.2
Fuel consumption (million litres) 7.7 8.0
Vehicle mileage has reduced by 4.8 per cent year-on-year, with a corresponding reduction in fuel consumption of 3.8 per cent. This has been achieved via a new routing and scheduling system for deliveries from Distribution Centres to Stores, improved flexibility in Store delivery windows and increased use of double deck trailers.
Service centre 2008 2007
Calls received (000’s) 826 846 Service level 93% 90%
The Woolworths Customer Support department handles customer enquiries and complaints for all stores and also our websites, along with orders and queries relating to our Big Red Book catalogues. The number of contacts decreased in 07/08, due to the use of pro-active SMS messaging, whilst the level of service increased by 3.3 per cent year-on-year.
At a category level, the Our Confectionery business strongest area of the business also experienced price Self-audit was computer games. Demand deflationary pressure. This was Compliance points score (out of 100) for new formats such as particularly so in the gift market, 2008 2007 Nintendo Wii, Nintendo DS and where products tend to be used Compliance score 77.1 77.4 Sony PS3 continued to outstrip by the supermarkets to drive supply. We anticipate that this value price perception. Against The store self-audit is a scheme to check that our stores are compliant with growth will continue and will this backdrop, we continued Company procedures and also external factors such as trading standards and health and safety issues. Store standards are broadly consistent year- more than counter the decline in to seek to differentiate the on-year, with a slight decline in average store score of 0.4 per cent. the traditional music market as Woolworths offer and were was the case in 2007/8. DVD’s selective with our price and Books both held up well investment. In everyday Mystery shopper in the year and we anticipate Confectionery ranges, the Service standards (out of 100) that this will continue in the launch of a full range of 2008 2007 medium term. Woolworths Worthit! sweets has Mystery shopper score (Xmas cycle) 76.6 76.4 provided a point of difference In our Toy business, sales were from the competition and held back as spend was All stores receive regular visits from “mystery shoppers”. This allows us to enhanced our value positioning, gain a true reflection of how our stores are performing and to benchmark diverted to computer games, driving incremental volumes. our service standards. The Christmas cycle is a key review to ensure that particularly when there was stores are ready for the busy Christmas trading period. This shows a slight availability of Nintendo Wii and Across the entire business, the improvement year-on-year, demonstrating continued advancement of customer service. DS, which appeal to the core introduction of the entry price Toy market age group. Younger Worthit! range has been very age toy categories such as well received by customers. pre-school were less Indeed, to an extent we have susceptible and were our most been victims of our own success. buoyant Toy categories. Rates of sale have been higher than anticipated and maintaining Another area of product availability in what is typically success was the continued long lead time product has progress of our Ladybird sometimes been a challenge. clothing ranges, where total unit In its peak week, Worthit! sales surpassed the prior year products accounted for 7.9 per and market share continued cent of total sales and 11.6 per to grow, albeit in a market cent of total transactions. experiencing price deflation. Following Christmas trading, 12. Woolworths Group plc Annual report and accounts 2008
Directors’ Report Business Review
it now is clear that Worthit! Evolving the supply chain is targetting a further 40 basis products are relevant in seasonal We continued to make progress point improvement in margin as well as everyday ranges. The in enhancing our supply chain and a reduction of £8 million in Worthit! Christmas products capability, in terms of both the costs in the coming year. such as trees, decorations and warehouse and transportation Capital Expenditure and Store cards all sold out early in the network, as well as increasing Portfolio Management the sophistication of the IT season. During the year 1,417 During the year some £33.3 systems that drive replenishment. Worthit! lines were launched million of capital expenditure Over the Christmas trading and we continue to refine and was invested including the period, inventory levels were develop the product and its acquisition of four store kept very tight to ensure sell Chief sourcing. In 2008, a new range freeholds, repairs, renewals and through of seasonal ranges and of approximately 2,200 products enhancements to the physical thereby reduce exposure to branded “Woolworths” will be estate, opening five new stores Executive’s unplanned mark down. As at launched to provide the logical and refurbishing 10 older stores. the end of the first week of the “sell up” alternative to Worthit! Trading from the newly opened January sales, inventory in Report (cont’d) This is designed to increase stores has been encouraging. Woolworths was some £61 sales, drive up basket spend A programme of low cost million lower than the prior year and improve overall margins. refurbishments in 77 stores has and was of a superior quality. Multichannel provided good levels of return. Following initial rapid growth Improving stock control was a Given the size and nature and the establishment of a contributory factor in enhancing of the property portfolio, it is multichannel sales base in margin, alongside increased appropriate that it is actively 2007/8 we chose to move away direct supply of product from managed and we have achieved from electricals restricting the Far East, where shipments property profits from a number headline sales growth to 5.2 per grew by 12 per cent. The lower of transactions including cent. We traded toward higher cost prices achieved from disposals, sublets, store cut margin categories and reduced greater use of direct supply downs or store swaps with unit despatch costs by utilising allowed us to improve our price other retailers. the Woolworths distribution competitiveness. network instead of couriers. Retail Summary Overall margin increased by 101 Feedback on the Big Red Book The prime objective for the year basis points. catalogues continues to be very was to enhance profitability. This positive with customers enjoying We believe that significant was achieved as we continued its manageable and focused opportunity remains to enhance to improve cost performance, Kids based offer. This channel the profitability of the business worked hard to deliver profitable of business provides significant through a combination of sales and continued to focus on opportunity for the future, both increased direct sourcing, enhancing both the service and in terms of sales growth and a greater efficiency in the product offer for our customers. step change in profitability as distribution network and still We now have a base on which fulfilment is further integrated further sophistication of the to build for the coming years. into the Woolworths network IT systems that handle over the next two to three years. replenishment. The business Woolworths Group plc 13. Annual report and accounts 2008
Entertainment Wholesale and party sales to £1,176.6 million. Retail stock Publishing An important part of our (£m) Entertainment Wholesale development strategy was to (EUK / Bertrams / THE) increase exposure to both the 2008 288.7 This was a pivotal year for the books and computer games 2007 290.6 longer term development of the markets. This is important in the Entertainment Wholesale longer term as both markets are business. Having made two inherently attractive in terms of acquisitions in the prior year and size and growth prospects. EUK unit handling cost won two new major accounts, They also have less immediate (pence per unit handling cost) there was a significant threat from digital formats when % change YOY operational challenge for the compared to the music and 2007/08 24.7 +9.4 business to integrate the DVD markets which historically 2006/07 22.6 -9.3 acquisitions, cease supply of have made up the bulk of EUK’s CD’s, DVD’s and computer sales. games to Tesco and commence trading with the new customers. We have also sought to diversify the customer base in a 2 entertain DVD rankings During the year, key activities progressive manner. We are (Source British Video Association) undertaken by the now pleased to service a broad Entertainment Wholesale spectrum of customers who TV Genre Ranked 1st division include: supply the consumer through a Interactive Genre Ranked 1st – The integration of Bertrams variety of traditional and non Sports and Fitness Genre Ranked 3rd traditional channels. following its acquisition in Special Interest Genre Ranked 2nd January 2007 As a consequence of this – Securing clearance from the considerable change Competition Commission programme, EUK, THE and following its investigation into Bertrams incurred additional Retail margin the Bertrams acquisition costs, some of which were (basis points improvement) exceptional and others that – The commencement of resulted from the inefficiency 2007/08 50 40 40 20 105 101 supply to Zavvi (formerly associated with change. These 2006/07 50 40 40 20 105 Virgin Megastores) costs held back profitability but 2005/06 50 40 40 20 – The commencement of by their nature will not reoccur 2004/05 50 40 40 supply to Asda in the coming year and accordingly we expect to make 2003/04 50 40 – The closure of one progress in 2008/9. warehouse and physical 2002/03 50 relocation of supply to other Having traded through its peak EUK sites season, the enlarged business is now well placed going – Cessation of supply of CD’s, forward. Without the distraction Retail shrinkage DVD’s and computer games of business integration, we will (£m) to Tesco be able to focus on developing 2007/08 36.9 Against this dynamic our customers’ businesses, background, the business enhancing and differentiating 2006/07 36.5 our service proposition and delivered sales growth of 2005/06 36.3 36.6 per cent, taking total third driving efficiency across our operations. 2004/05 42.2 2003/04 41.8 2002/03 47.7 2001/02 53.2
Retail like-for-like sales -3.2% 14. Woolworths Group plc Annual report and accounts 2008
Directors’ Report Business Review
EUK and Bertrams now have increased by 59.5 per cent to declining traditional music a wide spread of customers, £18.5 million. There were many market. Demon’s core business covering multiple and successful product releases is in producing budget and mid- independent specialists, during the year but undoubtedly range compilations and it general retailers, the growing the most significant was the continues to capitalise on its supermarket channel and release of “Planet Earth” in the strong relationships with key increasingly a range of online US which caught the imagination retailers. New product ranges retailers. of the American consumer, like “100 Hits”, “The Red Box” yielding excellent sales of both and “Music Club Deluxe” sold Another business stream that the high definition and normal well and ensured that, despite has developed well during the resolution product. In the lower sales value than the Chief year is the supply to the public relatively new high definition previous year, strong volume library network through Bertram market, “Planet Earth” is the sales and product mix drove a Library Services. Total sales Executive’s highest grossing release to date. favourable margin. increased by 6.7 per cent during the year. In the UK, the best selling Banana Split Productions, the Report (cont’d) products were “Clarkson – in-house production arm of It is inevitable that over time Supercar Showdown” and the 2 entertain, traded solidly across some of the markets which “Top Gear Interactive DVD”. the year and continues to occupy our Entertainment Wholesale Total DVD sales in the UK were a niche position as a low cost businesses serve will move from marginally below the overall producer of video based content. physical to digital delivery. In market as there was no readiness for this we continued Entertainment Wholesale and “runaway” success from the to develop our digital capabilities. Publishing Summary release schedule, Having already established a Our Entertainment Wholesale notwithstanding a broad spread successful presence in digital business had a transformational of solidly performing titles. music, supporting EUK’s retail year. We are now positioned as customers and a network of The success of “Planet Earth” has a market leader in the supply digital jukeboxes, the key activity helped develop the international of books and entertainment during the year was to build the component of the business. product. A strong platform has capability to offer new digital International sales accounted for been established which in the markets such as movie and 46 per cent of total sales. After short term we shall exploit by computer game downloads, North America, the next largest returning efficiency to the alongside mobile phone content. sales region is Australia / Far business, and longer term look Trialling this new service offer East, where programmes like to move into adjacent markets began in early 2008. “Dr Who” and “Little Britain” as a route for growth. continue to grow their franchise. 2 entertain 2 entertain continued to develop 2 entertain had an exceptionally Demon Music Group, the during the year and whilst the good year. Total sales grew by recorded music publishing success of “Planet Earth” 23.5 per cent, climbing to subsidiary of 2 entertain, had a contributed significantly, the £240.7 million. Dividends very successful year, especially overall business continued to received from the joint venture when set against the rapidly build underlying profitability. Woolworths Group plc 15. Annual report and accounts 2008
Outlook For the Entertainment Wholesale We are cautious about division, we anticipate overall a consumer spending going comparatively benign market forward and are therefore not across the core categories, with planning for the Woolworths growth in computer games business to grow its sales more than offsetting the decline line. This is a sensibly in music. The key opportunity prudent approach to sales, for EUK/Bertrams lies in notwithstanding the clear enhancing operational efficiency opportunities which exist from now that the integration of increased exploitation of our acquisitions and new customers multichannel capability and is complete. In this more stable further development of our in- position, many of the friction house brands. A key focus of costs experienced in this year the retail business will be further will not be present, which will margin development set enhance profitability. alongside a significant rebasing Overall, across the Group we of cost levels from business believe we enter 2008/9 with simplification. The key enabler the businesses strengthened for business simplification is a relative to the prior year and well reduced exposure to larger, set up for the challenge ahead. over-spaced stores. We will now actively restrict the maximum traded store footprint within the estate, which will have a marked impact on both central and store costs. Trevor Bish-Jones At 2 entertain the key driver of Chief Executive success will be the quality of the 2 April 2008 release schedule. Our unique and extensive relationships with key content providers puts 2 entertain in a good position to develop the business further. 16. Woolworths Group plc Annual report and accounts 2008
Directors’ Report Business Review
“The results reflect a highly challenging retail environment and a year of change for our Entertainment Wholesale business.”
Finance Director’s Report
The results for the year are share, compared with a total of Adjusted Profits from produced under International 1.77 pence per share in the Entertainment Wholesale and Financial Reporting Standards prior year. This level of full year Publishing amounted to £54.8 (IFRS) and to aid understanding dividend is covered 2.4 times by million compared to £53.1 million we show in tables on page 17 Adjusted Profit after tax and at in the previous year. This reflects the reconciliation of profit under this level forms a base from a highly successful year from IFRS to the Adjusted Profit which to grow with further 2 entertain, our joint venture numbers used by management improvement in profitability. with BBC Worldwide, offset by a and most of the analyst substantial reduction in the level The results reflect a highly community. of releases of historic accruals challenging retail environment no longer required. The adjusted Earnings per Share and a year of change for our profits of EUK together with and Dividend Entertainment Wholesale THE and Bertram were down Basic earnings per share was business. They include a £0.4 million on the previous year 0.5 pence per share compared number of one-off costs and having benefitted by £3.8 million to 0.9 pence per share in the the full year benefit of a number from asset relifing. This reflects previous year. Adjusted basic of accounting changes made a year of substantial change. earnings per share (which during the prior year. removes the effect of fixed Further details of the rental uplifts, amortisation of Profit before tax developments in the businesses Adjusted Retail Profit was certain intangible assets and are again included in the Chief £3.4 million, an improvement of exceptional items) was 1.4 Executive’s Report. £16.3 million on the prior year pence per share against 1.2 Balance Sheet loss of £12.9 million. Whilst the pence per share last year. Overall Group stock increased by retail environment remained £13.9 million to £391.0 million. A final dividend of 0.17 pence challenging, the business This reflects the growth of the per share has been benefitted from the investment Entertainment Wholesale and recommended by the Board. and accounting changes put in Publishing business, more than This will be paid, subject to place during the prior year and offsetting the £1.9 million shareholders’ consent, on the absence of one-off costs. reduction in Woolworths retail 25 June 2008 to shareholders The full year benefit of asset stock. The decrease in retail on the register at close of relifing was £10.9 million, stock, achieved by tight control business on 11 April 2008. compared to £5.8 million in the of purchasing, has been This proposed dividend, prior year. somewhat masked at year-end together with the interim Further details of the various by setting the business up for dividend of 0.43 pence per retail initiatives are included in the much earlier Easter in 2008. share paid on 12 December the Chief Executive’s Report on 2007, brings the total dividend During the year, four store pages 10 to 15. for the year to 0.6 pence per freeholds were purchased at a cost of £5.1 million and £11.6 million was received from the sale of the freeholds of the Woolworths Group plc 17. Annual report and accounts 2008
Reconciliation of Adjusted Profit
52 weeks to 53 weeks to 2 February 3 February 2008 2007 £m £m
Profit before tax and exceptional items 14.9 7.3 Add back: – amortisation of certain intangible assets* 7.6 3.9 – fixed rental uplifts 5.8 10.6 Adjusted profit before tax 28.3 21.8
Adjusted Segmental Analysis for the 52 weeks to 2 February 2008
Entertainment Wholesale and Retail Publishing Unallocated Interest Total £m £m £m £m £m Guernsey and Jersey stores. Exceptional Items Reported profit/(loss) The £8.6 million profit from the As described above, the before taxation 6.2 35.4 (8.2) (21.7) 11.7 sale of the Channel Island disposal of the Guernsey and Adjust for: freeholds is treated as an Jersey store freeholds resulted exceptional exceptional item. Profits of in an exceptional profit of £8.6 items (8.6) 11.8 – – 3.2 £11.4 million were earned on million. This was more than (Loss)/profit before the assignment of store leases offset by (i) exceptional costs in exceptional during the year against £6.4 the Entertainment Wholesale items (2.4) 47.2 (8.2) (21.7) 14.9 million in the prior year. business of £8.4 million relating Add back: to the operational integration of – amortisation Cash Flow and Net Debt of certain the EUK, THE and Bertram The Group’s average net debt intangible assets* – 7.6 – – 7.6 businesses and the costs of the increased from £113.0 million – fixed rental Competition Commission inquiry uplifts 5.8 – – – 5.8 to £246.3 million, reflecting the into the acquisition of Bertram Adjusted full year effect of the THE and and (ii) a provision of £3.4 (loss)/profit Bertram acquisitions and the before tax 3.4 54.8 (8.2) (21.7) 28.3 million in relation to payments increased working capital made under the terms requirements of the enlarged establishing the 2 entertain joint Entertainment Wholesale venture which could not be Adjusted Segmental Analysis business. Capital expenditure for the 53 weeks to 3 February 2007 ascertained at that time. in the Retail business reduced Entertainment from £62.4 million to £33.3 Taxation Wholesale and million, reflecting the completion The effective tax rate was 36 Retail Publishing Unallocated Interest Total in the prior year of the 10/10 per cent compared to 15 per £m £m £m £m £m store refit programme. cent in the prior year. The prior Reported year rate was lower than usual (loss)/profit The year-end net debt of before taxation (14.8) 49.2 (7.7) (10.7) 16.0 due to the effect of a £5.6 £123.7 million was up from Adjust for: million prior year tax credit £103.3 million in the prior year. exceptional which primarily arose as a items (8.7) – – – (8.7) This reflects the substantial number of historic tax provisions (Loss)/profit increase in working capital were identified as no longer before required by the growth in the exceptional required following agreement of Entertainment Wholesale items (23.5) 49.2 (7.7) (10.7) 7.3 a number of historic queries. business, more than offsetting Add back: Under existing tax legislation it is – amortisation cash generated in the other anticipated that the effective of certain parts of the Group. intangible Group tax rate will be marginally assets* – 3.9 – – 3.9 above the main UK Corporation – fixed rental Tax rate. uplifts 10.6 – – – 10.6 Adjusted (loss)/profit before tax (12.9) 53.1 (7.7) (10.7) 21.8
* Amortisation of certain intangible assets arising on consolidation, namely underlying rights, customer relationships and trade names. 18. Woolworths Group plc Annual report and accounts 2008
Directors’ Report Business Review
Pensions relevant. The full triennial Funding The Group retains a Final Salary actuarial valuation at 31 March The Treasury function arranges Pension scheme open to all 2005 showed that the Scheme sufficient secure financial employees who have been with was 89 per cent funded with a resources to enable the Group the Group for a minimum period deficit of £28.9 million. The to meet its medium-term of 12 months. contribution rate paid by business objectives whilst participating companies remains arranging facility maturities The Scheme was created at at 13.5 per cent of pensionable appropriate to its projected the time of demerger and only salaries. The next triennial needs. comprised active members at actuarial valuation is due to be that time. It is therefore a much During the year, the Group carried out at 31 March 2008 Finance less mature scheme than most. arranged various additional and has just commenced. It has 5,112 active members, facilities to finance its increased Director’s 3,707 deferred members but In January 2008, when the working capital whilst carrying only 1,256 current pensioners Group moved its bank financing out a full review of how best to and therefore the Scheme to a secured basis, the Trustee finance its ongoing Report (cont’d) receives more in contributions was granted a £63 million 3rd requirements. In particular, this from the Group and members lien security. It was also agreed review incorporated the than it pays out in pensions. that the Scheme would receive continued growth of the This is likely to continue to be the first £50 million of proceeds Entertainment Wholesale the case for approximately from any future disposal of the division, with its associated 11 years. Group’s investment in 2 additional working capital. entertain, at which point an The assets of the Scheme are The review concluded that the equivalent amount of the 3rd managed by external Fund most appropriate structure lien security would be released. Managers and at 2 February would be to move to an asset 2008 were £316.8 million (2007 Treasury Policy based lending facility, secured £316.0 million). The allocation The Group’s Treasury Policy is primarily against EUK’s debtors of Scheme assets is kept under structured to ensure that and the Group’s stock. In regular review by the Trustees adequate financial resources are January 2008, facilities of the Scheme. The liabilities available for the development of comprising a £350 million asset calculated at the current level its business whilst managing its based lending facility and a £35 of fixed rate bond yields were currency, interest rate and million 2nd lien loan, were put in £383.7 million (2007: £400.0 counterparty credit risks. The place for a period of four years. million), giving an IAS 19 deficit Group’s Treasury strategy, policy These, together with an existing of £48.2 million (2007: £58.8 and controls are developed £20 million invoice discounting million) net of tax relief. centrally and approved by the facility available to Bertram, However, the proportion of Board. The Group does not provide the Group with flexible current active members and the engage in speculative facilities to meet its financing timescales until pensions are transactions. requirements as the businesses due to be payable does not continue to develop. The main elements of Treasury make the calculation particularly activity are outlined below: Woolworths Group plc 19. Annual report and accounts 2008
Currency To date, the interest payable on The Group’s main currency drawings from the Group’s translation exposure is limited to facilities has been at floating movements in exchange rates rates driven by the variation in to the extent that they affect amounts borrowed during the balances held on its currency period. Interest receivable on bank accounts and certain investments has also been at foreign currency assets and floating rates for short liabilities in the books of its maturities, given the seasonality Hong Kong-based product of the Group’s cash flows. sourcing company, Woolworths Counterparty Credit Risk Group Asia Limited. Foreign The Group actively manages its currency bank balances are relationships with a panel of controlled by the Treasury high quality financial institutions. function and are actively Credit risk is controlled by the managed to a level that Treasury function setting minimises currency translation counterparty credit limits by exposures. The Group’s main reference to published rating currency exposure is its agency credit ratings. The transaction exposure through Treasury Policy recognises that movements in exchange rates an exposure to a counterparty on its purchases overseas that arises in relation to investments, are not denominated in Sterling. derivatives and financial These are mainly imports from instruments. Asia denominated in US dollars and imports from Europe Going Concern denominated in Euros. The Directors confirm that, after making enquiries, they have a The Treasury Policy sets out a reasonable expectation that the framework through which the Group has adequate resources Group’s forecasted foreign to continue in operational currency transactions are existence for the foreseeable hedged. future. For this reason they Interest continue to adopt the going The Treasury Policy requires that concern basis in preparing an interest hedging plan for these accounts. each year is approved by the Finance Director at the time of the annual budget. The Treasury function is permitted to hedge in accordance with this plan using interest rate products such as Stephen East swaps, options, forward rate Finance Director agreements and futures. 2 April 2008 The Group will keep under review the opportunity to hedge its interest exposure following the increase in its debt profile during the year. 20. Woolworths Group plc Annual report and accounts 2008
Directors’ Report Business Review
Any business undertaking will margins and profitability, trading period in terms of involve risk. Many risk factors which have had in the past sales, profitability and cash are common to any business, and could have in the future, flow has been the Christmas no matter what sector it an adverse effect on the season. Lower than operates in. The Group’s Group’s business and expected performance in this approach to Financial Risk financial condition. period may have an adverse Management is set out in the impact on results for the full- 2. Growth of the Digital Notes to the Group Accounts. year which may also result in Entertainment Market excess inventory, especially The Directors consider that A key driver of footfall and in seasonal merchandise that certain key risks and sales within Woolworths is difficult to liquidate. uncertainties however are more stores and the core stock-in- germane to Woolworths Group trade for Entertainment UK, To a lesser extent a lower Risk and the markets in which its Bertrams | THE and 2 than expected turnover over various businesses operate. entertain is physical the Easter period may also As part of the Business Review, entertainment media ie CD’s, have an adverse effect on the Factors an assessment of such factors DVD’s, Books and Games. Group’s business and is set out below: In recent years, technological financial condition. 1. Competition advances and changing 4. Damage to Reputation The Group operates in highly consumer preferences have or Brands competitive markets. In given rise to new markets The Woolworths name is a particular, in recent years the providing delivery of music, key asset of the business retail landscape has seen films, games and books to and maintaining the reputation significant changes and portable players and to the of the brand is key to the trends in retail and consumer home via digital delivery, success of the Group. The behaviour and spending bypassing the purchase of many separate product lines which are challenging for traditional physical media of general merchandise Woolworths Retail. The platforms. This trend may handled by the Group means Group has faced and expects result in decreased demand the supply chain is complex to face increased competition for such products in stores. and is subject to increasingly from existing UK general and Decreased sales of home stringent laws and regulations specialist retailers, food entertainment products at governing issues of health retailers that have expanded retail or wholesale level may and safety, packaging and and are further expanding have an adverse effect on the labelling, pollution and other into general merchandising, Group’s business and environmental factors. foreign retailers entering the financial condition. The Group has a Quality UK market and newly formed The Directors believe that Assurance team and legal competitors. digital entertainment also and regulatory control Further, the growth of offers opportunities for the processes both in-house and internet retailing and out-of- Group and it has developed externally to advise and take town shopping has required strategies to participate, action on existing and and will require the Group including in Woolworths, a emerging risk management to adopt and invest in multichannel retail offer and issues. However, these new strategies to remain investment in digital rights systems cannot guarantee competitive. and online delivery technology compliance or fully protect within Entertainment against quality, regulatory, The Directors believe that Wholesale and Publishing. safety and environmental risk where Woolworths offers in the supply chain. The customers product However, the growth of digital Group is therefore potentially innovation, exclusivity and markets and the increasing vulnerable to an event or value-for-money, it can uptake of Broadband access circumstances adversely continue to combat these will continue to place affecting the supply chain or pressures. However, actions pressure on the Group’s merchandise which gives rise taken by competitors as well participation in traditional to liability claims and/or as action taken by the Group entertainment retail and reputational damage. to maintain its competitiveness distribution channels. Substantial erosion in the and its reputation for value, 3. Seasonality value of the Woolworths have placed and will continue The Group’s business is name could have an adverse to place pressure on the highly seasonal. Historically, effect on the Group’s business Group’s merchandise pricing, the Group’s most important and financial condition. Woolworths Group plc 21. Annual report and accounts 2008
Directors’ Report Business Review
The theme of Corporate Social highly competitive price to Responsibility (“CSR”) has once encourage our customers to go again kept us busy during the for the energy-efficient option. year as we endeavour to do We very much welcomed the business in a socially responsible dialogue with Greenpeace on way throughout our operations. this issue, although the More details are given in our behaviour of some of their sixth online CSR report. For members towards our store Woolworths Group plc, as for colleagues and executives was every major retailer, balancing Corporate Social unacceptable and not the needs of our business with conducive to a sensible debate. our commitment to CSR can at Responsibility times be extremely challenging. Woolworths is committed to We are, however, determined to working to combat the effects of meet those challenges head-on. climate change and was invited Often we can plan in advance to join over 1,000 other Recycling how to address new business Tonnage of packaging recycled business leaders at the Prince 2008 2007 issues. For instance, how best of Wales’s May Day Summit on Woolworths 18,051 17,577 to meet forthcoming legal Climate Change. We pledged to obligations. But we also have to take positive action within our EUK 2,916 1,622 be prepared for the unexpected, companies, and with our Total 20,967 19,199 as was the case with the toy suppliers, colleagues and industry recall issues last customers to tackle this threat Wherever possible, card and plastic materials, the major packaging Summer. We have well to our planet. constituents in our business, are taken back to our Distribution Centres. established procedures in place The materials are then baled and passed to recycling businesses for The summit was organised by to ensure that products sold by reprocessing. During 2007/08, 20,967 tonnes were recycled by the Business in the Community, one Group. This reflects a 9.2 per cent increase year-on-year, with a 2.7 per us are safe and legal and we of a number of organisations cent improvement in Retail and significant progress in the Entertainment have strengthened our product- Wholesale business, however, this partly reflects the growth of this which promote CSR and to testing regime still further, element of the Group. which Woolworths belongs. introducing extra tests for lead Another is the British Retail for all our toys in order to Consortium, where I have a seat prevent this sort of issue Electricity usage on the Board. Through the BRC, recurring. Tonnes of CO2 emitted Woolworths Group, along with 2008 2007 We believe it is important to give other retailers, does a great deal Woolworths 77,593 84,971 our customers as wide a choice to promote the highest EUK 7,677 5,959 as possible in the products we environmental and ethical offer. At the same time we are Total 85,270 90,930 standards in our business continually mindful of the need sector. to reduce our energy During the year, the Group’s electricity consumption decreased by 6.2 In the coming year, we will per cent. This represents a decline of 8.7 per cent within Retail, driven consumption and, what’s more, continue to ensure that CSR is particularly by specific initiatives within stores, however, the impact of this to encourage our customers to considered in every part of our is negated by an increase in usage within the Entertainment Wholesale do the same. part of the Group, attributable to sales growth and acquisitions. business, to live up to the During 2007, Greenpeace standards we have set. For a claimed that Woolworths was full report on the Group’s CSR Staff stability not moving fast enough to activities, please refer to the 2008 2007 remove incandescent light bulbs Company’s website. Alternatively, Woolworths Offices 83% 86% from sale in our stores. The for a hard copy of the 2008 Government has set a voluntary Woolworths Retail 71% 70% CSR report please contact the target to end their sale by 2012 Company Secretary. Woolworths Distribution 97% 89% and Woolworths will not be Yours sincerely, EUK 91% 81% selling incandescent light bulbs by the end of 2010, well before Our business is built on a core team of dedicated staff. During the target date. We will also be 2007/08, staff stability increased most significantly within the phasing out the most energy Woolworths Distribution and EUK workforce, however, there was a slight decline in stability rates within Woolworths Offices. inefficient light bulbs in the run- up to 2012 and we have already Trevor Bish-Jones removed 100W-plus bulbs from Chief Executive our shelves. Additionally, we 2 April 2008 have launched a new Worthit! energy-saving light bulb at a 22. Woolworths Group plc Annual report and accounts 2008
Richard North (57), Chairman Appointed as a Non-Executive Director in October 2006 becoming Chairman in June 2007. Richard was Chief Executive of InterContinental Hotels Group plc and previously Group Finance Director of Bass plc and The Burton Group plc. Previous Non-Executive Directorships include Asda Group plc, and Logica CMG plc.
