2008 Woolworths Group plc - AnnualReports.com
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Address
Woolworths Group plc
242 Marylebone Road Woolworths Group plc
London
NW1 6JL
Telephone
+44 (0)20 7262 1222
Facsimile
+44 (0)20 7706 5416
2008 ANNUAL REPORT AND ACCOUNTS
www.woolworthsgroupplc.com
2008ANNUAL REPORT
AND ACCOUNTS
> Retail Woolworths
Our stores comprise traditional Woolworths outlets located
in small towns and city suburbs, targeted at meeting basic
everyday shopping requirements, as well as larger stores
located on prime shopping streets in major regional
shopping centres. The product offer covers Toys, Children’s
Clothing, Events, Confectionery, Home and Entertainment;
larger stores include a more comprehensive range of Home
and Children’s Clothing.
Through its website and catalogue, The Big Red Book,
Woolworths offers customers a multichannel shopping
solution across a broad range of products. Orders can be
placed at home or in-store with delivery to either the
customer’s home or for collection in-store.
www.woolworths.co.uk
> Entertainment Wholesale
and Publishing
2 | Entertain
Contents The Group holds a 40 per cent share in this joint venture,
02 Financial and Operational Highlights combining the former VCI audio and video business with
03 Chairman’s Statement BBC Worldwide’s video publishing arm. Recent video titles
Directors’ Report
Business Review
|
2 Entertain
include “Clarkson – Supercar Showdown” and “Top Gear –
Interactive DVD” and on audio, the “100 Hits” range.
www.2entertain.co.uk
04 Our Resources
10 Chief Executive’s Report
16 Finance Director’s Report
20 Risk Factors Entertainment UK Limited (‘EUK’)
21 Corporate Social Responsibility EUK is the UK’s leading distributor of entertainment products,
22 Board of Directors generating an annual turnover in excess of £1.1 billion.
EUK’s product portfolio covers all of the major
24 Corporate Governance
entertainment formats – music, DVD, games and books –
28 Other Information as well as mobile phones. In turn, these products are
31 Directors’ Remuneration Report supplied to some of the country’s best known store groups
40 Statement of Directors’ Responsibilities and online retailers.
41 Independent Auditors’ Report
42 Group Income Statement www.entuk.co.uk
Group Statement of Recognised Income and Expense
43 Group Balance Sheet
44 Group Cash Flow Statement Bertram Group Limited
45 Notes to the Group Accounts
Bertram Group consists of the following three divisions:
82 Five Year Record
83 Independent Auditors’ Report Bertrams | THE, the UK’s leading book wholesaler with a
84 Company Balance Sheet growing number of international customers.
85 Notes to the Company Accounts
Bertram Publisher Services provides distribution services
91 Shareholder Information
to a wide range of client publishers.
TOTAL HOME ENTERTAINMENT
Bertram Library Services, an industry leading supplier of
books, tapes, CDs, games and many other audio-visual
THE products to public libraries, schools, universities and
educational institutions in the UK and around the world.
www.bertrams.com
Woolworths Group plc 01. Annual report and accounts 2008 WOOLWORTHS GROUP PLC is principally a UK retailer and Entertainment distributor focused on the home, family and entertainment. Woolworths offers its customers value-for-money on an extended range of products. It is built around the well known Woolworths brand which is represented in towns and cities throughout the UK. Through Entertainment UK, Bertram Group and 2 entertain, Woolworths Group also has leading positions in UK Entertainment and Books wholesale distribution and publishing.
02. Woolworths Group plc
Annual report and accounts 2008
Financial > Group revenue increased by 8.5 per cent
to £2,969.6 million
Highlights > Adjusted profit* before taxation increased
£6.5 million to £28.3 million
> Profit before taxation decreased £4.3 million
to £11.7 million
> Adjusted basic earnings per share** increased
to 1.4 pence per share from 1.2 pence per share
> Basic earnings per share decreased to
0.5 pence per share from 0.9 pence per share
> Net debt at the year-end of £123.7 million
2008
Operational > Entertainment Wholesale business enhanced
by supply to new customers including Asda and
Zavvi (formerly Virgin Megastores) and the planned
Highlights integration of THE and Bertram Group
> Bertrams acquisition cleared following
investigation by the Competition Commission
> Woolworths like-for-like sales down
3.2 per cent
> Multichannel revenue increased by 5.2 per cent
> Woolworths gross margin increased by 101
basis points
> Entry price point range launched with 1,417 items
branded Worthit!, generating 11.6 per cent
of transactions in peak week
* Throughout this document, adjusted profit before taxation is calculated as set out on page 17.
