RNS Number:2002J
Woolworths Group PLC
20 September 2006
Woolworths Group plc
Interim Results Announcement
For the 26 weeks ended 29 July 2006
Embargoed until 07.00 hrs 20 September 2006
Financial Performance
* Group sales from continuing operations down 3.6% to #982.9m
* Adjusted first half loss before exceptional item #66.8m** (#36.2m)*
* Loss before exceptional items and tax #73.6m (#43.2m)*
* Loss before tax #64.9m (#20.3m)*
* Woolworths like-for-like sales down 8.3%
* 2entertain third party sales up 12.0%, EUK third party sales up 9.9%
* Woolworths gross margin in line with last year
* Half year stock down #28.0m at #366.3m
* Capital expenditure #39.0m (#22.3m)
* Interim dividend of 0.43p, up 4.9%
* Current retail trading: Woolworths like-for-like sales were down 3.5%
for the seven weeks to 16 September 2006, an improved trend driven by
instore merchandising and development of our multichannel capability
*Restated **Adjusted loss is stated before tax, exceptional items, adjustments
for fixed or minimum rental uplifts and amortisation of the intangible asset
arising on creation of joint venture
Operational Highlights
* 68 Woolworths stores refitted to 10/10 concept, sales 6% ahead of
Mainchain control group
* Rollout of 92 Ladybird children's clothing 'shop within a shop' by
Christmas
* Multichannel capability significantly enhanced. Customers can now
specify delivery to home or collection instore on over 200,000
different items
* New Woolworths instore and home catalogue launching October with over
5,000 products
* 2entertain performing strongly
* EUK achieving good sales growth with new business wins
* Acquisition of Total Home Entertainment (THE) for #20m will drive
entertainment wholesale profitability this year
Trevor Bish-Jones, Chief Executive of Woolworths Group plc, said:
"These results highlight a mixed performance across the Group. Our
entertainment companies 2entertain and Entertainment UK have both performed very
well. Woolworths' figures are comparatively much weaker, evidencing the tough
market conditions in which it has been operating. A reduction in first half
sales has been the primary driver of the increased first half loss.
We are expecting a better performance in the second half from the significant
amount of work undertaken to improve the infrastructure of the retail business.
A further 68 stores were refitted to the 10/10 format in the half year and key
enhancements were made to our multichannel capability. These investments will
allow us to compete more effectively.
The immediate prospects for 2entertain look bright on the back of its Christmas
release schedule and for EUK, the acquisition of Total Home Entertainment (THE),
gives a broader customer base and a wider range of revenue streams. Woolworths
enters the important second half with current trading somewhat improved and with
both stocks and costs under tight control."
For further information contact:
Stephen East, Finance Director 020 7479 5179
Kirstie Hamilton, Tulchan Communications 020 7353 4200
Celia Gordon-Shute, Tulchan Communications 020 7353 4200
1. OVERVIEW OF FINANCIAL PERFORMANCE
The half-year to 29 July 2006 was a difficult period for the Woolworths Group.
Price deflation across the business, a decline in the market for entertainment
products and stock clearance activity in the retail chain, combined with rising
rents, energy and staff costs to cause an increase in the first half reported
loss before tax and exceptional items from #43.2 million to #73.6 million. This
represents an increase in the adjusted loss (which is before tax, exceptional
items, adjustment for fixed rental uplifts and amortisation of intangible asset
arising on the creation of the 2entertain joint venture) from #36.2 million to
#66.8 million. Despite good performances from 2entertain, our joint venture
with BBC Worldwide, and EUK, our entertainment distribution business, Group
sales from continuing operations decreased by 3.6 per cent to #982.9 million.
Continuing Operations 26 weeks to 26 weeks to
29 July 2006 30 July 2005
#m Entertainment
Wholesale &
Retail Publishing Central Interest Total Total
Reported (loss)/
profit before
taxation (61.1) 5.7 (4.5) (5.0) (64.9) (20.3)
Adjust for:
Exceptional Items (8.7) - - - (8.7) (22.9)
(Loss)/profit before
exceptional items (69.8) 5.7 (4.5) (5.0) (73.6) (43.2)
Add back:
amortisation of JV
intangible asset - 1.5 - - 1.5 1.5
Add back: fixed
rental uplift 5.3 - - - 5.3 5.5
Adjusted (loss)/
profit before tax,
exceptional items
and amortisation of
JV intangible asset (64.5) 7.2 (4.5) (5.0) (66.8) (36.2)
Like-for-like sales in the Woolworths retail chain declined by 8.3 per cent.
Since the half-year, the negative trend has eased, with like-for-like sales in
the last seven weeks down by 3.5 per cent.
Gross margin for the half-year was broadly in line with the prior year despite
some aggressive mark-down activity, as we sought to reduce overall levels and
improve the quality of inventory. We continue to anticipate a full year
improvement in gross margin of 100 basis points.
Our Entertainment Wholesale and Publishing businesses continue to improve.
Although the first half adjusted profit was slightly down on last year, this was
largely due to revised trading terms with Tesco. Third party sales in these
businesses were up 10.1 per cent year-on-year.
2entertain, our 40 per cent owned entertainment publishing joint venture with
BBC Worldwide, performed well and has a strong second half release schedule.
We were able to broaden our EUK entertainment distribution business, winning
further new accounts and acquiring the THE business (with the contract to supply
Sainsbury) earlier this month.
2. OPERATING REVIEW
Retail
Woolworths
Total Group sales from continuing operations declined by 3.6 per cent to #982.9
million. The main driver of this decline was the Woolworths business, where
like-for-like sales were down 8.3 per cent. There were three key negative
influences on sales performance in the first half. Firstly, the World Cup,
where the opportunity to sell related merchandise was not sufficient to mitigate
the decline in High Street footfall during key tournament matches. Secondly, the
unusually hot weather which was obviously very good for our outdoor ranges,
where we enjoyed record sales levels and significant market share gains.
