Contents

Woolworth Limited: A detail introduction to its core business and operating activities.............................2
Significant issues emerging from the Chairman’s and Managing Director’s Report....................................3
Woolworth’s Corporate Governance and Corporate Social Responsibility.................................................3
Calculation of the key financial ratios for 2011...........................................................................................3
Assessment and investment recommendations..........................................................................................3
References...................................................................................................................................................3
Woolworth Limited: A detail introduction to its core business
and operating activities.

Woolworth Limited is retail chain prominently doing business in Australia and New
Zealand. It has also extended its business in India. In Australia they are running
supermarkets, liquor stores, hotels, petrol stations, general merchandise stores, consumer
electronics, home improvements, Everyday services. In New Zealand they also run
superstores and consumer electronic stores. In India they have only one superstore. Since
1993 Woolworths has been one of Australia’s most successful and consistent retailers.
Success has been driven by the adoption of the ‘Fresh Food People’ and ‘Everyday Low
Prices’ strategies.

Woolworth started its business from 1924 with their first store at Pitt Street Sydney. It had
five founders- Percy Christmas, Stanley Chatterton, Cecil Scott Waine, George Creed and
Ernest Williams. Its nominal capital was just £25,000. Since its beginning Woolworth’s
journey was remarkable. Some important landmarks that Woolworth has come across can
be summed up as follows -

1927: with the establishment of second store it became a chain store.

1959: It established it 300th store.

1960: Built its first supermarket Warrawong in New South Wales.

1973: Launches comprehensive range of Own brands.

1976: First discount store was opened at New South Wales, named BIG W.

1981: Acquisition of 60% of Dick Smith’s operation and the rest in 1983.

1985: Acquired 126 Australian Safeway Stores.

2005: Reached an arrangement to acquire from Foodland Australia Limited their New
Zealand supermarket businesses.
2006: DSE joint venture in India with TATA. The store’s name is Croma.

(Source: Woolworth)

Supermarkets under Woolworth are-

 Woolworth (mostly known as “Woolies”)-operating ate every states of Australia.

 Woolworth online- Online shopping store.
 Safeway- Doing strong business in Victoria.
 Food for less- Discount superstore located in Queensland and New South Wales.
 Fleming- Group of four supermarket chain located in Sydney.
 Thomas Dux Grocer- Upmarket supermarket
 Macro Whole foods market- Organic food chain.
 In New Zealand following supermarkets are run by Woolworth
 Countdown- A discount store chain operating in North and South islands of New
Zealand.
 Woolworth- operating in North islands.
 Foodtown- operating in Auckland, Hamilton and Tauranga.
 Supervalue
 Freshchoice

Liquor Stores of Woolworth-

 Safeway liquor
 Beer Wine Spirits
 Dan Murphy
 Woolworths Liquor
 Cellmasters
Hotels

 ALH group is a hotel and poker machine operator which is 75% owned by Woolworth.
Petrol Station

 Caltex Woolworths
 Safeway

General Merchandize

 Big W- A discount store

Consumer Electronics

 Dick Smith- operating in bothe Australia and New Zealand

Everyday Service

 Everyday Rewards – Loyalty program offering customers fuel saving offers.

 Everyday Money – First product is the Everyday Money Credit Card. Second
product launched in is the Everyday Money Prepaid MasterCard.
 Everyday Mobile – Pre-paid mobile service running on the Optus network – $2 SIM
cards are purchased in stores and recharge is available in store or online.

Home Improvement

 A joint venture business US home improvement retailer Lowe’s. Woolworth’s chain

will be named Masters.

(Source: Wikipedia)
Significant issues emerging from the Chairman’s and Managing
Director’s Report.

Significant issues from the Chairman’s Report

 Despite of some economic downturns Woolworth has been able to achieve a 5.1%
increase in net profit.
 A 6.1% increase in fully franked dividends.
 Capital investment in core businesses and home improvements.

Significant issue from Managing Director’s Report

 Acquisition of Cellarmasters to enhance the liquor channel.

