1. Financial Performance Report
Publication date:
March 2019
Next publication:
September 2019
Financial Performance Report

2. Trading Context of the Financial Results HY2019
The six months to December 2018 saw retailers facing continued tough market conditions and increasing competition. The South African economy remained constrained, despite stepping out of a technical recession, GDP growth for Q3 was +2.2%. Consumer confidence is wearing down after the unprecedented jump last year (CCI: 7), with disposable income under pressure and employment opportunities dwindling. Growth in total retail trade sales for the six months at +1.2%, thanks in part to the recovery in some durables and the resilience in health and beauty. Food retail sales growth declined -1.9% for the six months (2018: -1.7%). Rand volatility saw the currency fluctuate in response to domestic and international changes. Inflation consistently within the target range however the Reserve Bank decided to act pre-emptively and increase the interest rate as the exchange rate and international fuel price expectations suggested inflation could increase despite food inflation remaining low at 3.4% on average for the six months (Jan – Dec 17 ave: 5.6%) Against this backdrop, Woolworths Holdings (WHL) announced muted results for the half year to 23 December, with turnover growth (including concession sales 1 ) increasing +1.9%, thanks to a marked improvement in the second quarter, although it remained below the growth of +2.5% in HY2018. Food was once again the star performer, while Fashion, Beauty and Home (FBH) continued working off their range mishap in fashion and started to see some positive results in the last quarter, boosted by growth in beauty.
Economic Indicators for Woolworths HY2019 period (July to December 2018)
GDP Growth
2.2%
CPI
5.0%
Fuel Price
-5% decline since July 18
CPI Food and Non-Alc Bev
3.4%
R/$ Exchange Rate
7% weaker since July 2018
RMB/BER Consumer Confidence Index (CCI) 7
Interest Rate
Increased from 10% to 10.25%
Growth in Retail Trade Sales
1.2%
% of Household Debt as % of disposable income
71% For Q3/2018
Growth in Food and Beverage Retail Sales
-1.9%
SOURCE: Ti Economic Indicators Report, StatsSA
NOTE: 1 Concession sales are the sales of goods by concession operators within the store

3. Woolworths Group Performance Metric FY2017 FY2018 HY2019
Turnover Performance
Turnover (incl. Concessions)
Turnover (excl. Concessions)
Woolworths Retail Turnover
+2.7% to R74.1bn
+3.4% to R67.2bn
+5.5% to R41.3bn
+1.6% to R75.2bn
+2.1% to R68.6bn
+5.1% to R43.4bn
+1.9% to R39.4bn
+2.4% to R36.0bn
+3.6% to R22.7bn
Profitability Performance
Gross profit
Gross profit margin
Operating profit
Operating profit margin
+1.1% to R26.67bn
39.7%
-10.9% to R6.2bn
9.2%
+0.8% to R26.89bn
39.2%
-15.3% to R5.3bn
7.7%
-1.1% to R14.2bn
39.5% (HY18: 40.9%)
-5.0% to R3.0bn
8.3% (HY18: 8.9%)
Operational Performance
Inventory level
CAPEX
HEPS
Internal Inflation (Food)
-1.8% to R7bn
-9.8% to R2.59bn
-7.6% to cents
+8.4%
+7.9% to R7.5bn
+1.4% to R2.63bn
+2.1% to cents
+3.2%
+14.1% to R9.3bn
-13.6% to R1.1bn
-2.9% to cents
+1.2%
“Our customers proved more resilient than I expected, and that is because we have done a really good job of keeping our prices competitive.”– Ian Moir, Chief Executive Officer
SOURCE: Woolworths Holdings Ltd

