WOOLWORTHS GROUP LIMITED — Annual Report 2017

Aug 22, 2017

COMPANY RESULTS

FULL YEAR 2017 23 August 2017

Woolworths Limited ABN 88 000 014 675

Table of contents

Key highlights, progress and outlook	Brad Banducci
Financial results	David Marr
Business update	Brad Banducci/David Walker

Key highlights

• Improved Customer, Team and Supplier Scores, especially in Australian Food
• Strong sales momentum in Australian Food with FY17 comparable sales growth of 3.6% and Easter adjusted comparable sales growth in Q4'17 of 6.4%
• WooliesX formed to accelerate growth in digital and national Pick up rollout well advanced
• Endeavour Drinks delivered sales and EBIT growth in a competitive market
• New BIG W turnaround plan and team in place with implementation underway
• Exit of Home Improvement substantially finalised and sold EziBuy
• Increase in final dividend of 17 cents, including the benefit from the Home Improvement exit, supported by strong increase in free cash flow and net debt reduction

Progress against our FIVE KEY PRIORITIES

Building a customer and 1store-led culture and team

• Woolies Welcome for >500 support office team members
• 1.4m+ Food and Drinks customers provided direct feedback; 27,000 call backs
• New incentives embedded and driving cultural change
• 20%+ improvement in TRIFR
• Key new internal and external appointments
• WooliesX created to better service our connected customers
• More to do on embedding our new Woolworths Ways-of-Working

Generating sustainable 2 performance in Food

• VOC and VOS significantly improved on the prior year
• 72 Renewals and 85 Upgrades completed
• Significant progress in Customer 1st Ranging and own brand transition well underway
• Improved sales momentum in New Zealand Food
• More to do in improving customer experience, especially online

Evolving our Drinks business to provide 3 even more value and convenience to customers

• Continued sales momentum from Dan Murphy's and BWS
• Click & Collect rolled out to 1,240 BWS stores
• Langton's integrated into Dan Murphy's
• Strong double digit growth from Dan Murphy's Online
• My Dan Murphy's now with 2.4 million members, BWS benefiting from Woolworths Rewards partnership

Empowering our portfolio businesses 4 pursue strategies to deliver shareholder value

• Strong sales and EBIT growth from ALH Hotels
• Partnership with BP and sale of Petrol business announced
• Substantially finalised exit of Home Improvement and EziBuy sold
• New BIG W team and turnaround plan in place
• More to do on implementing BIG W plan and delivering sales momentum

Becoming a lean retailer through end-to-end 5 process and systems excellence

• Customer-Led Rostering now live in all states for Woolworths Supermarkets
• Over 175,000 team members migrated to Success Factors Payroll
• Building a customer 1st culture in Supply Chain
• Significant improvement in inventory days and availability
• More work to do on transforming core end-to-end business processes

Woolworths Group FY18 priorities

We create better experiences together

Outlook

• FY18 focus will continue to be on our five key priorities
• Emphasis moving from fixing the basics to leveraging team work, digital and insights to improve customer and team experiences while sustainably reducing CODB
• In H1, we have a particular focus on improved team scheduling (right team member, right hours, right day), on-shelf availability and Store Pick up (for online orders)
• In Australian Food, we don't expect sales growth to continue at the same rate as achieved in Q4'17. Australian Food comp sales growth for the first eight weeks has been broadly in line with FY17 second half growth rate
• We don't expect an improvement in losses at BIG W in FY18. While we expect to see a positive customer response to lower prices, better product solutions and a better customer experience, it is still too soon to tell when this may translate into sales momentum and improved profitability

Our Q1'18 sales release is currently scheduled for 31 October 2017

Contents

Key highlights, progress and outlook Brad Banducci

Financial results	David Marr
Group financial results
Key balance sheet metrics
Cash flow summary
Capital expenditure
Capital management

Business update Brad Banducci/David Walker

FINANCIAL RESULTS

Results – Full Year 2017

	Continuing Operations		Total Group
Sales	\$55.5 bn	3.7%	\$61.1 bn*	1.5%
EBIT	\$2,326.0 m	(4.9)%	\$2,642.9 m*	n.m.
NPAT	\$1,422.1 m	(3.6)%	\$1,533.5 m	n.m.
Earnings per share	110.8¢	(5.1)%	119.4¢	n.m.
Dividend per share			84¢	9.1%
Return on average funds employed	22.3%	61 bps	25.0%	n.m.