However, this upside was offset by negative impacts on other product ranges, for
example, indoor toys and chocolate based confectionery. The third and most
significant influence was the weakness of the music and DVD markets, which acted
as a drag on the business for the vast majority of trading weeks.
Encouragingly, Woolworths' more recent trading performance has shown an improved
trend. Like-for-like sales in the seven weeks to 16 September were down 3.5 per
cent. This improvement has come from a combination of factors: normal weather
patterns, stronger performance from Entertainment and good early customer
response to enhancements in Woolworths' multichannel capability.
The first half adjusted operating loss in Retail was #64.5 million. This
compares with an adjusted loss of #38.4 million last year. Gross margin
performance was in line with last year and we continued, where possible, to keep
costs under control. However, absolute cost levels did inevitably rise,
primarily driven by increasing property costs, salaries and energy costs.
Performance across the product categories was mixed. As previously stated,
outdoor ranges performed very well, achieving record levels of sales and
Ladybird clothing sales held up comparatively well. The weakest areas of the
business were the Music, DVD, Home, and Confectionery categories.
During the first half, despite slow sales, we made good progress on gaining more
precise control over our stock and we were able to bring stock levels in
Woolworths down year-on-year by #26.7 million. Part of this reduction also came
from a more aggressive approach to the management of residual stock. The
systems and management tools that control the forecasting, flow and allocation
of stock continue to be steadily upgraded. This is increasing our capability to
get the right stock to the right stores. Ultimately, as well as bringing stock
levels down, it will facilitate driving net margin through reduced exposure to
mark-down.
We continued to invest in the store estate, completing 68 10/10 store refits and
opening two new stores in the first half, with a plan to refit a further 22 in
the second half. These 10/10 openings are continuing to deliver a 6 per cent
uplift versus the Mainchain control group in year one sales. We refitted five
stores to our 5/5 small store concept, designed to improve the customer
proposition through greater product choice utilising catalogues and internet
technology supported by delivery to store capability. Customer feedback on the
5/5 stores has been very positive. 14 further stores will be refitted prior to
Christmas which will allow us to statistically validate the returns associated
with the refit.
Following the positive customer reaction to the 5/5 concept, we made the
decision to accelerate the development of our multichannel capacity to bring
that benefit to all stores in the estate. Towards the end of the reporting
period, we gave our web site and the instore till network the functionality to
order all our online ranges and to specify delivery location, be it to a
customer's home address or any store of their choice. This was a significant
piece of work involving many elements of the IT infrastructure, the physical
distribution network, and requiring new instore operating procedures. It was
pleasing to note that this capability was delivered ahead of schedule and
without any adverse impact on customer service levels. As we head towards
Christmas, we will augment and promote this new capability with the introduction
of a substantial catalogue which will be available for customers to use instore
or take home. In the first half, multichannel sales increased by 170 per cent.
During the six-month period, we have also been trialling new merchandising
initiatives to improve the presentation of our product ranges. The most material
initiative has been for the Ladybird Clothing ranges, where an instore "shop
within a shop" concept was introduced that presents the clothing in a more
contemporary, Ladybird-branded, environment. By Christmas, 92 stores will have
been upgraded to the new concept. Other merchandising trials include an
enhancement to Pic 'n' Mix (launching in 250 stores by November), Mobile phones
(all stores by October), Electrical shop (61 stores by November) and Lunchtime
snacking (150 stores by November).
In distribution and our supply chain, the key focus has been on developing the
infrastructure to support our multichannel aspirations and providing greater
efficiency in the management of our stock base. As part of this process, a new
pick, pack and despatch operation was commissioned in our Castleton and Ollerton
warehouses to replace a sub-contracted service. This has given us the ability to
ship and track individual customer orders to either a specified delivery address
or store.
Work has also been undertaken in the first half to enhance product, promotions
and customer service so that, year-on-year, we trade the second half with a much
stronger offer. We have delivered many operational initiatives as part of our
"Making life easier for stores" programme, designed to prevent wastage of
valuable staff time and to increase focus on enhancing the customers' shopping
experience. As we enter Christmas trading, we will do so with some market
leading capabilities in multichannel retail, with many stores that will benefit
either from full refits or the introduction of new merchandising initiatives and
a new marketing platform based around the introduction of an instore/at home
catalogue. We hope to see these substantial changes rewarded by improving sales.
Longer-term considerations for retail
Looking to the future and beyond this Christmas, our retail business faces some
strategic challenges as well as opportunities. Areas of particular challenge
include the long-term sustainability of the physical entertainment product
market and the rising costs of property occupancy in major city centres and
destination mall locations. When a ten year view is modelled, on a
store-by-store basis, to reflect rent, rates and service charge increases,
alongside declining sales from the entertainment segment, a small number of our
larger stores begin to look economically unattractive. Where this is the case,
we will explore options ranging from disposal or store downsizing to store
relocation. We will look to release value from lease assignments where possible.
In contrast, even in the early stages of development, our integrated
multichannel offer has demonstrated how technology and the right supply chain
are effective in making a wider range and choice available from smaller
footprint stores. The success of our recent store openings has led us to
identify 200 medium and smaller locations which will potentially support a
Woolworths store. As our required footprint in these markets is now reduced, we
believe we have the opportunity to accelerate our store-opening programme,
targeting 100 store openings over the next four years.
Woolworths has an overwhelmingly leasehold property portfolio. We will seek over
time to reduce the rental exposure by buying the freeholds of selected
properties if the terms are favourable. During the first half, we acquired 5
freeholds at a cost of #7.4 million.
The strategic rationale for having a large number of stores is increasingly
compelling, with customer collection of internet orders now established as a
route to shop. We already have one of the most convenient store networks in the
country and to leverage this we will continue to invest in our IT and supply
chain capabilities to ensure that we can cost effectively meet this customer
need.