Trevor Bish-Jones (47), Chief Executive Appointed in March 2002. Trevor held various senior positions at the Dixons Group plc between 1994–2001, latterly as Managing Director of Currys. Prior to Dixons Group plc, Trevor was at Boots PLC for 13 years in a number of senior retail, buying and marketing roles. Trevor is a Board of Non-Executive Director of Royal London, the mutual life and pensions business. Directors
Top row, from left Richard North Trevor Bish-Jones Stephen East Peter Bamford Andrew Beeson Fru Hazlitt
Bottom row, from left Steve Lewis Tony Page Roger Jones David Simons
Stephen East (50), Finance Director Appointed to the Board as Group Finance Director on 1 July 2005. Stephen was formerly Finance Director of MEPC plc and previously held senior positions with Redland plc including as Group Treasurer. He is currently a Non-Executive Director of Regus Group plc and is a past President of the Association of Corporate Treasurers.
Steve Lewis (43), Executive Director Steve was appointed to the Board in June 2005. He was Woolworths Operations Director (2001–2008) and is now Managing Director of Entertainment UK. Steve was previously Operations Director of the Dixons retail chain. With over 20 years of retail experience, he has been instrumental in improving operating standards and in-store disciplines throughout the Group.
Tony Page (41), Executive Director Appointed in September 2006. Tony was previously Non-Food Trading Director of Asda – Wal-Mart, having held a number of senior positions in that business since joining in 1994. Prior to joining Asda, Tony had been a senior buyer with J. Sainsbury plc. Woolworths Group plc 23. Annual report and accounts 2008
Peter Bamford (53), Non-Executive Director Peter was appointed to the Board in February 2008. He served on the Main Board of Vodafone Group plc (1998-2006) holding a number of senior executive roles in that business including Chief Executive Vodafone UK Limited (1999-2001), Regional Chief Executive (2002-2003) and Chief Marketing Officer (2003-2006). Previously, he has held a number of senior general and commercial management positions in the retail sector including at WH Smith Group plc, Kingfisher plc, and Tesco plc. He is a Non-Executive Director of Rentokil Initial plc, Mobile Partners Group Limited and Chairman of The Key Revolution Limited.
Andrew Beeson (63), Non-Executive Director Appointed in July 2001. He was, until January 2003, Chairman of Evolution Group plc, which merged with Beeson Gregory Group in 2002, the firm he founded in 1989. Prior to that he was a Director of ANZ McCaughan from 1987–1989, and a Director of ANZ Merchant Bank from 1985–1987. Andrew is a Non-Executive Director of NB Real Estate and Schroders plc.
Fru Hazlitt (44), Non-Executive Director Appointed in January 2006. Fru is Chief Executive of GCap Media PLC, having previously held the same role at Virgin Radio (a division of SMG plc). Fru previously held senior positions at the internet services business, Yahoo! (including as Managing Director UK and Ireland 2003–2005) and at Capital Radio (Sales Director 1997–2000). She is a Non-Executive Director of Betfair, the online betting exchange.
Roger Jones (70), Non-Executive Director Appointed in July 2001. Previously a Director of Kingfisher plc and Managing Director of Woolworths plc from 1995 until his retirement in 1998. Prior to this he was Managing Director of Superdrug from 1992. Roger has spent the majority of his career at Woolworths, having joined F.W.Woolworth in 1958.
David Simons CBE (61), Non-Executive Director Appointed in September 2005. David is Chairman of PIPC, global management consultants and a Non-Executive Director of Greencore Group plc, the food manufacturer and supplier. Previously he held a number of senior retail positions including Chairman of Littlewoods Shop Direct Group, the UK’s largest home and online shopping operator (2001 – 2007), Chief Executive of Somerfield Plc (1993–2000), Group Finance Director of Storehouse Plc (1991–1993) and Group Finance Director of House of Fraser Ltd (1989–1991).
24. Woolworths Group plc Annual report and accounts 2008
CORPORATE GOVERNANCE
Corporate Governance – Combined Code Statement The Company recognises the importance of, and is committed to, high standards of Corporate Governance. During June 2007, upon Richard North becoming Chairman, and up to 31 January 2008, Non-Executive Directors made up less than half of the Board membership. An additional Non- Executive Director was appointed on 4 February 2008. With the exception of the aforementioned period, during the financial year, the Group has complied with the main and supporting principles of the 2006 Financial Reporting Council (FRC) Combined Code. Compliance with the principles of good governance and the specific provisions of Section 1 of the Combined Code has been effected by the Company in the following way:
The Board of Directors The Board comprises the Chairman, the Chief Executive, the Finance Director, two further Executive Directors and five Non-Executive Directors, appointed for periods of three years. The Board is satisfied that, having considered the background and current circumstances of each of the Non- Executive Directors, there are no relationships or other matters which could affect their respective judgement in carrying out their duties. Accordingly, the Non-Executive Directors are considered by the Board to be independent of management. Their biographies appear on pages 22 and 23 and illustrate the Directors’ range of backgrounds which provide an experienced and balanced Board to lead and control the Group. Andrew Beeson is the senior independent Non-Executive Director. The Non-Executive Directors have disclosed to the Chairman and the Company Secretary their significant commitments other than their directorship of the Company. Similarly, the Chairman has discussed with the Board the time commitment expected from his various roles outside the Group. For both the Chairman and the Non-Executives, it has been agreed that all are able to meet their respective obligations to the Company, provided that any proposed changes or additional commitments are notified to the Board. All Directors have access to the Company Secretary and may take independent professional advice at the Company’s expense. Each Director may also receive appropriate training as necessary and a record of training undertaken is maintained by the Company Secretary.
The Board meets not less than 11 times a year and has adopted a schedule of matters reserved for its decision. The Board receives detailed proposal papers in advance of meetings, together with management presentations to facilitate proper consideration and debate of matters brought before it.
The Board is primarily responsible for the strategic direction of the Group. Major strategic initiatives involving significant cost or perceived risk are only undertaken following their full evaluation by the Board. Matters of an operational nature are delegated to the Group’s management. Progress on key initiatives is reported regularly and minuted, together with routine matters such as financial performance and current trading in each of the Group’s business divisions.
In accordance with Combined Code principles, the Board undertook a formal and rigorous evaluation of its own performance both as a board and on an individual basis (including the performance of the Chairman), and that of its core standing Committees. The process was administered by the Company Secretary and commenced with completion by the Directors of a detailed questionnaire. This followed the questions used in the prior year and sought views on the existing Board processes, and recommendations for areas to develop. Matters considered by the Directors included the suitability and structure of the standard agenda, the quality of presentation and time apportioned for debate on issues of strategy, financial reporting, and current trading.
The questionnaire also sought to measure the performance of the Directors in leading the Group toward its strategic and financial objectives, the respective skills and competencies of each of the Directors and to formulate areas of potential development to enhance further the Board’s ability to both challenge and support the Group.
The evaluation process has helped to identify and address important views held by the Directors as to the priorities going forward. For instance a common theme arising in the prior year was the need for more strategic analysis and Board debate around the challenges facing the Group. Given the limited time allowed by each routine meeting, this has been addressed by adding an additional Board “away day” to the Board calendar, with the agenda dedicated largely to matters of strategy.
In the coming year, as a consequence of the evaluation, a number of initiatives and recommendations to strengthen the effectiveness of the Board will be considered.
During the year 16 Board meetings were held. The Directors attended as follows during the year or since appointment:
Board of Directors’ Attendance
Andrew Beeson 14 Trevor Bish-Jones 16 Gerald Corbett (resigned 6 June 2007) 7 Stephen East 16 Fru Hazlitt 14 Roger Jones 16 Steve Lewis 16 Richard North 16 Tony Page 16 David Simons CBE 15 Lloyd Wigglesworth (resigned 31 January 2008) 15 Woolworths Group plc 25. Annual report and accounts 2008
CORPORATE GOVERNANCE (cont’d)
The Board has established three core standing Committees, with defined terms of reference, as follows:
The Audit Committee Chaired by Roger Jones, the Committee comprises those independent Non-Executive Directors listed below. This Committee is responsible for providing the Board with independent and objective assurance on the control environment across the Group, for ensuring that the subsidiary companies are subject to an internal audit of the required quality and for making recommendations to the Board on the appointment of auditors and the audit fee. It also reviews the performance of the Group’s auditors to ensure an independent, objective, professional and cost-effective relationship is maintained. The Committee’s terms of reference are available on the Group’s website.
As well as reviewing the Company’s published financial results, the Committee reviews the Group’s corporate governance processes (including risk analysis), accounting policies and procedures, reporting to the Board on any control issues identified.
Internal audit plans and the relationship between the internal audit function and the external auditors are routinely assessed at Committee meetings. The Audit Committee has also sponsored the development of arrangements throughout the Group to deal, in confidence, with complaints from colleagues about any accounting or financial management impropriety or other questionable business practice or conduct. These arrangements are periodically reviewed.
To ensure the independence of the Group’s external auditors, the Committee has reviewed the relevant policies and practices of the external auditors. The rotation of key partners at appropriate intervals, in accordance with guidance provided by the Institute of Chartered Accountants in England and Wales, and monitoring the extent of non-audit work and related fees are established principles which are implemented as necessary and regularly reviewed by the Committee to safeguard the independence and objectivity of the external auditors.
Each of the Non-Executive Directors has, through their other business activities, significant experience in financial matters. In particular, David Simons CBE, who is a qualified FCMA, Andrew Beeson (a Non-Executive Director of Schroders plc and former Chairman of Evolution Group plc, a leading corporate finance and stockbroking business) and Richard North (who has held the position of Finance Director in two large businesses) have significant, recent and relevant experience of financial and accounting issues.
The Committee is also responsible for the proper reporting of the financial performance of the Group and for reviewing financial statements before publication.
The meetings of the Audit Committee are also the forum used by the Non-Executive Directors to meet without the Executive Directors present to discuss the performance of the Group, its management and their ongoing stewardship of shareholders’ interests. The Non-Executive Directors and the external auditors have the opportunity at this time to raise and discuss any issues of concern in this regard.
During the year three Audit Committee meetings were held. The Directors attended as follows during the year or since appointment:
Audit Committee Attendance
Andrew Beeson 3 Roger Jones 3 David Simons CBE 3 Richard North (resigned from Audit Committee June 2007) 1
Following his appointment to the Board on 4 February 2008, Peter Bamford will also serve on the Audit Committee. 26. Woolworths Group plc Annual report and accounts 2008
CORPORATE GOVERNANCE (cont’d)
The Nominations Committee Comprising the Chairman and the Non-Executive Directors, the Committee is chaired by Richard North and is responsible for monitoring and reviewing the composition, balance and expertise of the Board and for reviewing and recommending appointments to the Board. Prospective appointments are considered by the Committee which agrees a detailed job description and the capabilities required for the role. The Committee generally engages external consultants to administer the search process, prepare a shortlist of potentially suitable candidates and to advise generally on prospective appointees. Only after a rigorous interview process is any appointment recommended to the Board. The terms of reference of the Committee are available on the Group’s website. The meetings of the Nominations Committee are also the forum used by the Chairman to meet with the Non-Executive Directors without the executives present to discuss any concerns about the running of the Company. During the year three Nominations Committee meetings were held. The Directors attended as follows during the year or since appointment:
Nominations Committee Attendance
Andrew Beeson 3 Gerald Corbett (resigned 6 June 2007) N/A Fru Hazlitt 3 Roger Jones 2 David Simons CBE 2 Richard North 3
Following his appointment to the Board on 4 February 2008, Peter Bamford will also serve on the Nominations Committee.
The Remuneration Committee Comprising the Group Chairman and the Non-Executive Directors named below, the Committee is chaired by Andrew Beeson. The Committee’s terms of reference are available on the Group’s website. The Committee’s aim is to ensure that the Executive Directors are rewarded for their contribution to the Group and motivated to enhance the return to shareholders. The Remuneration Committee is responsible, on behalf of the Board, for the Group’s policy on the grant of share incentives to Executive Directors and other senior management as well as the specific remuneration and benefits packages for Executive Directors.
During the year three Remuneration Committee meetings were held. The Directors attended as follows during the year or since appointment:
Remuneration Committee Attendance
Andrew Beeson 3 Fru Hazlitt 2 Roger Jones 3 David Simons CBE 3 Richard North 3
The Corporate Social Responsibility Committee The CSR Committee is chaired by the Company Secretary. Further details can be found on page 21 and in the 2008 CSR report available on the Group’s website, www.woolworthsgroupplc.com.
Accountability and Audit Going Concern A statement in accordance with the going concern principle is included in the Finance Director’s Report on page 19. Woolworths Group plc 27. Annual report and accounts 2008
CORPORATE GOVERNANCE (cont’d)
Relations with Shareholders The Company maintains an active dialogue with its investors through a planned programme of investor relations activities. This is a key component of its corporate communications programme and is headed by the Finance Director with the Chief Executive also attending the majority of these shareholder meetings.
The investor relations programme includes formal presentations in the UK and overseas (where appropriate) on full-year and interim results. One-to- one meetings between institutional investors and senior management are also held regularly.
Feedback from these meetings (including the non-attributed views of major institutional shareholders) is reported back to the Board. The Company Secretary is also charged with bringing to the attention of the Board any material matters of concern raised by the Company’s stakeholders, including private investors.
Communication with investors also takes place through the Annual and Interim Reports and via the Group website, www.woolworthsgroupplc.com. In addition, the Annual General Meeting provides an important opportunity for communication with both institutional and private shareholders.
Internal Control The Board of Directors has overall responsibility for the system of internal control and for reviewing its effectiveness throughout the Group. However, such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can provide only reasonable and not absolute assurance against material misstatement or loss. The effectiveness of the Group’s systems of internal control is reviewed by the Audit Committee on behalf of the Board.
The Board considers risk assessment and control to be fundamental to achieving its corporate objectives within an acceptable risk/reward profile, and confirms that there is an ongoing process for identifying and evaluating the significant risks faced by the Group and the effectiveness of related controls. The Board confirms that necessary actions have been or are being taken to remedy any significant failings or weaknesses identified from that process. This process is regularly reviewed by the Audit Committee and accords with the Turnbull guidance (2005). The key procedures in place to enable this responsibility to be discharged are:
The Board of Directors — has approved a set of policies, procedures and frameworks that are designed to facilitate the operation of effective internal control and which include the provision of quality internal and external reporting and compliance with applicable laws and regulations. These are periodically reviewed and updated;
— regularly reviews the Group’s strategy and the strategies of the subsidiary companies;
— reviews and assesses the Group’s key risks at least annually;
— reviews performance through a comprehensive system of reporting, based on an annual budget with monthly business reviews against actual results, analysis of variances, key performance indicators and regular forecasting;
— has well defined policies governing appraisal and approval of capital expenditure and treasury operations;
— seeks assurance that effective control is being maintained through regular reports from the Audit Committee and the Internal and External Audit functions.
Each Operating Company Board — maintains systems for the continuous identification and evaluation of significant risks resulting from their strategies and their areas of the business;
— self certifies that it is clearly accountable for establishing and monitoring internal controls within its business, that processes are in place to provide reasonable assurance that material business risks are identified and managed appropriately, that internal controls have been effected and that they comply with the Group’s policies; and reports on any control weaknesses or breakdown considered as material to the Group;
— reviews and monitors the effectiveness of the system of internal control through reports from the Group Internal and External Audit functions.
The Internal Audit Function — is responsible for providing the Board with independent and objective assurance on the control environment across the Group and for ensuring that the subsidiary companies are subject to internal audit of the required quality.
These processes and organisational procedures enable the Directors to confirm that they have reviewed the effectiveness of the system of internal control. 28. Woolworths Group plc Annual report and accounts 2008
OTHER INFORMATION
Principal Activities The Group trades principally as a UK-based General Merchandise retailer and Entertainment wholesaler and publisher.
Review of Activities A detailed review of the Group’s activities and of future plans is contained within the Chief Executive’s Report on pages 10 to 15.
Results and Dividends The profit from continuing operations of the Group before taxation amounted to £11.7 million (2007: profit of £16.0 million) and the profit after taxation amounted to £7.5 million (2007: profit of £13.6 million).
During the year the Company paid the prior year final dividend of 1.34 pence per share. The interim dividend for the current year of 0.43 pence per ordinary share was paid on 12 December 2007, making a total paid for the year of 1.77 pence per ordinary share. This has absorbed £25.7 million of shareholders’ funds. The Directors are proposing a final dividend for the current year of 0.17 pence per share. This will be paid on 25 June 2008, to shareholders on the register at close of business on 11 April 2008 subject to shareholder approval. Hence, it is not recognised in these financial statements. The Company provides a Dividend Reinvestment Plan enabling shareholders to apply their cash dividends to purchase additional ordinary shares in the market at competitive dealing rates. Full details can be obtained from the Registrar. If you have previously completed a mandate form to join the Plan you need take no further action.
Directors The Directors of the Company are shown on pages 22 and 23. The following have been Directors of the Company during the financial year ended 2 February 2008: Andrew Beeson, Trevor Bish-Jones, Gerald Corbett, Stephen East, Fru Hazlitt, Roger Jones, Steve Lewis, Richard North, Tony Page, David Simons CBE and Lloyd Wigglesworth.
Directors’ Interests The Directors’ interests in shares of the Company are shown within the Remuneration Report on pages 31 to 39. No Director has any other interest in any shares or loan stock of any Group company. No Director was or is materially interested in any contract other than his/her service contract, subsisting during or existing at the end of the financial year which was significant in relation to the Group’s business. As at the date of this report, indemnities are in force under which the Company has agreed to indemnify the Directors, to the extent permitted by law and the Company’s Articles of Association, in respect of all losses arising out of, or in connection with, the execution of their powers, duties and responsibilities, as Directors of the Company or any of its subsidiaries.
Re-election of Directors The Articles of Association require one-third of the Directors who are subject to retirement by rotation to retire and submit themselves for re-election each year. Stephen East, Fru Hazlitt and David Simons will retire by rotation at the Annual General Meeting and being eligible offer themselves for re-election. The Articles of Association also require any Directors appointed by the Board to retire at the next Annual General Meeting. Any such Director may, if willing to act, be re-elected. Accordingly, Peter Bamford holds office until the Annual General Meeting and, being eligible offers himself for re-election. Details of Directors submitting themselves for re-election are shown on pages 22 and 23.
Directors’ Remuneration The Remuneration Committee, on behalf of the Board, has adopted a policy that aims to attract and retain the Directors needed to run the Group successfully. The Directors’ Remuneration Report is shown on pages 31 to 39.
Annual General Meeting Details of the Company’s forthcoming Annual General Meeting are set out in a separate circular that has been sent to all shareholders with the Annual Report and Accounts. Woolworths Group plc 29. Annual report and accounts 2008
OTHER INFORMATION (cont’d)
Employee Involvement The Board seeks to instill high standards of customer care and service in each subsidiary company and the commitment of every employee to this business requirement is considered to be critical. Accordingly, the Corporate Centre has established a communication framework for employees concerning Group-wide business performance, community involvement, company benefits, people and innovation. Each subsidiary company has, in addition, its own communication strategies concerning their brands, company performance and people issues.
Training and links with the educational sector reinforce the Group’s commitment to employee involvement and development. The Woolworths Group Leadership Programme (WGLP) is the development framework for managers at all levels of seniority who have the potential to be our future leaders. A brochure describing the programme and a micro site specifically for graduates have been produced. Employees are represented on the Trustee Board of the Group’s pension schemes. Over 4,000 colleagues in the Group participate in the Woolworths Group ShareSave Scheme.
Equal Opportunities The Group is committed to the principle of equal opportunity in employment and to ensuring that no applicant or employee receives less favourable treatment on the grounds of gender, marital status, race, colour, nationality, ethnic or national origin, religion, HIV status, disability, sexuality, or unrelated criminal convictions and without arbitrary restrictions in respect of age, or is disadvantaged by conditions or requirements which cannot be shown to be justified.
The Group applies employment policies which are fair and equitable and which ensure entry into and progression within the Group. Appointments are determined solely by application of job criteria, personal ability and competency. The Group gives full and fair consideration to the possibility of employing disabled persons wherever suitable opportunities exist.
Supplier Payment Policy The Group’s policy, in relation to all of its suppliers, is to negotiate its terms of payment when agreeing the terms of the transactions, to ensure that those suppliers are made aware of the terms of payment and to abide by those terms provided that it is satisfied that the supplier has provided the goods or services in accordance with the agreed terms and conditions. The Group does not follow any universal code or standard on payment practice but subsidiary companies are expected to establish payment terms consistent with local procedures, custom and practice. Woolworths Group plc, the parent company, has no trade creditors. It is therefore not appropriate to provide creditor day statistics for the Company. However the number of days purchases outstanding for payment by the Group at the year-end was 65 (2007: 45).
Political Contributions During the year the Company made no political contributions (2007: £nil).
Charitable Donations During the year the Group has contributed £233,000 (2007: £119,000) to communities in the UK.
Major Shareholders As at 2 April 2008, the Company had been notified of the following interests in 3 per cent or more of the Company’s shares. Number of ordinary shares Voting interest Unity Investments ehf 146,000,000 10.01% Resolution Asset Management Limited 98,870,257 6.78% Barclays plc 87,789,751 6.02% AXA S.A. 63,732,471 4.37% Legal and General Group plc 60,546,301 4.14% Newton Investment Management Limited 53,303,595 3.65% ABN AMRO Bank NV 48,966,000 3.36% 30. Woolworths Group plc Annual report and accounts 2008
OTHER INFORMATION (cont’d)
Authority to Purchase Own Shares At the Annual General Meeting of the Company held on 6 June 2007, the Company was given authority to purchase up to £18,237,368.01 nominal value of its ordinary shares in the market. This authority, which has not been used, expires at the conclusion of the Annual General Meeting to be held in 2008 and a resolution will be put to that meeting to provide a similar authority for a further year.
Significant agreements – change of control EUK is a party to significant customer agreements which contain certain termination and other rights for the counterparties upon a change of control of EUK or alternatively the Group, if a competitor of such counterparty assumes control.
Under a £350 million multicurrency revolving facility agreement dated 30 January 2008 between, amongst others, the Company, GMAC Commercial Finance Plc as agent (the Agent) and GMAC Commercial Finance Plc and Burdale Financial Limited as joint arrangers (the “Senior Facility Agreement”), on a change of control of the Company, if the majority lenders so require, the Agent may and shall, by notice to the Company, (i) declare that an event of default has occurred; and/or (ii) cancel the facilities; and/or (iii) declare all or part of the utilisations, together with accrued interest and all other amounts accrued or outstanding under the finance documents immediately due and payable; (iv) declare that all or part of the utilisations be payable on demand; and (v) declare that the Company immediately pay or procure the payment of cash cover in respect of the outstanding purchase prices and the letters of credit (all such amounts being immediately due and payable).
Under a £35 million sterling second lien term loan facility agreement dated 30 January 2008 between, amongst others, the Company, Woolworths Jersey Finance Limited, The ADM Maculus Fund III L.P. as facility agent (the “Facility Agent”) and DK Acquisition Partners L.P. as mandated lead arrangers (the “Second Lien Facility Agreement”), on a change of control of the Company, if the majority lenders so require, the Facility Agent may and shall, by notice to the Company, (i) declare that an event of default has occurred; and/or (ii) cancel the facility; and/or (iii) declare all or part of the loan, together with accrued interest and all other amounts accrued under the finance documents immediately due and payable; (iv) declare that all or part of the loan be payable on demand.
Under the terms of both facility agreements, a change of control occurs if any person or group of persons acting in concert gain control of the Company other than as a result of a permitted reorganisation (the criteria for which is set out in the both facility agreements).
Compensation for loss of office or employment – takeover bid Four senior Group employees have employment terms which entitle them to serve notice following a change of control with entitlement to 10 months notice. The aggregate cost to the Group in respect of such compensation right would currently be £736,000.
Disclosure of Information to the Auditors Each of the Directors has confirmed that, so far as he or she is aware, as at 2 April 2008, there is no relevant audit information (that is, information needed by the Company’s auditors in connection with preparing their report) of which the Company’s auditors are unaware and that the Director has taken all the steps that he or she ought to have taken as a Director in order to make himself or herself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information.
Auditors PricewaterhouseCoopers LLP have indicated their willingness to accept reappointment as auditors of the Company and a resolution proposing their reappointment is contained in the Notice of Annual General Meeting and will be put to the shareholders at the Annual General Meeting.
By Order of the Board
Jonathan Bloom Company Secretary 2 April 2008 Woolworths Group plc 31. Annual report and accounts 2008
DIRECTORS’ REMUNERATION REPORT for the financial year ended 2 February 2008
The following is a report by the Remuneration Committee which has been approved by the Board for submission to shareholders.
Composition and Terms of Reference The Remuneration Committee consists of the Group Chairman, Richard North, Andrew Beeson (Chairman), Roger Jones, David Simons, and Fru Hazlitt. Its composition and terms of reference are in line with the Combined Code. The Company complies with Section B of the Combined Code provisions on Directors’ remuneration and in respect of the Remuneration Report content.
The Committee’s aim is to ensure that the Executive Directors are rewarded for their contribution to the Group and are motivated to enhance the return to shareholders. The Remuneration Committee is responsible, on behalf of the Board, for setting the remuneration policy for Executive Directors. In addition, they have regard to pay and conditions for other employees in the Group especially the arrangements for Directors of subsidiaries who are not Directors of the Company.
The Committee is advised internally by the Human Resources Director and the Head of Group Reward. The Committee took into account information from various remuneration surveys and also received advice from Deloitte in respect of long term incentive plans.
Remuneration Policy The Committee continues to maintain a policy consistent with Group Reward Principles applied for all employees throughout the Group and in line with the Company’s business objectives which:
• attracts, retains and motivates high calibre Directors;
• is appropriate to the Company, taking into account information from independent sources and from within the retail sector as well as other companies of a comparable size;
• aligns the interests of Directors and shareholders by linking share and cash incentives to performance;
• complies with best practice and comprises a mix of fixed and variable pay with longer-term incentives.
When comparing remuneration packages with those in other companies, particular regard is taken of other retailers and companies whose annual turnover is similar to that of the Group.
The reward principles applied throughout the Group provide for basic salaries to be set at the median for a range of comparative companies with reward for performance aimed at delivering an overall package that is competitive. For the Chief Executive, the variable, performance related remuneration, represents 58 per cent of the total package for ‘on target’ performance. For other executive directors, the variable, performance related remuneration, represents 44 per cent of the total package for ‘on target’ performance.
Components of Remuneration Basic Salary Basic salary for each Director is reviewed each year in the context of market conditions affecting executive remuneration, affordability and the level of increases awarded to staff throughout the Group. Basic salary levels are generally set at not more than the median for a range of comparative companies. During the year ended 2 February 2008, directors and colleagues in the Group generally received a salary increase of 2.5% except for increases awarded on promotion. Salaries for directors will next be reviewed in August 2008.
Benefits In addition to salaries and the items described below, the Company provides a range of competitive benefits including pension, a fully-expensed car (or non-pensionable cash allowance) and private medical insurance.
Service Contract The policy of the Committee is that notice periods should be set at not more than 12 months and no Executive Director currently has a service contract with a notice period longer than 12 months.
Bonus Executive Directors and directors of subsidiaries participated in the Woolworths Group Annual Incentive Plan (AIP) during the year (see page 32). Richard North, the Chairman, does not participate in any incentive plans. Bonuses are non-pensionable. 32. Woolworths Group plc Annual report and accounts 2008
DIRECTORS’ REMUNERATION REPORT (cont’d) for the financial year ended 2 February 2008
Share Options Executive Share Option Schemes The Company no longer grants share options under the Woolworths Group plc 2002 Executive Share Option Scheme.
For options granted in earlier years, the performance targets declared in the 2003 Directors’ Remuneration Report apply. Fully diluted, adjusted Earnings Per Share, as calculated in accordance with the Scheme rules (“Scheme EPS”), must increase by 6 per cent per annum (commencing with the Company’s financial year immediately prior to the date of grant) plus RPI over a three-year period in order for the option to be exercised in full. If this is not achieved, growth in Scheme EPS of 5 per cent per annum plus RPI over the same period is required in order for up to 50 per cent of the option to be exercised. If either of these targets is not met after the first three-year period there will be a retest one year later over a four-year period, from the same base, and the same proportion of the option will be available for exercise. If neither of the targets has been achieved after four years the option will lapse.
The performance target for share options granted in March 2003 and September 2003 was not met and these options lapsed during the year ended 2 February 2008.
The performance target for the options granted in March 2004 has not been met and the options lapse on the date of this report.
A limit of 5 per cent (of the total issued share capital) on the number of new shares that can be issued to satisfy executive options granted under Executive Share Schemes applies over a ten-year period. At the year end, outstanding share options represented 2.3 per cent of the total share capital.
Savings-Related Share Options A savings-related share option scheme (‘ShareSave’) is open to all eligible employees in the UK. The seventh grant of options under ShareSave was made in May 2007 and it is intended that options will be granted annually under this arrangement provided the scheme continues to provide a cost effective method of enabling employees to share in the success of the Group.
Incentives and bonuses Calculation of EPS in respect of share-based incentive plans is in accordance with the individual plan rules.
Woolworths Group Incentive Plan The Woolworths Group Incentive Plan (WIP) was replaced by the Annual Incentive Plan (described below) in 2004. Executive Directors previously had an opportunity to defer receipt of their declared bonus for three years, at the completion of which it is matched by 25 per cent in shares which are purchased in the market at the time of the election to defer. The outstanding share awards made to Executive Directors are shown on page 38.
The Woolworths Group Annual Incentive Plan Executive Directors, Directors of subsidiaries and other senior employees participate in the Plan. It operates on an annual basis and participants do not participate in any other annual bonus schemes.
The Plan provides for two types of Award:
• a Cash Award, which is paid after the end of the financial year and which, for Executive Directors is based on the achievement of financial targets and meeting personal objectives. The Cash Award for the Chief Executive will be 60% at target rising to a maximum of 120%. For other Executive Directors, the Cash Award will be 40% at target rising to a maximum of 80%. The main financial targets are Group profit, operating company profit, sales, cash targets, stock, margin and costs;
• a Share Award, which is made after the end of the financial year and which is based on the achievement of Group financial targets. For Executive Directors the Share Award for achieving target performance is 20 per cent of salary rising to a maximum of 40 per cent for exceptional performance. Shares comprised in a Share Award will be held in an employee share trust for a vesting period of three years. At the end of the vesting period a multiplier will be applied if a performance target is met. For on target performance the multiplier for Executive Directors will be 1.3 rising to a maximum of two for exceptional performance. If a participant leaves the Company during the vesting period no multiplier will apply. On a change of control of the Company the Committee will determine whether the multiplier will apply taking into account the performance from the Award date to the date on which the change of control occurs.
The Committee considers it important that Directors and senior employees focus on delivering annual targets set each year. Cash Awards and Share Awards are based on the achievement of these targets. The performance measure for the multiplier is growth in adjusted, fully diluted Earnings Per Share from continuing operations (“Plan EPS”). Woolworths Group plc 33. Annual report and accounts 2008
DIRECTORS’ REMUNERATION REPORT (cont’d) for the financial year ended 2 February 2008
Awards for the year ended 2 February 2008 Awards are earned both for the achievement of financial targets and meeting personal objectives. The main financial targets are Group profit, operating company profits, cash and stock. The Group profit was in line with expectations and the performance of operating companies was mixed.
The Cash Award for the Chief Executive reflects an increase in adjusted Group profit of 29.8%. Cash and stock targets were not fully met and the overall bonus rate was therefore reduced. The bonus rate for the Group Finance Director was similarly affected and the total Cash Awards percentages are 29% for the Chief Executive and 15% for the Group Finance Director.
Cash Awards for other Executive Directors also reflected the improvement in Group profit and a similar improvement in the performance of Woolworths plc. Profit at Entertainment UK Limited did not improve. Cash and stock targets were also missed thus reducing bonus rates. The outcome in Woolworths plc is that the Managing Directors of Retail and Distribution, and Commercial and Supply Chain, are each due a bonus of 25% of salary. The Managing Director of Entertainment UK Limited left the Company on 31 January 2008 and his bonus rate is 23.5%.
The Group profit is in the range set for Share Awards (the lower end of the range was not reached in the previous year) and Share Awards at 13.5% are due for Executive Directors. The Core Share Award may increase by a multiplier of between 1.3 and 2.0 provided that performance targets are met. As in previous years when share awards have been made, the target is Plan EPS. For growth in Plan EPS of 2 per cent per annum over three years (in addition to the increase in the Retail Prices Index), the multiplier will be 1.3 rising to a maximum of 2.0 if the Plan EPS growth over three years is 5 per cent per annum (in addition to the increase in the Retail Prices Index). No extra shares will be awarded if Plan EPS growth over three years is less than 2 per cent per annum and there will be no retesting if this not achieved.
Awards for the year ending 31 January 2009 The Cash Award will again be based on the achievement of financial targets and meeting personal objectives. The main financial targets are Group profit, operating company profit, cash and stock. The Cash Award for the Chief Executive will be 60% at target rising to a maximum of 120%. For other Executive Directors, the Cash Award will be 40% at target rising to a maximum of 80%.
Share Awards, to be made after the end of the financial year, will also be based on the achievement of Group profit targets with additional shares awarded on the basis described above. For Executive Directors, the target Share Award will be 20% of salary rising to a maximum of 40%. Matching shares will also be subject to Plan EPS performance targets to be set when the Share Award is made.
In the event of a change of control of the Company, the Committee may consider it appropriate to waive the performance targets for the Chief Executive’s Awards so that the Chief Executive receives a cash bonus of up to 100% of salary in lieu of any other Cash or Share Awards that may be payable for that year under the Plan.
The Woolworths Group Performance Share Plan Executive Directors and Directors of subsidiaries participate in this Plan. It provides for participants to receive an Award of Shares every six months, after the announcement of annual and half-yearly results. For Executive Directors the value of the shares comprised in each Award will be equal in value to 20 per cent of basic salary at the date the Award is made. The shares will be held in an employee trust for a vesting period of three years. For exceptional performance the Award may increase to 50 per cent of salary.
Awards made to Executive Directors during the year to 2 February 2008 are shown on page 38.
For Awards to be made during the financial year ending 31 January 2009, there will be two performance criteria. One half of the Awards will vest if Plan EPS targets are met and one half will be dependent on the Total Shareholder Return (TSR) performance. The minimum increase in Plan EPS will be 2 per cent per annum (in addition to the increase in the Retail Prices Index). TSR will be measured against the FTSE General Retailers Index with vesting only if the Company is at the median or above. The following tables illustrate the targets. Increase in EPS Award (% of salary) Less than 2% nil 2% 5% 3% 10% 4% 15% 5% 20% 6% 25%
TSR Performance Award (% of salary) Below median nil Median – 60th per centile 5% 61st – 70th per centile 10% 71st – 80th per centile 15% Upper quintile 25%
Performance targets for awards made under the Plan in 2005 have not been met and these awards have now lapsed. 34. Woolworths Group plc Annual report and accounts 2008
DIRECTORS’ REMUNERATION REPORT (cont’d) for the financial year ended 2 February 2008
Special Arrangements for the Chief Executive In 2005, the Company introduced special incentive arrangements for the Chief Executive. These included a three year share-based Plan which could deliver shares equal in value to three times salary (as at 30 June 2005) in June 2008. Two-thirds of the total award (a maximum of 2,651,934 shares) is linked to the Company’s TSR performance vs. the General Retailers Index. No vesting will occur unless this performance is at least at the median with a maximum award if the Company performs in the top 20% of this peer group. The remaining one-third of the total award (1,325,967 shares) will vest provided that the Chief Executive is still employed by the Company on 30 June 2008 and conditional on him retaining his existing shareholding in the Company until that date. The number of shares awarded was based on a price of 36.2p per share being the average share price over the period of one month prior to 30 June 2005.
No new shares will be issued in respect of this Plan.
Special Share Award for Tony Page As part of the package agreed when Mr Page joined the company, he received an Award of shares equal in value to £300,000. The number of shares awarded was based on a share price of 31.5p per share being the share price on 1 September 2006. This Award will vest on 31 August 2009, provided that he remains in employment with the company. This Award was made partly to compensate Mr Page for incentives with his previous employer which he forfeited when he joined the company.
No new shares will be issued in respect of this Plan.
Management Investment Plan for Senior Executives A Management Investment Plan was established in June 2005, which provides the directors of subsidiary companies and selected members of senior management (52 individuals in total) with an opportunity to invest their own money in the Company’s shares. No Executive directors participate in the Plan. The maximum investment for each individual was dependent on their grade and the highest amount that a director of a subsidiary company could invest was £20,000. Over £500,000 was invested in total and participants will become entitled to awards of matching shares each year for three years, provided that profit targets are met and that the participant does not dispose of any of the purchased shares. At the first anniversary of the initial investment a matching share award of 50% of the shares purchased was made which will vest on 30 June 2008. The profit targets set in 2005 and 2006 have not been met but a further matching award will become due on 30 June 2008. All the share allocations will be released to participants who remain employed in the Group after three years and the Company will not issue any new shares in respect of this Plan.
Performance Graph The Committee is required to include a graph showing the Total Shareholder Return (‘TSR’) for the Company against an appropriate index.
The Committee has decided that the Index of General Retailers is appropriate for this purpose.
£220 g n i £180 d l o h 0 0 1
£ £140 FTSE All-Share l
a General Retailers Index c i t e h t o
p £100 y h f o e u l
a £60 V Woolworths Group plc £20 Feb 2003 Feb 2004 Feb 2005 Feb 2006 Feb 2007 Feb 2008
Average taken over 30 trading days prior to the year end. Woolworths Group plc 35. Annual report and accounts 2008
DIRECTORS’ REMUNERATION REPORT (cont’d) for the financial year ended 2 February 2008
Service Contracts Provision for Notice Notice compensation Effective Period from Period from on early Date of contract Director Company termination Director Trevor Bish-Jones 18/03/02 6 months 12 months see below Stephen East 01/07/05 6 months 12 months see below Steve Lewis 10/06/05 6 months 12 months see below Tony Page 01/09/06 6 months 12 months see below
The service agreement of Executive Directors can be terminated by the Company giving 12 months written notice and by the Director giving six months written notice. There are no special terms that apply on early termination.
The service agreements of Executive Directors also contain post-termination restrictive covenants and a provision which permits the Company either to require the Director to perform duties outside the Director’s normal duties or not to provide the Director with work during the notice period.
During the year, Trevor Bish-Jones served as a Non-Executive Director elsewhere and has retained earnings of £45,667 in respect of this service. Stephen East also served as a Non-Executive Director elsewhere and has retained earnings of £71,250 in respect of this service.
Non-Executive Directors Non-Executive Directors’ remuneration consists of an annual fee for their services as members of the Board and of selected Committees.
They do not have service contracts but instead have letters of appointment for a three-year period. During that period, the appointment may be terminated by either party giving three months prior written notice. For Andrew Beeson and Roger Jones, the three year period ends on 31 May 2010. David Simons was appointed on 1 September 2005 for three years until 31 August 2008 and Fru Hazlitt was appointed on 17 January 2006 for three years until 16 January 2009. The Chairman, Richard North was appointed on 9 October 2006 for three years until 8 October 2009. Non- Executive Directors’ remuneration is determined by the Board.
Directors’ Interests in Shares 2008 2007 Ordinary shares Ordinary shares Andrew Beeson 250,000 206,115 Trevor Bish-Jones 682,944 462,402 Stephen East 400,000 100,000 Fru Hazlitt 50,000 Nil Roger Jones 166,252 139,011 Steve Lewis 203,557 39,246 David Simons CBE 2,000 Nil Tony Page 30,000 10,000 Richard North 10,000 Nil 36. Woolworths Group plc Annual report and accounts 2008
DIRECTORS’ REMUNERATION REPORT (cont’d) for the financial year ended 2 February 2008
Auditable information The following information has been audited by the Company’s auditors, as required by Schedule 7A to the Companies Act 1985.
Directors’ Remuneration – for year or from date of appointment
Compensation Pension for loss of 2008 2007 Salary Supplement Bonus Benefits office Total Total £’000 £’000 £’000 £’000 £’000 £’000 £’000 Executive Gerald Corbett (resigned 6 June 2007) 69 69 200 Trevor Bish-Jones 503 116 154 26 799 797 Stephen East 314 45 48 21 428 458 Steve Lewis 304 33 78 21 436 397 Lloyd Wigglesworth (resigned 31 January 2008) 277 21 66 29 306 699 473 Tony Page (appointed 1 September 2006) 304 46 78 21 449 376 Total 1,771 261 424 118 306 2,880 2,701
Non Executive Richard North (Chairman) (appointed 9 October 2006) 186 186 11 Andrew Beeson 42 42 41 Roger Jones 42 42 41 Prue Leith OBE (resigned 14 June 2006) 13 David Simons CBE 36 36 36 Fru Hazlitt 36 36 36 Total 342 342 178
Notes Benefits incorporates all taxable benefits and expense allowances arising from employment and relate mainly to the provision of a company car and the cost of medical insurance.
Lloyd Wigglesworth left the Company on 31 January 2008. Following the end of the financial year he received a sum of £306,236 under the terms of a compromise agreement. This sum represents one year’s salary plus pension supplement for one year as provided under the terms of his service contract. Woolworths Group plc 37. Annual report and accounts 2008
DIRECTORS’ REMUNERATION REPORT (cont’d) for the financial year ended 2 February 2008
Directors’ Share Options
Number of options At start At end Option of year/ Granted Exercised Lapsed of year/ exercise Date from Executive Share Date of date of during during during date of price which Expiry Option Schemes Grant appointment year year year cessation pence exercisable date Trevor Bish-Jones 24/04/02 60,000 60,000 50.0 24/04/05 23/04/12 24/04/02 2,040,000 2,040,000 50.0 24/04/05 23/04/12 11/09/02 595,238 595,238 31.5 11/09/05 10/09/12 27/03/03 655,738 655,738 30.5 27/03/06 26/03/13 11/09/03 505,747 505,747 43.5 11/09/06 10/09/13 25/03/04 530,120 530,120 41.5 25/03/07 24/03/14 Total 4,386,843 1,161,485 3,225,358
Steve Lewis 26/09/01 63,360 63,360 30.5 26/09/04 25/09/11 26/09/01 285,246 285,246 30.5 26/09/04 25/09/11 24/04/02 127,500 127,500 50.0 24/04/05 23/04/12 11/09/02 222,619 222,619 31.5 11/09/05 10/09/12 27/03/03 257,787 257,787 30.5 27/03/06 26/03/13 11/09/03 185,632 185,632 43.5 11/09/06 10/09/13 25/03/04 204,819 204,819 41.5 25/03/07 24/03/14 Total 1,346,963 443,419 903,544
Lloyd Wigglesworth 25/03/04 72,289 72,289 41.5 25/03/07 24/03/14 25/03/04 168,373 168,373 41.5 25/03/07 24/03/14 Total 240,662 240,662
At start At end Option of year/ Granted Exercised Lapsed of year/ exercise Date from Date of date of during during during date of price which Expiry ShareSave Grant appointment year year year cessation pence exercisable date Trevor Bish-Jones 28/05/04 9,308 9,308 40.5 01/08/07 31/01/08 27/05/05 5,263 5,263 36.0 01/08/08 31/01/09 02/06/06 11,333 11,333 33.0 01/08/09 31/01/10 01/06/07 12,600 12,600 30.0 01/08/10 31/01/11 Total 25,904 12,600 9,308 29,196
Stephen East 02/06/06 11,333 11,333 33.0 01/08/09 31/01/10 Total 11,333 11,333
Steve Lewis 28/05/04 9,308 9,308 40.5 01/08/07 31/01/08 27/05/05 5,263 5,263 36.0 01/08/08 31/01/09 02/06/06 11,333 11,333 33.0 01/08/09 31/01/10 01/06/07 12,600 12,600 30.0 01/08/10 31/01/11 Total 25,904 12,600 9,308 29,196
Lloyd Wigglesworth 27/05/05 10,527 10,527 36.0 01/08/08 31/01/09 02/06/06 11,333 11,333 33.0 01/08/09 31/01/10 Total 21,860 21,860
Executive share options granted to Lloyd Wigglesworth have lapsed on the date of this report. He remains entitled to exercise part of his ShareSave options until 31 July 2008. 38. Woolworths Group plc Annual report and accounts 2008
DIRECTORS’ REMUNERATION REPORT (cont’d) for the financial year ended 2 February 2008
Directors’ Share Awards
Number of shares At start At end Date from of year/ Vested Lapsed of year/ Award which Date of date of Awarded during during date of price per restrictions Woolworths Group Incentive Plan Award appointment in year year year cessation share lift Trevor Bish-Jones 31/03/04 119,563 119,563 40.5 31/03/07 Total 119,563 119,563
Steve Lewis 31/03/04 24,259 24,259 40.5 31/03/07 Total 24,259 24,259
Number of shares At start At end Date from of year/ Lapsed of year/ Award which Date of date of Awarded during date of price per restrictions Woolworths Group Performance Share Plan award appointment in year year cessation share lift Trevor Bish-Jones 09/09/04 218,182 218,182 44.00 09/09/07 19/04/05 249,351 249,351 38.50 19/04/08 20/10/06 288,889 288,889 36.00 20/10/09 12/04/07 340,984 340,984 30.50 12/04/10 24/09/07 533,000 533,000 20.00 24/09/10 Total 756,422 873,984 218,182 1,412,224
Stephen East 28/09/05 175,182 175,182 34.25 28/09/08 27/04/06 182,353 182,353 34.00 27/04/09 20/10/06 172,222 172,222 36.00 20/10/09 12/04/07 203,279 203,279 30.50 12/04/10 24/09/07 317,800 317,800 20.00 24/09/10 Total 529,757 521,079 1,050,836
Steve Lewis 09/09/04 34,943 34,943 44.00 09/09/07 19/04/05 127,273 127,273 38.50 19/04/08 28/09/05 143,066 143,066 34.25 28/09/08 27/04/06 160,588 160,588 34.00 27/04/09 20/10/06 166,667 166,667 36.00 20/10/09 12/04/07 196,722 196,722 30.50 12/04/10 24/09/07 307,500 307,500 20.00 24/09/10 Total 632,537 504,222 34,943 1,101,816
Tony Page 20/10/06 166,667 166,667 36.00 20/10/09 12/04/07 196,722 196,722 30.50 12/04/10 24/09/07 307,500 307,500 20.00 24/09/10 Total 166,667 504,222 670,889
Lloyd Wigglesworth 09/09/04 41,761 41,761 44.00 09/09/07 19/04/05 137,662 137,662 38.50 19/04/08 28/09/05 154,745 154,745 34.25 28/09/08 27/04/06 160,588 160,588 34.00 27/04/09 20/10/06 151,667 151,667 36.00 20/10/09 12/04/07 179,017 179,017 30.50 12/04/10 24/09/07 280,000 280,000 20.00 24/09/10 Total 646,423 459,017 1,105,440
All Share Awards made to Lloyd Wigglesworth under the Woolworths Group Performance Share Plan lapsed at the date of his ceasing to hold office. Woolworths Group plc 39. Annual report and accounts 2008
DIRECTORS’ REMUNERATION REPORT (cont’d) for the financial year ended 2 February 2008
Directors’ Share Awards (cont’d)
Number of shares At start At end Date from of year/ Lapsed of year/ Award which Date of date of Awarded during date of price per restrictions Woolworths Group Annual Incentive Plan award appointment in year year cessation share lift Trevor Bish-Jones 19/04/05 124,675 124,675 38.50 19/04/08 Total 124,675 124,675
Stephen East 27/04/06 98,471 98,471 34.50 27/04/09 Total 98,471 98,471
Steve Lewis 19/04/05 63,636 63,636 38.50 19/04/08 27/04/06 86,718 86,718 34.50 27/04/09 Total 150,364 150,354
Lloyd Wigglesworth 19/04/05 68,831 68,831 38.50 19/04/08 27/04/06 86,718 86,718 34.50 27/04/09 Total 155,549 155,549
Share Awards made to Lloyd Wigglesworth under the Woolworths Group Annual Incentive Plan will vest on the date of this report.