 Starting of Masters big box store in 2011 in Melbourne.
 Strengthening of smaller format Dnaks business during the financial year with the
acquisition of Gunns Retail, Beck Home Timber & Hardware, Magnet Mart and
Flatman’s Home tTimber & Hardware.
 63% increase in online selling in FY 2011and available to 85% of the population of
Australia.
 46% growth in direct buying volume.
 Increased gross margin due to lower cost of doing business in a competitive business
environment.
 Everyday rewards and Onecard service created 8.4 milllion loyalty members in
Australia and New Zealand.
 In Food, Liquor and Petrol department sales increased to $46,312 in FY 2011 million
from $44,287 million of FY 2010 and EBIT increased to 6.45% from 6.28%.
 Australian supermarkets of Woolworth had 4.3% increase in sales of food and liquor
and 9.9% increase in sales of Petrol which results in a total 5.1% increase in revenue.
Cost of doing business had an only 2bps increase from FY 2010 to FY 2011. EBIT
increased 7.5% even after deducting the natural disaster costs.
 Continuous increase in the size of business by increasing the number of supermarkets
all over Australia.
 Return on fund employed (ROFE) was 75.7%. Since 2006 ROFE has increased by 12%.
Capital Investment for last five year was $4.2 billion and incremental EBIT was 35%
with 31% over the last three years.
 New Zealand supermarkets had 3.4% increases in sales from FY10 to FY 11. There was
an increase in EBIT of 3.4% even after incurring earthquake related costs. ROFE for
FY11 was 8.35%
 Financial Highlights of BIG W

Sales for the FY11 decreased by 0.8%. In contrast cost of doing business increased by
3.70% from FY 10 to FY11. Resulting in 11.5% lower EBIT from FY2010 to FY2011. Due to
investment in new stores and refurbishments, supply chain system etc a 4.2% more funds
were employed but ROFE was 6.1% lower.

 Financial Highlights of Consumer Electronics in

For combined consumer electronics sector of Australia, New Zealnd and India, for 2011
increased by 4.2% with 3.05% decrease in CODB. EBIT was 14.9% lower than that of
2010. Investment was 9.3% more than the previous year but there was a decrease in ROFE
by 20.24%. Though CODB was lower the gross margin was lower due to strong price
investment and deflation on this category.

Both consumer electronics section of Australia and New Zealand were faced with lower
revenue and EBIT. In New Zealand EBIT decreased more than Australia. In India sales
increased 27.8% in 2011. EBIT also increased to $4.8 million from the last year’s $1.3
million.

 Financial Highlights of Hotels

The hotels under Woolworth had sales of $1153 million in 2011, 4.6% more than the
previous year. CODB decreased 1.19% from 2010. EBIT increased by 4% from 2010 to
2011.
 Key points from Financial Statements
 Inventory level increased by 8.7% in FY 11. Average inventory days are 33.8 in
2011 from 33.3 days in 2010.
 Due to large inventory trade creditor increased 4.4% from last year.
 Negative working capital has been decreased to $2264.3million. An offset of large
inventory by increase in trade creditors has resulted such decrease.
 Fixed asset and investments increased by $1027.6 million to $8,830. Million. Net
capital expenditure was $1,744.1 million.
 Intangible increased by 3.3%.
 Net financing expense increased by 23.64% due to increased funding for capital
expenditure.
 Cash generated from operating activities increased by 8.7% from previous year.
 Since July 2001, over $10.3 billion has been returned to shareholders through
dividends, on-market and off-market buy-backs (including the final dividend for
the financial year ended 26 June 2011). Including the $704 million off-market share
buy-back completed in October 2010, Woolworths returned over $1 billion of
capital (excluding dividends) to shareholders in the 2010 calendar year.
 Anticipated net profit after tax is to grow with a range of 2% to 6%.
Woolworth’s Corporate Governance and Corporate Social
Responsibility

Woolworth’s Constitution

Woolworth’s constitution works as guideline that includes rules and principles to govern
the business.

Woolworth’s Code of Conduct

In order to maintain commitment to the standards in dealings with customers, suppliers,

employees and local communities, every Woolworths Limited employee commits to Code
of Conduct. Woolworth believes that all employees are leaders. Every employee has the
ability to shape the business through leadership behavior. Woolworth defines two types of
leadership qualities- Core leadership and strategic leadership.

Core leadership qualities-

Principled- Hold true to values even in adversity
Responsible- Consider themselves as the cause not the victim or outcome.
Purposeful- Focused, on track, not easily swayed.
Open- Congruent and transparent.
Composed- Strong sense of self-control, held independently of external circumstances.
Humble- balanced view of their place in the world, no need for self-promotion.

Strategic leadership qualities-

Customer-centric- Places the customer at the centre of decision making
Empowering- Provides opportunities and support for others to grow and succeed
Disciplined- Focuses efforts effectively to maximize results
Visionary- Sees and moves towards the future without present-day evidence
Collaborative- Works with others to ensure success.
Woolworth’s Board Charter

The Board’s principal objective is to maintain and increase shareholders value while
ensuring proper management of group’s overall activities. This charter includes an
overview of-

 Board composition and process

 Relationship and interaction between board and management.
 The authority delegated by the board to management and committees

The Board Charter have been prepared and adopted to establish strong corporate
governance, create shareholders value and engender confidence in the investment market.

