Portfolio Business — BIG W - Woolworths Annual Report 2017

FY18 will continue to be a year of investment for BIG W and we do not expect a reduction in losses as we continue to invest to improve the customer shopping experience, including re‑establishing price trust.

TRADING PERFORMANCE

BIG W reported sales of $3.6 billion, a decrease of 5.8% on the previous year with comparable sales declining 5.7%. The sales decline was primarily a function of a continued multi-year decline in transaction count, and deflation largely driven by clearance and discounting. Sales in the fourth quarter declined by 4.4% on an Easter adjusted basis, however this was impacted by the change in timing of the annual toy sale which was a week later than last year to align with school holidays. Excluding the impact of the change in toy sale timing, Easter adjusted comparable sales declined by 3.0%.

An 87 bps decline in gross margin was driven by an investment in price in the second half as we began to invest to implement our new turnaround plan as well as more aggressive clearance activity in seasonal lines and increased stock loss.

CODB was broadly flat in dollar terms, however, increased by 292 bps as a percentage of sales driven by lower sales limiting the ability to fractionalise costs and the 98 bps impact from first half impairment and provisions for onerous leases of $35.3 million. Detailed impairment testing based on the new BIG W turnaround plan has been undertaken with no further impairments currently required.

Asset impairment and a reduction in property, plant and equipment due to lower capital expenditure resulted in a reduction in funds employed. The increase in losses for the year more than offset the reduction in funds employed.

A significant body of work was undertaken to build out a turnaround plan to stabilise and improve the business. We put the customer back at the heart of BIG W by developing a strategy focused on rebuilding customer trust on price and deliver the right product solutions, while enhancing our customers’ shopping experience in-store and online. We have started to make a number of changes across the business to rebuild team morale and capability and create a strong platform to re‑establish our price credentials.

The BIG W turnaround will be a multi-year journey and while we hope to stabilise sales in FY18, we do not expect an improvement in trading performance due to the investment required to regain customer trust on price, improve our product offering and enhance the customer shopping experience.

BEFORE SIGNIFICANT ITEMS¹		FY17 52 weeks	FY16 52 weeks	Change
Sales	($m)	3,598	3,820	(5.8)%
LBIT	($m)	(150.5)	(14.9)	n.m.
Gross margin	(%)	30.82	31.69	(87) bps
Cost of doing business	(%)	35.00	32.08	292 bps
LBIT to sales	(%)	(4.18)	(0.39)	(379) bps
Sales per square metre	($)	3,396	3,602	(5.7)%
Funds employed	($m)	514.3	555.2	(7.4)%
ROFE³	(%)	(31.6)	(2.3)	(29.4) pts

ENDNOTES

n.c. Not comparable

n.m. Not meaningful

There were no significant items recognised in FY17.
In FY16, total significant items of $4,013.7 million before tax ($2,627.8 million after tax attributable to equity holders of the parent entity) were recognised. Details of these costs have been provided in Note 1.4 of the Financial Report. Where noted, profit and loss items have been adjusted to reflect these significant items.
In line with the classification of Petrol as a discontinued operation, the financial performance and operating metrics previously disclosed under ‘Australian Food and Petrol’ has been split to disclose Australian Food separately from Petrol in this announcement. Funds employed and ROFE have also been separately presented for Endeavour Drinks.
Return on funds employed (ROFE) is calculated as EBIT before significant items for the previous 12 months as a percentage of average (opening, mid and closing) funds employed. This methodology has been adopted for FY17 and FY16. In previous reporting periods, ROFE was calculated as EBIT before significant items for the reporting period as a percentage of average (opening and closing) funds employed. Lease adjusted ROFE adjusts funds employed for the present value of future lease obligations and EBIT for the implied interest on those obligations.
Growth for New Zealand Food is quoted in New Zealand dollars.
Operating cash flow as a percentage of group net profit after tax before depreciation and amortisation.
Group earnings before interest, tax, depreciation, amortisation and rent (EBITDAR) divided by rent and interest costs. Rent and interest costs include capitalised interest but exclude foreign exchange gains/losses and dividend income.
The credit ratings referred to in this document have been issued by a credit rating agency which holds an Australian Financial Services Licence with an authorisation to issue credit ratings to wholesale clients only. The credit ratings in this document are published for the benefit of Woolworths Group’s debt providers.