Customers are increasingly finding new ways to access product, be it online, via
instore or at home catalogues, through instore kiosks or instore till systems.
Having said this, we still fundamentally believe that the majority of customers
will continue to shop in the traditional way through the selection of product
off-shelf. Attracting customers to store is therefore paramount and will only be
achieved through the provision of a compelling, differentiated offer. For this
reason it is important that we continue to develop product and a store
environment that truly reflects Woolworths "being famous for kids". In city
centre shopping locations, this sector is poorly serviced and we have an
opportunity to build on the successes we have had in growing market shares in
child-oriented product and to offer something unique and clearly different from
the competition. In the smaller, more local shopping locations, we typically
have physically smaller stores. The nature of the shopping mission in these
locations is, in part, convenience based. This needs to be reflected in our
ranging in order to maintain local relevance, but we can do this alongside an
increasingly authoritive kids-focused core offer.
We believe that in the longer term, we can drive sales through a combination of
a more focused offer, driving multichannel sales and adding new stores. But it
will still be essential to develop the underlying efficiency of our operating
model. Progressively, we will lower buy-in prices through a programme of
supplier consolidation, we will continue to invest in and evolve the IT and
supply infrastructure to reduce the cost of transport while retaining control of
stock so that net margins can benefit through reducing levels of mark-down. We
have already made good progress, but much remains to be done.
Entertainment Wholesale and Publishing
Third party sales in the Entertainment Wholesale and Publishing Division grew
10.1 per cent in the first half, with EUK delivering a 9.9 per cent increase on
the back of improved performance from recent customer wins and 2entertain
benefiting from a relatively strong release schedule and further exploitation of
the BBC archive.
Entertainment UK
Third party sales at EUK rose by 9.9 per cent, predominantly driven by new
business from W H Smith and Morrisons. Efficiency improvements have continued to
be made and cost control has been vigorous. This has helped to mitigate margin
pressure from customers, however profit generation remains below last year.
Following our announcement in January of Tesco's decision not to renew their
core contract with EUK after April 2007, management has been focused on finding
alternative streams of business. To this end, the Group announced on 5 September
2006 that it had acquired AMP Enterprises, owners of THE distribution, from 3i
for #20 million. This was an important move by the Group, as it in part replaces
business that will be lost when the Tesco contract ends, accelerates EUK's push
into the Books market, provides an entry into the primary distribution of
entertainment products and widens EUK's customer base. In the year to 3 June
2006, AMP made #3.8 million profit before tax.
2entertain
2entertain had a solid first half with total sales up 6.3 per cent. In the UK
there were strong sales performances from Bleak House, Red Dwarf VIII, Doctor
Who Series 2, This Life, and Daniel O'Donnell. Internationally, Dr Who performed
well in the US and Canada and Little Britain continues its success in the Asia/
Pacific region. Several industry awards were received during the half, notably
Distributor of the Year from Home Entertainment Week magazine and awards for
Best Marketing and Best Creative Services from the British Video Association.
The business continues to develop important relationships with the key
independent production houses and secured deals with Baby Cow, Ecosse, Hat Trick
and Aardman.
Looking forward, the second half product line-up looks stronger than in the
prior year. Undoubtedly the biggest sales driver will be the Little Britain
franchise where both Little Britain Live and Series 3 are launched. Other top
selling titles will be Clarkson, TopGear Collection, Catherine Tate Series 2,
Robin Hood, Dr Who and Planet Earth. We also anticipate further good growth from
the interactive DVD market. In this sector 2entertain has developed some unique
properties such as Blankety Blank, A Question of Sport, Top Trumps and Gary
Lineker's Football Challenge. This roster of products should form the backbone
of a successful Christmas.
3. BORROWINGS AND CAPITAL EXPENDITURE
We increased the investment programme in the period and completed a further 68
store refurbishments plus two new openings in the new 10/10 format. These
stores traded 6 per cent ahead of the Mainchain control group. A further 22
will be refurbished in the second half, which means that by the year-end, a
quarter of the retail estate (over 40 per cent of the square footage) will have
been refurbished. Capital expenditure in the half-year rose to #39.0 million.
Net debt at the half-year was #115.1 million.
4. DIVIDEND
An interim dividend of 0.43 pence per share will be paid on 12 December 2006 to
shareholders on the register at close of business on 29 September 2006. The
interim dividend is an increase of 4.9 per cent compared with last year,
reflecting the Group's commitment to a progressive dividend policy and our
confidence in the future.
5. EXCEPTIONAL CREDIT
The exceptional 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.
Previously, no benefit had been taken in the actuarial estimates for
commutation. The evidence, however, is that most people do commute as much of
their pension as possible and we have therefore changed the assumptions to make
a prudent estimate of the likely level of commutation. The #13.1 million
reduction in the estimated pension fund liability from this change in
assumptions has been taken to the Statement of Recognised Income and Expense.
At 29 July 2006, the pension fund deficit calculated under IAS19 had reduced to
#71.6 million (net of deferred tax) from #91.6 million at 28 January 2006.
6. OUTLOOK
There has been much speculation relating to potential value creation in
disposing of or splitting off the Group's Entertainment Wholesale and Publishing
business. Naturally, since demerger the Board has routinely explored these
opportunities. Given where both 2entertain and EUK are in their development
cycles, it is not the right time to change the shape of the Group. EUK, despite
the recent acquisition of THE, still remains dependent on supplying Woolworths.
As the revenue streams strengthen, so will the potential for a standalone
business. Our Joint Venture agreement with the BBC contains an exit mechanism
for both parties in 2008 which makes this the logical time to review the optimum
ownership structure of 2entertain. Our focus therefore remains on continuing to
improve the businesses, which will increase shareholder value in the longer
term, regardless of ultimate ownership.