Risk Management Policy

The purpose of this policy is the responsible achievement of firm’s objectives. All units of
Woolworth must apply to the following principles-
 Risk management must create and protect value.
 It must be integrated into organizational processes.
 It is focused on the source of uncertainty around the achievement of objectives.
 Risk management must be tailored to the context and fit for purpose.
 Risk management is dynamic, iterative and responsive to change.

Diversity Policy

Woolworth is committed to the unique combination of people with diverse backgrounds,

experience and perspectives to provide exceptional customer service to an equally diverse
community. Woolworths Limited has following objectives work towards our Diversity-
  Continue to recognize and celebrate multicultural diversity and grow workforce to
reflect the diversity of Australian population.
 Continue to grow the number of women performing in senior roles.
 Continue to grow Australia’s indigenous to access employment opportunities
through our business.
 Provide people with a disability employment opportunities and career
advancement.

Woolworth is obligated beyond the law and economics to pursue long term goals that are
good for society. Therefore it has continued to move forward with its CSR activities along
expanding its business in different communities.

 Woolworth has continued to curb down the carbon emission. They have managed to
create opportunities which anticipated to delivery almost $120 million savings by
the end of 2015 and reduce the CO2 and equivalent emission by over 970,000
tonnes.
 To add more to the above initiative, in 2011 they have undertaken 37 energy saving
measures to reduce annual carbon emissions by more than 198,000 tonnes.
 Implementation of Ethical sourcing policy, Palm oil sourcing policy and sustainable
seafood policy in 2011.
 $18.5 million donation to the Salvation Army’s flood appeal by Woolworth and its
customers. Further $1million donation to the farmer of Queensland affected by
flood.
 Launch of reconciliation action plan to give more employment opportunities to the
indigenous Australians.
 30% reduction in lost time injury frequency and 11% in customer in-store injuries.

Basic corporate social responsibility ratings

 Overal Communit Employee Environmen Governanc
l y s t e
WOOLWORTHS 64 55 67 62 70
LIMITED
All company average 48 47 48 46 51
(Source: CSRHUB)

This table shows how Woolworth is rated compared to all other companies in terms of
their CSR activities. And it shows their strong commitment toward CSR. Each category in
this table has sub categories of measurements.

Calculation of the key financial ratios for 2011

Liquidity Ratios- These ratios measure the ability of a firm to meet its short-term
obligations and reflect the short term financial solvency of a firm. To measure Woolworth’s
liquidity strength the following ratios are calculated-

Current Ratio

Year Current Assets Current Liabilities Current

Assets/Current
Liabilities
2009 4859.2 6414.6 0.76
2010 5199 7153.4 0.73
2011 6593 8288.3 0.80

Quick Ratio

Year Liquid Assets Current Liabilities Liquid Assets/Current

 Assets
2009 1,566.60 6414.6 0.24
2010 1,760.20 7153.4 0.25
2011 2,856.50 8288.3 0.34

Receivables Turnover

Year Net Credit Sales Average Net Credit

Receivables Sales/Average
Receivables
2009 6 102.1 0.06
2010 112.6 161.4 0.70
2011 67.5 251.45 0.27

Inventory Turnover

Year Cost of Goods Sold Average Inventory COGS/Average

Inventory
2009 36,871.40 3151.3 11.70
2010 38,300.70 3365.7 11.38
2011 40,049.70 3587.65 11.16

By analyzing the above mentioned liquidity ratios it can be concluded that being a large
entity their liquidity position is not strong. Because from current ratio and quick ratio it is
seen they have lower CAs for each $1 CLs. It is because they greater amount of Current
liabilities over current assets. They have low receivables turnover which indicates that they
do not collect cash from their debtors rapidly i.e. large time between credit sales and cash
collection. On the contrary they have a inventory turnover ratio which means that they
clear out their inventories very quickly.

Profitability Ratios- The operating efficiency and ability to ensure adequate return to
shareholders of a firm depends on the profits earned by it. Profitability ratios measures the
profitability of a firm. To measure the profitability of Woolworth following ratios are
calculated.

Gross Profit Margin

Year Gross Profit Sales Gross Profit/Sales

2009 12,723.40 49594.8 25.65%

2010 13,393.60 51694.3 25.91%
2011 14,093.20 54142.9 26.03%

Expense Ratio

Year COGS Operating Net Sales COGS Ratio Operating

Expenses Expense
Ratio
2009 36,871.40 7,768.80 49594.8 74.35% 15.66%
2010 38,300.70 8,035.90 51694.3 74.09% 15.55%
2011 40,049.70 8,417.70 54142.9 73.97% 15.55%