Pensions Pensions and life assurance benefits are provided under the Woolworths Group Pension Scheme (a defined benefit arrangement). During the year ended 2 February 2008, life assurance in excess of the earnings cap was provided for the Executive Directors. Since April 2006, a cash supplement of 29.8% of salary in excess of the earnings cap has been paid to Trevor Bish-Jones. Steve Lewis is a member of the Woolworths Group Pension Scheme and receives a cash supplement at 17% on earnings in excess of the earnings cap. Stephen East joined the Woolworths Group Pension Scheme after completion of one year’s service and currently receives a pension supplement at 22% of salary in excess of the earnings cap, which is paid directly into a personal pension arrangement. Benefits accrue at one sixtieth of salary for all Executive Directors, and they are all subject to the earnings cap, which will remain in force in the Woolworths Group Pension Scheme.
Tony Page also joined in the Woolworths Group Pension Scheme after completion of one year’s service and currently receives a pension supplement at 18% on earnings in excess of the earnings cap.
The table below shows, as at the year end, the accrued pension should the Director leave employment; the increase in the accrued pension during the year; the increase excluding inflation and member contributions; the transfer value of accrued pension and any increase/(decrease) in this value assessed on the transfer value basis of the Woolworths Group Pension Scheme. This disclosure is in compliance with both the Stock Exchange Listing Rules and the Directors’ Remuneration Report Regulations 2002. Transfer value of Transfer Transfer Increase in Accrued Increase Increase increase value of value of transfer annual Director’s in accrued in accrued (net of accrued accrued value pension at contributions pension pension inflation and pension at pension at (net of 2 February during during (net of director’s 2 February 3 February director’s 2008 the year the year inflation) contributions) 2008 2007 contributions) Age £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Trevor Bish-Jones 47 11 0 2 2 15 89 77 12 Stephen East 49 3022101569 Steve Lewis 43 12 0 2 2 12 81 73 8 Tony Page 41 1 0 1 1 3 3 3 Lloyd Wigglesworth 48 5 0 2 2 10 29 19 10
On behalf of the Board
Andrew Beeson Chairman of the Remuneration Committee 2 April 2008 40. Woolworths Group plc Annual report and accounts 2008
STATEMENT OF DIRECTORS’ RESPONSIBILITIES in Respect of the Annual Report, the Directors’ Remuneration Report and the Financial Statements
The directors are responsible for preparing the Annual Report, the Directors’ Remuneration Report and the Group and the parent company financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union, and the parent company financial statements and the Directors’ Remuneration Report in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). The Group and parent company financial statements are required by law to give a true and fair view of the state of affairs of the Company and the Group and of the profit or loss of the Company and Group for that period.
In preparing those financial statements, the directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state that the Group financial statements comply with IFRSs as adopted by the European Union, and with regard to the parent company financial statements that applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;
• prepare the Group and parent company financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business, in which case there should be supporting assumptions or qualifications as necessary.
The directors confirm that they have complied with the above requirements in preparing the financial statements.
The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the company and the Group and to enable them to ensure that the Group financial statements comply with the Companies Act 1985 and Article 4 of the IAS Regulation and the parent company financial statements and the Directors’ Remuneration Report comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
So far as each director is aware, there is no relevant audit information of which the Company’s auditors are unaware; and each has taken all the steps that he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information.
By Order of the Board
Stephen East Finance Director 2 April 2008 Woolworths Group plc 41. Annual report and accounts 2008
INDEPENDENT AUDITORS’ REPORT to the Members of Woolworths Group plc (the ‘Group’)
We have audited the group financial statements of Woolworths Group plc for the period ended 2 February 2008 which comprise the Group Income Statement, the Group Balance Sheet, the Group Cash Flow Statement, the Group Statement of Recognised Income and Expense and the related Notes to the Group Accounts. These Group financial statements have been prepared under the accounting policies set out therein.
We have reported separately on the parent company financial statements of Woolworths Group plc for the period ended 2 February 2008 and on the information in the Directors’ Remuneration Report that is described as having been audited.
Respective responsibilities of directors and auditors The directors’ responsibilities for preparing the Annual Report and the Group financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union are set out in the Statement of Directors’ Responsibilities.
Our responsibility is to audit the Group financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). This report, including the opinion, has been prepared for and only for the company’s members as a body in accordance with Section 235 of the Companies Act 1985 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
We report to you our opinion as to whether the Group financial statements give a true and fair view and whether the Group financial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation. We also report to you whether in our opinion the information given in the Directors’ Report is consistent with the Group financial statements.
In addition we report to you if, in our opinion, we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed.
We review whether the Corporate Governance Statement reflects the company’s compliance with the nine provisions of the Combined Code 2006 specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the Board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Group’s Corporate Governance procedures or its risk and control procedures.
We read other information contained in the Annual Report and consider whether it is consistent with the audited Group financial statements. The other information comprises only the Directors’ Report, the Directors’ Remuneration Report, the Chairman’s Statement, and the Corporate Governance Statement. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the Group financial statements. Our responsibilities do not extend to any other information.
Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the Group financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the Group financial statements, and of whether the accounting policies are appropriate to the Group’s circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Group financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the Group financial statements.
Opinion In our opinion:
• the Group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the Group’s affairs as at 2 February 2008 and of its profit and cash flows for the period then ended;
• the Group financial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation; and
• the information given in the Directors’ Report is consistent with the Group financial statements.
PricewaterhouseCoopers LLP Chartered Accountants and Registered Auditors London 2 April 2008 42. Woolworths Group plc Annual report and accounts 2008
GROUP INCOME STATEMENT for the 52 weeks ended 2 February 2008 and 53 weeks ended 3 February 2007
52 weeks to 2 February 2008 53 weeks to 3 February 2007
Before Exceptional Before Exceptional exceptional items exceptional items items (Note 6) Total items (Note 6) Total Note £m £m £m £m£m£m
Revenue 1 2,969.6 – 2,969.6 2,737.0 – 2,737.0 Cost of goods sold (2,245.5) – (2,245.5) (2,045.8) – (2,045.8) Gross profit 724.1 – 724.1 691.2 – 691.2 Selling and marketing costs (583.0) (2.3) (585.3) (571.6) 3.9 (567.7) Administrative expenses (124.7) (9.5) (134.2) (125.1) 4.8 (120.3) Other operating income 20.2 8.6 28.8 23.5 – 23.5
Operating profit 4 36.6 (3.2) 33.4 18.0 8.7 26.7 Finance cost 2 (25.7) – (25.7) (14.5) – (14.5) Finance income 3 4.0 – 4.0 3.8 – 3.8
Profit before income tax 1 14.9 (3.2) 11.7 7.3 8.7 16.0 Income tax expense 7 (4.1) (0.1) (4.2) 0.2 (2.6) (2.4) Profit/(loss) for the year 10.8 (3.3) 7.5 7.5 6.1 13.6 Attributable to: Equity shareholders 10.8 (3.3) 7.5 7.4 6.1 13.5 Minority interest –––0.1 – 0.1 29 10.8 (3.3) 7.5 7.5 6.1 13.6 Earnings per share attributable to the ordinary equity holders (pence) 9 Basic 0.5 0.9 Diluted 0.5 0.9
GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE for the 52 weeks ended 2 February 2008 and 53 weeks ended 3 February 2007
52 weeks to 2 February 2008 53 weeks to 3 February 2007
Before Before exceptional Exceptional exceptional Exceptional items items Total items items Total £m £m £m £m £m £m Profit/(loss) for the year 10.8 (3.3) 7.5 7.5 6.1 13.6 Actuarial gain on defined benefit scheme net of tax 12.3 – 12.3 27.7 – 27.7 Deferred tax adjustment to 28% on defined benefit scheme (1.8) – (1.8) ––– Deferred tax on share-based payments (0.1) – (0.1) (0.1) – (0.1) Cash flow hedges: — Fair value losses net of tax (0.7) – (0.7) (6.2) – (6.2) — Transfer to stock net of tax 4.7 – 4.7 4.1 – 4.1 Net gains not recognised in income statement 14.4 – 14.4 25.5 – 25.5 Total gains/(losses) recognised in the year 25.2 (3.3) 21.9 33.0 6.1 39.1
Of the total recognised gain for the year £21.9 million (2007: £39.0 million) is attributable to the equity shareholders of the parent company.
The notes on pages 45 to 81 form an integral part of these financial statements. Woolworths Group plc 43. Annual report and accounts 2008
GROUP BALANCE SHEET at 2 February 2008 and 3 February 2007
2 February 3 February 2008 2007 Note £m £m Assets Non-current assets Goodwill 10 60.9 60.7 Other intangible assets 11 79.1 84.0 Property, plant and equipment 12 298.4 311.7 Fixed asset investments 13 0.2 0.2 Deferred income tax assets 24 – 1.0 438.6 457.6 Current assets Inventories 15 391.0 377.1 Trade and other receivables 16 444.5 303.5 Derivative financial instruments 17 2.8 – Current asset investments 19 4.5 – Cash and cash equivalents 18 39.2 28.4 882.0 709.0 Current liabilities Borrowings 20 (126.8) (129.8) Derivative financial instruments 17 (18.2) (27.5) Trade and other payables 21 (633.1) (490.4) Current income tax liabilities 22 (5.6) (1.4) Provisions for other liabilities and charges 23 (9.5) (8.5) Deferred income tax liabilities 24 (7.4) – (800.6) (657.6) Net current assets 81.4 51.4 Non-current liabilities Borrowings 20 (36.1) (1.9) Trade and other payables 21 (78.2) (72.4) Retirement benefit obligations 25 (66.9) (84.0) Provisions for other liabilities and charges 23 (23.2) (33.1) (204.4) (191.4) Net assets 315.6 317.6
Shareholders’ equity Ordinary shares 26 182.4 182.4 Share premium 27 9.7 9.7 Other reserves 28 26.0 22.0 Retained earnings 29 97.5 103.5
Total equity 30 315.6 317.6
The notes on pages 45 to 81 form an integral part of these financial statements.
The financial statements on pages 42 to 81 were approved by the Board of Directors on 2 April 2008 and were signed on its behalf by:
Stephen East Richard North Finance Director Chairman 44. Woolworths Group plc Annual report and accounts 2008
GROUP CASH FLOW STATEMENT for the 52 weeks ending 2 February 2008 and 53 weeks ending 3 February 2007
52 weeks to 53 weeks to 2 February 3 February 2008 2007 Note £m £m Cash flows from operating activities Cash generated from/(utilised in) operations 31 61.7 (39.6) Interest paid (25.1) (12.6) Interest received 3.4 2.5 Income tax received/(paid) 0.1 (13.4) Net cash generated from/(utilised in) operating activities 40.1 (63.1) Cash flows from investing activities Acquisition of subsidiaries (net of cash acquired) – (63.0) Purchase of intangible assets (10.3) (7.3) Purchase of property, plant and equipment (32.4) (69.1) Proceeds from sale of property, plant and equipment 11.8 – Disposal costs on sale of property, plant and equipment (0.2) – Purchase of minority – (2.8) Purchase of short-term investments (4.5) – Net cash used in investing activities (35.6) (142.2) Cash flows from financing activities Net proceeds from issuance of ordinary shares – 0.7 Repayment of Senior Notes – (97.8) Repayment of bank borrowings (116.1) – Proceeds from bank borrowings 158.9 109.7 Debt issue costs paid (8.2) – Finance lease principal repayments (1.3) (1.2) Net transactions in own shares held by Trust – (0.1) Dividends paid to Company’s shareholders 8 (25.7) (25.6) Net cash generated from/(utilised in) financing activities 7.6 (14.3) Net increase/(decrease) in cash, cash equivalents and bank overdrafts 12.1 (219.6) Cash, cash equivalents and bank overdrafts at beginning of the year 27.1 246.7
Cash, cash equivalents and bank overdrafts at end of the year 32 39.2 27.1 Cash, cash equivalents and bank overdrafts consist of: Cash 18 39.2 28.4 Bank overdrafts 20 – (1.3)
Cash, cash equivalents and bank overdrafts at end of the year 32 39.2 27.1 Woolworths Group plc 45. Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS
Accounting Policies for the Year Ended 2 February 2008 The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. An explanation is provided where changes have been made to previous policies on the adoption of new accounting standards in the year.
Basis of Preparation The financial statements of the Group are made up to the nearest Saturday to 31 January. The financial year for 2008 represents the 52 weeks ended 2 February 2008. The comparative financial year for 2007 was the 53 weeks ended 3 February 2007.
These financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRS’) and the International Financial Reporting Interpretations Committee (‘IFRIC’) interpretations endorsed by the European Union, together with those parts of the Companies Act 1985 applicable to companies reporting under IFRS.
The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of certain financial assets and liabilities (including derivative instruments) at fair value. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed on page 51.
Relevant standards, amendments and interpretations effective in 2008 The following standards amendments and interpretations to existing standards are mandatory for accounting periods beginning on or after 4 February 2007 and are relevant to the Group.
— IFRS 7, ‘Financial instruments: Disclosures, and the complementary amendment to IAS 1, ‘Presentation of financial statements – Capital disclosures’. IFRS 7 introduces new disclosures relating to financial instruments. This standard does not have any impact on the classification or valuation of the Group’s financial instruments.
— IFRIC 8, ‘Scope of IFRS 2 Share-based Payment’; clarifies that the accounting standard IFRS 2 applies to arrangements where an entity makes share-based payments for apparently nil or inadequate consideration. This standard does not have any impact on the IFRS 2 charge recognised by the Group.
Standards, amendments and interpretations effective in 2008 but not relevant The following standards, amendments and interpretations to published standards are mandatory for accounting periods beginning on or after 4 February 2007 but they are not relevant to the Group.
— IFRS 4, ‘Insurance contracts’;
— IFRIC 7, ‘Applying the restatement approach under IAS 29, Financial reporting in hyper-inflationary economies’;
— IFRIC 9, ‘Re-assessment of embedded derivatives’;
— IFRIC 10, ‘Interims and impairment’.
Interpretations to existing standards that are not yet effective and have not been early adopted by the Group The following standards, amendments and interpretations to existing standards have been published and are mandatory for the Group’s accounting periods beginning on or after 3 February 2008 or later periods, but the Group has not early adopted them:
— IAS 23 (Amendment), ‘Borrowing costs’ (effective from 1 January 2009). The amendment to the standard is still subject to endorsement by the European Union. It requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset. The option of immediately expensing those borrowing costs will be removed. The Group will apply IAS 23 (Amended) from 31 January 2009, subject to endorsement by the EU but is currently not applicable to the Group or Company as there are no qualifying assets.
— IFRS 8, ‘Operating segments’ (effective from 1 January 2009). The standard is still subject to endorsement by the European Union. IFRS 8 replaces IAS 14 and aligns segment reporting with the requirements of the US standard SFAS 131, ‘Disclosures about segments of an enterprise and related information’. The new standard requires a ‘management approach’, under which segment information is presented on the same basis as that used for internal reporting purposes. The Group will apply IFRS 8 from 31 January 2009, subject to endorsement by the EU. The expected impact is still being assessed in detail by management, but it appears unlikely that the number of reportable segments, or the manner in which the segments are reported will change.
— IFRIC 14, ‘IAS 19 – The limit on a defined benefit asset, minimum funding requirements and their interaction’ (effective from 1 January 2008). IFRIC 14 provides guidance on assessing the limit in IAS 19 on the amount of the surplus that can be recognised as an asset. It also explains how the pension asset or liability may be affected by a statutory or contractual minimum funding requirement. The Group will apply IFRIC 14 from 31 January 2008, but it is not expected to have any impact on the Group’s financial statements as its defined benefit scheme is expected to remain in deficit and has no surplus capacity. 46. Woolworths Group plc Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
Interpretations to existing standards that are not yet effective and not relevant for the Group’s operations The following interpretations to existing standards have been published that are mandatory for the Group’s accounting periods beginning on or after 31 January 2009 or later periods but are not relevant for the Group’s operations:
— IFRIC 12, ‘Service concession arrangements’; and
— IFRIC 13, ‘Customer loyalty programmes’.
Consolidation The consolidated financial statements include the financial statements of the Company, its subsidiary undertakings and joint ventures.
Subsidiaries Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date on which control ceases.
The Group has used the purchase method of accounting for the acquisition of subsidiaries. Under the purchase method of accounting the cost of an acquisition is measured as the fair value of the assets acquired, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities are measured initially at their fair values. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill.
Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated on consolidation.
Joint Ventures Joint ventures are jointly controlled entities in which the Group has an interest.
The Group’s interests in joint ventures are accounted for by proportionate consolidation. The Group combines its share of the joint ventures’ individual income and expenses, assets and liabilities and cash flows on a line by line basis with similar items in the Group’s financial statements.
Revenue Recognition Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group’s activities. Revenue is shown net of value added tax, returns, rebates and discounts and after eliminating sales within the Group.
(a) Sales of goods – Entertainment Wholesale and Publishing The Group sells a range of entertainment products as a publisher and distributor. Sales of goods are recognised when a Group entity has delivered a product to a customer and there is no unfulfilled obligation that could affect the acceptance of the products. Delivery does not occur until the products have been shipped to the specified location, the risks of obsolescence and loss have been transferred to the customer, and the customer has accepted the products.
The entertainment products are often sold with volume discounts and with a right to return products. Sales are recorded based on the price specified in the sales contracts, net of the estimated volume discounts and returns at the time of sale.
Accumulated experience is used to estimate and provide for the discounts and returns. No element of financing is deemed present as the sales are made with a credit term of 30-60 days, which is consistent with market practice.
(b) Sales of goods – Retail The Group operates a chain of retail outlets. Sales of goods are recognised when a Group entity sells a product to the customer. Retail sales are usually in cash or by credit card.
It is the Group’s policy to sell its products to the retail customer with a right to return within 28 days (statutory rights not affected). Accumulated experience is used to estimate and provide for such returns at the time of sale. The Group does not operate a loyalty programme.
(c) Other Revenue arising on the sale of credit vouchers represents third party commission arising on these transactions.
Licencing royalties are recognised as revenue when the following criteria are met:
— the licence agreement has been executed by all parties;
— the licence term has commenced and
— the collection of royalties is reasonably assured.
All licence royalties received in advance are included within deferred income until the above criteria are met. Woolworths Group plc 47. Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
Segment reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to different risks and returns from those of other business segments.
Other Income Other income, including sales commission, is recognised on an accruals basis to match the provision of the related goods or services.
Interest income is recognised on a time-apportioned basis using the effective interest method.
Dividend income is recognised when the right to receive payment is established.
Foreign Currencies The functional and the presentational currency of the Group is Pounds Sterling.
Foreign currency transactions are translated into Sterling using the exchange rates prevailing at the dates of the transactions.
Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except where hedge accounting is applied.
The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
— assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
— income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and
— all resulting exchange differences are recognised as a separate component of equity.
Dividend Payment Policy Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s financial statements in the period in which the dividends are approved by the Company’s shareholders or, in the case of interim dividends, when paid.
Exceptional Items Items that are material in size, unusual and infrequent in nature are presented as exceptional items in the income statement. The Directors are of the opinion that the separate recording of exceptional items provides helpful information about the Group’s underlying business performance.
Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary or joint venture at the date of acquisition. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
Intangible Assets Brands are stated at cost less amortisation, with amortisation on a straight-line basis over twenty years.
Underlying rights and trade names are stated at fair value at acquisition less amortisation, with amortisation on a straight-line basis over ten years.
Purchased copyrights and licences are stated at cost less amortisation and are amortised on a straight-line basis over the period of the underlying legal agreements, which typically range from five to ten years.
Customer relationships are stated at fair value determined on acquisition and are amortised on a straight-line basis ranging from three to ten years.
Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. Incremental employee costs that are directly associated with the production of identifiable and unique software controlled by the Group, and that will generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Computer software is amortised over seven years.
Intangible assets are reviewed for impairment based on the ongoing benefit derived from their use, with provision made where required. 48. Woolworths Group plc Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
Property, Plant and Equipment Property, plant and equipment is stated at cost less accumulated depreciation. Cost includes expenditure that is directly attributable to the acquisition of the items.
Depreciation of property, plant and equipment is calculated by the straight-line method to allocate their cost to their residual values over their useful economic life as follows:
Land and buildings Freeholds — 2 per cent Long leaseholds — 5 per cent Short leaseholds — over the life of the lease
Fixtures, fittings and equipment Tenant’s improvements — shorter of ten years and the remaining life of the lease Fixtures and fittings — between 5 per cent and 15 per cent Computers and electronic equipment — between 14 per cent and 50 per cent Motor cars — 25 per cent Commercial vehicles — 33 per cent
The Group has adopted a policy of not revaluing freehold properties.
During the year ended 2 February 2008 the Group revised the useful economic lives of certain computer and electronic equipment from five years to seven years. During the prior year the Group revised the useful economic lives of certain store fixtures and fittings from ten years to twenty years. The impact of these changes has been quantified in notes 11 and 12.
The assets’ residual values and useful lives are reviewed and adjusted, if appropriate, at each balance sheet date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.
Disposal of Land and Buildings Profits and losses on the disposal of land and buildings represent the difference between the net proceeds and the net carrying value at the date of sale.
Sales are accounted for when there is an unconditional exchange of contracts or where the completion cannot be reasonably withheld.
Financial Assets The Group’s financial assets are all categorised as loans and receivables and derivatives. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets. The Group’s loans and receivables comprise ‘trade and other receivables’, ‘cash and cash equivalents’ and ‘short-term investments’ in the balance sheet.
The Group assesses at each balance sheet date whether there is objective evidence that a financial asset is impaired. Impairment testing of Trade Receivables is described under the accounting policy note for Trade and Other Receivables.
Finance Leases Assets funded through finance leases are capitalised as fixed assets and depreciated in accordance with the policy for the class of asset concerned.
The resulting lease obligations are included in creditors net of finance charges. Interest costs on finance leases are charged to the income statement.
Operating Leases Operating lease payments, including fixed rental uplifts, are charged to the income statement on a straight-line basis over the life of the lease.