Our online trading capability has been hugely enhanced and customers throughout
the country can now order online for delivery at home or instore. Our new
catalogue, to be launched in October, will be backed by one of our biggest ever
marketing campaigns. We have made further changes to our distribution and
supply chain capability to facilitate rapid stock replenishment, lowering the
overall stock holding. This, coupled with the first half stock clearance
activity, should result in less mark-down, higher margins and improved second
half profitability.
This year, it is particularly difficult to form a precise view of how the retail
business will trade over the key Christmas period. The recent interest rate rise
on top of increasing household bills will hold back consumer confidence. We also
anticipate fierce competition from the traditional High Street and increasingly
from Internet based sellers. Having said that, we enter Christmas with a
radically improved multichannel capability, with over 100 newly refitted stores
and with a tranche of new merchandising initiatives that better present our
products. As always, we approach Christmas keeping both costs and stocks under
tight control to maximise our profit delivery over the coming months.
Group Income Statement (Unaudited)
for the 26 weeks ending 29 July 2006 and 30 July 2005
26 weeks to 29 July 2006 26 weeks to 30 July 2005
Before Exceptional Before Exceptional
exceptional items exceptional items
items Note 2 Total items Note 2 Total
Restated Restated
Note #m #m #m #m #m #m
Continuing operations
Revenue 1 982.9 - 982.9 1,019.7 - 1,019.7
Cost of goods sold (739.3) - (739.3) (749.3) 5.8 (743.5)
Gross profit 243.6 - 243.6 270.4 5.8 276.2
Selling and marketing costs (264.7) 3.9 (260.8) (256.2) - (256.2)
Administrative expenses (56.0) 4.8 (51.2) (62.0) 17.1 (44.9)
Other operating income 8.5 - 8.5 7.7 - 7.7
Operating loss 1 (68.6) 8.7 (59.9) (40.1) 22.9 (17.2)
Interest payable and similar (6.4) - (6.4) (5.8) - (5.8)
charges
Interest receivable 1.4 - 1.4 2.7 - 2.7
Loss before taxation (73.6) 8.7 (64.9) (43.2) 22.9 (20.3)
Taxation 4 22.7 (2.6) 20.1 13.1 (8.8) 4.3
Loss for the period from continuing
operations after taxation (50.9) 6.1 (44.8) (30.1) 14.1 (16.0)
Discontinued operations
Loss after taxation for the period
from discontinued operations 3 - - - (3.6) (25.6) (29.2)
Loss for the period (50.9) 6.1 (44.8) (33.7) (11.5) (45.2)
Attributable to:
Equity holders of the company (50.9) 6.1 (44.8) (33.7) (11.5) (45.2)
Minority interest - - - - - -
(50.9) 6.1 (44.8) (33.7) (11.5) (45.2)
Earnings/(loss) per share (pence)
Basic and diluted 5 (3.1) (3.1)
Earnings/(loss) per share from
continuing operations (pence)
Basic and diluted 5 (3.1) (1.1)
Dividends
A dividend of 0.43 pence per share (2005: 0.41 pence per share) amounting to #6.2 million (2005: #6.0 million)
has been proposed for the interim period ending 29 July 2006 but remains unpaid at the period end. The final
dividend in respect of last year of 1.34 pence per share (2005: 1.26 pence per share) amounting to #19.4 million
(2005: #18.3 million) was paid in the period (see note 6).
Group Statement of Recognised Income and Expense (Unaudited)
for the 26 weeks ending 29 July 2006 and 30 July 2005
26 weeks to 29 July 2006 26 weeks to 30 July 2005
Before Exceptional Before Exceptional
exceptional items exceptional items
items Note 2 Total items Note 2 Total
Restated Restated
#m #m #m #m #m #m
Loss for the financial period (50.9) 6.1 (44.8) (33.7) (11.5) (45.2)
Actuarial gain on defined benefit scheme
net of tax 14.1 - 14.1 6.5 - 6.5
Cashflow hedges:
- fair value (losses)/gains net of tax (3.6) - (3.6) 3.5 - 3.5
- transfer to stock net of tax 0.7 - 0.7 0.7 - 0.7
Net gains not recognised in income
statement 11.2 - 11.2 10.7 - 10.7
Total losses recognised in the
financial period (39.7) 6.1 (33.6) (23.0) (11.5) (34.5)
Adoption of IAS 32 and IAS 39 - - - (4.1) - (4.1)
Group Income Statement (Audited)
for the 52 weeks ending 28 January 2006
52 weeks to 28 January 2006
Before Exceptional
exceptional items
items Note 2 Total
Note #m #m #m
Continuing operations
Revenue 1 2,630.7 - 2,630.7
Cost of goods sold (1,940.7) 6.0 (1,934.7)
Gross profit 690.0 6.0 696.0
Selling and marketing costs (534.1) - (534.1)
Administrative expenses (124.7) 11.8 (112.9)
Other operating income 21.9 - 21.9
Operating profit 1 53.1 17.8 70.9
Interest payable and similar charges (13.7) - (13.7)
Interest receivable 4.3 - 4.3
Profit before taxation 43.7 17.8 61.5
Taxation 4 (13.3) (6.9) (20.2)
Profit for the year from continuing operations
after taxation 30.4 10.9 41.3
Discontinued operations
Loss after taxation for the year from discontinued
operations 3 (5.1) (26.0) (31.1)
Profit for the year 25.3 (15.1) 10.2
Attributable to:
Equity holders of the company 25.2 (15.1) 10.1
Minority interest 0.1 - 0.1
25.3 (15.1) 10.2
Earnings per share (pence)
Basic and diluted 5 0.7
Earnings per share from continuing operations
(pence)
Basic and diluted 5 2.8
Dividends
A dividend of 1.34 pence per share (#19.4 million) was proposed but remained unpaid at the year end.
Dividends of 1.67 pence per share (#24.3 million) were paid in the year (see note 6).
Group Statement of Recognised Income and Expense (Audited)
for the 52 weeks ending 28 January 2006
52 weeks to 28 January 2006
Before Exceptional
exceptional items
items Note 2 Total
#m #m #m
Profit for the financial year 25.3 (15.1) 10.2
Actuarial loss on defined benefit scheme net of tax (21.8) - (21.8)
Cashflow hedges:
- fair value gains net of tax 2.9 - 2.9
- transfer to stock net of tax (1.5) - (1.5)
Net losses not recognised in income statement (20.4) - (20.4)
Total gains/(losses) recognised in
the financial year 4.9 (15.1) (10.2)
Adoption of IAS 32 and IAS 39 (4.1) - (4.1)
Group Balance Sheet
at 29 July 2006, 30 July 2005 and 28 January 2006
Unaudited Unaudited Audited
29 July 2006 30 July 28 January
2005 2006
Restated
Note #m #m #m
Assets
Non-current assets
Goodwill 31.9 31.8 31.9
Other intangible fixed assets 60.4 65.2 63.8
Property, plant and equipment 290.6 278.3 274.2
Fixed asset investments 0.2 0.2 0.2
Deferred tax assets 38.1 15.0 22.8
421.2 390.5 392.9
Current assets
Inventories 366.3 394.3 344.2
Trade and other receivables 200.9 200.4 211.0
Financial assets
- Derivative financial instruments - 4.2 1.0
Cash and cash equivalents 65.6 57.9 247.3
632.8 656.8 803.5
Current liabilities
Financial liabilities
- Borrowings (179.5) (51.9) (98.6)
- Derivative financial instruments (25.2) (18.9) (22.1)
Trade and other payables (384.5) (404.7) (524.6)
Current tax liabilities (1.3) (5.7) (12.8)
Provisions (13.9) (10.4) (12.2)
(604.4) (491.6) (670.3)
Net current assets 28.4 165.2 133.2
Non-current liabilities
Financial liabilities
- Borrowings (1.2) (99.8) (1.0)
Trade and other payables (67.1) (56.3) (61.8)
Retirement benefit obligations 9 (102.3) (89.3) (130.9)
Provisions (28.2) (26.7) (29.8)
(198.8) (272.1) (223.5)
Net assets 250.8 283.6 302.6
Shareholders' equity
Ordinary shares 182.2 182.1 182.1
Share premium 9.3 9.2 9.3
Other reserves 21.2 26.9 24.1
Retained earnings 38.0 65.4 87.0
Total shareholders' equity 250.7 283.6 302.5
Minority interest 0.1 - 0.1
Total equity 10 250.8 283.6 302.6
Group Cash Flow Statement
for the 26 weeks ending 29 July 2006 and 30 July 2005 and the 52 weeks ending 28
January 2006
Unaudited Unaudited Audited
26 weeks to 26 weeks to 52 weeks to
29 July 2006 30 July 2005 28 January 2006
Restated
Note #m #m #m
Cash flows from operating activities
Cash (utilised in)/generated from operations 7 (192.8) (171.1) 129.5
Interest paid (6.5) (5.8) (10.5)
Interest received 1.7 3.4 4.5
Tax paid (11.5) (2.4) (16.6)
Net cash (utilised in)/generated from operating (209.1) (175.9) 106.9
activities
Cash flows from investing activities
Purchase of intangible assets (3.4) (3.9) (10.6)
Purchase of property, plant and equipment (35.6) (18.4) (49.0)
Proceeds from sale of property, plant and equipment 6.0 - -
Cost associated with the formation of joint venture - - (0.1)
Proceeds from sale of subsidiary (net of costs) - - 3.5
Cash forgone with sale of subsidiary - (0.2) (0.4)
Net cash used in investing activities (33.0) (22.5) (56.6)
Cash flows from financing activities
Net proceeds from issuance of ordinary shares 0.1 6.7 6.8
Repayment of borrowings - - (1.8)
Debt issue costs - - (0.4)
Finance lease principal repayments (0.1) - (0.1)
Sale of own shares held by Trust - 0.8 1.0
Dividends paid to Company's shareholders 6 (19.4) (18.3) (24.3)
Net cash used in financing activities (19.4) (10.8) (18.8)
Net (decrease)/increase in cash and cash equivalents (261.5) (209.2) 31.5
Cash and cash equivalents at beginning of the period 246.7 215.2 215.2
Cash and cash equivalents at end of the period 8 (14.8) 6.0 246.7
Cash and cash equivalents consist of:
Cash 65.6 57.9 247.3
Bank loans and overdrafts (80.4) (51.9) (0.6)
Cash and cash equivalents at end of the period 8 (14.8) 6.0 246.7
Notes to the Accounts
Accounting Policies for the Period Ending 29 July 2006
This financial information comprises the consolidated interim balance sheets as
at 29 July 2006 and 30 July 2005 and related consolidated interim statements of
income and cash flows and related notes for the 26 weeks then ended of
Woolworths Group plc (hereinafter referred to as the 'financial information').
This financial information has been prepared in accordance with the Listing
Rules of the Financial Services Authority. In preparing this financial
information, management have used the principal accounting policies as set out
on pages 33 to 37 of the Group's annual financial statements for the year ended
28 January 2006. These policies have been consistently applied to all the
periods presented, unless otherwise stated.
Basis of Preparation
The Group has chosen not to adopt IAS 34, 'Interim financial statements', in
preparing its 2006 interim statements and, therefore, this interim financial
information is not in compliance with International Financial Reporting
Standards (IFRS).
The comparative figures for the year ended 28 January 2006 do not constitute
statutory accounts for the purposes of Section 240 of the Companies Act 1985. A
copy of the statutory accounts for the year ended 28 January 2006, prepared in
accordance with IFRS as detailed in the preceding annual accounts, has been
delivered to the Registrar of Companies and contained an unqualified auditors'
report in accordance with Section 235 of the Companies Act 1985.