** Throughout this document, adjusted basic earnings per share is as calculated in note 9 to the
financial statements.
Woolworths Group plc 03.
Annual report and accounts 2008
Chairman’s
Statement
Against a difficult trading For the Entertainment Wholesale The Board has taken the
environment, we have managed business, it was a year of major decision to cut the dividend.
substantial change across change. Over a period of 18 Taking into account the
the Group as a whole. Profit months we have gone from a Group’s plans, the Board is
before tax and exceptional business with one dominant recommending a final dividend
items increased to £14.9m third party customer, the main of 0.17 pence per share. At this
from £7.3m in the prior year. contract with whom terminated lower level the full year dividend
Adjusted profit (which is in May 2007, to one with six of 0.6 pence per share is
before tax, exceptional items, significant third party customers. covered 2.4 times by adjusted
adjustment for fixed rental At the same time we have earnings and provides a base
uplifts and amortisation of become far less dependent on from which to grow it as
certain intangible assets) the CD market and more performance improves. The
increased from £21.8 million exposed to the growing books Board believes that payment
to £28.3 million for the 52 and computer games markets. of a dividend at this level
weeks to 2 February 2008. Sales increased by 36.6 per represents an appropriate
cent to £1,176.6 million and balance between providing a
We are pleased to report that
adjusted profit was broadly return to shareholders and
the retail business returned to
unchanged. preserving the financial flexibility
profitability this year. Whilst like-
necessary to support the plans
for-like sales were down 3.2 per 2 entertain, our joint venture
and ongoing development of
cent, gross margin improved by with BBC Worldwide had an
the business over both the short
101 basis points and costs outstanding year. Adjusted
and longer term.
were contained below the rate attributable profit increased by
of retail cost inflation. The £6.7 million due to a number On behalf of the Board I would
business did benefit by £10.9 of successful releases, most like to thank our colleagues in
million (2007: £5.8 million) from notably “Planet Earth” in the business for their sheer
the full year effect of relifing America. enthusiasm, hard work and
certain fixed assets; and from dedication. It is evident that they
In January 2008 we announced
property profits, some are committed to the future
that we had completed a
£5.0 million higher than last success of the business.
refinancing of the Group. The
year. Nonetheless, adjusted
new £350 million asset based
profit improved by £16.3 million
lending facility and the £35
to £3.4 million.
million 2nd lien loan provide us
with long term finance, the level
of which flexes with our working
capital requirements. Richard North
Chairman
2 April 2008
04. Woolworths Group plc
Annual report and accounts 2008
Directors’ Report
Business Review
Our Resources
The Directors are pleased to present their report
and the consolidated financial statements of the
Company and its subsidiaries for the financial year
ended 2 February 2008.
Woolworths Group plc is principally a
UK general retailer and entertainment
distributor focused on the home
and family. The Group is comprised
of two main divisions; Retail, and
Entertainment Wholesale and
Publishing. The key assets of these
divisions are reviewed over
pages 04-09.
>
Retail
Stores Since opening its first store in 1909, Woolworths has become a
familiar feature on the UK’s high streets. Over four million people
shop in our stores each week. There are today 801 Mainchain
stores located in small towns and city suburbs, targeted at meeting
basic everyday shopping requirements, as well as larger stores
located on prime shopping streets in major regional shopping
centres. The product offer covers Toys, Children’s Clothing, Events,
Confectionery, Home and Entertainment. In Woolworths’ out-of-
town stores, a wider selection of Toys, Outdoor goods, kids’
bedroom ranges and Entertainment products can be found. With its
rich and well-loved heritage, Woolworths continues to refresh its
store formats and the shopping environment to meet its customers’
requirements.
Mainchain Out-of-town Total
Number of stores: 801 17 818
Average sq ft: 8,359 50,763 9,240
Through its website and catalogue, The Big Red Book, Woolworths
offers customers a multichannel shopping solution across a broad
range of products. Orders can be placed at home or in-store with
delivery to either the customer’s home or for collection in-store.
Woolworths Group plc 05.
Annual report and accounts 2008
> Since opening its first store in 1909
Woolworths has become a familiar
feature on the UK’s high streets.