Note: unless otherwise stated, all continuing operations results are compared to FY16 continuing operations before significant items * Total Group sales and EBIT includes sales and EBIT from continuing and discontinued operations n.m. not meaningful

Group EBIT

\$m	FY17	FY161	Change
Continuing operations
Australian Food	1,603.1	1,642.0	(2.4)%
Endeavour Drinks Group	502.5	483.8	3.9%
New Zealand Food (AUD)	292.3	284.4	2.8%
New Zealand Food (NZD)	309.4	313.9	(1.4)%
BIG W	(150.5)	(14.9)	n.m.
Hotels	232.9	208.5	11.7%
Central overheads	(154.3)	(157.8)	(2.2)%
EBIT continuing operations	2,326.0	2,446.0	(4.9)%
Discontinued operations – Home Improvement	159.0	(218.8)	n.m.
Discontinued operations – Petrol	157.9	117.8	34.0%
Group EBIT	2,642.9	2,345.0*	12.7%

Key balance sheet metrics

Average inventory days ROFE

Days

Group ex Home Improvement and Petrol

Group

Average inventory days from continuing operations declined by 2.3 days during the year driven by Australian and NZ Food and Endeavour Drinks

Percentage

Group ex Home Improvement and Petrol

Group ex Home Improvement and Petrol – lease adjusted

Improvement in ROFE driven by working capital improvement despite marginally lower EBIT. Lease-adjusted ROFE marginally down (16bps) due to EBIT decline

Strong improvement in free cash flow

Cash flow summary

\$m	FY17	FY16	Change
Operating activities before interest and tax	4,024.1	3,495.3	15.1%
Interest and tax	(902.1)	(1,137.8)	(20.7)%
Operating activities	3,122.0	2,357.5	32.4%
Investing activities	(1,431.4)	(1,266.7)	13.0%
Financing activities	-	107.9
Free cash flow before dividends and share issues	1,690.6	1,198.7	41.0%
Share issues/ other	55.5	-
Dividends	(562.4)	(1,217.2)	(53.8)%
Free cash flow after dividends and share issues	1,183.7	(18.5)	n.m.

Significant free cash flow improvement in FY17 due to working capital and lower cash dividend payments

FY17 Capital expenditure in line with guidance

\$m		FY17	FY16
Continuing operations
Operating capex Property development		1,583 258	1,391 407
Gross capex Property sales		1,841 (273)	1,798 (678)
Net capex		1,568	1,120
Discontinued operations – Home Improvement		23	108
Discontinued operations – Petrol		31	61
Group net capex		1,622	1,289
Operating capex – FY18E	Operating capex – FY17	Operating capex	– FY16
8% 24% \$1.8 bn 34% 7% 15% 12%	9% 28% 29% \$1.6 bn 13% 5% 16%	22% \$1.4 bn 14% 9% 14%	14% 27%

Capital management

Dividend and DRP

• Full year dividend of 84 cps a payout of 70.7% of Group NPAT attributable to shareholders of Woolworths Limited
• H2'17 NPAT includes \$134m for Home Improvement which will not recur
• DRP discount of 1.5% retained for final dividend

Debt and credit rating

• Reduction of \$1.2bn in net repayable debt
• Discounted leasehold commitments unchanged at ~\$15bn
• FCCR for continuing operations unchanged at 2.4x
• Remain committed to solid investment grade credit rating

Contents

Key highlights, progress and outlook Brad Banducci

Financial results David Marr

Business update Brad Banducci/David Walker

BUSINESS UPDATE

Australian Food

	FY17	FY161	Change
Sales (\$m)	36,371	34,798	4.5%
EBITDA (\$m)	2,164.7	2,165.6	(0.0)%
EBIT (\$m)	1,603.1	1,642.0	(2.4)%
Gross margin (%)	28.07	27.37	70 bps
Cost of doing business (%)	23.66	22.65	101 bps
EBIT to sales (%)	4.41	4.72	(31) bps
Sales per square metre (\$)	16,213	16,000	1.3%
ROFE (%)	166.1	133.4	32.7 pts

Progress highlights

Create the future

• Our purpose 'We bring a little good to everyone, every day' embedded within our team
• Around 600 support office team members attended our 'Welcome to Woolies' store induction program
• Opened 19 new Australian Supermarkets, renewed 72 existing stores and completed 85 upgrades
• Record Voice of Customer of 81 in June. Team sustainable engagement score of 82
• Metro and online experiencing high strong double digit growth rates
• Creation of WooliesX bringing our loyalty and digital teams together to provide a connected customer experience
• Over 10 million Rewards members with dramatic improvements in program customer sentiment

Deliver on core customer offer

• 'That's why I pick Woolies' brand platform resonating with customers
• Strong progress on lowering shelf prices with over 3,500 SKU's on Dropped & Always program
• A third of the way through Customer 1st ranging with positive customer feedback
• 27,000 team members completed service training, focusing on fast and warm checkout service
• Rebranding of own brand products as Essentials and Woolworths with launch of 'Food, Glorious Food' campaign
• Over 2,000 of our own brand products now have a health star rating

Fix the basics

• Substantial improvement in sustainable stockloss
• Improvements in availability resulting in 1 million fewer gaps per week compared to FY16 but more upside is possible
• Voice of Supplier metrics continuing to improve, with further opportunity
• Significant improvement in working capital days through better inventory management
• All 1,184 legacy v4 SCOs replaced

Our success in FY17 has been underpinned by improving our customer and team experiences

Sales momentum continues, with growth in visits and more recently items per basket