Restatement of Prior Half Year
The financial information for the period ended 30 July 2005 has been restated to
comply with IFRS following later clarification and pronouncements for the
significant items noted below.
Fixed rental adjustment - the IFRIC pronouncement in September 2005 required a
change to the previously announced treatment of lease agreements with future
fixed or minimum rental uplifts. This pronouncement requires the total minimum
payments across the entire lease term to be recognised on a straight-line basis
across the life of the lease. The net impact on the income statement is a #3.8
million additional charge, with a #39.4 million reduction to net assets.
Credit voucher sales - under IFRS the turnover recognised on the sale of credit
vouchers redeemable at third-party retailers is the commission arising on these
transactions, rather than the face value of the vouchers issued as was
recognised under UK GAAP. Revenue and cost of goods sold have been adjusted down
by #17.9 million. There has been no impact on the loss for the period.
Credit voucher financial instruments - outstanding credit vouchers which had
previously been released to the income statement based on historic
non-redemption rates, have been reinstated as liabilities and are shown as
financial instruments with a related deferred tax debtor as IFRS requires these
to be retained on the balance sheet until extinguished. The net impact of this
adjustment was to reduce profit by #0.2 million and net assets by #2.9 million.
Returns provisions - under UK GAAP the provision for anticipated returns was
reflected within trade and other receivables, with the value attributed to the
returned product recognised within inventories. This is now reversed and the net
liability of #2.1 million has been recognised within accruals. There has been no
impact on the income statement.
Deferred tax - assets and liabilities have been offset by #11.7 million to
recognise a net debtor, as the offset of balances within the same tax
jurisdiction is allowed.
Revaluation reserve - the revaluation reserve of #3.0 million has been
reclassified to retained earnings.
The items noted above were all reflected in the statutory accounts for the year
ended 28 January 2006.
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, Streets Online Limited, WMS Card Services Limited and Flogistics
Limited are included within the Retail segment, with Entertainment UK and
2entertain Limited being the constituents of Entertainment Wholesale and
Publishing. The business and net assets of Streets Online Limited were
transferred to Woolworths plc on 29 January 2006. MVC Entertainment Limited was
disposed of on 30 July 2005 and is shown as a discontinued operation.
No material trading is undertaken outside the UK.
Revenue
Unaudited Unaudited Audited
26 weeks to 26 weeks to 52 weeks to
29 July 2006 30 July 2005 28 January 2006
Restated
#m #m #m
Continuing operations
Retail
- Gross sales 691.1 754.6 1,918.5
Entertainment Wholesale and Publishing
- Gross sales 444.8 459.7 1,184.3
- Intersegment (153.0) (194.6) (472.1)
Revenue 982.9 1,019.7 2,630.7
(Loss)/profit before interest and taxation
Unaudited Unaudited Audited
26 weeks to 26 weeks to 52 weeks to
29 July 2006 30 July 2005 28 January 2006
Restated
#m #m #m
Continuing operations
Retail (including "A-Day" pension credit) (61.1) (19.8) 30.3
Entertainment Wholesale and Publishing 5.7 7.6 48.2
Unallocated (4.5) (5.0) (7.6)
Segment result (59.9) (17.2) 70.9
Interest expense (6.4) (5.8) (13.7)
Interest income 1.4 2.7 4.3
(Loss)/profit before taxation (64.9) (20.3) 61.5
Taxation 20.1 4.3 (20.2)
(Loss)/profit for the period from continuing
operations (44.8) (16.0) 41.3
All of the discontinued business results related to the retail segment.
2. Exceptional Items
Unaudited Unaudited Audited
26 weeks to 26 weeks to 52 weeks to
29 July 2006 30 July 2005 28 January 2006
#m #m #m
Operating exceptional items are analysed as follows:
Continuing operations
"A-Day" pension credit (see note 9) 8.7 - -
Reorganisation of big W - 24.1 28.1
Other restructuring costs - - (3.9)
Cost associated with aborted Apax approach - (1.2) (1.2)
Recognition of minimum profit guarantee liability
arising from creation of joint venture - - (5.2)
8.7 22.9 17.8
Taxation (2.6) (8.8) (6.9)
Exceptional items after taxation 6.1 14.1 10.9
Discontinued operations
Loss on disposal of MVC business - (25.6) (25.6)
Costs associated with store closures - (2.7) (2.7)
- (28.3) (28.3)
Taxation - 2.7 2.3
Exceptional items after taxation - (25.6) (26.0)
Total exceptional items after taxation 6.1 (11.5) (15.1)
3. Discontinued Operations
Unaudited Unaudited Audited
26 weeks to 26 weeks to 52 weeks to
29 July 2006 30 July 2005 28 January 2006
#m #m #m
Revenue - 41.4 41.4
Total costs excluding exceptional items - (47.0) (47.0)
Trading loss before taxation - (5.6) (5.6)
Taxation 2.0 0.5
Trading loss after taxation from discontinued - (3.6) (5.1)
operations
Exceptional item, analysed as:
Loss on disposal - (25.6) (25.6)
Costs associated with store closures - (2.7) (2.7)
Taxation - 2.7 2.3
Total exceptional items after taxation from
discontinued operations - (25.6) (26.0)
Loss after taxation for the period from discontinued
operations - (29.2) (31.1)
4. Taxation
Unaudited Unaudited Audited
26 weeks to 26 weeks to 52 weeks to
29 July 2006 30 July 2005 28 January 2006
Restated
#m #m #m
Analysis of credit/(charge) in the period
Current tax
- Continuing operations - before exceptional items - - (15.6)
- Continuing operations - exceptional items - - (7.8)
- Discontinued operations - before exceptional items - - 2.8
Deferred tax
- Continuing operations - before exceptional items 22.7 13.1 2.3
- Continuing operations - exceptional items (2.6) (8.8) 0.9
- Discontinued operations - before exceptional items - 2.0 -
- Discontinued operations - exceptional items - 2.7 -
Total taxation 20.1 9.0 (17.4)
The taxation credit/(charge) comprises
Total taxation credit/(charge) - continuing 20.1 4.3 (20.2)
operations
Total taxation credit - discontinued operations - 4.7 2.8
Total taxation 20.1 9.0 (17.4)
The effective tax rate for the interim period is 31 per cent before exceptional
items (2005: 30.9 per cent before exceptional items) representing the best
estimate of the effective rate for the full financial year.