4. Woolworths Group Performance cont. Group Turnover Performance
Turnover growth incl. concession sales
Adjusted for earlier close
Comparable Growth
Turnover Growth
Excluding Concessions
Group
1.9% --
2.4%
Woolworths Retail
3.6%
Food
6.3%
7.0%
4.2%
FBH
-2.0%
-1.6%
-2.4%
David Jones 2
1.0%
1.5%
0.9%
0.1% 3
Country Road Group 2
2.3%
3.0%
0.5%
0.7% 3
Group sales increased +1.9% to R39.4bn (including concession sales1), slightly ahead of the +1.6% growth reported for FY Constant currency growth +2.7% for HY2018 (FY2018: +2.9%).
Impacted by one less day of pre-Christmas trade, due to the closure on the 23rd Dec 2018 as well as tough trading conditions in both markets and continued structural changes overseas
Excluding concession sales, turnover growth +2.4% to R36bn for HY2019
Woolworths Retail (Food + FBH) contributes 63% to the Group’s sales excluding concession, with sales growth % to R22.7bn
SOURCE: Woolworths Holdings Ltd
NOTE: 1 Concession sales are the sales of goods by concession operators within the store
2 David Jones and Country Road Group figures in Australian Dollar Terms including concession
3 Excluding concession David Jones and Country Road Group figures in Rands

5. Woolworths Retail Performance
Fashion, Beauty and Home (FBH)
Sales declined -2.0% for HY2019 to R7.1bn, -1.6% adjusted for earlier close
Range Improvements , better depth of stock and execution
Less winter clearance sales in the first three months and positive growth in the last three month, turnaround in womenswear, roll out of high-end brands in beauty Comparable sales growth -2.4% and +0.6% net new space
Internal inflation 1.7% (FY2018: +0.8% | FY2017: 7.3%). Fashion: +0.8%
Online sales growth +34.4% due to increased availability, online promotions and app capabilities
Woolworths Food
Continues to consistently deliver strong and ahead-of-market sales growth at +6.3% to R15.4bn for HY2019, +7.0% growth adjusting for the earlier close
High levels of investment in price and promotion
Comparable store growth +4.2% and +1.4% net new space
Internal food inflation of +1.2% indicates strong volume growth reflecting the resilience of its more affluent customer base with competition heating up from Pick n Pay and Checkers to gain these customers
Online growth at +17.8%
SOURCE: Woolworths Holdings Ltd

6. Australian Market
Although the interest rate is low and job growth is strong consumers are under pressure due to high levels of debt, low wage growth and a slowing housing market
The apparel sector is considered highly competitive and promotionally driven and shopping centres are seeing footfall and trade decline
David Jones Performance
David Jones sales +1.0% in A$ growth with the market quiet after ‘Black Friday’ at the end of November
Growth +1.5% adjusted for earlier close
Comparable growth +0.9% (+1.3% adjusted for earlier close) with new store sales offsetting the disruption of the Elizabeth street refurb
Focus on private label and food range
Net space increased +2.7%, with plans in place to reduce net space and improve the store portfolio’s productivity
Strong online sales growth at +46.1% , online now contributes 7.7% to sales with a 2020 target of over 20%
Ian Moir will be working with the management team until a new CEO is appointed following the resignation of David Thomas, for personal reasons, in Jan 2019
Country Road Group Performance
Country Road Group sales +2.3% for HY2019 in A$
Growth +3.0% adjusting for the earlier close
Comparable growth +0.5%
Improved Country Road performance and continued strong performance from Witchery, Politix and Mimco
Net decline in retail space -1.7%, +4.0% with Politix roll out in David Jones
Online sales growth +20.0%, with online contributing % of sales and plans to deliver a ‘market- leading digital experience’
SOURCE: Woolworths Holdings Ltd

