This year I wanted to call out three areas the Board has focused on in the last 12 months.
The first is strategy. We have focused on fixing Australian Supermarkets as job number one. We have realigned our portfolio by exiting the Masters business, and we have reset our BIG W strategy. We have made good progress but there is much more to do, as we face disruptive threats on three fronts: from traditional competitors, from the discounters, and from the digital entrants.
The second area of focus has been culture. We put the customer first and we are building a culture of achievement, where our staff are committed to living the values of the organisation. We care about the health and welfare of our team, demonstrated by a renewed focus and commitment. We are creating greater transparency both in our business and with our investors. And finally we are regaining the community trust that was once a hallmark of our business.
Finally, we have as a Board, focused appropriately on capital management. We are committed to a strong investment grade credit rating. We have seen, as a result of this focus, significant improvement in working capital and reduction in net debt during the year.
The Woolworths Board has announced a final dividend of 50 cents per share taking the total dividend for the year to 84 cents, a 9.1% increase on the prior year. In determining the final dividend, the Board has considered the improved trading performance in the second half, strong cash generation during the year leading to a significant reduction in net debt and the $134 million net profit after tax for Home Improvement in the second half which is not expected to recur. The Board remains committed to a solid investment grade credit rating.
Whilst overall progress is good, there is much to do and we as a Board, are united with Brad and his management team in our mission to transform Woolworths Group.
MANAGING DIRECTOR’S REPORT
In last year’s Annual Report, I spoke about our FY17 focus to rebuild trust with our customers and our team and improve the foundations of our business in order to restore shareholder value.
We are pleased with the progress we have made over the last 12 months and have addressed a number of key issues. The customer is firmly at the centre of our business and we have improved our team engagement and underlying business culture and processes. Encouragingly, we still see many opportunities to improve our business and look forward to FY18 with energy and optimism.
Our transformation has been guided by five key priorities that we established at the beginning of FY17.
1 Our first priority was to build a customer and store‑led culture and team. In FY17 we saw the meaningful improvement in customer scores in Australian Food and Endeavour Drinks as well as our Voice of Team (VOT) scores across the Group. We ended the year with a store‑controllable Voice of Customer (VOC) score in Woolworths Supermarkets of 81% and achieved record NPS and VOC scores in both Dan Murphy’s and BWS. Over 116,000 employees provided feedback in our recent VOT survey with our sustainable engagement scores improving by five points over the last year to 82%.
Our commitment to improve both the physical safety and mental health of our team members has been a key focus throughout the year. We have invested in new programs and systems to improve safety governance, address critical risks and develop a culture of care across the Woolworths Group. It is pleasing to see the results from these efforts with a reduction in both Total Recordable Injury Frequency Rate (TRIFR) as well as Lost Time Injury Frequency Rate (LTIFR) from FY16.
Earlier this year, we also launched our Corporate Responsibility Strategy 2020. In FY17 we focused on diversity by specifically addressing gender inequality. We completed phase one of the pay parity project with over 17,000 salaries reviewed and the pay gap between male and female team members, carrying out like-for-like roles, was reduced to 0.5%. We have also developed a holistic diversity and inclusion strategy that involves such initiatives as increasing Indigenous participation in our workforce and the creation of an LGBTI support network.
2 Our focus on generating sustainable performance in Food saw sales increase by 4.5% over the year with the fourth quarter the strongest of the year at 7.2% (Easter adjusted).
Woolworths Supermarkets sales growth continues to be driven by customer transactions with an increase in the number of items per basket in the second half. We continued our focus on optimising our overall store network with 72 Renewals completed in FY17 as well as opening 19 new stores in our Renewal format. We closed 22 stores during the year following an extensive network review in July 2016.
Our Metro stores are delivering pleasing sales growth with comparable sales increasing by 17% on the prior year. We opened six new Metro stores and are working hard to continue to refine our convenience food offer.
FoodCo had a very busy year, rebranding, repositioning and reformulating approximately 3,000 products into Essentials and the Woolworths food brand. The reformulation of products with improved nutrition also supported our 2020 commitment to inspire our customers to consume all of our products in a healthy, sustainable way.
In the fourth quarter, we brought together our Loyalty and Digital businesses to form WooliesX. The new team will allow Woolworths to maximise the combined wealth of insights and technical expertise currently in the two businesses as we look to accelerate our growth from digital.
3 Endeavour Drinks delivered strong results in a competitive market. Dan Murphy’s and BWS both delivered positive comparable sales growth. Online remained a key area of focus during the year with Dan Murphy’s online achieving growth of approximately 25% a highlight.
4 Our fourth priority was to empower our portfolio businesses to pursue strategies to deliver shareholder value. BIG W’s financial result was extremely disappointing but also reflects the investment we began to make in the second half as we implement our new turnaround plan. The plan has been approved by the Board and communicated to our stakeholders and its implementation is underway. David Walker was appointed Managing Director, BIG W, after acting in the role since November 2016. FY18 will continue to be a year of investment for BIG W as we invest to improve price trust, range and shopping experience for our customers.
ALH Hotels continues to progress under the newly established Board and governance structure with a 11.7% increase in EBIT for the year with strong second half growth.
We exited EziBuy during the year and in August, Lowe’s one third in the Home Improvement joint venture was acquired for $250.8 million, paving the way to complete our exit from the business.
5 We continue to progress on our final priority to become a lean retailer through end-to-end process and systems excellence through initiatives such as the 1Store Program roll-out, Customer-Led Rostering and the migration of over 175,000 team members to SuccessFactors Human Capital System. Supply Chain also introduced a new measurement, delivery in full, on time, and error free (DIFOTEF) to ensure that the right stock is in the right place at the right time for our customers.
As we move into FY18, we are focused on embedding our new Group purpose, “We create better experiences together” and our new Ways-of-Working and Core Values. With the combined goal to deliver “better together” we will leverage off our strength as a Group to achieve better experiences for our customers, teams and communities.
In summary, we are pleased with the progress we made in FY17 and are excited about our ability to further improve our business and customer and team experiences in FY18 as we move from a turnaround phase, focused on fixing our business foundations, to a transformation phase, focused on leveraging team work, digital and insights to materially improve our business. I would like to thank our entire team for their efforts over the last 12 months and look forward to their support in FY18.
MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER