WOOLWORTHS GROUP LIMITED — Annual Report 2016

Aug 24, 2016

COMPANY RESULTS

FULL YEAR 2016 25 August 2016

Woolworths Limited ABN 88 000 014 675

Agenda

Key highlights Brad Banducci

Progress on our five key priorities

• Building a customer and store-led culture and team
• Generating sustainable sales momentum in Food
• Evolving our Drinks business to provide even more value and convenience to customers
• Empowering our portfolio businesses to pursue strategies to deliver shareholder value
• Becoming a lean retailer through end-to-end process and systems excellence

Financial Results David Marr

Business Update Business Leaders

Outlook Brad Banducci

Key highlights

• Significant investment in Australian Food to get Customers to put us 1st - Customers are noticing and starting to act on the changes
• New Woolworths Group operating model implemented to drive further accountability into the business
• 500 roles will be permanently removed from Support Office and Supply Chain
• 1,000 roles moved closer to stores and customers
• BIGW has increased control over the key levers critical to its turnaround
• Implemented revised Short Term and Long Term performance measures aligned with driving business transformation
• Short term measures focussed on customers, team, sales, EBIT and working capital
• Long term measures focussed on Sales per square metre, ROFE and Relative TSR
• Commitment to greater transparency with Endeavour Drinks Group now separately disclosed
• Progress on exit of Home Improvement business

Progress on our five key priorities

2

GENERATING

momentum

store

weekend

SUSTAINABLE SALES MOMENTUM IN FOOD • Record VOC in June • Transaction and item

• Lower prices across the

particularly on the

• Own brand progress

CUSTOMER AND STORE-LED CULTURE AND TEAM

• Customer and store KPI's in incentive plans
• New operating model
• "WooliesWelcome"
• Key new hires
• New store feedback loops

EVOLVING OUR DRINKS BUSINESS

• 11 new Dan Murphy's stores
• Dan Murphy's model continuing to evolve
• Strong online growth
• BWS local store empowerment

4

EMPOWERING OUR PORTFOLIO BUSINESSES

• New Group Portfolio Director appointed
• Group functions integrated back into businesses
• Exploring options for the sale of EziBuy
• Home Improvement exit

BECOMING A LEAN RETAILER

• Merchandising platform now stable
• Human Capital Management system now live
• End-to-end process improvement underway

• 500 roles to be removed

Agenda

Progress on our five key priorities

Financial Results David Marr

• Results Full Year 2016
• Group EBIT
• Significant Items recognised in FY16
• Key Balance Sheet metrics
• Cash Flow Summary
• Capital Expenditure
• Capital Management

Business Update Business Leaders

Key highlights Brad Banducci

Outlook Brad Banducci

FINANCIAL RESULTS

Results – Full Year 2016

	Continuing Operations Before Significant Items1		Total Group Before Significant Items1		Total Group
Sales	\$58.1 bn	(1.2)%	\$60.2 bn	(0.8)%	\$60.2 bn	(0.8)%
Earnings Before Interest and Tax	\$2,563.8 m	(35.5)%	\$2,345.0 m	(37.4)%	\$(1,668.7) m	(150.2)%
Net Profit After Tax attributable to shareholders of Woolworths	\$1,558.2 m	(39.2)%	\$1,393.0 m	(43.2)%	\$(1,234.8) m	(157.5)%
Earnings/(Loss) Per Share	123.3¢	(39.5)%	110.2¢	(43.5)%	(97.7)¢	(157.2)%
Dividend Per Share			77¢	(44.6)%
Return On Average Funds Employed	22.2%	(1,040) bps	18.5%	(724) bps

Group EBIT

\$m	FY16	FY15	Change
Continuing Operations (Before Significant Items1)
Australian Food and Petrol	1,759.8	2,970.2	(40.8)%
Endeavour Drinks Group	483.8	469.6	3.0%
Australian Food, Petrol and Endeavour Drinks Group	2,243.6	3,439.8	(34.8)%
New Zealand Supermarkets (AUD)	284.4	303.2	(6.2)%
New Zealand Supermarkets (NZD)	313.9	326.0	(3.7)%
BIGW	(14.9)	111.7	(113.3)%
Hotels	208.5	234.5	(11.1)%
Central Overheads	(157.8)	(116.1)	35.9%
EBIT Continuing Operations (Before Significant Items1)	2,563.8	3,973.1	(35.5)%
Discontinued Operations - Home Improvement	(218.8)	(224.7)	(2.6)%
Group EBIT (Before Significant Items1)	2,345.0	3,748.4	(37.4)%

Significant Items1 recognised in FY16

Continuing Operations	\$m
Operating model and strategic changes	(155)
Store network optimisation and property rationalisation	(344)
General Merchandise impairment	(460)
EBIT impact	(959)
NPAT impact attributable to shareholders of Woolworths	(755)
Discontinued Operations – Home Improvement
EBIT impact	(3,055)
NPAT impact attributable to shareholders of Woolworths	(1,873)

Key Balance Sheet metrics

Average Inventory days

Before Significant Items1

Days

• Excluding Home Improvement
• Group

Increase driven by 94 net new stores across the Group and lower than expected sales in BIGW

ROFE

Before Significant Items1

Percentage

Excluding Home Improvement

Group

Decline due to lower EBIT in Australian Food and BIGW partly offset by lower Funds Employed due to Significant Items

Cash Flow summary

\$m	FY16	FY15	Change
Cash Flow
Operating Activities before interest and tax	3,495.3	4,711.1	(25.8)%
Operating Activities	2,357.5	3,345.1	(29.5)%
Investing Activities	(1,266.7)	(1,333.9)	(5.0)%
Financing Activities	107.9	162.5	(33.6)%
Free cash flow before dividends and share issues	1,198.7	2,173.7	(44.9)%
Dividends	(1,217.2)	(1,567.4)	(22.3)%
Free cash flow after dividends and share issues	(18.5)	606.3	(103.1)%

Despite significant reduction in EBITDA, Free Cash Flow after dividends broadly neutral for the year

Capital Expenditure

\$m	FY16	FY15
Continuing Operationsa
Operating Capex	1,484	1,443
Property Development	414	429
Gross Capex	1,898	1,872
Property Sales	(678)	(200)
Net Capex	1,220	1,672
Discontinued Operations - Home Improvement	106	292
Group Net Capexa	1,326	1,964

Capital Management

Dividend and DRP

• Full year dividend of 77 cents per share representing payout ratio of 70% of Group NPAT before Significant Items1
• Intention to underwrite DRP to 50% primarily to fund the upcoming refinancing of Woolworths Notes II

Debt and credit rating

• Remain committed to solid investment grade credit rating
• Net Repayable Debt of \$3bn in line with FY15
• Undiscounted future operating lease commitments of \$24bn excluding Home Improvement
• FCCR of 2.3x before Significant Items1 in FY16

Portfolio businesses

• Progress on exit of Home Improvement business
• Continuing to pursue value accretive strategies for Portfolio Businesses

Key highlights	Brad Banducci
Progress on our five key priorities
Financial Results	David Marr
Business Update Australian Food – Endeavour Drinks Group – – Countdown BIGW – Capital Management –	Business Leaders
Outlook	Brad Banducci

BUSINESS UPDATE

Australian Food and Petrol

	FY16	FY15	Change
Before Significant Items1
Sales (\$m)
Food	34,798	34,881	(0.2)%
Petrol2	4,612	5,632	(18.1)%
Food and Petrol	39,410	40,513	(2.7)%
EBIT (\$m)	1,759.8	2,970.2	(40.8)%
Gross Margin (%)	25.37	26.19	(82) bps
Cost of Doing Business (%)	20.90	18.86	204 bps
EBIT to Sales (%)	4.47	7.33	(286) bps
Sales Per Square Metre – Food (\$)	16,000	16,615	(3.7)%

Customers are beginning to respond to our improving offer

^{69 69 68} 75 50 55 60 65 70 75 80 Overall Customer Satisfaction % customers satisfied, 6 or 7 out of 7 Q1 Q2 Q3 Q4

Progress highlights

Create the future

• Customer 1st culture brought to life in store through the Voice of the Customer program
• 'Woolies Welcome' store-induction for all new support team members
• New performance scorecards issued to all stores
• 6 Renewal stores opened in June, with strong customer response particularly in Fresh
• Positive customer response to new Metro format and continued growth online

Deliver on core customer offer

• Competitive on pricing through \$500m investment in prices, 1,500+ SKUs with lower shelf prices
• Rebranding of own brand products as Essentials and Woolworths (10% complete)
• Step-change in service metrics through \$100m investment in team hours with focus on weekends, and service training rolled out to first 100 stores
• Focus on improved quality fresh especially fruit and veg, with more frequent replenishment in-store and faster feedback loops to buyers and suppliers
• 'That's why I pick Woolies' brand platform, highlighting fresh seasonal fruit, affordable meat, service, value and community, including Free Fruit for Kids

Fix the basics

• Simple, clear tickets in-store that are easier for store teams to execute
• Hygiene upgrade of stores largely complete 146 signage upgrades since 2015 (87 in 2016), 314 entry gates removed, 309 trolley fleet upgrades
• Material stock loss improvement from Q2 to June, through Faster Fresher Food initiative
• SAP stabilised with no unplanned outages in last 3 months
• Woolworths Rewards relaunched based on customer feedback

We are still working on fixing IT basics

• Stabilised SAP implementation with positive momentum
• Improved IT support to stores: upgraded RF guns and printers; more responsive support desk for stores
• IT foundation program commenced to catch up on under investment in IT infrastructure, focused on SCOs and POS upgrade
• Pilot commenced on 1 store new Store POS and operational software (NCR Retalix software)
• Reduced open store hardware incidents

We have listened to our customers and evolved our Rewards program

CORE CUSTOMER OFFER

Customers tell us our biggest improvement is in service

Woolworths Supermarkets Voice of the Customer

% of customers satisfied, 6 or 7 out of 7

Our new Own Brand offer is resonating with customers

Strong customer response to latest 6 renewal stores

CREATE THE FUTURE

"What I meant is wow what an improvement – love artisan bread in bakery, well signed, wide aisles, cool sushi take away and cafe – great addition for shoppers"

"The staff seem to be trained much better at being friendly and giving better service to their customers."

"Loved the new look. Love, love, love the free fruit for kids!!"

Strong customer response to the new format Overall Satisfaction VOC +14 %pts Transactions +9% YOY

Our FY17 business priorities

⁶ Create the future

Create a winning proposition by listening to our customers and transforming out business store-by-store

Deliver on core customer offer

Create reasons for customers to choose us for more of their shopping

Fix the basics

E2E process excellence

Customer 1st Team and Culture

6

A great retail team putting our Customers 1st.

Step-change store renewal program

Renewed stores with leading customer proposition and well-trained team.

Good prices, right range driven range. 2 3 4

Great service

Best fresh

High quality, good

Solid and efficient business foundations

5

Products on shelf, stock loss well managed, timely & accurate reporting, system reliability, rewards for loyalty, partnerships with suppliers, lean retailing.

FY17 initiatives

Create the future

• Ongoing focus on building our Customer 1st Team and Culture
• Our purpose: 'We bring a little good to everyone every day'
• Material investment in training our store and buying teams
• All support team members working in stores
• 80+ renewal stores and 50+ stores with full Front of Store upgrades

Deliver on core customer offer

• Lower shelf prices with fewer meaningful promotions
• Simplified range that is right for local customers of every store
• Service training rolled out to next 150 stores before Christmas
• Rollout of Customer-led planning tool to better match team hours to times when our customers are shopping
• Ongoing focus in fruit and veg & meat on value, quality (end to end) and range

Fix the basics

• Faster Fresher Food at scale with significant reduction in stock loss
• End to end availability focus in-store execution, upstream focus on outbound service levels from DC
• Front of Store infrastructure and software update to enable faster checkouts
• Stronger partnerships with suppliers to deliver on customer priorities
• Further Rewards program enhancements, responding to customer feedback

Endeavour Drinks Group

	FY16	FY15	Change
Before Significant Items1
Sales (\$m)	7,589	7,251	4.7%
EBIT (\$m)	483.8	469.6	3.0%
Gross Margin (%)	23.41	22.98	43 bps
Cost of Doing Business (%)	17.03	16.50	53 bps
EBIT to Sales (%)	6.38	6.48	(10) bps
Sales Per Square Metre (\$)	17,943	17,827	0.7%

Endeavour Drinks delivered strong sales growth in a highly competitive market

FY16 Highlights

• Strong growth at +4.7% outpacing market growth
• Beer and Spirits outgrew Wine
• 43 (net) new stores opened throughout Australia (32 BWS and 11 Dan Murphy's)
• Strong double digit headline growth of Dan Murphy's online increased
• Established Langton's East Asia
• My Dan Murphy's reached 1.7m customers
• Dan Murphy's awarded Catalogue Retailer, Multichannel & Mobile Retailer of the year
• Pinnacle awarded 1 platinum, 3 gold and 2 silver awards at the Spirits International Prestige Awards.
• Summergate awarded Best Importer in China

FY17 Focus

• Continued focus on driving growth
• Focus on continued investment in customer experience across all banners
• Continued to grow wholesale channels in East Asia through major brand deals
• Launch of BWS Online
• 33 new stores: 10 Dan Murphy's and 23 BWS stores

Dan Murphy's maintained its leadership through new stores and digital expansion

FY16 Highlights FY17 Focus

11 new stores opened in FY16

Digital penetration continued to grow

Catalogue Retailer and Mobile Retailer of the Year

My Dan Murphy's members reached 1.7m members

Strong NPS result of +50

Enhanced customer experience

Network investment through refurbishments

"Lowest Liquor Price Guarantee"

Continue investment in strong team and culture

Investment in value and customer service for stronger differentiation

33

New Zealand Food

NZD	FY16	FY15	Change
Before Significant Items1
Sales (\$m)	6,101	5,878	3.8%
EBIT (\$m)	313.9	326.0	(3.7)%
Gross Margin (%)	23.58	23.50	8 bps
Cost of Doing Business (%)	18.44	17.95	49 bps
EBIT to Sales (%)	5.14	5.55	(41) bps
Funds Employed (\$m)	2,906.4	3,080.7	(5.7)%
ROFE (%)	10.48	10.63	(15) bps
Sales Per Square Metre (\$)	14,863	14,999	(0.9)%

New Zealand Food FY16 Highlights and FY17 Focus

BIGW

	FY16	FY15	Change
Before Significant Items1
Sales (\$m)	3,820	3,929	(2.8)%
EBIT (\$m)	(14.9)	111.7	(113.3)%
Gross Margin (%)	31.69	33.79	(210) bps
Cost of Doing Business (%)	32.08	30.95	113 bps
EBIT to Sales (%)	(0.39)	2.84	(323) bps
Funds Employed (\$m)	555.2	752.3	(26.2)%
ROFE (%)	(2.28)	13.54	(1,582) bps

Our vision is clear

Helping all Australians LIVE BIG FOR LESS

• Strong value heritage with customers since 1964
• First steps
• Consistent and profitable growth to deliver the plan
• End to end control of the business
• A distinctive and defensible customer position
• Widest range of quality brands and products at everyday low prices
• Strong digital focus
• An innovative, commercial and energised retailer

Our strategy is simple

Develop one team

• Bring in house all functions under BIGW
• Simplify reporting lines and integrate fresh talent with existing team
• Introduce incentives to drive accountability
• Maintain highest safety results in industry
• Make design team central to product development process – to ensure original and low cost design
• Drive team focus on customer and in-store experience

Refresh stores

• De-clutter stores for easier navigation
• Refresh VM in stores for more consistent and modernised BIGW
• Trial of a variety of refurbishment ideas in subset of stores to understand capital return and customer response
• Detail improvement plans for relatively small number of loss-making stores
• Overhaul store stock and workflow process to improve productivity
• Once test & learn refurbishment phase proven seek ~10 new stores over next 5 years where no brand presence yet – opportunities remain in Australia's largest malls

Update product offering

• Reduce range from >70,000 SKUs today but still retain widest choice and best brands
• Consolidate >40 Own Brands today to fewer, stronger brands
• Recruit new design and buying leadership
• Simplify pricing in store for easier customer navigation
• Increase focus on factory relationships bulk sourcing of fabric, long term relationships for faster fashion cycle
• Maintain value position and build on EDLP program
• Maintain leadership in toys, books, party and quality basics

Develop cohesive brand

• Bring in house all marketing agency work to build cohesive BIGW voice and internal team skill and speed
• Increase digital marketing mix and online sales
• Drive BIGW email database
• Revamp catalogues
• Integrate marketing, online and design functions with clear accountabilities
• Refresh and grow online store

Reduce costs, Improve processes

• Remove layer of senior management and unnecessary costs via direct control of all functions
• Set productivity targets based on detailed mapping of all core processes in store and support office
• Shifting service level to peak times when customers shop

First Six Months

BIGW
-------------

Develop One Team	• Refreshed executive team • Recruited new buying, design and online leadership • Brought into BIGW from Group: 3 x DCs, 3 x Asian sourcing offices (consolidated to 2 offices), property, legal, online, procurement, store maintenance and customer service functions
Refresh Stores	• Reviewed all stores and fixed asset register and detailed plans to improve loss making stores • Testing a diverse range of refurbishment ideas in several stores currently
Update Product	• Identified brands and range tail to be consolidated or refreshed • Integrated sourcing and design teams and reduced local agents
Develop Cohesive Brand	• Removed all marketing agencies to ensure consistent brand experience for our customers • Doubled social media engagement so far – much work still to do • Refreshed catalogues and reduced frequency whilst shifting marketing mix to digital
Reduce costs, Improve Processes	• Removed senior management layers to get closer to business • Centralised product and contractual sign offs now in place • Re-engineered all key retail and merchandising processes and financial dashboards

FY17 priorities

FY17 represents an exciting year for BIGW with much change

• H1 focused on clearing inventory, reducing product range and completing restructure of business for end to end control
• From H2 New product/brand consolidation flowing through business
• Continue good momentum and market leadership in toys, books and party sales at value prices
• Test range of store refresh ideas pending results update BIGW stores look and feel with moderate capital investment
• Grow online sales mix

Agenda

Key highlights	Brad Banducci
Progress on our five key priorities
Financial Results	David Marr
Business Update	Business Leaders
Outlook - Home Improvement exit update	Brad Banducci

• Outlook

OUTLOOK

Home Improvement exit update

• 3 transactions to sell Home Improvement for estimated gross cash proceeds of ~\$1.5 billion and ~\$500 million after wind-down costs (prior to Lowe's share of proceeds)
• Masters will cease trading on or before 11 December 2016
• We are committed to do the right thing by employees, customers and suppliers
• Woolworths has terminated the Joint Venture agreement with Lowe's
• Metcash has purchased Home, Timber and Hardware for \$165 million with the business continuing to trade
• Transaction approved by both shareholders
• GA Australia will underwrite and manage the sell down of Masters inventory expected to deliver gross proceeds of ~\$500 million
• Home Consortium proposal to buy Masters properties through acquisition of 100% of shares in Hydrox
• Woolworths will acquire 3 Masters freehold sites and takes assignment of 12 leases
• Transaction subject to Lowe's approval

Outlook

The focus of the Woolworths Group in FY17 will continue to be on our five key priorities

We expect the market environment to remain competitive in the year ahead but also expect to see continued progress in our turnaround following a year of significant investment in FY16

Given the lack of visibility on our FY17 financial performance at this stage of the year, and consistent with our previous announcements, we will not provide full year profit guidance

Our Q1'17 sales release is currently scheduled for 28 October 2016

Notes

• 1. Significant Items in FY16 represent costs of \$4,013.7m (before tax) or 2,627.8m (after tax and non controlling interests) resulting from the write down of the Home Improvement business and certain significant expenses incurred outside the ordinary course of our trading operations resulting from a Group wide review. Refer to significant items breakdown on slide 9.
• 1. Petrol sales are not comparable with the prior year given changes to the Woolworths-Caltex alliance that became effective during Q2'15. Given operational changes under the new arrangement with Caltex, Woolworths no longer recognises sales from Caltex operated sites in its financial result

This presentation contains summary information about Woolworths Limited (Woolworths) and its activities current as at the date of this presentation. It should be read in conjunction with Woolworths' other periodic and continuous disclosure announcements filed with the Australian Securities Exchange, available at www.asx.com.au.

This presentation has not been audited in accordance with Australian Auditing Standards.

This presentation contains certain non-IFRS measures that Woolworths believes are relevant and appropriate to understanding its business. Refer to the Full Year Profit/(Loss) and Dividend Announcement for further details.

This presentation is for information purposes only and is not a prospectus or product disclosure statement, financial product or investment advice or a recommendation to acquire Woolworths shares or other securities. It has been prepared without taking into account the objectives, financial situation or needs of individuals. Before making an investment decision, prospective investors should consider the appropriateness of the information having regard to their own objectives, financial situation and needs and seek legal and taxation advice appropriate to their jurisdiction. Past performance is no guarantee of future performance.

No representation or warranty, expressed or implied, is made as to the fairness, accuracy, completeness or correctness of the information, opinions and conclusions contained in this presentation. To the maximum extent permitted by law, none of Woolworths and its related bodies corporate, or their respective directors, employees or agents, nor any other person accepts liability for any loss arising from the use of this presentation or its contents or otherwise arising in connection with it, including, without limitation, any liability from fault or negligence.

This presentation may contain forward-looking statements including statements regarding our intent, belief or current expectations with respect to Woolworths' business and operations, market conditions, results of operations and financial condition, specific provisions and risk management practices. When used in this presentation, the words 'plan', 'will', 'anticipate', 'expect', 'may', 'should' and similar expressions, as they relate to Woolworths and its management, are intended to identify forward-looking statements.

Forward looking statements involve known and unknown risks, uncertainties and assumptions and other important factors that could cause the actual results, performances or achievements of Woolworths to be materially different from future results, performances or achievements expressed or implied by such statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date thereof.