Overheads, Cash Flow and Balance Sheet

CENTRAL OVERHEADS

Central Overheads before significant items 1 including EziBuy were $157.8 million for the year. Excluding EziBuy, Central Overheads were $142.6 million and increased $24 million on the prior year partly driven by higher team performance-based bonuses. The loss before interest and tax for EziBuy before significant items 2 was $15.2 million compared to EBIT of $2.6 million in the prior year.

BALANCE SHEET

Key balance sheet movements relative to the prior year were as follows:

  • Closing inventory of $4,558.5 million decreased $314 million with $354 million of the decrease attributable to the impact of significant items 1 recognised in FY16 and the reclassification of Home Timber and Hardware (HTH) inventory within ‘net assets held for sale’. Excluding the impact of the above items, inventory increased $40 million driven by the investment in inventory in 98 net new stores partially offset by a number of initiatives aimed at reducing inventory holdings. Closing inventory days excluding Home Improvement increased 0.7 days to 35.6 days.
  • Net investment in inventory was ($250.6) million or ($521) million excluding Home Improvement and significant items 1, remaining broadly flat year on year with no material differences in the timing of creditor payments (FY15: ($524) million excluding Home Improvement).
  • Other creditors of $1,751.5 million increased $328 million driven by an increase in accruals for short‑term team performance‑based bonuses and other trading accruals.
  • Provisions of $3,255.9 million increased $1,577 million driven by the recognition of onerous lease and other store exit cost provisions relating to significant items 1 recognised in FY16 of $1,494 million, of which $1,150 million relates to Home Improvement. Excluding significant items 1, provisions increased $83 million due to an increase in provisions for employee entitlements.
  • Fixed assets and investments of $8,371.3 million decreased $1,793 million driven by significant item 1 impairment charges of $1,633 million relating to the impairment of Home Improvement assets of $1,432 million and impairments resulting from the FY16 Group wide review of $201 million, as well as the transfer of Home Improvement and other Group property assets to ‘net assets held for sale’ of $843 million. Excluding the impact of the above items, fixed assets and investments increased by $683 million driven by net capital expenditure of $1,713 million relating to new stores, store refurbishments and support assets offset by depreciation charges and asset disposals and retirements in the ordinary course of business.
  • Net assets held for sale of $897.9 million represents assets and liabilities relating to HTH, property, plant and equipment relating to Masters and other Group properties held for sale.
  • Intangible assets of $5,978.3 million decreased $266 million driven by impairment charges of $439 million primarily relating to the impairment of goodwill and other intangible assets in EziBuy and Home Improvement. Excluding these impairments, intangible assets increased $173 million primarily reflecting increased intangible assets in our New Zealand Food business attributable to the stronger New Zealand dollar.
  • Total funds employed decreased $3,682 million, primarily impacted by the impairment charges and provisions recognised during the period for significant items 1.
  • Net tax balances of $1,070.5 million increased $416 million primarily due to $260 million in net tax benefits associated with significant item 1 expenses and a decrease in current tax payable driven by a higher tax instalment rate applying to tax payment in the first half of FY16 on lower profits.
  • Other financial assets and liabilities of $285.6 million changed by $938 million, primarily due to the $887 million movement in the valuation of Lowe’s put option in our Home Improvement business.
  • Shareholders’ equity decreased $2,364 million to $8,470.6 million primarily reflecting losses from discontinued operations attributable to the shareholders of Woolworths of $2,038.3 million and dividend payments of $1,471.2 million, offset by the increase in issued share capital of $282.1 million reflecting shares issued under the dividend reinvestment plan and profits generated from continuing operations attributable to the shareholders of Woolworths of $803.5 million.
  • ROFE before significant items 1 was 18.49%, a decrease of 724 bps or excluding Home Improvement was 22.2%, a decrease of 1,040 bps.
CASH FLOW

Cash flow from operating activities before interest and tax decreased $1,215.8 million to $3,495.3 million and was primarily impacted by the lower trading performance and the impact of the timing of creditor payments relative to the reporting period date (approximately $155 million). Significant items 1 recognised during the year did not have a material impact on cash flows from operating activities before interest and tax.

Excluding the impact of creditor timing and significant items 1, the decrease in cash flow from operating activities before interest and tax was broadly in line with the decrease in EBITDA before significant items 1 for the Group.

Cash realisation ratio 2 before significant items 1 was 95.0%, impacted by the Home Improvement business. Excluding Home Improvement, our cash realisation ratio for continuing operations before significant items 1 was 103.6% (FY15: 102.7%).

Net interest paid of $289.3 million decreased $21.0 million driven by lower average net debt funded by proceeds received from the sale of property assets.

Tax payments decreased to $848.5 million for the year (FY15: $1,055.7 million) predominately due to the Woolworths Limited tax instalments being varied to nil from March 2016 in response to the lower FY16 trading result.

Cash used in investing activities was $1,266.7 million, a decrease of $67.2 million on the prior year. During FY16, cash proceeds of $737.0 million were received from the sale of property, plant and equipment, a decrease of $188.4 million on the prior year which included proceeds from the sale of 54 Hotel property assets and proceeds from the sale of shares in The Warehouse Group. Payments for the purchase of businesses, primarily representing five Hotels in FY16, decreased by $66.0 million on the prior year.

Expenditure on property development of $473.3 million decreased $122.4 million (FY15: $595.7 million) driven by lower activity in the current period.

Investment in property, plant and equipment of $1,465.0 million included continued investment in new stores and store refurbishments and spend associated with supply chain and IT asset initiatives.

Cash contributions from Lowe’s in relation to our Home Improvement business were $120.0 million and relates to H1’16.

There were no proceeds from share issues during the year as the Group had fully transitioned to the use of performance rights, which do not have an exercise price, by the end of FY15.

Our fixed charges cover ratio 3 before significant items 1 is 2.3 times.

  1. 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.

  2. Operating cash flow as a percentage of Group net profit after tax before depreciation and amortisation.

  3. Group earnings before interest, tax, depreciation, amortisation and rent (EBITDAR) divided by rent and interest costs. Rent and interest costs include capitalised interest but exclude foreign exchange gains/losses and dividend income.