7. Woolworths Financial Services Performance
WFS reported another strong performance in HY2019 with debtors book average growth +4.0%
Net interest income declined -5.5% caused by the interest rate drop in Mar 2018 and financial adjustments 1
Impairment charge declined -25.6% to R195m, attributed to the improved book shape, strong collections and lower debt counselling inflows
Annualised impairment rate for six months reduced 1.5% to 3.5%
Woolworths’ card and credit card accounted for 15.7% of sales (R3.9bn) (HY2018: 15.4%)
Credit cards account for 2.5% (HY2018: 1.9%)
Woolworths store credit cards account for 13.3% of sales (HY2018: 13.5%), remained at 21.7% of Fashion and 9.4% of Food sales
Operating costs +4.3% including investment to get new customers and campaigns to get more instore spend from existing customers
Profit before tax +5.0% to R437m with return on equity at 35.5%. FY2021 return on equity target % to account for IFRS 9 and opening reserves
SOURCE: Woolworths Holdings Ltd
NOTE: 1 Changes were made to the accounting standards – IFRS 9 and IAS 39 came into effect

8. Group Profit Performance
Gross Profit
Woolworths gross profit declined -1.1% in HY2019 to R14.2bn
Gross profit margin declining to 39.5% in HY2018 (HY2018: 40.9%)
SOURCE: Woolworths Holdings Ltd

9. Group Profit Performance cont.
Gross Profit cont.
Woolworths Gross Profit (R’m) and Gross Margin
HY2019
Gross Profit (R’m)
Growth (HY2019 vs HY2018) %
FY2018 Gross Margin
HY2019 Gross Margin
Comment
WHL Group Total R
-1.1%
7.7%
8.3%
WW Retail
R 7 243
2.0%
32.2%
31.9%
Food
R 3 783
4.6%
25.0%
24.6%
Investment in price and promotional activity
Offset in part by higher rebates
FBH
R 3 337
-0.9%
46.7%
47.1%
Increased promotional activity offset by the higher proportion of sales from full-priced sales
smaller winter clearance and tighter inventory management
Country Road Group
R 3 642
1.2%
62.8%
63.9%
Improved margin from higher full-priced sales
Improved sourcing and good inventory management
David Jones
R 3 342
-9.3%
42.9%
44.0%
Increased promotional activity in a competitive market
Once-off inventory and cost of sale adjustments due to system changes
SOURCE: Woolworths Holdings Ltd

10. Group Profit Performance contd.
Operating Profit
Operating profit declined -5.0% in HY2019 to R3.0bn
Operating profit margin declining to 8.3% in HY2019 (HY2018: 8.9%)
SOURCE: Woolworths Holdings Ltd

11. Group Profit Performance contd.
Operating Profit cont.
Woolworths Operating Profit (R’m) and Operating Profit Margin
HY2019
Operating Profit (R’m)
Growth (HY19 vs HY18) %
FY2018 Operating Margin
HY2019 Operating Margin
FY2021 Operating Margin Target
Comments
WHL Group Total
R 2 976
-5.0%
7.7%
8.3%
WW Retail
R 2 143
-5.6%
6.1%
6.0%
Food
R 1 071
0.6%
7.4%
7.0% 7%
Expense growth +6.1% with strong cost focus
Store costs growth +7.9% with higher security costs – incl. KZN bomb threats
Higher volumes and increased space put pressure on costs but operating margin was on target at 7.0%. Adj for earlier close operating profit +2.0%
FBH
R 915
-11.8%
12.5%
12.9% %
Expense growth +4.0%
Store costs growth +4.3% -new space, beauty roll out
Despite the gross margin improvement and good cost control, the lower sales led to lower operating profit (-9.9% adj for earlier close)
Country Road Group
R 636
5.6%
9.7%
11.2% 
12%
Expenses growth +2.8% in A$
Store growth +3.9% (comp +0.3%) A$
Operating profit +3.4% in A$ (+7.9% adj for earlier close)
David Jones
R 468
-29.4%
4.5%
6.2%
6 - 8%
Expenses growth -0.5% in A$
Store growth +1.3% (comp +0.1%) A$
Cost saving initiatives and structure changes saw other operating costs well controlled. Operating profit -28.8% in A$, with adjustments for strategic initiatives growth -10.7%, adj for earlier close -8.5% in A$