Asset Turnover

COGS/ Total
Year COGS Total Assets
Assets

2009 36,871.40 17,084.90 2.16

2010 38,300.70 18,487.30 2.07
2011 40,049.70 21,094.50 1.90

Return on Assets
Year Net Profit Total Assets Net Profit/Total
Assets

2009 1,448.30 17,084.90 8.48%

2010 1,860.00 18,487.30 10.06%
2011 2,140.30 21,094.50 10.15%

Return on Equity

Year Net Profit Total Equity Return on

Equity
2009 1,448.30 7,057.30 20.52%
2010 1,860.00 7,817.70 23.79%
2011 2,140.30 7,845.80 27.28%

Price Earnings Ratio

Year Market Price EPS Price Earnings

of Share Ratio

2009 163.24 150.71 1.08

2010 162.99 164.01 0.99
2011 156.34 174.64 0.90

Earnings Per Share

Year EPS
2009 150.71
2010 164.01
2011 174.64

Payout Ratio
 Year DPS EPS Payout Ratio

2009 96 150.71 0.64

2010 109 164.01 0.66

2011 119 174.64 0.68

Cash Return on Sales

Year Operating Cash Flow Total Assets OCF/Total

Assets

2009 2,604.20 17,084.90 0.15

2010 2,752.00 18,487.30 0.15
2011 2,991.10 21,094.50 0.14

Return on Common Shareholders’ Equity

Year Net Profit Average Net Profit/Avg.

Ordinary Ordinary Shaholders
Shareholders’' Equity
Equity
2009 1,860,000,000.00 1219779370 1.52
2010 2,038,000,000.00 1230090594 1.66
2011 2,140,300,000.00 1223819513 1.75

Woolworth has a favorable gross profit margin which is a positive indicator of their
profitability. Expense ratio shows the proportion the COGS and Operating expenses of net
sales. Their asset turnover ratio has been declining which means the idle capacity has
followed an increasing trend. On the other hand profitability of the asset employed
increased in three years. Woolworth has been successful in returning earnings to their
shareholders as the EPS, ROE and ROCE increased gradually. A high cash return on assets
ratio can indicate that a higher return is to be expected. This is because the higher the ratio,
the more cash the company has available for reintegration into the company.

Solvency Ratios- These ratios measures a firm’s soundness in terms of long term ability to
pay interest regularly as well as replay the installment of the principal on due dates.
Woolworth’s solvency has been measured by following ratios-

Debt-to-Asset Ratio

Year Total Debt Total Assets Debt-to-total

asset Ratio
2009 10,027.60 17,084.90 0.59
2010 10,669.60 18,487.30 0.58
2011 13,248.70 21,094.50 0.63

Times Interest Earned

Year EBIT Net Interest EBIT/Net Interest

Expenses Expenses

2009 1,860.00 189.2 9.83

2010 2,870.60 211.5 13.57
2011 3,014.90 261.5 11.53

Cash flow-Debt Ratio

Year Operating Total Debt OPC/Total

Cash Flow Debt

2009 2,604.20 10,027.60 0.26

2010 2,752.00 10,669.60 0.26
2011 2,991.10 13,248.70 0.23
Woolworth has low Debt-to-Asset Ratio which is desirable by the creditors as it indicates
that there is sufficient safety margin available to them. Higher volume of times interest
earned states that, Woolworth is capable of timely payment of interests. Lower Cash flow to
debt ratio indicates that Woolworth has good capacity to pay its debt from its operating
cash flow.

Assessment and investment recommendations

Considering the overall performance of this leading corporate conclusion can be drawn
that Woolworth is truly a good entity to invest. Because this company is committed to
provide quality product and services to the society. In terms of the financial performance it
can be said that from the beginning of its journey Woolworth has continued to grow. And it
is still expanding its business in new sectors. This is an indication of its strong financial
position. They are serious about their corporate governance policy and enhancing the
work environment within the organization. They are very committed to increase
shareholders value and gaining their confidence. But consistently high ROE may decline the
value of the shareholders but it gives a very good amount of return to its shareholders.
They have a good EPS for the last FY and as it is expected that their EAT would rise about
2%-6% it is anticipated investing in this firm would result in a good return. Considering the
ratios mentioned above, it can be recommended that Woolworth is presenting some
difficulties in terms of short term liquidity. However, they are utilizing their assets with
efficiency and their sales are scoring high with each FY. With Low CODB policy they have
been able to achieve resilient profit even after some difficulties such natural calamities and
some economic downturns. Therefore, Woolworth would be a profitable entity to invest.
References

Woolworth Limited, n.d. Annual Report. Retrieved May 21 2012 from

http://www.woolworthslimited.com.au/phoenix.zhtml?c=144044&p=homepage

Wikipedia, n.d. Woolworth Limited. Retrieved May 21 2012 from

http://en.wikipedia.org/wiki/Woolworths_Limited

Csr Hub, 2012 CSR rating of Woolworth. Retrieved May 21 2012 from

http://www.csrhub.com/CSR_and_sustainability_information/WOOLWORTHS-LIMITED