Lease incentives are credited to the income statement on a straight-line basis over the life of the lease.
Inventories Stocks are stated at the lower of cost and net realisable value. Provisions are made for obsolescence, mark-down and shrinkage. Costs of inventories include the transfer from equity of any gains/losses on qualifying cash flow hedges on purchases.
Obsolescence and mark-down provisions against stocks identified as residual to the business are calculated by reference to the tracking of historic recovery rates. Shrinkage provisions are calculated by reference to the stock loss rates derived from the store and distribution centre stock count programmes. Woolworths Group plc 49. Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
Rebates Receivable from Suppliers Volume related rebates receivable from suppliers are credited to the carrying value of the stock to which they relate. Where a rebate agreement with a supplier covers more than one year, the rebates are recognised in the period in which they are earned.
Marketing contributions Marketing contributions receivable from suppliers are credited to the income statement as a reduction to cost for sales in the period in which they are earned.
Trade Receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. This provision represents the difference between the asset’s carrying amount and the present value of estimated future cash flows. The amount of the provision is recognised in the income statement as an increase to cost of sales.
Cash and Cash Equivalents Cash and cash equivalents include cash in hand, deposits at call with banks, other liquid investments with original maturities of three months or less and bank overdrafts where these are set off against cash to the extent these reduce available cash to nil. Bank overdrafts where there is no right of set off are shown within borrowings in current liabilities on the balance sheet.
Borrowings Borrowings are initially recognised at fair value net of transaction costs incurred. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.
Trade Payables Trade payables are recognised at fair value.
Provisions Provisions for restructuring costs and legal claims are recognised when the Group has a present legal or constructive obligation as a result of past events, where it is more likely than not that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Restructuring provisions comprise the expected costs of the reconfiguration of the out-of-town stores. Provisions are not recognised for future operating losses.
Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the balance sheet date.
Current Taxation The taxation charge for current tax is based on the results for the year, as adjusted for items which are non-assessable or disallowed. It is calculated using the tax rates that have been enacted by the balance sheet date.
Deferred Taxation Deferred taxation is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. The deferred tax is determined using tax rates that have been enacted by the balance sheet date and are expected to apply when the deferred tax asset is realised or the deferred tax liability is settled.
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. 50. Woolworths Group plc Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
Pensions All employees are entitled to join the Woolworths Group Pension Scheme (‘WGPS’) after completion of one year’s service. The WGPS is a defined benefit pension scheme. The Company also facilitates a Stakeholder pension arrangement for employees and makes contributions to a defined contribution pension scheme (the Woolworths Group Retirement Trust), which was closed to new entrants in June 2003 and currently has no active members. The Woolworths Group Retirement Trust is in the process of being wound up. Employees of Total Home Entertainment Distribution Limited participate in the Total Home Entertainment Group Pension Scheme, a defined contribution scheme. Employees of Bertram Group Limited participate in the Bertram Group Personal Pension Scheme, a defined contribution scheme.
The liability recognised in the balance sheet in respect of the WGPS is the present value of the defined benefit obligation at the balance sheet date less the fair value of scheme assets, together with adjustments for unrecognised actuarial gains or losses and past service costs. The defined benefit obligation is calculated by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high quality corporate bonds that have terms to maturity approximate to the terms of the pension liability.
Past service costs are recognised immediately in the income statement, unless the changes to the pension scheme are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past service costs are amortised on a straight-line basis over the vesting period.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in the Statement of Recognised Income and Expense (‘SoRIE’) in the period in which they arise.
For defined contribution schemes, the Group pays contributions on an agreed basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as an employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.
Share-based Payments The Company no longer grants share options under its Executive Share Option Schemes. Instead, Share Awards are made to senior management which vest dependent in part on performance targets being met. A Savings Related Share Option Scheme, which is open to all UK employees, continues to operate. The fair value of the employee services received in exchange for the grant of the share awards/options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the share awards/options granted, excluding the impact of any non-market vesting conditions. Non-market vesting conditions are included in assumptions about the number of share awards/options that are expected to vest. At each balance sheet date, the Company revises its estimates of the number of share awards/options that are expected to vest. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.
Share Capital Ordinary shares are shown as equity. Where any Group company purchases the Company’s equity share capital the consideration paid, including any directly attributable incremental costs (net of income tax), is deducted from equity attributable to the Company’s equity holders until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company’s equity holders.
ESOP The Group’s Employee Share Ownership Plan (‘ESOP’) is a separately administered Trust. The assets of the ESOP mainly comprise shares in the Company. The purchase or sales of shares in the Trust is accounted for as treasury share transactions and shown as movements in retained earnings. Woolworths Group plc 51. Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
Derivative Financial Instruments Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either: a firm commitment (fair value hedge); or hedges of highly probable forecast transactions (cash flow hedge).
The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. a) Fair value hedge Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. b) Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement.
Amounts accumulated in equity are recycled in the income statement in the periods in which the hedged items affect the income statement. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, inventory) or a liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement. c) Derivatives that do not qualify for hedge accounting Certain derivative instruments may not qualify for hedge accounting. Such derivatives are classified as at fair value through the income statement, and changes in the fair value are recognised immediately in the income statement.
Fair Value Estimation The fair values of short-term deposits, loans, and overdrafts with a maturity of less than one year are assumed to be approximate to their book values.
The fair value of forward foreign exchange contracts is determined using forward exchange market rates at the balance sheet date.
The fair value of credit vouchers in issue is the face value of the instruments potentially redeemable outside the Group, that remain unredeemed and unextinguished at the balance sheet date.
Critical Accounting Judgements and Estimation Uncertainty Impairment of assets Goodwill is considered for impairment at least annually. Property, plant and equipment and intangible assets are considered for impairment if there is a reason to believe that impairment may be necessary. Factors taken into consideration in reaching such a decision include the economic viability of the asset itself and where it is a component of a larger economic unit, the viability of that unit.
Future cash flows expected to be generated by the assets are projected, taking into account market conditions and the expected useful lives of the assets. The present value of these cash flows, determined using an appropriate discount rate, is compared to the current net asset value and, if lower, the assets are impaired to the present value.
Pension assumptions Post-retirement defined benefits are provided for certain existing and former employees. Actuarial valuations are based on assumptions which include employee turnover, mortality rates, the discount rate, the expected long-term rate of return of retirement plan assets, healthcare inflation cost and rates of increase in compensation costs. Full details are contained in note 25. The main financial assumption is the real discount rate, i.e. the excess of the discount rate over inflation. If this net rate increased/decreased by 0.1%, the pension obligation would decrease/increase by approximately £9.0m (before tax) and the annual service cost would decrease/increase by approximately £0.7m.
Valuation of intangible assets on acquisition Estimates are used in the course of acquisitions to determine the fair value of the assets and liabilities acquired. If any intangible assets are identified, depending on the type of asset and the complexity of determining its fair value the Group either consults with an independent external valuation expert or develops the fair value internally, using an appropriate valuation technique which is generally derived from a forecast of the total expected future net cash flows. Assets may be valued using methods based on cost, market price or net present value, depending on the type of asset and the availability of information. 52. Woolworths Group plc Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
Financial Risk Management Financial risk factors The Group’s operations expose it to a variety of financial risks that include the effects of changes in foreign currency exchange rates, market interest rates, counter-party credit risk and its liquidity position. The Group has in place a risk management programme that seeks to limit adverse effects on the financial performance of the Group by using foreign currency financial instruments. In addition other instruments were used during the year to manage the Group’s interest rate exposure.
The Board of Directors has approved a Group Treasury Policy that sets out the financial risk management policies applied by the Group. A central Group Treasury function manages the Group’s financial risk in accordance with this policy, receiving regular information (including forecast information) from all the operating companies in the Group to prompt identification of financial risks so that appropriate actions may be taken. A procedures manual is maintained that reflects this policy and sets out specific guidelines to manage foreign exchange risk, interest rate risk, counter-party credit risk, liquidity risk and the use of financial instruments.
a) Foreign exchange risk The Group is exposed to foreign exchange risks against Sterling primarily on transactions in US dollars. It enters into forward currency contracts to hedge the cash flows of its product sourcing operation (i.e. it buys US dollars forward in exchange for Sterling) and looks forward 12 months on a rolling basis at forecast purchase volumes. The policy framework requires hedging between 50 per cent and 80 per cent of anticipated import purchases that are denominated in US dollars. All of the forward contracts entered into by the Group qualified as highly probable purchases for which hedge accounting was used.
Foreign exchange risk sensitivity analysis The table below shows the effect on post-tax profit and equity from a 10 percent adverse/favourable movement in exchange rates at the balance sheet date on a total portfolio basis with all other variables held constant, taking into account all underlying exposures and related hedges.
2 February 2008 3 February 2007 Equity Equity Post-tax (Other Post-tax (Other profit reserves) profit reserves) £m £m £m £m If there was a 10% adverse movement in exchange rates with all other variables held constant – (decrease) – (10.8) – (8.4) If there was a 10% favourable movement in exchange rates with all other variables held constant – increase – 10.8 – 8.4
There is no impact to profit from foreign exchange rate movement due to the Group’s hedging policy.
b) Interest rate risk The Group has a seasonal cash flow that moves between net cash and net debt in the course of each year. Other than a small proportion of finance lease borrowing at fixed interest rates the Group’s borrowings are at floating rates, partially hedged by floating rate interest on deposits reflecting the seasonality of its cash flow.
Interest rate risk sensitivity analysis The table below shows the effect on post-tax profit and retained earnings from a 0.5 percent adverse/favourable movement in market interest rates at the balance sheet date on a total portfolio basis with all other variables held constant, taking into account all underlying exposures and related hedges. 2 February 3 February 2008 2007 Post-tax Post-tax profit profit £m £m If there was a 0.5% adverse movement in market interest rates with all other variables held constant – (decrease) (0.9) (0.4) If there was a 0.5% favourable movement in market interest rates with all other variables held constant – increase 0.9 0.4
c) Counter-party credit risk The Group has some significant concentrations of credit risk within its businesses. Policies have been implemented that require appropriate credit checks on potential customers before sales commence and on potential suppliers before orders can be raised. Individual balances are closely monitored by management but individual credit limits are not fixed. Trade credit insurance is employed as appropriate to protect a proportion of the Group’s debtors. Financial instrument and investment counterparties are subject to pre-approval by the Board in accordance with Group Treasury policy. Exposure to counterparties is managed through a framework that limits amounts invested together with amounts contracted through financial instruments according to the counter-party’s public credit rating. Woolworths Group plc 53. Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
Financial Risk Management (cont’d) c) Counter-party credit risk (cont’d) Credit risk sensitivity analysis The table below shows the balance of the five major counterparties as at the balance sheet date.
2 February 3 February 2008 2007 £m £m Counterparty 1 77.0 – Counterparty 2 70.1 – Counterparty 3 50.5 42.3 Counterparty 4 – 51.4 Counterparty 5 – 38.1
d) Liquidity risk The Group Treasury function is required to ensure the Group has sufficient committed debt facilities to cover its liquidity requirements for at least the next 12 months. During the year, the Group replaced its bank facilities with a £350 million asset based lending facility and £35 million 2nd lien loan. These are in addition to a £20 million invoice discounting facility available to Bertrams. At the year end £234 million remained undrawn.
Management monitors rolling forecasts of the Group’s liquidity reserve on the basis of expected cash flow.
The table below analyses the Group’s financial liabilities which will be settled on a net basis into relevant maturity groupings based on the remaining period at the balance sheet to the contractual maturity date. The amounts disclosed in the table are the contractual discounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.
Between Between Less than 1 1 and 2 2 and 5 Over 5 year years years years £m £m £m £m As at 2 February 2008 Borrowings 126.8 0.6 44.4 – Derivative financial instruments 18.2 – – – Trade and other payables 633.1 – – 13.5
Between Between Less than 1 1 and 2 2 and 5 Over 5 year years years years £m £m £m £m As at 3 February 2007 Borrowings 129.8 0.5 0.8 – Derivative financial instruments 27.5 – – – Trade and other payables 490.4 – – 11.8
The table below analyses the Group’s derivative financial instruments which will be settled on a gross basis into relevant maturity groupings based on the remaining period at the balance sheet to the contractual maturity date. The amounts disclosed in the table are the contractual discounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.
Between Between Less than 1 1 and 2 2 and 5 Over 5 year years years years £m £m £m £m As at 2 February 2008 Forward foreign exchange contracts – cash flow hedges Outflow –––– Inflow 2.8 – – – 2.8 ––– 54. Woolworths Group plc Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
Financial Risk Management (cont’d) d) Liquidity risk (cont’d)
Between Between Less than 1 1 and 2 2 and 5 Over 5 year years years years £m£m£m£m As at 3 February 2007 Forward foreign exchange contracts – cash flow hedges Outflow (4.0) – – – Inflow –––– (4.0) – – –
Capital Risk Management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
The Treasury function arranges sufficient secure financial resources to enable the Group to meet its medium-term business objectives whilst arranging facility maturities appropriate to its projected needs.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
1. Segmental Analysis The Group considers that business segmental analysis is its primary reporting basis. The Group’s business is divided into a Retail segment and an Entertainment Wholesale and Publishing segment. Woolworths plc, WMS Jersey Limited, Tromax Limited and Flogistics Limited are included within the Retail segment, with Entertainment UK Limited, THE Distribution Limited (THE), Bertram Group Limited (Bertrams), Disc Distribution Limited and 2 entertain Limited being the constituents of Entertainment Wholesale and Publishing. No material trading is undertaken outside the UK and consequently no geographic segmentation has been shown.
52 weeks to 2 February 2008 53 weeks to 3 February 2007
Entertainment Entertainment Wholesale Wholesale and and Retail Publishing Unallocated Total Retail Publishing Unallocated Total £m £m £m £m £m £m £m £m Group — Gross sales 1,717.4 1,647.0 – 3,364.4 1,813.2 1,331.7 – 3,144.9 — Intersegment – (394.8) – (394.8) – (407.9) – (407.9) Revenue 1,717.4 1,252.2 – 2,969.6 1,813.2 923.8 – 2,737.0 Operating profit/(loss) before exceptional items (2.4) 47.2 (8.2) 36.6 (23.5) 49.2 (7.7) 18.0 Exceptional items 8.6 (11.8) – (3.2) 8.7 – – 8.7 Operating profit/(loss) after exceptional items 6.2 35.4 (8.2) 33.4 (14.8) 49.2 (7.7) 26.7 Finance costs (25.7) (14.5) Finance income 4.0 3.8 Profit before income tax 11.7 16.0 Income tax expense (4.2) (2.4) Profit for the year 7.5 13.6 Attributable to: Equity shareholders 7.5 13.5 Minority interest – 0.1 7.5 13.6
Operating profit is stated before management recharges. Woolworths Group plc 55. Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
1. Segmental Analysis (cont’d) Included within the amounts shown above are the following amounts in respect of joint ventures:
52 weeks to 2 February 2008 53 weeks to 3 February 2007
Entertainment Entertainment Wholesale Wholesale and and Retail Publishing Unallocated Total Retail Publishing Unallocated Total £m £m £m £m £m£m£m£m Revenue – 75.6 – 75.6 – 62.4 – 62.4 Expenses – (49.9) – (49.9) – (43.4) – (43.4) Operating profit – 25.7 – 25.7 – 19.0 – 19.0 Finance income 0.8 0.6 Profit before income tax 26.5 19.6 Income tax expense (8.3) (5.0) Share of post tax profits 18.2 14.6
Intersegment transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties. At 2 February 2008 At 3 February 2007
Entertainment Entertainment Wholesale Wholesale and and Retail Publishing Unallocated Total Retail Publishing Unallocated Total £m £m £m£m£m £m £m£m Total assets 772.5 740.9 614.4 2,127.8 785.9 614.9 560.3 1,961.1 Total liabilities 795.0 608.6 408.6 1,812.2 822.4 505.1 316.0 1,643.5
Included within the amounts shown above are the following balances in respect of joint ventures: Current assets – 48.7 – 48.7 – 43.5 – 43.5 Non-current assets – 3.3 – 3.3 – 3.6 – 3.6 Current liabilities – (37.1) – (37.1) – (33.1) – (33.1) Net assets – 14.9 – 14.9 – 14.0 – 14.0
Other segment items
Capital expenditure: — Property, plant and equipment 27.4 2.6 – 30.0 58.8 8.7 9.3 76.8 — Intangible assets 5.9 4.4 – 10.3 3.6 61.2 – 64.8 Depreciation of property, plant and equipment 26.6 3.3 – 29.9 35.0 5.6 – 40.6 Impairment of property, plant and equipment – – – – (3.0) – – (3.0) Amortisation of intangible assets 4.5 10.6 – 15.1 8.1 7.5 – 15.6 Impairment credit on inventories (0.4) 4.0 – 3.6 (2.7) (3.4) – (6.1) Impairment of trade receivables 1.3 11.4 – 12.7 (1.1) 0.4 – (0.7) Other non-cash expenses: — Share-based payments – – 1.3 1.3 – – 1.2 1.2
Unallocated costs represent corporate expenses. Segment assets include property, plant and equipment, goodwill, inventories, debtors and operating cash and intersegment balances. Segment liabilities comprise operating liabilities and intersegment balances.
Unallocated total assets predominantly consist of cash and bank deposits and intersegment receivables. The unallocated total liabilities predominantly represent corporate borrowings and other sundry creditors.
Total assets and liabilities included within the segmental table differs from the Group Balance Sheet due to the gross-up of intersegment balances. 56. Woolworths Group plc Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
2. Finance Cost 52 weeks to 53 weeks to 2 February 3 February 2008 2007 £m £m Interest expense: — Senior Notes – (6.8) — Bank borrowings (22.5) (5.7) — Amortisation of Senior Note and credit facility fees (0.7) (0.8) — Interest payable on finance leases (0.1) (0.1) — Provisions – unwinding of discount (0.6) (1.1) — Other interest expense (1.8) – Total (25.7) (14.5)
3. Finance Income 52 weeks to 53 weeks to 2 February 3 February 2008 2007 £m £m Interest income: — Cash deposits and liquidity fund instruments 2.8 2.5 — Net pension funding credit 0.6 1.3 — Other interest income 0.6 – Total 4.0 3.8
4. Profit for the year The following items have been charged/(credited) in arriving at the profit/(loss) for the year: 52 weeks to 53 weeks to 2 February 3 February 2008 2007 £m £m Staff costs (note 5) 309.2 296.5 Depreciation of property, plant and equipment: — Owned assets 29.3 40.4 — Under finance leases 0.6 0.2 Impairment of property, plant and equipment – (3.0) Amortisation of intangible assets 15.1 15.6 Loss on disposal of fixed assets 1.9 1.7 Other operating lease rentals payable — Plant and machinery 2.1 5.4 — Property 161.1 165.6 Net income from property portfolio transactions (20.0) (6.4) Rental income (5.6) (2.5) Repairs and maintenance expenditure on property, plant and equipment 19.3 17.4 Inventory impairment 3.6 (6.1) Trade receivables impairment 12.7 (0.7) During the year the Group (including its overseas subsidiaries) obtained the following services from the Group’s auditors at costs as detailed below:
Audit services — Fees payable to the Company’s auditors for the audit of parent company and consolidated accounts 0.2 0.1
Non-audit services Fees payable to the Company’s auditors and its associates for other services: — The auditing of the Company’s subsidiaries pursuant to legislation including that of countries and territories outside Great Britain) 0.4 0.3 — Other services supplied pursuant to such legislation 0.2 0.1 — Tax services 0.1 – — All other services – 0.2 Woolworths Group plc 57. Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
5. Employee Benefit Expense 52 weeks to 53 weeks to 2 February 3 February 2008 2007 £m £m Wages and salaries 273.7 267.2 Social security costs 16.8 15.7 Share-based payments 1.3 1.2 Pension costs (note 25) 17.4 12.4 Total employment costs 309.2 296.5
Average monthly number of people (including Executive Directors) employed 52 weeks to 53 weeks to 2 February 3 February 2008 2007 Number Number Retail 27,380 28,546 Entertainment, Wholesale and Publishing 1,908 1,641 Central 24 22 Total 29,312 30,209
Key management compensation 52 weeks to 53 weeks to 2 February 3 February 2008 2007 £m £m Salaries and short-term employee benefits 4.8 5.3 Post-employment benefits – 0.3 Share-based payments 0.6 0.3 Termination benefits 0.3 – Total employment costs 5.7 5.9
Included in the above numbers are 11 Directors (2007: 12) and 11 employees (2007: 8) who are considered to be key management as they have authority and responsibility for planning, directing and controlling the Group or key subsidiaries.
Directors 52 weeks to 53 weeks to 2 February 3 February 2008 2007 £m £m Aggregate emoluments 3.2 2.9 Company contributions to money purchase pension schemes – 0.1 Total 3.2 3.0
Full disclosure of Directors’ remuneration is given on page 36 of the Directors’ Remuneration Report, which forms part of these financial statements.
6. Exceptional Items 52 weeks to 53 weeks to 2 February 3 February 2008 2007 £m £m ‘A-day’ pension credit – 8.7 Woolworths property income 8.6 – Competition Commission and restructuring costs (8.4) – Capital contribution to 2 entertain arising on joint venture (3.4) – Total exceptional items before taxation (3.2) 8.7 Taxation (0.1) (2.6) Total exceptional items after taxation (3.3) 6.1 58. Woolworths Group plc Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
6. Exceptional Items (cont’d) During the year Woolworths plc has completed sale and leaseback agreements for the properties in Jersey and Guernsey. The profit from these transactions has been included within the income statement as an exceptional item.
The expected costs of restructuring the Entertainment Wholesale business following the acquisitions of THE and Bertrams, and the subsequent referral of the Bertrams acquisition to the Competition Commission, have been treated as exceptional items within the income statement.
On formation of 2 entertain Limited, the Group agreed to guarantee the value of the business transferred to 2 entertain Limited for a period of three years to September 2007. A provision of £5.2 million was recognised during 2005/06 in respect of the second and third years. An additional provision of £3.4 million has been provided for within these financial statements. This has been charged to the income statement as an exceptional item, which is consistent with the treatment in 2005/06. The provision was fully settled during the year.
During the prior year a past service credit of £8.7 million (£6.1 million net of taxation) arising from the ‘A-Day’ legislation changes was included in the prior year income statement as an exceptional item.
7. Income Tax Expense Analysis of charge in period
52 weeks to 2 February 2008 53 weeks to 3 February 2007
Before Before exceptional Exceptional exceptional Exceptional items items Total items items Total £m £m £m £m£m£m Current tax (4.1) (0.1) (4.2) (1.4) – (1.4) Deferred tax – ––1.6 (2.6) (1.0) Total taxation (charge)/credit (4.1) (0.1) (4.2) 0.2 (2.6) (2.4)
Tax on items (charged)/credited to equity 52 weeks to 53 weeks to 2 February 3 February 2008 2007 £m £m Deferred tax charge on share-based payments (0.1) (0.1) Deferred tax charge on pension scheme actuarial gains (4.8) (11.9) Deferred tax adjustment to 28% on defined benefit scheme (1.8) – Deferred tax (charge)/credit on movement in derivatives (1.7) 0.1 Total deferred tax charge (8.4) (11.9)
The taxation charge for the year is higher (2007: lower) than the standard rate of Corporation Tax in the UK (30 per cent). The differences are explained below:
52 weeks to 53 weeks to 2 February 3 February 2008 2007 £m £m Profit before income tax 11.7 16.0 Profit multiplied by rate of corporation tax in the UK of 30% (2007: 30%) (3.5) (4.8)
Effects of: Adjustments to tax in respect of prior periods 2.7 5.6 Adjustments in respect of foreign tax rates (0.4) (0.5) Expenses not deductible for tax purposes (5.9) (2.7) Adjustments in respect of property disposals 2.2 – Impact of unwinding deferred tax at 28% 0.2 – Utilisation of brought forward losses 0.5 – Total income tax expense (4.2) (2.4) Woolworths Group plc 59. Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
8. Dividends 52 weeks to 53 weeks to 2 February 2008 3 February 2007
Pence per Pence per share £m share £m Dividends proposed Interim 0.43 6.2 0.43 6.2 Final 0.17 2.5 1.34 19.4 0.60 8.7 1.77 25.6
Dividends paid Interim 0.43 6.3 0.43 6.2 Final 1.34 19.4 1.34 19.4 1.77 25.7 1.77 25.6
The Directors are proposing a final dividend in respect of the financial year ended 2 February 2008 of 0.17 pence (2007: 1.34 pence) per share which will absorb an estimated £2.5 million of shareholders’ funds. Subject to shareholder approval, it will be paid on 25 June 2008 to members registered at the close of business on 11 April 2008. These financial statements do not reflect this proposed dividend.
9. Earnings per Share Basic Basic earnings per share is calculated by dividing the profit attributable to equity shareholders of the Company by the weighted average number of ordinary shares in issue during the year, excluding interest in own shares purchased by the Woolworths Group Employment Share Ownership Plan (ESOP) to meet obligations under Employee Share Schemes which are accounted for as treasury shares.
Diluted Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Company has only one category of dilutive potential shares – share options. For the share options, a calculation is undertaken to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company’s shares) based on the monetary value of the subscription rights attached to the outstanding share options. The number of shares calculated is compared with the number of shares that would have been issued assuming the exercise of the share options.
Adjusted Adjusted earnings per share excludes the fixed rental uplift adjustment, the amortisation of certain intangible assets arising on consolidation, namely underlying rights, customer relationships and trade names, and the effect of exceptional items. An IFRIC pronouncement in September 2005 required the total minimum payments across the entire lease term to be recognised on a straight-line basis across the life of the lease. 60. Woolworths Group plc Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
9. Earnings per Share (cont’d) Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below:
Weighted Weighted average average 2008 number of Per share 2007 number of Per share Earnings shares amount Earnings shares amount £m m (pence) £m m (pence) Basic EPS Earnings attributable to ordinary shareholders 7.5 1,451.1 0.5 13.5 1,448.9 0.9 Effect of dilutive securities –––– 0.8 – Diluted EPS 7.5 1,451.1 0.5 13.5 1,449.7 0.9
Adjusted earnings per share
Basic EPS 7.5 1,451.1 0.5 13.5 1,448.9 0.9 Fixed rent adjustment (net of tax)* 5.6 – 0.4 7.4 – 0.5 Amortisation of intangible assets arising on consolidation (net of tax)* 4.3 – 0.3 2.7 – 0.2 Exceptional items (net of tax) 3.3 – 0.2 (6.1) – (0.4) Adjusted basic EPS 20.7 1,451.1 1.4 17.5 1,448.9 1.2
Diluted EPS 7.5 1,451.1 0.5 13.5 1,449.7 0.9 Fixed rent adjustment (net of tax)* 5.6 – 0.4 7.4 – 0.5 Amortisation of intangible assets arising on consolidation (net of tax)* 4.3 – 0.3 2.7 – 0.2 Exceptional items (net of tax) 3.3 – 0.2 (6.1) – (0.4) Adjusted diluted EPS 20.7 1,451.1 1.4 17.5 1,449.7 1.2
* The above items include the related impact of the change in deferred tax rate.
10. Goodwill Goodwill on Goodwill on acquisition acquisition of of joint subsidiaries ventures Total £m £m £m Cost At 4 February 2007 60.2 38.3 98.5 Adjustment to purchase consideration (0.1) – (0.1) Adjustment to fair value 0.3 – 0.3 At 2 February 2008 60.4 38.3 98.7
Impairment At 4 February 2007 and at 2 February 2008 (31.2) (6.6) (37.8)
Net book amount At 2 February 2008 29.2 31.7 60.9
Goodwill on Goodwill on acquisition acquisition of of joint subsidiaries ventures Total £m £m £m Cost At 29 January 2006 31.2 38.5 69.7 Acquisition of Subsidiaries 29.0 – 29.0 Adjustment to purchase consideration – (0.2) (0.2) At 3 February 2007 60.2 38.3 98.5
Impairment At 29 January 2006 and at 3 February 2007 (31.2) (6.6) (37.8)
Net book amount At 3 February 2007 29.0 31.7 60.7 Woolworths Group plc 61. Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
10. Goodwill (cont’d) The acquired goodwill arising on the acquisition of subsidiaries and the joint venture has been tested for impairment with reference to the value in use, in accordance with IAS 36 as follows:
THE impairment was tested based on the specific five-year projected pre-taxation cash flows of the cash generating unit which includes EUK, as cash flows can not be separately identified. These cash flows have been discounted using an applicable pre-taxation rate of return of 7.70 per cent (2007: 7.50 per cent).
Bertrams impairment was tested based on the specific ten-year projected pre-taxation cash flows of the underlying business, with no growth assumed in years five to ten. These cash flows have been discounted using an applicable pre-taxation rate of return of 7.70 per cent (2007: 7.50 per cent).
The acquired goodwill arising on the acquisition of the joint venture has been tested for impairment based on the specific five-year projected pre-taxation cash flows of the underlying business, approved by management of the joint venture and discounted using an applicable pre- taxation rate of return of 7.70 per cent (2007: 7.50 per cent).
The Directors are of the opinion that there is no impairment of goodwill required based on the levels of headroom calculated.
The goodwill above is split into the following cash generating units: 52 weeks to 53 weeks to 2 February 3 February 2008 2007 £m £m 2 entertain 31.7 31.7 EUK/THE 10.7 10.7 Bertrams 18.5 18.3 60.9 60.7
11. Other Intangible Assets Purchased Total Customer Tradename Underlying copyrights Computer intangible relationships and brand rights and licences software assets £m £m £m £m £m £m Cost At 4 February 2007 22.9 19.9 30.1 6.4 105.4 184.7 Additions – – – 1.9 8.4 10.3 Disposals – – – – (0.1) (0.1) At 2 February 2008 22.9 19.9 30.1 8.3 113.7 194.9
Amortisation At 4 February 2007 (0.9) (4.5) (7.0) (3.9) (84.4) (100.7) Charge for the year (4.1) (1.2) (3.0) (1.9) (4.9) (15.1) At 2 February 2008 (5.0) (5.7) (10.0) (5.8) (89.3) (115.8)
Net book amount At 2 February 2008 17.9 14.2 20.1 2.5 24.4 79.1
Purchased Total Customer Tradename Underlying copyrights Computer intangible relationships and brand rights and licences software assets £m £m £m £m £m £m Cost At 29 January 2006 – 15.0 30.1 4.1 99.7 148.9 Acquisition of subsidiaries 22.9 4.9 – – 0.7 28.5 Additions – – – 2.3 5.0 7.3 At 3 February 2007 22.9 19.9 30.1 6.4 105.4 184.7
Amortisation At 29 January 2006 – (3.7) (4.0) (2.2) (75.2) (85.1) Charge for the year (0.9) (0.8) (3.0) (1.7) (9.2) (15.6) At 3 February 2007 (0.9) (4.5) (7.0) (3.9) (84.4) (100.7)
Net book amount At 3 February 2007 22.0 15.4 23.1 2.5 21.0 84.0 62. Woolworths Group plc Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
11. Other Intangible Assets (cont’d) Amortisation of £9.5 million (2007: £12.7 million) is included within administrative expenses, £2.7 million (2007: £2.9 million) is included within cost of goods sold and £2.9 million (2007: £0.0 million) is included within selling and marketing costs. Of the other intangible assets, £50.4 million (2007: £56.6 million) is held within the Entertainment Wholesale and Publishing segment and £28.7 million within Retail (2007: £27.4 million). The customer relationships acquired as a result of the THE acquisition were valued based on specific customer contracts and customer relationships with no written contracts having an assessed life of two to five years. There are a number of large contracts which have been separately identified with an average length of two to three years. Customer relationships are stated at cost less amortisation. Amortisation is calculated on a straight-line basis over the period of the underlying contract term. A review of impairment has been undertaken. No provision is considered necessary based on the benefit that will be derived from the ongoing use of these intangible assets. Intangible assets acquired as a result of the Bertrams acquisition relate to customer relationships, a trade name and computer software. These assets are stated at cost less amortisation with amortisation calculated on a straight-line basis over the useful economic life. The useful economic life of the trade name is ten years, the useful economic life of the customer relationships are between five to ten years and software has a useful economic life of five years. No provision is considered necessary based on the benefit that will be derived from the ongoing use of these intangible assets. The principal brand name within the Retail segment is Ladybird and this is being amortised over twenty years. Underlying rights relate to 2 entertain’s access to the BBC Worldwide archive, which is being amortised over ten years. The purchased copyrights and licences relate to production rights for music and video, which are being written off over three to ten years. Computer software is being amortised over seven years, with internally generated software costs representing £4.1 million of additions in the year (2007: £4.2 million) and £16.5 million of the closing net book amount (2007: £14.9 million). At 2 February 2008, the average remaining life of the other intangible assets was five years. During the year, the Group revised the economic lives of certain computer software. This reduced the amortisation charge for the year by £5.0 million.
12. Property, Plant and Equipment Fixtures, Land and fittings and buildings equipment Total £m £m £m Cost At 4 February 2007 19.1 693.4 712.5 Additions 5.2 24.8 30.0 Disposals (3.6) (16.9) (20.5) At 2 February 2008 20.7 701.3 722.0
Depreciation At 4 February 2007 (2.7) (398.1) (400.8) Charge for the year (0.2) (29.7) (29.9) Disposals 0.5 6.6 7.1 At 2 February 2008 (2.4) (421.2) (423.6)
Net book amount At 2 February 2008 18.3 280.1 298.4
Fixtures, Land and fittings and buildings equipment Total £m £m £m Cost At 29 January 2006 7.3 651.8 659.1 Acquisition of subsidiaries 2.4 5.3 7.7 Additions 9.4 59.7 69.1 Disposals – (23.4) (23.4) At 3 February 2007 19.1 693.4 712.5
Depreciation At 29 January 2006 (2.5) (382.4) (384.9) Charge for the year (0.2) (40.4) (40.6) Reversal of impairment – 3.0 3.0 Disposals – 21.7 21.7 At 3 February 2007 (2.7) (398.1) (400.8)
Net book amount At 3 February 2007 16.4 295.3 311.7 Woolworths Group plc 63. Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
12. Property, Plant and Equipment (cont’d) Depreciation expense of £2.0 million (2007: £4.1 million) has been charged in costs of sales, £20.1 million (2007: £35.0 million) in selling and marketing costs, and £7.8 million (2007: £1.5 million) in administrative expenses.
During the year ended 2 February 2008 the Group revised the useful economic lives of certain computers, electronic and distribution centre equipment. This revision reduced the depreciation charge for the year by £6.8 million.
During the prior year the Group revised the useful economic lives of certain store fixture and fittings from 10 years to 20 years. This revision reduced the depreciation charge for the year by £2.9 million (2007:£5.8 million).
Assets held under finance leases have the following net book amount: 2 February 3 February 2008 2007 £m £m Cost 5.7 4.3 Accumulated depreciation (1.3) (0.5) Net book amount 4.4 3.8
13. Fixed Asset Investments Fixed asset investments £m At 3 February 2007 and 2 February 2008 0.2
The Group’s shareholding in DX3 Technologies Limited is 4 per cent (2007: 4 per cent).
14. Investments in Subsidiaries Investments in subsidiaries are stated at cost and eliminated on consolidation. All subsidiaries are consolidated. The Directors consider that to give full particulars of all subsidiary undertakings would lead to a statement of excessive length. The following information relates to those subsidiary undertakings and joint ventures whose results or financial position, in the opinion of the Directors, principally affect the figures of the Group and have been disclosed in accordance with Section 231(5)(6) of the Companies Act 1985. Woolworths Group plc does not hold direct investments in any of the principal subsidiaries noted below. A full list of investments will be attached to the Annual Return: Country of Description incorporation % owned and of share and Company and operation voting rights classes owned Main activity Principal subsidiaries Entertainment UK Limited Great Britain 100 Ordinary Wholesaling Total Home Entertainment Distribution Limited Great Britain 100 Ordinary Wholesaling Bertram Group Limited Great Britain 100 Ordinary Wholesaling Woolworths Media plc (formerly VCI plc) Great Britain 100 Ordinary Holding company Woolworths Group Finance Limited Great Britain 100 Ordinary Finance Woolworths plc Great Britain 100 Ordinary Retailing Flogistics Limited Great Britain 100 Ordinary Sale of gift vouchers WMS Jersey Limited Jersey 100 Ordinary Internet retailing Woolworths Group Asia Limited Hong Kong 100 Ordinary Product sourcing Woolworths Insurance (Guernsey) Limited Guernsey 100 Ordinary Insurance Woolworths Jersey Finance Limited Jersey 100 Ordinary Finance Entertainment Plus (Guernsey) Limited Guernsey 100 Ordinary Internet retailing Principal joint venture 2 entertain Limited Great Britain 40 Ordinary Publishing 64. Woolworths Group plc Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
15. Inventories 2 February 3 February 2008 2007 £m £m Raw materials 1.6 1.8 Work in progress 1.5 0.3 Finished goods 387.9 375.0 391.0 377.1
The Group has a collateralised borrowing facility (note 20). In case of default under the loan agreement, the lender has the right to receive the future cash flows from the sale of inventories.
The cost of inventories recognised as expense and included in ‘cost of sales’ amount to £2,798.1 million (2007: £2,545.4 million). Within finished goods inventories, £65.0 million (2007: £80.6 million) are carried at fair value less costs to sell being lower than cost.
16. Trade and Other Receivables 2 February 3 February 2008 2007 £m £m Amounts due within one year: Trade receivables 363.5 249.4 Less: provision for impairment of trade receivables (16.4) (7.6) Trade receivables – net 347.1 241.8 Receivables from joint venture 1.5 2.0 Other receivables 52.3 22.9 Prepayments and accrued income 43.6 36.8 444.5 303.5
Management considers that the fair value of trade receivables approximates to their carrying value.
Management have reviewed concentrations of credit risk within trade receivables with reference to the status of the underlying debtors.
The Group has a collateralised borrowing facility (note 20). In case of default under the loan agreement, the lender has the right to receive the cash flows from receivable cash receipts. Without default the entities will collect the receivables and allocate new assets as collateral.
As at 2 February 2008, trade receivables of £20.5 million (2007: £19.3 million) were impaired. The amount of the provision against trade receivables was £16.4 million as of 2 February 2008 (2007: £7.6 million). The individually impaired receivables mainly relate to wholesalers in difficult economic situations. The ageing of these receivables is as follows:
2 February 3 February 2008 2007 £m £m No more than 3 months 5.6 8.6 More than 3 months but no more than 6 months 4.5 4.1 More than 6 months but no more than 12 months 7.8 4.8 More than 12 months 2.6 1.8 20.5 19.3
As of 2 February 2008, trade receivables of £215.4 million (2007: £111.8 million) were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default. The ageing analysis of these trade receivables is as follows:
2 February 3 February 2008 2007 £m £m No more than 3 months 212.2 112.6 More than 3 months but no more than 6 months 2.8 (1.0) More than 6 months but no more than 12 months 0.3 0.2 More than 12 months 0.1 – 215.4 111.8 Woolworths Group plc 65. Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
16. Trade and Other Receivables (cont’d) The carrying amounts of the Group’s trade and other receivables are denominated in the following currencies:
2 February 3 February 2008 2007 £m £m Pounds Sterling 444.5 303.5
Movements on the Group provision for impairment of trade receivables are as follows: 2 February 3 February 2008 2007 £m £m At 4 February 2007 (7.6) (13.1) Provision for receivables impairment (13.1) (3.5) Receivables written off during the year as uncollectible 3.9 3.1 Unused amounts reversed 0.4 5.9 At 2 February 2008 (16.4) (7.6)
£12.4 million relating to the creation and release of provision for impaired receivables has been included in ‘cost of sales’ and £0.3 million has been included in administrative expenses. Amounts charged to the allowance account are generally written off, when there is no expectation of recovering additional cash.
17. Derivative Financial Instruments Numerical financial instruments disclosures are set out below. Additional disclosures are set out in the accounting policies relating to risk management. 2 February 2008 3 February 2007
Assets Liabilities Assets Liabilities £m £m £m £m Forward foreign exchange contracts – cash flow hedges 2.8 – – (4.0) Credit vouchers – (18.2) – (23.5) 2.8 (18.2) – (27.5) Current portion 2.8 (18.2) – (27.5)
Forward foreign exchange contracts The net fair value gain at 2 February 2008 on open forward foreign exchange contracts that hedge the foreign currency risk of anticipated future purchases are £2.8 million (2007: £4.0 million losses). These will be transferred to the income statement when the related purchases are realised as cost of goods sold.
Credit vouchers The fair value of outstanding credit vouchers at 2 February 2008 is the unredeemed face value of all credit vouchers issued and redeemable outside of the Group that have not been extinguished, as these are all payable on demand if presented for redemption. 66. Woolworths Group plc Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
18. Cash and Cash Equivalents 2 February 3 February 2008 2007 £m £m Cash at bank and in hand 15.7 – Short-term bank deposits 1.7 4.3 Short-term liquidity fund investments 21.8 24.1 39.2 28.4
Short-term liquidity fund investments are held in AAA rated funds that give instant access to cash.
The effective interest rate on short-term bank deposits was 5.33 per cent (2007: 5.15 per cent), reflecting an 18 basis point increase in the base rate year on year. These deposits have an average maturity of one day (2007: three days).
The short-term liquidity fund investments consist of £6.0 million held by Woolworths Insurance (Guernsey) Limited (2007: £10.9 million) which is subject to restrictions and £15.8 million held by 2 entertain Limited (2007: £13.2 million) which is subject to restrictions for the Group.
The short-term bank deposits are held by 2 entertain Limited and are subject to restrictions for the Group. Included within short-term bank deposits in the prior year was £0.9m held by 2 entertain Limited which was subject to restrictions for the Group.
19. Current Asset Investments 2 February 3 February 2008 2007 £m £m Current asset investments 4.5 –
Current asset investments relate to short-term bank deposits held by Woolworths Insurance (Guernsey) Limited that have a maturity period greater than three months.
20. Borrowings 2 February 3 February 2008 2007 £m £m Current Bank loans and overdrafts due within one year or on demand: Unsecured: Bank overdraft – 1.3 Bank borrowings – 115.4 Secured: Obligations under finance leases 0.7 1.1 Collateralised borrowing (note 16) 126.1 12.0 Total due within one year 126.8 129.8
Non-current Secured: Bank borrowings 33.9 – Obligations under finance leases 2.2 1.9 Total due after more than one year 36.1 1.9
Total borrowings 162.9 131.7
The Group has collateralised borrowing facilities up to £370 million (2007: £40 million) which enable the Company to receive funds in respect of available assets. This comprises of a £350 million asset based lending facility, established in January 2008 and a £20 million invoice discounting facility available to Bertrams. The £350 million facility matures in January 2012, with an option to extend for a further year.
Collateralised borrowings are stated net of issue costs of £9.9 million.
The non-current bank borrowings represent the £35 million 2nd lien loan which matures in 2012.
Bank borrowings are stated net of issue costs of £1.1 million.
Finance leases are held at fixed rates of interest.
The current and non-current secured borrowings are secured by fixed and floating charges over primarily stock and debtors. Woolworths Group plc 67. Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
20. Borrowings (cont’d) The exposure of the Group to interest rate changes when borrowings are repriced is as follows:
1 year 1–5 years 5 years Total
As at 2 February 2008 Total borrowings 126.8 36.1 – 162.9 Fixed rate borrowings (0.7) (2.2) – (2.9) Net exposure to interest rate changes (including effect of interest swap) 126.1 33.9 – 160.0
1 year 1–5 years 5 years Total
As at 3 February 2007
Total borrowings 129.8 1.9 – 131.7 Fixed rate borrowings (1.1) (1.9) – (3.0) Net exposure to interest rate changes (including effect of interest swap) 128.7 – – 128.7
The effective interest rates based on average forecast borrowings are as follows: 2 February 3 February 2008 2007 % % Bank overdraft – 6.25 Bank borrowings (unsecured) – 6.68 Bank borrowings (secured) 19.54 – Collateralised borrowing 8.55 6.25 Finance leases 13.39 7.80
The carrying amount of the Group’s borrowings are denominated in the following currencies: 2 February 3 February 2008 2007 £m £m Pounds sterling 162.9 131.7
Maturity of financial liabilities The maturity profile of the carrying amount of the Group’s non-current liabilities at 2 February 2008 was as follows:
2 February 2008 3 February 2007
Finance Finance Debt leases Total Debt leases Total £m £m £m £m £m £m In more than one year but not more than two years – 0.7 0.7 – 0.6 0.6 In more than two years but not more than five years 33.9 1.5 35.4 – 1.2 1.2 In more than five years –––– 0.1 0.1 33.9 2.2 36.1 – 1.9 1.9
The minimum lease payments under finance leases fall due as follows: 2 February 3 February 2008 2007 £m £m Not later than one year 0.8 1.1 Later than one year but not more than five 2.0 2.1 More than five years 0.4 0.1 Future finance charges on finance leases (0.3) (0.3) Present value of finance lease liabilities 2.9 3.0
Fair value of non-current borrowings 2 February 2008 3 February 2007
Book value Fair value Book value Fair value £m £m £m £m Obligations under finance leases 2.2 2.2 1.9 1.9 Bank borrowings 33.9 43.4 – – Total 36.1 45.6 1.9 1.9
The fair value of current borrowings equals their carrying amount, as the impact of discounting is not significant. 68. Woolworths Group plc Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
20. Borrowings (cont’d) Borrowing facilities The Group has the following undrawn committed borrowing facilities available at 2 February 2008 in respect of which all conditions precedent had been met at that date: 2 February 3 February 2008 2007 £m £m Floating rate — expiring between one and two years – – — expiring in more than two years 234.0 109.6 234.0 109.6
The facilities incur commitment fees at market rates.
21. Trade and Other Payables 2 February 3 February 2008 2007 £m £m Current: Trade creditors 399.6 255.3 Amounts owed to joint ventures 14.0 – Other tax and social security 73.6 80.9 Other creditors 74.0 77.3 Accruals 71.9 76.9 633.1 490.4 Non-current: Accruals 78.2 72.4 78.2 72.4
Management considers that the fair value of trade and other payables approximates to their carrying value.
Non-current accruals relate to the fixed rental uplifts on property leases, which are charged to the income statement on a straight-line basis over the lease term.
The carrying amount of the Group’s non-current liabilities at 2 February 2008 and 3 February 2007 mature in more than five years.
22. Current Income Tax Liabilities 2 February 3 February 2008 2007 £m £m Current tax liabilities 5.6 1.4
23. Provisions for Other Liabilities and Charges Guarantees Onerous Out of Town arising on property restructuring Insurance joint venture contracts Total £m £m £m £m £m At 4 February 2007 27.7 8.0 5.2 0.7 41.6 Charged to income statement – 2.8 3.4 0.8 7.0 Unwinding of discount 0.6 – – – 0.6 Utilised during the year (4.0) (3.7) (8.6) (0.2) (16.5) At 2 February 2008 24.3 7.1 – 1.3 32.7
Provisions have been analysed between current and non-current as follows: 2 February 3 February 2008 2007 £m £m Current 9.5 8.5 Non-current 23.2 33.1 32.7 41.6 Woolworths Group plc 69. Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
23. Provisions (cont’d) Restructuring The £24.3 million out-of-town restructuring provision remaining at 2 February 2008 recognises the expected costs of the reconfiguration of the out-of-town stores and the majority of this is expected to crystallise within the next two years.
Insurance This includes self-insurance provisions, which represent the aggregate of outstanding claims plus a projection of losses incurred but not reported. Self-insurance provisions are expected to be utilised over a two to three year period.
Guarantees arising on joint venture A further provision of £3.4 million was recognised in the year in respect of additional capital contributions for shares issued by 2 entertain Limited on formation of the joint venture, relating to the guaranteed value of the business transferred to 2 entertain Limited. The liability has been incurred during the year end 2 February 2008 after the guarantee period ended in September 2007.
Onerous property contracts Within the onerous property contracts provision, the Group has provided against future liabilities for all long-term idle properties and properties sublet at a shortfall. The provision is based on the discounted value of future cash outflows relating to rent, rates and service charges based on the remaining period of the leases, which at 2 February 2008 range between one and ten years.
24. Deferred Income Tax Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 28 per cent (2007: 30 per cent).
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred taxes relate to the same fiscal authority.
The movement on the deferred tax account is as shown below: 2 February 3 February 2008 2007 Note £m £m At 4 February 2007 1.0 22.8 Income statement charge – (1.0) Tax charge to equity 7 (8.4) (11.9) Acquisition of subsidiary 33 – (8.9) At 2 February 2008 (7.4) 1.0
Deferred tax assets have been recognised in respect of temporary differences, where it is probable that these assets will be recovered.
The movement in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows: Property Financial Pensions leases instruments Other Total Deferred tax assets £m £m £m £m £m At 4 February 2007 25.2 28.0 2.2 3.9 59.3 (Charged)/credited to the income statement 0.1 (0.2) 0.7 (2.9) (2.3) Charged to equity (6.6) – (1.7) (0.1) (8.4) At 2 February 2008 18.7 27.8 1.2 0.9 48.6
Accelerated Trade name Computer Revaluation Customer tax Underlying Rolled over and brand software of property relationships depreciation rights gains Total Deferred tax liabilities £m £m £m £m £m £m £m £m At 4 February 2007 (1.5) (0.2) (0.3) (6.6) (21.7) (6.9) (21.1) (58.3) Credited/(charged) to the income statement 0.3 – (0.1) 1.5 (0.5) 1.3 (0.2) 2.3 At 2 February 2008 (1.2) (0.2) (0.4) (5.1) (22.2) (5.6) (21.3) (56.0)
Included within deferred tax assets and deferred tax liabilities are amounts of £48.4 million (2007: £58.9 million) and £53.4 million (2007: £53.5 million) respectively, for amounts expected to reverse after more than one year.