Included within the deferred tax asset of #38.1 million (at 30 July 2005: #15.0
million) is an amount of #20.1 million recognised on the losses incurred in the
year to date (at 30 July 2005: #9.0 million). Due to the seasonality of the
business, the Directors believe that this will reverse by the year-end.
5. 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 interests in own shares purchased by
the Trust 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 underlying rights included within intangible assets and the
effect of exceptional items.
Unaudited Unaudited Audited
26 weeks 26 weeks 52 weeks
to 29 July 2006 to 30 July 2005 to 28 January
2006
Number of shares (millions)
Weighted average number of ordinary shares in issue 1,448.1 1,443.1 1,445.3
Effect of dilutive securities 0.9 9.5 6.7
Diluted weighted average number of shares 1,449.0 1,452.6 1,452.0
For the two periods below where losses are reported, diluted earnings per share are equal to the
basic earnings per share.
Unaudited Unaudited Audited
26 weeks 26 weeks 52 weeks to
to 29 July 2006 to 30 July 2005 28 January 2006
Per share Per share Per share
amount amount amount
Restated Restated
#m pence #m pence #m pence
Basic EPS (44.8) (3.1) (45.2) (3.1) 10.1 0.7
Effect of dilutive securities - - - - - -
Diluted EPS (44.8) (3.1) (45.2) (3.1) 10.1 0.7
Earnings per share from continuing operations
Basic and diluted EPS (44.8) (3.1) (45.2) (3.1) 10.1 0.7
Loss on sale of subsidiary and store - - 25.6 1.8 26.0 1.8
closure costs
Pre-tax losses from discontinued - - 5.6 0.3 5.6 0.3
operations
Tax relating to discontinued operations - - (2.0) (0.1) (0.5) -
Basic and diluted EPS from continuing (44.8) (3.1) (16.0) (1.1) 41.2 2.8
operations
Earnings per share from discontinued operations
Basic and diluted EPS
Loss on sale of subsidiary and store - - (25.6) (1.8) (26.0) (1.8)
closure costs
Pre-tax losses from discontinued - - (5.6) (0.3) (5.6) (0.3)
operations
Tax relating to discontinued operations - - 2.0 0.1 0.5 -
Basic and diluted EPS from discontinued - - (29.2) (2.0) (31.1) (2.1)
operations
Adjusted earnings per share from
continuing operations
Basic and diluted EPS (44.8) (3.1) (45.2) (3.1) 10.1 0.7
Fixed rental adjustment (net of tax) 3.7 0.2 3.8 0.3 7.7 0.6
Amortisation of intangible assets arising
on creation of joint venture (net of tax) 1.1 0.1 1.1 0.1 1.8 0.1
Exceptional items (net of tax) (6.1) (0.4) (14.1) (1.0) (10.9) (0.7)
Total loss on discontinued operations (net - - 29.2 2.0 31.1 2.1
of tax)
Adjusted basic and diluted EPS from (46.1) (3.2) (25.2) (1.7) 39.8 2.8
continuing operations
6. Dividends
Unaudited Unaudited Audited
26 weeks to 26 weeks to 52 weeks to
29 July 2006 30 July 2005 28 January 2006
Pence Pence Pence
per share #m per share #m per share #m
Dividends proposed
Interim 0.43 6.2 0.41 6.0 0.41 6.0
Final - - - - 1.34 19.4
0.43 6.2 0.41 6.0 1.75 25.4
Dividends paid
Interim - - - - 0.41 6.0
Final 1.34 19.4 1.26 18.3 1.26 18.3
1.34 19.4 1.26 18.3 1.67 24.3
The interim dividend of 0.43 pence (2005: 0.41 pence) per share will be paid on
12 December 2006 to members registered at the close of business on 29 September
2006.
7. Cash (Utilised)/ Generated from Operations
Unaudited Unaudited Audited
26 weeks to 26 weeks to 52 weeks to
29 July 2006 30 July 2005 28 January 2006
Restated
#m #m #m
Continuing operations
(Loss)/profit for the period (44.8) (16.0) 41.3
Adjustments for:
- Taxation (20.1) (4.3) 20.2
- Depreciation, amortisation and impairments 29.1 26.7 65.6
- Share-based payments 1.1 0.6 1.0
- Loss/(profit) on sale of property, plant and equipment 0.1 1.6 (0.1)
- Interest income (1.4) (2.7) (4.3)
- Interest expense 6.4 5.8 13.4
Changes in working capital (excluding the effect of
acquisition):
- Increase in inventories (21.3) (68.2) (19.3)
- Decrease/(increase) in trade and other receivables 3.8 (3.3) (14.0)
- (Decrease)/increase in payables and provisions (145.7) (107.1) 29.9
Total cash (utilised)/generated from operating activities (192.8) (166.9) 133.7
Discontinued operations - excluding loss on disposal
Loss for the period - (3.6) (5.5)
Adjustments for:
- Taxation - (4.7) (2.8)
- Depreciation, amortisation and impairments - 0.9 0.9
- Loss on sale of property, plant and equipment - 1.0 1.0
- Interest expense - 0.3 0.3
Changes in working capital (excluding the effect of business
disposal):
- Decrease in inventories - 9.1 9.1
- Decrease in trade and other receivables - 2.8 2.8
- Decrease in payables and provisions - (10.0) (10.0)
Total cash utilised from discontinued operations - (4.2) (4.2)
Cash (utilised)/generated from operations (192.8) (171.1) 129.5
8. Net Funds Reconciliation
Group net funds/(debt) comprise the following:
Audited Unaudited
At 29 January At 29 July
2006 2006
Cash flow Non cash items
#m #m #m #m
Cash at bank and in hand 247.3 (181.7) - 65.6
Bank loans and overdrafts (0.6) (79.8) - (80.4)
Cash and cash equivalents 246.7 (261.5) - (14.8)
Finance leases (1.2) 0.1 (1.1) (2.2)
Senior Notes (97.8) - (0.3) (98.1)
Net funds/(debt) at end of the period 147.7 (261.4) (1.4) (115.1)
9. Retirement Benefit Obligations
Unaudited Unaudited Audited
26 weeks to 26 weeks to 52 weeks to
29 July 2006 30 July 2005 28 January 2006
#m #m #m
Present value of scheme liabilities (389.5) (341.4) (416.8)
Fair value of scheme assets 287.2 252.1 285.9
Deficit (102.3) (89.3) (130.9)
The key financial assumptions applied in the actuarial review of the Woolworths
Group Pension Scheme have been reviewed in the preparation of these interim
accounts and amended where appropriate. In addition, an assumption has now been
made that scheme members will choose to commute part of their pension for a cash
lump sum at retirement. No allowance for commutation was previously assumed.