* Adjusted for the timing of Easter which fell in Q4'17 (Q3'16 LY)

Brand platform

• An integrated brand platform launched in July 2017
• Resonating with customers
• Emotional and rational reasons to Pick Woolies
• Building recognition
• Constantly evolving in line with customers' needs

25

	FY17	FY161	Change
Sales (\$m)	7,913	7,589	4.3%
EBITDA (\$m)	578.2	558.6	3.5%
EBIT (\$m)	502.5	483.8	3.9%
Gross margin (%)	23.08	23.41	(33) bps
Cost of doing business (%)	16.73	17.03	(30) bps
EBIT to sales (%)	6.35	6.38	(3) bps
Sales per square metre (\$)	18,039	17,943	0.5%
ROFE (%)	16.9	16.3	62 bps

Dan Murphy's maintained its leadership through new stores and multi-channel innovations FY17 highlights My Dan Murphy's members now 2.4 million Launch of talk show 'At the Cellar' with Angela Pulvirenti Launch of high-end concept cellar at original Prahran site Significant reduction in number of injuries Successfully integrated Langton's into Dan Murphy's 12 net new stores opened, bringing total fleet to 219 Record NPS and VOC scores 40 refurbs planned FY18 focus Next stage of My Dan Murphy's Click & Collect integration 8 new store openings Expand Dan Murphy's Connections

BWS investment in value and customer service is resulting in strong convenience differentiation

FY17 highlights FY18 focus

Local craft beer range implemented in 550 stores

Team engagement increased to an all time high

86

Store network increased to 1,298 stores. Refurbished 173 stores (28 major, 145 minor)

Click & Collect rolled out to 1,240 stores and local delivery trialled in 50 stores

Trained all 7,500 team members on customer experience and product knowledge

18 new store openings (gross) Digital retail, including

Customer-led Ranging Partnering with Supermarkets and Woolworths Rewards

online delivery

Record VOC and NPS

New Zealand Food

NZD	FY17	FY161	Change
Sales (\$m)	6,232	6,101	2.1%
EBITDA (\$m)	426.8	429.9	(0.7)%
EBIT (\$m)	309.4	313.9	(1.4)%
Gross margin (%)	24.00	23.58	42 bps
Cost of doing business (%)	19.04	18.44	60 bps
EBIT to sales (%)	4.96	5.14	(18) bps
Sales per square metre (\$)	15,137	15,178	(0.3)%
ROFE (%)	10.5	10.3	21 bps

New Zealand Food FY17 highlights and FY18 focus

FY17 highlights FY18 focus

BIG W

	FY17	FY161	Change
Sales (\$m)	3,598	3,820	(5.8)%
(LBITDA)/ EBITDA (\$m)	(74.1)	68.2	n.m.
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)%
ROFE (%)	(31.6)	(2.3)	(29.4) pts

We have put our customers at the heart of our planning process

PORTFOLIO BUSINESS

Surveyed 5,000 customers and 10,000 team members on what customers want and how we can do things better

Developed a clear and simple customer value proposition (CVP)

Formulated a plan to bring our CVP to life for customers

Building the team with the experience and capability to deliver on customer needs

FY18 priorities: Building our team, regaining price trust

PORTFOLIO BUSINESS

Win back trust for the future

Listen to customers to refine what we do and shape our future

CUSTOMERS AND TEAM COME FIRST

Our team and customers at the heart of everything we do

UNIVERSES ALIGNED TO CORE CUSTOMER NEEDS Bring our universes to life in-store and revitalise our brand

Deliver what our customers want (CVP)

Give our customers more reasons to come back

Fix the basics

Get the spine for our business right – processes and training

TRUSTED PRICES

Lower prices across the store without compromising on quality

BETTER RANGE

Brilliant basics, right brands and quality product solutions for customers

EASY EXPERIENCE

Fresher stores, better availability, service with a smile

DISCIPLINED WAYS OF WORKING

Stock availability, marketing process, direct sourcing critical path, online improvement, labour rostering, streamline our reporting

Activate universes: Six universes aligned to core customer needs

Multi-category solutions built around shopping themes

Better Range: Revised brand strategy and range architecture

• Choice of brands and price points across all customer universes with good-better-best options where it matters most to customers
• National and exclusive brands/ranges to feature prominently in all universes
• Renewed focus on brilliant basics quality products at low prices across our entire range
• Customer First Ranging process to ensure that brand strategy and range architecture for each universe is mapped to customer needs

We've started to make some changes…

• New BIG W leadership team in place Clear and simple plan agreed and shared Prices taken down on more than 2,000 items Brand refresh started Value focused messages – in-store, catalogue ü ü ü ü ü
• Incremental changes in store ü

…But there is much more to do

What we have done so far What we will do over the next 6 months

Continue to reduce prices

Improve our online experience – range, fulfilment

New in-store look – signage, key department relay

Continue with brand refresh

Thank you

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. There were no significant items in FY17.

Disclaimer

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.