12. CAPEX Group CAPEX declined -13.6% to R1.1bn in HY2019 (HY2018: R1.3bn)
CAPEX for HY2019 per division as follows:
Woolworths CAPEX declined -16% to R520m (HY2018:619m)
David Jones CAPEX declined -8.9% to A$51m (HY2018: A$56m)
Country Road Group CAPEX declined -18.2% to A$9m (HY2018: A$11m)
Maintenance CAPEX R1,190m 1 , including value chain and finance system upgrades
Expansion CAPEX R202m 1, includes new stores, and investments in supply chain capacity
Future Planned CAPEX:
Planned CAPEX for FY2019 is R3.16bn
Estimated R2.4bn on base CAPEX and the balance on strategic initiatives
From FY2020 CAPEX is expected to normalise to around R2.7bn per year
SOURCE: Woolworths Holdings Ltd
NOTE: 1 totals may vary due to roll over of funds from previous period

13. % Contribution to Group Inventories
Inventory Levels
Inventory Level (R’m) and Inventory Level % Change
Inventory (R’000)
Growth % FY vs FY2017
% Contribution to Group Inventories
Group
R 9 298
14.1%
WW Retail
R 4 403
15.8%
47%
Country Road Group
R 1 237
15.5%
13%
David Jones
R 3 658
5.0%
39%
Inventory levels increased +14.1% to R9.3bn in HY2019 (HY2018: R8.1bn)
Growth in inventory levels is attributed to:
Earlier close, sales for the 24th December not yet taken off the stock line
Impact of space growth and new stores
Higher stock levels in FBH
SOURCE: Woolworths Holdings Ltd
NOTE: Inventory in FY2015 increased +71.2% due to the inclusion of David Jones

14. Internal Inflation and CPI
Internal food inflation for Woolworths for HY2019 is reported at 1.2% (HY2018: 4.4%)
This is below the average food CPI of 3.4% for the six month period
Internal inflation for FBH at 1.7% for HY2019 with+0.8% for fashion (FY2018: +0.8% | FY2017: 7.3%).
CPI for the same period is averaged at 5.0%
Expected internal inflation for FY2019
Food: 4.0%
FBH: 5.5% with 4.5% for fashion
SOURCE: Woolworths Holdings Ltd, Ti Economic Indicators Report, StatsSa

15. In Summary Woolworths Holdings announced muted results for HY2019
The positives:
Turnover (including concession sales) +1.9% from R38.6bn to R39.4bn
Turnover (excluding concession sales) +2.4% from R35.1bn to R36.0bn
Food Turnover growth remains market-leading at +6.3% from R14.8bn to R15.8bn, with comparable store sales +4.2% and good volume growth
Food operating margin on target (7%) despite investment in price
The negatives:
One day less sales due to early close (23rd December 2018)
Structural changes and refurbishments overseas adding to pressure on sales and profit
FBH sales -2.0% as ranging challenges cycle out of the business (Q2 performance better than Q1)
Operating profit -5.0% from R3.1bn to R3.0bn with operating profit margin declining from 8.9% to 8.3%
‘Black Friday’ and promotional activity at the end of November pulled sales out of December
HEPS declined -2.9% to cents

16. Outlook
Trading will remain challenging for South African retailers, this is the new normal, with South Africa’s GDP forecasts muted. In a climate of geo-political uncertainty globally, over and above domestic challenges, with fiscal constraints and low investment growth, there remains little hope for growth in consumer spending in the short to medium term. Consumers face ongoing pressure on their disposable income, despite the lower inflation, as interest rates rise, credit extensions are hard to come by and unemployment levels remain high.
Trading conditions in South Africa and Australia will remain tough, especially in the short term, due to a straitened economy and guarded consumer sentiment respectively. With the structural changes made within the FBH business in South Africa, and transformational projects almost fully completed at David Jones, the Group remains confident that it can face its trading challenges head on and recover from recent underperformance and ensure longer-term growth and profitability.

17. Maryla Masojada. |. Lead Analyst Carey Leighton. |
Maryla Masojada | Lead Analyst Carey Leighton | Associate Retail Analyst