The Group has pre-acquisition losses brought forward, which have not been recognised as a deferred tax asset as recoverability is considered uncertain. At 2 February 2008 this asset amounts to £8.9 million (2007: £9.7 million) 70. Woolworths Group plc Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
24. Deferred Tax (cont’d) The deferred tax credited to equity during the year is as follows: 52 weeks to 53 weeks to 2 February 3 February 2008 2007 £m £m Deferred tax charge on share-based payments (0.1) (0.1) Deferred tax charge on pension scheme actuarial gains (4.8) (11.9) Deferred tax adjustment to 28% on defined benefit scheme (1.8) – Deferred tax credit/(charge) on movement in derivatives (1.7) 0.1 (8.4) (11.9)
The Chancellor’s Budget Statement on 21 March 2007 announced the reduction in the rate of Corporation Tax from 30 per cent to 28 per cent with effect from 1 April 2008.
25. Retirement Benefit Obligations A number of pension schemes operate within the Group. These are the Woolworths Group Pension Scheme (a defined benefit scheme), the Woolworths Group Retirement Trust (a defined contribution scheme), the Legal & General Stakeholder Plan for Woolworths Group employees, the Total Home Entertainment Group Pension Scheme (a defined contribution scheme) and the Bertram Group Personal Pension Scheme (a defined contribution scheme). Colleagues who joined after 3 June 2003 are no longer eligible to join the Woolworths Group Retirement Trust, although existing membership is allowed to continue at present.
The pension costs for the defined contribution scheme are as follows: 52 weeks to 52 weeks to 2 February 3 February 2008 2007 £m £m Defined contribution schemes 0.4 0.3
The most recent valuation of the Woolworths Group Pension Scheme was performed by Hewitt Associates as at 2 February 2008. The principal assumptions made are: 52 weeks to 53 weeks to 2 February 3 February 2008 2007 % per annum % per annum Discount rate 6.4 5.5 Expected return on plan assets 7.6 7.7 Future salary increases 3.9 3.5 Future pension increases – Pre April 2006 service 3.3 2.9 – Post April 2006 service 2.4 2.3 Inflation assumption 3.3 2.9
The main financial assumption is the real discount rate, i.e. the excess of the discount rate applied (6.4 per cent) over the inflation rate applied (3.3 per cent). If this net rate increased/decreased by 0.1%, the pension obligation would decrease/increase by approximately £9.0 million (before tax) and the annual service cost would decrease/increase by approximately £0.7 million.
The assumptions used for future life expectancy for members have changed since the last accounting disclosures were produced. The mortality tables adopted for this year are PM/FA92C2018 for current pensioners and PM/FA92C2028 for future pensioners. Further allowances for improving longevity are included, in the form of “medium cohort” mortality improvements.
— the assumed average age at death for a current 60 year old pensioner is 86.4 for a male (previously 85.6) and 89.3 for a female (previously 88.5);
— the assumed average age at death for current active and deferred members when they reach age 60 is 87.1 for a male (previously 86.4) and 89.9 for a female (previously 89.2).
An allowance has been made for commutation (members taking tax-free cash rather than pension at retirement). This has been allowed for in the following way:
— the effect of introducing an allowance for commutation at pre 6 April 2006 levels has been incorporated on to the balance sheet via the SoRIE. For this purpose, we have assumed that 15 per cent of the retirement pension is converted to lump sum with the remaining 85 per cent taken as pension; and Woolworths Group plc 71. Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
25. Retirement Benefit Obligations (cont’d) — the effect of allowing for the increased commutation lump sums after 6 April 2006 has been incorporated on to the balance sheet via the income statement. For this purpose, we have assumed that the amount of retirement pension taken as a lump sum increases to 25 per cent with the remaining 75 per cent taken as pension.
The majority of scheme assets are invested in equities with an expected rate of return of 8.25 per cent per annum (2007: 8.5 per cent per annum).
The expected return on scheme assets is based on market expectation at the beginning of the period for returns over the entire life of the benefit obligation.
The amounts recognised in the balance sheet are determined as follows: 2 February 3 February 2008 2007 £m £m Present value of funded obligations (383.7) (400.0) Fair value of scheme assets 316.8 316.0 Present value of unfunded obligations (gross) (66.9) (84.0) Deferred tax (note 24) 18.7 25.2 Net deficit (48.2) (58.8)
The major categories of scheme assets as a percentage of total scheme assets are as follows: 2 February 3 February 2008 2007 % % Equities 67.5 72.0 Bonds 20.2 18.2 Other 12.3 9.8
The pension scheme assets include ordinary shares issued by Woolworths Group plc with a fair value of £nil (2007: £nil).
The amounts recognised in the income statement are as follows: 52 weeks to 53 weeks to 2 February 3 February 2008 2007 £m £m Current service cost 17.6 22.1 Past service credit – (8.7) Expected return on scheme assets (22.9) (21.1) Interest cost 22.3 19.8 Total included in staff costs (note 5) 17.0 12.1
Employer pension contributions include amounts that most pension scheme members have agreed to sacrifice from their salary with a corresponding amount paid directly to the pension scheme by their employing company.
Of the total charge, £17.6 million (2007: £13.4 million) is included in selling, marketing and administrative expenses, with a £0.6 million credit (2007: £1.3 million credit) included in interest payable and similar charges. The prior year past service credit of £8.7 million reflects the effect of the ‘A day’ reforms to pensions in relation to the increased amount of future pension which can be commuted into a lump sum on retirement. This reduces the anticipated cost of meeting the pension scheme’s ongoing obligations.
Changes in the present value of the defined benefit obligations are as follows: 52 weeks to 53 weeks to 2 February 3 February 2008 2007 £m £m Opening present value of obligation (400.0) (416.8) Service cost (17.6) (22.1) Interest cost (22.3) (19.8) Net benefits paid out 10.3 9.6 Contributions by scheme participants (1.1) (1.2) Past service cost – 8.7 Actuarial gains on scheme liabilities 47.0 41.6 Present value of obligation at 2 February 2008 and 3 February 2007 (383.7) (400.0) 72. Woolworths Group plc Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
25. Retirement Benefit Obligations (cont’d) Changes in the fair value of the scheme assets are as follows: 52 weeks to 53 weeks to 2 February 3 February 2008 2007 £m £m Opening fair value of scheme assets 316.0 285.9 Expected return on scheme assets 22.9 21.1 Contributions by the employer 17.0 19.5 Contributions by scheme participants 1.1 1.2 Benefits paid (10.3) (9.6) Actuarial losses on scheme assets (29.9) (2.1) Fair value of scheme assets at 2 February 2008 and 3 February 2007 316.8 316.0
The movement in the liability recognised in the balance sheet is as follows: 52 weeks to 53 weeks to 2 February 3 February 2008 2007 £m £m Beginning of the year (84.0) (130.9) Net actuarial gains on scheme assets/liabilities 17.1 39.5 Total expenses charged in the income statement (17.0) (12.1) Contributions paid by employer 17.0 19.5 End of the year (66.9) (84.0)
Cumulative actuarial gains and losses recognised in the statement of recognised income and expense: 52 weeks to 53 weeks to 2 February 3 February 2008 2007 £m £m Beginning of the year 7.8 (31.7) Net actuarial gains in the year 17.1 39.5 End of the year 24.9 7.8
The actual return on scheme assets was £(7.0) million (2007: £19.0 million).
History of experience gains and losses: 52 weeks to 53 weeks to 52 weeks to 52 weeks to 2 February 3 February 28 January 29 January 2008 2007 2006 2005 Experience adjustments arising on scheme assets: Amount (£m) (29.9) (2.1) 32.2 2.7 Percentage of scheme assets 9.4% 0.7% 11.2% 1.2%
Experience adjustment arising on scheme liabilities: Amount (£m) (1.8) 1.1 (13.5) 5.8 Percentage of the present value of the scheme liabilities 0.5% 0.3% 3.2% 1.8%
Year-end position Present value of scheme liabilities (£m) (383.7) (400.0) (416.8) (320.8) Fair value of scheme assets (£m) 316.8 316.0 285.9 223.3 Deficit (£m) (66.9) (84.0) (130.9) (97.5)
The contributions expected to be paid during the financial year ending 31 January 2009 amounts to £17.7 million. Woolworths Group plc 73. Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
26. Ordinary Shares Number Nominal of shares value m £m Authorised Ordinary shares of 12.5 pence each at 28 January 2006, 3 February 2007 and 2 February 2008 1,600.0 200.0 Called up and fully paid At 28 January 2006 1,456.9 182.1 Allotted under share option schemes 2.1 0.3 At 3 February 2007 1,459.0 182.4 Allotted under share option schemes –– At 2 February 2008 1,459.0 182.4
There were no ordinary shares issued during the year.
Potential issues of ordinary shares Certain current and former Senior Executives hold options to subscribe for shares in the Company at prices ranging from 30.5 pence to 50.0 pence under the Executive Share Option Schemes approved by shareholders in 2001 and 2002. In addition, 4,028 employees hold options to subscribe for shares in the Company at prices ranging from 30.0 pence to 40.5 pence under the ShareSave Plan. No options were exercised in the 52 weeks ending 2 February 2008. The number of shares which may potentially be issued on exercise of options, the periods in which they were granted and the periods in which they may be exercised are given below:
Share Options outstanding at the end of the period Potential Potential Exercise share issues share issues Date of price 2008 2007 Grant (pence) Exercise period (number) (number) Executive Share Options 26/09/01 30.5 26/09/04 – 25/09/11 394,966 394,966 24/04/02 50.0 24/04/05 – 23/04/12 3,429,099 4,076,878 11/09/02 31.5 11/09/05 – 10/09/12 1,882,757 2,336,165 27/03/03 30.5 27/03/06 – 26/03/13 – 4,150,162 11/09/03 43.5 11/09/06 – 10/09/13 – 4,780,171 25/03/04 41.5 25/03/07 – 24/03/14 2,572,415 4,628,747 ShareSave Options 27/05/03 34.5 01/08/06 – 31/01/07 – 292,731 28/05/04 40.5 01/08/07 – 31/01/08 115,694 6,118,714 27/05/05 36.0 01/08/08 – 31/01/09 7,590,925 9,359,301 02/06/06 33.0 01/08/09 – 31/01/10 7,476,462 9,719,818 01/06/07 30.0 01/08/10 – 31/01/11 9,201,276 – 32,663,594 45,857,653
Senior Executives also hold share awards made under the Woolworths Group Annual Incentive Plan and Performance Share Plan. No new shares have been or will be issued in respect of these awards.
Employee share-based payment plans The total charge for the year relating to employee share-based payment plans was £1.3 million (2007: £1.2 million), all of which related to equity-settled, share-based payment transactions. After deferred tax, the total charge was £1.4 million (2007: £1.0 million). Further details of the share-based payment plans are provided in the Directors’ Remuneration Report.
Share options Under the Executive Share Option Schemes, participants were granted options on a half-yearly basis depending on their position in the Group. The option exercise price was the market price at the time of the grant. Subject to the attainment of performance targets, options are capable of exercise after at least three years and within ten years of the date of grant. For options granted after September 2001, the performance target is growth in Earnings per Share (EPS) as defined in the relevant scheme rules. For full vesting, EPS must increase by a minimum of 6 per cent per annum (in addition to the increase in the Retail Prices Index). There is a facility for one retest at the fourth anniversary of grant. No further options have been granted since 25 March 2004. 74. Woolworths Group plc Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
26. Ordinary Shares (cont’d) Share options (cont’d) Under the ShareSave Plan, eligible UK employees can enter into an Inland Revenue approved savings contract for a period of three years whereby shares may be acquired with repayments under the contract. The option exercise price is the average market price over three days shortly before an offer is made. No discount has been applied and the options are exercisable within a six-month period from the date the savings contract matures.
The rules of the Executive Share Option Schemes and ShareSave Plan include provision for the early exercise of options in certain circumstances.
Options were valued using the Black-Scholes option-pricing model. No performance conditions were included in the fair value calculations. The expected volatility is based on historical volatility over the last three years. The expected life is the average expected period to exercise. The risk-free rate of return is the yield on zero-coupon UK government bonds of a term consistent with the assumed option life. Options for ShareSave participants who cease their savings contracts are treated as having been forfeited. The fair value per option granted during the year and the assumptions used in the calculation are as follows:
ShareSave options 2008 2007 Share price at grant date 30.0p 33.0p Exercise price 30.0p 33.0p Shares under option 10,147,536 15,547,427 Vesting period (years) 3.18 3.18 Expected volatility 30% 30% Option life (years) 3.6 3.6 Expected life (years) 3.3 3.3 Risk-free rate 4.7% 4.7% Expected dividends expressed as a dividend yield 6.3% 5.6% Fair value per option 3.6p 5.6p Possibility of ceasing employment before vesting 40% 46% Expectations of meeting performance criteria 100% 100%
A reconciliation of option movements over the year to 2 February 2008 is shown below: 2008 2007
Weighted Weighted Number average Number average of options exercise of options exercise (000’s) price (000’s) price At start of the year 46,928 37.6 60,813 38.6 Granted 10,147 30.0 10,547 33.0 Forfeited (23,422) 37.9 (22,086) 38.8 Exercised ––(2,346) 31.3 Outstanding at end of the year 33,653 35.1 46,928 37.6 Exercisable at end of the year 6,896 40.8 10,556 41.4
The table above includes 990,000 options outstanding at the end of the year which will be satisfied by shares held in the ESOP should they be exercised. 2008 2007
Weighted Weighted Weighted average Weighted average Range of average contractual Range of average contractual exercise exercise Number remaining exercise exercise Number remaining price price of shares life price price of shares life 30.0p–50.0p 35.1p 33,653 2.8 years 30.5p–50.0p 37.6p 46,928 4.0 years
The weighted average share price during the period for options exercised over the year was not applicable as there were no options exercised (2007: 35.1 pence). Woolworths Group plc 75. Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
26. Ordinary Shares (cont’d) Share Awards Share Awards have been made under six different Incentive Plans, with further details of these Plans given in the Directors’ Remuneration Report:
— the Performance Share Plan, under which awards are made every six months to Directors of operating companies in the Group. The awards will vest dependent on the achievement of Earnings per Share (EPS) targets and Total Shareholder Return (TSR) targets;
— the Annual Incentive Plan, under which awards are made to Directors and Senior Executives following the announcement of the annual results. Awards vest after three years with no further performance targets;
— the Share Award Plan, under which awards were made in September 2007 to over 1,000 managers in the Group. Awards vest on 31 March 2010 with no performance targets;
— the Long Term Incentive Plan for Trevor Bish-Jones, under which awards were made in September 2005. In June 2008 one-third of the award will vest with no performance target and the remaining two-thirds will vest if TSR targets are met;
— the Share Investment Plan for Senior Executives, under which awards were made in July 2007; and
— The Long Term Incentive Plan for Tony Page, under which an award was made in October 2006. The award will vest in August 2009 with no performance target.
The fair value for all Share Awards has been determined as the share price at the award date less the expected dividends to be paid over the life of the award. For awards where there is a TSR performance condition the Group have adjusted the fair value used to reflect the likelihood of this condition being achieved for awards made in the current year. The assumptions used in the calculation are as follows:
2008 2007
Performance Performance Share Plans Share Plans Date of award 12/04/07 12/04/07 24/09/07 24/09/07 27/04/06 20/10/06 20/10/06 Share price at award date 30.5p 30.5p 20.0p 20.0p 34.0p 36.0p 36.0p Shares subject to the award 1,930,049 1,930,049 3,183,925 3,183,295 2,335,382 1,691,014 1,691,014 Vesting period (years) 3333333 Award life (years) 3333333 Expected life (years) 3333333 Expected dividends expressed as a dividend yield 5.74% 5.74% 8.85% 8.85% 5.26% 4.95% 4.95% Fair value per award 25.7p 25.7p 15.3p 15.3p 29.0p 31.0p 31.0p Expectations of meeting performance criteria 22.50% 11.25% 22.50% 11.25% 22.50% 22.50% 11.25%
2007 Annual Incentive Plan Date of award 06/04/06 27/04/06
Share price at award date 34.5p 34.0p Shares subject to the award 992,525 271,907 Vesting period (years) 33 Award life (years) 33 Expected life (years) 33 Expected dividends expressed as a dividend yield 4.93% 5.26%
Fair value per award 29.8p 29.0p Expectations of meeting performance criteria N/A N/A 76. Woolworths Group plc Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
26. Ordinary Shares (cont’d) Share Awards (cont’d) 2008 2007
Share 2007 Share Investment Share Investment T Page Plan Award Plan LTIP Award Date of award 02/07/07 24/09/07 30/06/06 31/08/06
Share price at award date 26.5p 20.0p 31.0p 32.5p Shares subject to the award 800,831 5,360,000 602,353 923,076 Vesting period (years) 2 2.5 2 3 Award life (years) 2 2.5 23 Expected life (years) 2 2.5 23 Expected dividends expressed as a dividend yield 6.60% 8.85% 5.56% 4.95%
Fair value per award 23.2p 16.0p 27.7p 28.0p Expectations of meeting performance criteria N/A 100% N/A 100%
27. Share Premium £m At 28 January 2006 9.3 Premium on shares issued during the year under the share option schemes 0.4 At 3 February 2007 9.7 Premium on shares issued during the year under the share option schemes – At 2 February 2008 9.7
28. Other Reserves Other Merger reserves reserves Total £m £m £m At 28 January 2006 – 24.1 24.1 Cash flow hedges: — fair value losses net of tax (6.2) – (6.2) — transfer to stock net of tax 4.1 – 4.1 At 3 February 2007 (2.1) 24.1 22.0 Cash flow hedges: — fair value losses net of tax (0.7) – (0.7) — transfer to stock net of tax 4.7 – 4.7 At 2 February 2008 1.9 24.1 26.0
Other reserves are non-distributable and consist of cash flow hedges.
The merger reserve consists of balances arising as a result of the demerger from Kingfisher. Woolworths Group plc 77. Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
29. Retained Earnings Retained Shares held Total retained earnings by Trust earnings £m£m£m At 28 January 2006 90.1 (3.1) 87.0 Profit for the year 13.5 – 13.5 Dividends (25.6) – (25.6) Actuarial gain on defined benefit pension scheme 27.7 – 27.7 Share-based payments 1.0 – 1.0 Sale of own shares held by Trust* – (0.1) (0.1) At 3 February 2007 106.7 (3.2) 103.5 Profit for the year 7.5 – 7.5 Dividends (25.7) – (25.7) Actuarial gain on defined benefit pension scheme 12.3 – 12.3 Deferred tax adjustment to 28% on defined benefit scheme (1.8) – (1.8) Share-based payments 1.2 – 1.2 Net movement of shares held by Trust* – 0.5 0.5 At 2 February 2008 100.2 (2.7) 97.5
*Shares held by Trust Interests in own shares held by Trust represents the cost of 7,270,586 (2007: 8,838,926) of the Company’s ordinary shares. The nominal value is £0.9 million (2007: £1.1 million). These shares were acquired by a Trust in the open market using funds provided by Woolworths Group plc to meet obligations under the Employee Share Schemes and they are accounted for as treasury shares. The costs of funding and administering the scheme are charged to the income statement of the Company in the period to which they relate. The market value of the shares at 2 February 2008 was £0.9 million (2007: £3.0 million). The Trust has waived its rights to dividends. 78. Woolworths Group plc Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
30. Statement of Changes in Shareholders’ Equity Attributable to equity holders of the Company Share Share Other Shares held Retained Minority Total capital premium reserves by Trust earnings Total interest equity £m £m £m £m £m £m £m £m At 28 January 2006 182.1 9.3 24.1 (3.1) 90.1 302.5 0.1 302.6 Profit for the year – – – – 13.5 13.5 0.1 13.6 Dividends – – – – (25.6) (25.6) – (25.6) Issue of shares 0.3 0.4 – – – 0.7 – 0.7 Cash flow hedges: — fair value of losses net of tax – – (6.2) – – (6.2) – (6.2) — transfer to stock net of tax – – 4.1 – – 4.1 – 4.1 Actuarial gain arising on defined benefit scheme – – – – 27.7 27.7 – 27.7 Share-based payments – – – – 1.0 1.0 – 1.0 Purchase of minority interest – – – – – – (0.2) (0.2) Sale of own shares held by Trust – – – (0.1) – (0.1) – (0.1) At 3 February 2007 182.4 9.7 22.0 (3.2) 106.7 317.6 – 317.6 Profit for the year – – – – 7.5 7.5 – 7.5 Dividends – – – – (25.7) (25.7) – (25.7) Cash flow hedges: — fair value of losses net of tax – – (0.7) – – (0.7) – (0.7) — transfer to stock net of tax – – 4.7 – – 4.7 – 4.7 Actuarial gain arising on defined benefit scheme – – – – 12.3 12.3 – 12.3 Deferred tax adjustment to 28% on defined benefit scheme – – – – (1.8) (1.8) – (1.8) Share-based payments – – – – 1.2 1.2 – 1.2 Net movement of shares held by Trust – – – 0.5 – 0.5 – 0.5 At 2 February 2008 182.4 9.7 26.0 (2.7) 100.2 315.6 – 315.6
During the prior year, as part of the joint venture with BBC Worldwide Ltd, the Group funded a £2.8 million acquisition of the minority interest in Banana Split Productions Limited by 2 entertain Limited. Woolworths Group plc 79. Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
31. Cash Generated from Operations Reconciliation of operating profit to net cash inflow/(outflow) from operating activities: 52 weeks to 53 weeks to 2 February 3 February 2008 2007 £m £m Profit for the year 7.5 13.6 Adjustments for: — Taxation 4.2 2.4 — Depreciation, amortisation and impairments 45.0 53.2 — Share-based payments 1.3 1.2 — Loss on sale of property, plant and equipment 1.9 1.7 — Interest income (4.0) (3.8) — Interest expense 25.7 14.5 — ‘A-day’ pension credit – (8.7) — Other non-cash items 2.7 – Changes in working capital (excluding the effect of acquisition): — Inventories (16.4) 7.4 — Trade and other receivables (140.8) (37.9) — Trade and other payables and provisions 134.6 (83.2) Cash generated from/(utilised in) operations 61.7 (39.6)
Other non-cash items comprises financial instruments arising from forward foreign exchange contracts, the non-cash element of IAS 19, non- redemption of gift vouchers redeemable outside the Group and the cost of funding and administering ESOP.
32. Net Debt Reconciliation Group net (debt)/funds comprise the following: 2 February 3 February 2008 2007 £m £m Cash and cash equivalents 39.2 28.4 Bank overdrafts – (1.3) Total cash, cash equivalents and bank overdrafts 39.2 27.1 Finance leases (2.9) (3.0) Bank borrowings (33.9) (115.4) Collateralised borrowing (126.1) (12.0) Net debt at end of the year (123.7) (103.3)
33. Acquisitions Total Home Entertainment Distribution Limited (THE) On 5 September 2006 the Group acquired the entire share capital of AMP Enterprises Limited, the holding company of THE for £20.3 million from 3i.
A fair value review was carried out on the assets and liabilities of the business, resulting in identification of intangible assets and a deferred tax liability. The provisional fair values reported in the financial statements for the year ended 3 February 2007 have been revised to take account of a reduction in purchase consideration of £0.3 million and an increase in provision of £0.3 million.
Bertram Group Limited (Bertrams) On 17 January 2007 the Group entered into an irrevocable offer for Bertrams with completion taking place on 1 February 2007.
A fair value review was carried out on the assets and liabilities of the business, resulting in identification of intangible assets and a deferred tax liability. The provisional fair values reported in the financial statements for the year ended 3 February 2007 have been revised to take account of an increase in purchase consideration of £0.2 million and an increase in goodwill of £0.2 million. 80. Woolworths Group plc Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
34. Operating Lease Commitments The Group leases various retail outlets, offices, warehouses and equipment under non-cancellable operating lease agreements. The leases have varying terms, escalation clauses and renewal rights.
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
2 February 2008 3 February 2007
Land and Plant and Land and Plant and buildings equipment buildings equipment £m£m£m£m Total commitments under operating leases Within one year 161.9 3.4 149.2 4.4 Later than one year and not later than five years 633.2 7.3 599.7 9.0 After five years 1,481.8 0.3 1,812.7 0.8
35. Contingent Liabilities There are no contingent liabilities at the year-end. During the year, a contingent liability reported in the prior year, in connection with 2 entertain, was fully paid (note 23).
36. Capital and Other Financial Commitments Capital commitments Capital commitments contracted but not provided for by the Group amounted to £nil (2007: £nil).
