TRADING PERFORMANCE
Masters sales for the year were $1.1 billion, an increase of 21.8% on the prior year.
Masters loss before interest and tax (before significant items 1) decreased by 4.9% to $233.5 million driven by the strong sales performance in FY16 offset somewhat by the impact of clearance activity.
Home Timber and Hardware sales for the year were $967 million, an increase of 3.2% on the previous year driven by the sales benefit of recent acquisitions as well as comparable growth in our wholesale operations.
Home Timber and Hardware reported a 29.7% reduction in EBIT (before significant items 1) driven by price investment in a highly competitive market environment.
UPDATE ON PROCESS FOR EXIT OF HOME IMPROVEMENT
As announced on 24 August 2016, Woolworths has agreed three separate arrangements to facilitate its exit from the Home Improvement business for estimated gross proceeds of $1.5 billion to Hydrox Holdings Pty Ltd (Hydrox). Estimated net proceeds of approximately $500 million are expected after wind-down costs and prior to any shareholder payments.
Masters will cease trading at all stores on or before 11 December 2016 and Woolworths will work hard to find Masters employees jobs within the Group, or will pay redundancy where suitable roles are not available. Woolworths will honour all customer gift cards, product warranties, returns, lay-bys and contracted home improvement projects and will work constructively with all suppliers.
Metcash will acquire Home Timber and Hardware Group for a headline purchase price of $165 million. This transaction has been approved by both shareholders in Hydrox, the joint venture company owned by Woolworths and WDR Delaware Corporation (WDR), a subsidiary of Lowe’s Companies, Inc. (Lowe’s). Woolworths will also take assignment of three residual Home Timber and Hardware Group leases.
GA Australia has been appointed as exclusive agent to manage the sell-down of Masters inventory. It has provided a guarantee for the recovery of a guaranteed percentage of the cost value of Masters inventory subject to certain adjustments. This is estimated to deliver gross proceeds of approximately $500 million. The sell-down of the inventory will be conducted over the coming months, ahead of store closures by 11 December 2016.
Subject to Lowe’s consent, Home Consortium (Aurrum Group, Spotlight Group and Chemist Warehouse) has proposed to purchase the Masters properties through acquisition of 100% of the shares in Hydrox. Woolworths has granted an exclusive call option over its two-third share in Hydrox to Home Consortium on economic terms consistent with Home Consortium’s proposal to acquire 100% of the shares in Hydrox. The transaction will include 40 Masters freehold trading sites, 21 Masters freehold development sites and 21 Masters leasehold sites. Home Consortium plans to repurpose the former Masters sites into multi-tenant large format centres. Woolworths proposes to acquire three Masters freehold sites and take assignment of 12 leases to facilitate a complete exit of Hydrox. Please refer to the ‘Woolworths Update on Home Improvement Exit’ ASX release for further detail.
| BEFORE SIGNIFICANT ITEMS1 | FY16 (52 weeks) |
FY15 (52 weeks) |
Change | ||
| Sales | |||||
| Masters | ($m) | 1,133 | 930 | 21.8% | |
| Home Timber and Hardware | ($m) | 967 | 937 | 3.2% | |
| Home Improvement | ($m) | 2,100 | 1,867 | 12.5% | |
| (LBIT)/EBIT | |||||
| Masters | ($m) | (233.5) | (245.6) | (4.9)% | |
| Home Timber and Hardware | ($m) | 14.7 | 20.9 | (29.7)% | |
| Home Improvement | ($m) | (218.8) | (224.7) | (2.6)% |
In FY16, total significant items of $4,013.7 million before tax ($2,627.8 million after tax attributable to shareholders of Woolworths) were recognised. In FY15, total significant items of $425.9 million before tax ($307.3 million after tax attributable to shareholders of Woolworths) were recognised. Where noted, profit and loss items have been adjusted to reflect these significant items.