The impact of introducing an allowance for commutation has resulted in a
reduction in the defined benefit obligation as at 29 July 2006. This reduction
reflects both the historic experience of commutation rates and the impact of an
increase in the proportion of pensions that scheme members can commute following
the introduction of new legislation effective from 6 April 2006 (commonly known
as "A-Day" legislation). A past service credit of #8.7 million (#6.1 million
net of taxation) arising from the "A-Day" legislation changes has been included
in the income statement as an exceptional item. The remaining benefit of #13.1
million (#9.2 million net of taxation) has been recognised in the Statement of
Recognised Income and Expense.
10. Statement of Changes in Shareholders' Equity
Attributable to equity holders of the Company
Shares
Share Share Other held by Retained Minority Total
Capital Premium Reserves Trust earnings Interest Equity
#m #m #m #m #m #m #m
At 30 January 2005 179.4 5.2 24.1 (4.1) 127.8 - 332.4
Adoption of IAS 32 and IAS 39 - - (1.4) - (2.7) - (4.1)
At 30 January 2005 179.4 5.2 22.7 (4.1) 125.1 - 328.3
Loss for the period - - - - (45.2) - (45.2)
Dividend - - - - (18.3) - (18.3)
Issue of shares 2.7 4.0 - - - - 6.7
Cash flow hedges:
- Fair value of gains net of tax - - 3.5 - - - 3.5
- Transfer of stock net of tax - - 0.7 - - - 0.7
Actuarial gain arising on defined benefit - - - - 6.5 - 6.5
scheme
Share-based payments - - - - 0.6 - 0.6
Sale of own shares held by Trust - - - 0.8 - - 0.8
At 30 July 2005 182.1 9.2 26.9 (3.3) 68.7 - 283.6
Profit for the period - - - - 55.3 0.1 55.4
Dividend - - - - (6.0) - (6.0)
Issue of shares - 0.1 - - - - 0.1
Cash flow hedges:
- Fair value of losses net of tax - - (0.6) - - - (0.6)
- Transfer of stock net of tax - - (2.2) - - - (2.2)
Actuarial loss arising on defined benefit - - - - (28.3) - (28.3)
scheme
Share-based payments - - - - 0.4 - 0.4
Sale of own shares held by Trust - - - 0.2 - - 0.2
At 28 January 2006 182.1 9.3 24.1 (3.1) 90.1 0.1 302.6
Loss for the period - - - - (44.8) - (44.8)
Dividend - - - - (19.4) - (19.4)
Issue of shares 0.1 - - - - - 0.1
Cash flow hedges:
- Fair value of losses net of tax - - (3.6) - - - (3.6)
- Transfer of stock net of tax - - 0.7 - - - 0.7
Actuarial gain arising on defined benefit - - - - 14.1 - 14.1
scheme
Share-based payments - - - - 1.1 - 1.1
At 29 July 2006 182.2 9.3 21.2 (3.1) 41.1 0.1 250.8
The Statement of Changes in Shareholders Equity has been restated as at 30
January 2005 and for the 26 week period to 30 July 2005. No restatement was
required for subsequent periods.
11. Contingent Liabilities
On the formation of 2entertain Limited, Woolworths Group agreed to guarantee a
stipulated level of profitability for certain key VCI contracts in the event
that any such contracts terminated during a period of three years to September
2007. No liability was incurred in respect of year one and a provision of #5.2
million was recognised during the previous year in respect of years two and
three, against a potential maximum exposure for the two remaining years of #7.8
million. Based on results to date no further provision is required, however the
future performance of these contracts is uncertain.
In common with a number of retailers Woolworths Group challenged HM Revenue &
Customs on the recoverability of VAT on merchant services. Following the Court
of Appeal decision in July 2005 no repayment will arise to the Group. Certain
matters relating to merchant services remain to be resolved, but based on advice
taken it is considered that no material liability will be incurred. On this
basis no provision has been made at the balance sheet date.
This news release contains forward looking statements based on current
assumptions and forecasts made by Woolworths Group plc management. Various
known and unknown risks, uncertainties and other factors could lead to
substantial differences between the actual future results, financial situation,
development or performance of the Group and the estimates given here. The Group
accepts no obligation to continue to report or update these forward-looking
statements or adjust them to future events or developments. Further copies of
this announcement can be obtained from the office of the Group Finance Director
on 020 7706 5502 or downloaded from the Group website www.woolworthsgroupplc.com
- ends -
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR XKLLFQKBBBBE
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