37. Related Party Transactions The following transactions were carried out with related parties: 52 weeks to 53 weeks to 2 February 3 February 2008 2007 £m £m Provision of management services to joint venture 2 entertain Limited – 0.1 – 0.1 Purchases of goods and services from joint ventures 2 entertain Limited 51.8 39.0 51.8 39.0 Year-end balances arising from sales/purchases of goods Payable to joint ventures: 2 entertain Limited 12.4 2.0 12.4 2.0 Dividend received from joint ventures 2 entertain Limited 18.5 11.6 18.5 11.6 Capital contribution paid to joint ventures 2 entertain Limited 14.4 – 14.4 – Management fee payable to key management Willis Management Guernsey Limited (0.1) (0.1) (0.1) (0.1) Woolworths Group plc 81. Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
38. Financial Instruments The accounting policies for financial instruments have been applied to the line items below: Derivatives Loans and used for receivables hedging Total £m £m £m 2 February 2008 Assets as per balance sheet Derivative financial instruments – 2.8 2.8 Trade and other receivables 363.5 – 363.5 Current asset investments 4.5 – 4.5 Cash and cash equivalents 39.2 – 39.2 Total 407.2 2.8 410.0
Derivatives Other used for financial hedging liabilities Total £m £m £m 2 February 2008 Liabilities as per balance sheet Borrowings – 162.9 162.9 Derivative financial instruments – 18.2 18.2 Trade and other payables – 711.3 711.3 Total – 892.4 892.4
Derivatives Loans and used for receivables hedging Total £m £m £m 3 February 2007 Assets as per balance sheet Derivative financial instruments ––– Trade and other receivables 249.4 – 249.4 Cash and cash equivalents 28.4 – 28.4
Total 277.8 – 277.8
Derivatives Other used for financial hedging liabilities Total £m £m £m 3 February 2007 Liabilities as per balance sheet Borrowings – 131.7 131.7 Derivative financial instruments 4.0 23.5 27.5 Trade and other payables – 562.8 562.8
Total 4.0 718.0 722.0 82. Woolworths Group plc Annual report and accounts 2008
FIVE YEAR RECORD (UNAUDITED)
IFRS IFRS IFRS IFRS UK GAAP 2008 2007 2006 2005 2004 £m £m £m £m £m Income statement Continuing operations Revenue 2,969.6 2,737.0 2,630.7 2,742.4 2,774.7 Cost of goods sold (2,245.5) (2,045.8) (1,934.7) (2,015.5) (1,995.9) Gross profit 724.1 691.2 696.0 726.9 778.8
Selling and marketing costs (585.3) (567.7) (534.1) (560.2) (578.8) Administrative expenses (134.2) (120.3) (112.9) (177.5) (138.4) Other operating income 28.8 23.5 21.9 19.0 14.1 Operating profit 33.4 26.7 70.9 8.2 75.7 Share of operating profit in joint venture – –––1.2 Operating profit including joint ventures 33.4 26.7 70.9 8.2 76.9 Non-operating exceptional items – –––– Profit before interest 33.4 26.7 70.9 8.2 76.9 Net finance costs (21.7) (10.7) (9.4) (11.1) (10.2) Profit/(loss) before income tax 11.7 16.0 61.5 (2.9) 66.7 Income tax expense (4.2) (2.4) (20.2) (4.6) (20.6) Profit/(loss) for the year from continuing operations 7.5 13.6 41.3 (7.5) 46.1 Discontinued operations – – (31.1) (0.6) – Profit/(loss) for the year 7.5 13.6 10.2 (8.1) 46.1
Attributable to: Equity holders of the Company 7.5 13.5 10.1 (8.3) 46.1 Minority interests – 0.1 0.1 0.2 –
Earnings/(loss) per share (pence) Basic 0.5 0.9 0.7 (0.6) 3.3 Diluted 0.5 0.9 0.7 (0.6) 3.3 Adjusted basic 1.4 1.2 2.8 3.3 3.5
Balance sheet Goodwill 60.9 60.7 31.9 31.8 45.9 Other intangible assets 79.1 84.0 63.8 68.5 12.8 Property, plant and equipment 298.4 311.7 274.2 287.2 323.7 Fixed asset investments 0.2 0.2 0.2 0.2 0.2 Deferred income tax assets – 1.0 22.8 9.4 – Total fixed assets 438.6 457.6 392.9 397.1 382.6
Net current assets 81.4 51.4 133.2 202.4 201.0 Non-current liabilities (168.3) (191.4) (222.5) (167.5) (27.8) Non-current borrowings (36.1) – (1.0) (99.6) (98.5) Net assets 315.6 317.6 302.6 332.4 457.3
Total shareholders’ equity 315.6 317.6 302.5 332.4 457.1 Minority interest in equity – – 0.1 – 0.2 Total equity 315.6 317.6 302.6 332.4 457.3
Notes: 1. 2004 has been restated for the reclassification of advertising contributions from suppliers between cost of sales and selling expenses and the impact of UITF 38 ‘Accounting for ESOP Trusts’.
2. 2004 earnings per share has been restated to reflect the effect of dilutive shares.
3. 2005 has been restated for the effect of the disposal of MVC.
4. 2005 has been restated for the effect of IFRS, primarily the adjustments arising on the application of IAS 19 on pensions, SIC 15 on leases and the IFRIC fixed rentals uplift pronouncement. Woolworths Group plc 83. Annual report and accounts 2008
INDEPENDENT AUDITORS’ REPORT to the Members of Woolworths Group plc (the ‘Company’)
We have audited the parent company financial statements of Woolworths Group plc for the period ended 2 February 2008 which comprise the Company Balance Sheet and the related Notes to the Company Accounts. These parent company financial statements have been prepared under the accounting policies set out therein. We have also audited the information in the Directors’ Remuneration Report that is described as having been audited.
We have reported separately on the group financial statements of Woolworths Group plc for the period ended 2 February 2008.
Respective responsibilities of directors and auditors The directors’ responsibilities for preparing the Annual Report, the Directors’ Remuneration Report and the parent company financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the Statement of Directors’ Responsibilities.
Our responsibility is to audit the parent company financial statements and the part of the Directors’ Remuneration Report to be audited in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). This report, including the opinion, has been prepared for and only for the company’s members as a body in accordance with Section 235 of the Companies Act 1985 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
We report to you our opinion as to whether the parent company financial statements give a true and fair view and whether the parent company financial statements and the part of the Directors’ Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the information given in the Directors' Report is consistent with the parent company financial statements.
In addition we report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed.
We read other information contained in the Annual Report and consider whether it is consistent with the audited parent company financial statements. The other information comprises the Directors’ Report, the Chairman’s Statement, the Corporate Governance Statement and the unaudited part of the Directors’ Remuneration Report. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the parent company financial statements. Our responsibilities do not extend to any other information.
Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the parent company financial statements and the part of the Directors’ Remuneration Report to be audited. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the parent company financial statements, and of whether the accounting policies are appropriate to the company’s circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the parent company financial statements and the part of the Directors’ Remuneration Report to be audited.
Opinion In our opinion:
• the parent company financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the company’s affairs as at 2 February 2008;
• the parent company financial statements and the part of the Directors’ Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985; and
• the information given in the Directors' Report is consistent with the parent company financial statements.
PricewaterhouseCoopers LLP Chartered Accountants and Registered Auditors London 2 April 2008 84. Woolworths Group plc Annual report and accounts 2008
COMPANY BALANCE SHEET at 2 February 2008 and 3 February 2007
2 February 3 February 2008 2007 Note £m £m Fixed assets Tangible fixed assets 3 – – Investment in subsidiary 4 205.8 205.0
Current assets Debtors 5 396.9 443.8 Cash at bank and in hand 6 46.0 2.7 442.9 446.5
Current liabilities Creditors due within one year 7 (358.2) (331.2) Financial instruments 9 (3.1) (3.2) (361.3) (334.4)
Net current assets 81.6 112.1
Net assets 287.4 317.1
Capital and reserves Called up share capital 10 182.4 182.4 Share premium 11 9.7 9.7 Merger reserve 11 24.1 24.1 Profit and loss account 11 71.2 100.9
Equity shareholders’ funds 287.4 317.1
The financial statements on pages 84 to 90 were approved by the Board of Directors on 2 April 2008 and were signed on its behalf by:
Stephen East Richard North Finance Director Chairman Woolworths Group plc 85. Annual report and accounts 2008
NOTES TO THE COMPANY ACCOUNTS
Accounting Policies for the Year Ended 2 February 2008 The financial statements of the Company are prepared under the historical cost convention and are prepared in accordance with applicable accounting standards in the United Kingdom and the Companies Act 1985. The principal accounting policies adopted in the presentation of these financial statements are set out below, together with an explanation of where changes have been made to previous policies on the adoption of new accounting standards in the year. These policies have been consistently applied to all years presented, unless otherwise stated.
Basis of Preparation The financial statements of the Company are made up to the nearest Saturday to 31 January each year. The financial year for 2008 represents the 52 weeks ended 2 February 2008. The comparative financial year for 2007 was the 53 weeks ended 3 February 2007.
A separate Company Profit and Loss Account, dealing with the results of Woolworths Group plc (the Company) have not been presented, as permitted by Section 230 of the Companies Act 1985.
Dividends Dividend income is recognised when the right to receive payment is established.
Investment in Subsidiaries Investment in subsidiaries includes the cost of share-based payments in respect of the ordinary shares of Woolworths Group plc that have been granted to employees of companies of which Woolworths Group plc is the ultimate parent undertaking and controlling party.
Subsidiaries are all entities over which the Company has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights.
The investments are stated at cost less provision for impairment. An impairment review is performed if and when required by Directors.
Fixtures, Fittings and Equipment Tangible fixed assets are stated at cost less accumulated depreciation. Depreciation of tangible fixed assets is provided where it is necessary to reflect a reduction from book value to the estimated residual value over the estimated useful life of the asset to the Company.
Depreciation of tangible fixed assets is calculated by the straight-line method and the annual rates applicable to the principal categories are between 10 per cent and 50 per cent.
Current Taxation The taxation charge for the current year is based on the results for the year as adjusted for items which are non-assessable or disallowed. It is calculated using the rates that have been enacted by the balance sheet date.
Deferred Taxation Deferred taxation is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. The deferred tax is determined using tax rates that have been enacted by the balance sheet date and are expected to apply when the deferred tax asset is realised or the deferred tax liability is settled.
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
Pensions The Company is a member of the Woolworths Group Pension Scheme (‘WGPS’) and the defined contribution scheme of Woolworths Group plc, the Woolworths Group Retirement Trust (‘WGRT’).
All employees are entitled to join the WGPS after completion of one year’s service. The WGPS is a defined benefit pension scheme. The Company also facilitates a Stakeholder pension arrangement for employees and makes contributions to a defined contribution pension scheme, the WGRT, which was closed to new entrants in June 2003 and currently has no active members (2007: 63 active members).
As the Company is unable to identify its share of the underlying assets and liabilities of WGPS on a measurable and consistent basis, the exemption allowed under FRS 17 has been taken so that the pension costs charged to the income statement of the Company is the contribution payable to WGPS. Recognition of all the Scheme assets and obligations under FRS 17 has been included in the financial statements of Woolworths plc, the company in the Group that employs the majority of active members of the scheme. Detailed disclosures in respect of the WGPS are also included in the financial statements of Woolworths plc. 86. Woolworths Group plc Annual report and accounts 2008
NOTES TO THE COMPANY ACCOUNTS (cont’d)
Share-based Payments The Company no longer grants share options under its Executive Share Option Schemes. Instead, Share Awards are made to senior management which vest dependent in part on performance targets being met. A Savings Related Share Option Scheme, which is open to all UK employees, continues to operate. The fair value of all share-based payments is recognised as an employee expense, with a corresponding increase in the profit and loss account reserve over the vesting period. The proceeds received on the exercise of share options, net of any directly attributable transaction costs, are credited to the share capital and share premium accounts. Costs incurred in respect of share-based payments to employees of subsidiary undertakings are recognised as a cost of investment in subsidiaries in the Company financial statements. Disclosures in respect of Share Options are given within the notes to the Group accounts.
ESOP The Employee Share Ownership Plan (‘ESOP’) is a separately administered trust. Liabilities of the ESOP are guaranteed by the Company and the assets of the ESOP mainly comprise shares in the Company. The purchase of shares for the trust is shown as a movement in retained earnings.
Financial Risk Management Disclosure of financial risk management factors and practices are included within the accounting policies outlined in the Group financial statements.
Financial Instruments The fair values of short-term deposits, loans, and overdrafts with a maturity of less than one year are assumed to approximate to their book values.
The fair value of credit vouchers in issue is the face value of the instruments that remain unredeemed and unextinguished at the balance sheet date.
Going Concern The Directors confirm that, after making enquiries, they have a reasonable expectation that the Group has adequate resources to continue in operational existence for the forseeable future. For this reason they continue to adopt the going concern basis in preparing these accounts.
1. Profit/Loss on Ordinary Activities Before Taxation 52 weeks to 53 weeks to 2 February 3 February 2008 2007 £m £m Loss/profit on ordinary activities before taxation is stated after charging: Fee payable to Company auditors for the audit of parent company and consolidated accounts 0.2 0.1
Retained loss for the year was £5.8m (2007: profit of £43.7m), including dividend income of £nil (2007: £50.0m).
2. Employee Benefit Expense 52 weeks to 53 weeks to 2 February 3 February 2008 2007 £m £m Wages and salaries 2.8 2.7 Social security costs 0.3 0.3 Pension costs – 0.3 Share-based payments 0.4 0.3 3.5 3.6
As noted in the accounting policies, the Company has taken the exemption allowed under FRS 17 to account for the pension cost in respect of the defined benefit scheme in accordance with the contributions payable. Detailed disclosures in respect of this scheme are included in the financial statements of Woolworths plc. The present value of the defined benefit obligation of the scheme at 2 February 2008 was £383.7 million (2007: £400.0 million) and the total market value of assets at 2 February 2008 was £316.8 million (2007: £316.0 million).
The employee benefit expense given above includes Directors. Woolworths Group plc 87. Annual report and accounts 2008
NOTES TO THE COMPANY ACCOUNTS (cont’d)
2. Employee Benefit Expense (cont’d) Directors
52 weeks to 53 weeks to 2 February 3 February 2008 2007 £m £m Aggregate emoluments 1.6 1.6 Company contributions to money purchase pension schemes – 0.1 Total 1.6 1.7
Full disclosure of Directors’ remuneration is given on page 36 of the Directors’ Remuneration Report, which forms part of these financial statements. 2 February 3 February 2008 2007 Number Number Headcount Average monthly headcount 24 22
3. Tangible Fixed Assets Fixtures, fittings and equipment £m Cost At 3 February 2007 and 2 February 2008 0.1
Depreciation At 3 February 2007 and 2 February 2008 (0.1)
Net book amount At 3 February 2007 and 2 February 2008 –
4. Investment in Subsidiary In accordance with Financial Reporting Standard 20 ‘Share-based Payment’ the Company has recognised as an expense, the fair value of any share-based payments made to its employees.
The fair value attributable to share-based payments made to the employees of its subsidiary undertaking has been capitalised as an investment in subsidiary. The Directors believe the net book value of the subsidiary is not less than the value of the underlying assets.
2 February 3 February 2008 2007 £m £m At start of the year 205.0 204.0 Addition in the year 0.8 1.0 At end of the year 205.8 205.0
Description Country of % of share incorporation owned and and classes Company and operation voting rights owned Main activity Sandelcroft Limited Great Britain 100 Ordinary Holding company
A more comprehensive list of companies of which Woolworths Group plc is the ultimate parent undertaking and controlling party is included in the consolidated financial statements (note 14). 88. Woolworths Group plc Annual report and accounts 2008
NOTES TO THE COMPANY ACCOUNTS (cont’d)
5. Debtors
2 February 3 February 2008 2007 £m £m Amounts falling due within one year: Owed by subsidiary undertakings 396.0 442.5 Corporation tax – 0.2 Other debtors 0.3 0.4 Prepayments and accrued income 0.1 – Deferred tax 0.5 0.7 396.9 443.8
The Directors consider that it is more likely than not that there will be sufficient taxable profits in future such as to realise the deferred tax asset.
Within amounts owed by subsidiary undertakings, £212.4 million (2007: £211.0 million) carries an interest rate of base rate plus 1.65 per cent.
6. Cash at Bank and in Hand 2 February 3 February 2008 2007 £m £m Cash at bank and in hand 46.0 2.7
7. Creditors Due Within One Year 2 February 3 February 2008 2007 £m £m Owed to subsidiary undertakings 237.9 259.4 Other creditors 0.1 1.5 Corporation tax 2.1 – Accruals 3.0 0.6 Term Loan (see note 8) – 69.7 Collateralised borrowing (see note 8) 115.1 – 358.2 331.2
Amounts owed to subsidiary undertakings carries an interest rate of base rate less 0.5 per cent. Woolworths Group plc 89. Annual report and accounts 2008
NOTES TO THE COMPANY ACCOUNTS (cont’d)
8. Borrowings 2 February 3 February 2008 2007 £m £m Bank borrowings – 69.7 Collateralised borrowing 115.1 –
Bank borrowings include drawings from the Group’s asset based lending credit facility. The £350 million asset based lending facility was established in January 2008 and matures in January 2012 with the option to extend by one year. The effective interest rate based on average forecast borrowing is 8.55 per cent.
All of the Company’s borrowings are denominated in Sterling.
The fair value of borrowings due after more than one year at 2 February 2008 and at 3 February 2007 was £nil.
The Company, as borrower on behalf of the Group, has the following undrawn committed borrowing facilities at 2 February 2008 that incur commitment fees at market rates in respect of which all conditions precedent had been met at that date. 2 February 3 February 2008 2007 £m £m Floating rates — Expiring between one and two years – – — Expiring in more than two years 225.0 155.3 225.0 155.3
9. Financial Instruments Numerical financial instruments disclosures are set out below. Additional disclosures are set out within the Financial Risk Management section (page 52). 2 February 2008 3 February 2007
Assets Liabilities Assets Liabilities £m £m £m £m Credit vouchers – (3.1) – (3.2) Current portion – (3.1) – (3.2)
The fair value of outstanding credit vouchers at 2 February 2008 and at 3 February 2007 is the unredeemed face value of all credit vouchers issued that have not been extinguished, as these are all payable on demand if presented for redemption.
10. Share Capital Number Ordinary of shares shares £m £m Authorised Ordinary shares of 12.5 pence each at 2 February 2008 and 3 February 2007 1,600.0 200.0
Called up and fully paid At 3 February 2007 and 2 February 2008 1,459.0 182.4 90. Woolworths Group plc Annual report and accounts 2008
NOTES TO THE COMPANY ACCOUNTS (cont’d)
11. Reconciliation of Movement in Shareholders’ Funds Profit and Share Share Merger loss capital premium reserve account Total £m £m £m £m £m At 28 January 2006 182.1 9.3 24.1 81.9 297.4 Retained profit for the year – – – 43.7 43.7 Dividends – – – (25.6) (25.6) Share-based payments net of tax – – – 1.0 1.0 Issue of shares 0.3 0.4 – – 0.7 Sale of own shares held by Trust * – – – (0.1) (0.1) At 3 February 2007 182.4 9.7 24.1 100.9 317.1 Retained loss for the year – – – (5.8) (5.8) Dividends – – – (25.7) (25.7) Share-based payments – – – 1.3 1.3 Net movement of shares held by Trust * – – – 0.5 0.5 Balance at 2 February 2008 182.4 9.7 24.1 71.2 287.4
*Shares held by Trust Interests in own shares held by Trust represents the cost of 7,270,586 (2007: 8,838,926) of the Company’s ordinary shares. The nominal value is £0.9 million (2007: £1.1 million). These shares were acquired by the Trust in the open market using funds provided by Woolworths Group plc to meet obligations under the Employee Share Schemes and they are accounted for as treasury shares. The costs of funding and administering the Scheme are charged to the profit and loss account of the Company in the period to which they relate. The market value of the shares at 2 February 2008 was £0.9 million (2007: £3.0 million). The Trust has waived its rights to dividends.
12. Dividends 52 weeks to 53 weeks to 2 February 2008 3 February 2007
Pence per Pence per share £m share £m Dividends proposed Interim 0.43 6.2 0.43 6.2 Final 0.17 2.5 1.34 19.4 0.60 8.7 1.77 25.6
Dividends paid Interim 0.43 6.3 0.43 6.2 Final 1.34 19.4 1.34 19.4 1.77 25.7 1.77 25.6
The Directors are proposing a final dividend in respect of the financial year ending 2 February 2008 of 0.17 pence (2007: 1.34 pence) per share which will absorb an estimated £2.5 million of shareholders’ funds. Subject to shareholder approval, it will be paid on 25 June 2008 to members registered at the close of business on 11 April 2008. These financial statements do not reflect this recommended dividend.
13. Operating Lease Commitments The Company had no operating lease commitments as at 2 February 2008 (2007: £nil).
14. Contingent Liabilities The Company had no contingent liabilities as at 2 February 2008 (2007: £nil).
15. Capital and Other Financial Commitments Capital commitments contracted but not provided for by the Company amounted to £nil (2007: £nil).
16. Related parties Transactions with other Group companies have not been disclosed as permitted by FRS 8. No disclosure is necessary in the parent’s own financial statements as these statements are presented together with the consolidated financial statements. Woolworths Group plc 91. Annual report and accounts 2008
SHAREHOLDER INFORMATION (UNAUDITED)
Analysis of Shareholders Number % of total Geographical breakdown as at 2 February 2008 of Shares shares United Kingdom 1,451,839,434 99.51 North America 93,987 0.01 Europe 6,764,376 0.46 Australia and New Zealand 101,722 0.01 Rest of World 189,922 0.01 Total 1,458,989,441 100.00 Issued capital 1,458,989,441
Range of Shares at 2 February 2008 a) All origins Number % of total Number % of total Range of holders holders of shares shares 1 – 1000 18,715 52.53 8,024,872 0.55 1001 – 5,000 10,790 30.28 26,357,225 1.81 5,001 – 10,0000 2,793 7.84 21,530,617 1.48 10,001 – 100,000 2,771 7.78 77,378,563 5.30 1001,000 + 560 1.57 1,325,698,164 90.86 Subtotals 35,629 100.00 1,458,989,441 100.00 Register totals 35,629 1,458,989,441
b) Certified Number % of total Number % of total Range of holders holders of shares shares 1 – 1000 18,172 55.59 7,765,822 5.84 1001 – 5,000 10,091 30.87 24,362,163 18.31 5,001 – 10,0000 2,421 7.41 18,565,945 13.95 10,001 – 100,000 1,889 5.78 48,741,967 36.64 1001,000 + 115 0.35 33,603,763 25.26 Subtotals 32,688 100.00 133,039,660 100.00 Register totals 35,629 1,458,989,441
c) CREST Number % of total Number % of total Range of holders holders of shares shares 1 – 1000 543 18.46 259,050 0.02 1001 – 5,000 699 23.77 1,995,062 0.15 5,001 – 10,0000 372 12.65 2,964,672 0.22 10,001 – 100,000 882 29.99 28,636,596 2.16 1001,000 + 445 15.13 1,292,094,401 97.45 Subtotals 2,941 100.00 1,325,949,781 100.00 Register totals 35,629 1,458,989,441 92. Woolworths Group plc Annual report and accounts 2008
SHAREHOLDER INFORMATION (UNAUDITED) (cont’d)
Payment of Dividends by BACS Many shareholders have already arranged for dividends to be paid by mandate directly to their bank or building society account. The Company mandates dividends through the BACS (Bankers’ Automated Clearing Services) system. The benefit to shareholders of the BACS payment method is that the Registrar posts the tax vouchers directly to them, whilst the dividend is credited on the payment date to the shareholder’s bank or building society account. Shareholders who have not yet arranged for dividends to be paid direct to their bank or building society account and wish to benefit from this service should request the Company’s Registrar (address below) to send them a Dividend/Interest mandate form or alternatively complete the mandate form attached to any future dividend tax voucher.
Dividend Reinvestment Plan The Company provides a Dividend Reinvestment Plan enabling shareholders to apply their cash dividends to purchase additional ordinary shares in the market at competitive dealing rates. Full details can be obtained from the Registrar. If you have previously completed a mandate form to join the Plan, you need take no further action.
Shareholder Information on the Internet The Company maintains an investor relations zone on its website (www.woolworthsgroupplc.com) which allows access to share price information, management biographies, copies of Company reports and other useful investor information.
In addition, Computershare Investor Service PLC, the Company Registrar, has introduced a facility where shareholders are able to access details of their shareholding in the Company over the internet subject to complying with an identity check. This service can be accessed on their website www.computershare.com.
Woolworths Group plc is a company incorporated, domiciled and registered in England and Wales (Number 03855289).
Registrar Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS99 6ZZ Tel: 0870 889 3108 www.computershare.com
Registered and Head Office 242 Marylebone Road London NW1 6JL Tel: 020 7262 1222 www.woolworthsgroupplc.com
Auditors PricewaterhouseCoopers LLP Chartered Accountants and Registered Auditors 1 Embankment Place London WC2 6RH
Joint Brokers UBS JP Morgan Cazenove 1 Finsbury Avenue 20 Moorgate London EC2M 2PP London EC2R 6DA
Joint Financial Advisors UBS Credit Suisse First Boston 1 Finsbury Avenue One Cabot Square London EC2M 2PP London E14 4QJ
Solicitors Freshfields Bruckhaus Deringer 65 Fleet Street London EC4Y 1HS The paper used in this Annual Report is produced using wood fibre from fully sustainable forests in Finland, Sweden, Portugal, Spain and Brazil. The pulps used are Elemental Chlorine Free (ECF), and the manufacturing mill is accredited with the ISO 14001 standard for environmental management and with EMAS (The EU Environmental Management and Audit System).
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www.woolworthsgroupplc.com 2008 ANNUAL REPORT AND ACCOUNTS