Over 4 million people shop in our
stores each week.
> Woolworths offers its customers
value-for-money on an extended
range of products.
> The product offer includes Toys,
Children’s Clothing, Events,
Confectionery, Home and
Entertainment.
> Ladybird is one of the
best selling childrenswear
brands in the UK.
Focusing on clothing for
children age 1-10 years,
the brand offers fun,
fashionable clothing at
affordable prices.
06. Woolworths Group plc
Annual report and accounts 2008
Directors’ Report
Business Review
Our Resources – Retail (cont’d)
Colleagues The quality of Woolworths’ colleagues, in-store, in our distribution
centres and at Head Office is vital to the Group’s success.
Employing around 30,000 people, we place an emphasis on high
standards of customer care and service, so our colleagues’
development and training is a priority. We encourage and enable our
people to develop their knowledge, skills and career options across
all facets of our business. We offer high quality business education
and practical training in specific skills.
Woolworths offers a leadership programme for graduates
(Woolworths Group Leadership Programme). WGLP is a
development framework for people with potential to become future
business leaders. It develops people within chosen functional areas,
including Business Development, Marketing, Commercial, Retail,
Supply Chain and Distribution, Finance, Human Resources or IT.
For more information on a career at Woolworths, go to
www.woolworthscareers.co.uk.
Brands Ladybird – Dating back to the 1950s, Ladybird-branded Children’s
clothing is now synonymous with Woolworths, which secured
exclusive rights to the brand in 1984. Ladybird clothes are popular,
modern and continue to appeal to today’s parents and their
children.
Chad Valley – the Chad Valley brand first appeared on toys in
around 1920 and was acquired by Woolworths in 1988. Today it
comprises an extensive range of high quality, value-for-money toys
and games suitable for all children.
Worthit! – A range of entry price items, under consistent Worthit!
livery, launched in the early part of 2007. The range currently
includes over 1,000 products spread across every category in store
and includes seasonal items. The Worthit! brand presents a very
clear statement about the competitiveness of Woolworths’ prices.
Licences
Through our focus on ‘Kids and Celebrations’, Woolworths strives
to be the natural partner of choice for leading Children’s brands
from around the world. By developing bespoke strategies with
licensors, Woolworths has created exclusive branded promotions
and products which offer a clear point of difference to customers.
Supply Chain Before products can reach our stores, they must be sourced,
purchased, transported and stored. As a general merchandise
retailer, this is a complex business involving buying and logistics
teams located at Head Office and at Woolworths Group Asia
Limited, our Hong Kong based sourcing facility. Separate buying
teams are in place for each product category and include category
planners, buyers, merchandisers, marketeers and supply chain
specialists. Our strategy is to reduce costs by buying directly from
suppliers or from low cost manufacturers in Asia, Eastern Europe
Castleton
and the Middle East. In addition, this means that new product
innovation can be delivered more quickly through closer cooperation
Bedford with manufacturers. Woolworths’ distribution network principally
Swindon
consists of three core distribution centres through which
merchandise is distributed to the individual stores.
Woolworths Group plc 07.
Annual report and accounts 2008
Directors’ Report
Business Review
Our Resources
>
Entertainment
Wholesale and
Publishing
Broad Market Reach Through Entertainment UK and
Bertram Group, we have leading
positions in UK Entertainment and
Books wholesale distribution.
As intermediaries between suppliers and retailers
we aggregate entertainment hardware, software
and books from the world’s leading publishers
and manufacturers into a single store shipment
for our customers.
Value Added Services We add value through managing the retailer’s
inventory and, using our detailed know-how and
market research, assist our customers in determining
the best range of product required. We then source
this product, receive stock at our distribution sites,
pick and aggregate orders and packages for
individual customers.
We offer sale or exchange rights to customers,
marketing or promotional management, store fixtures
and point of sale design, in-store merchandising and
dedicated call centres dealing with customer queries.
We also provide technical support and fulfilment to
online retailers and digital distribution solutions to
support their multichannel strategies.
08. Woolworths Group plc
Annual report and accounts 2008
Directors’ Report
Business Review
Our Resources – Entertainment
Wholesale and
Publishing (cont’d)
Customer and Supplier We value our long-standing and trusted relationships with the
Relationships music, film, books and games publishing communities. We make
it our business to understand their market, products and priorities
and strive to bring vision and innovation to the retail supply chain.
All of our customers are important to us and we have structured
EUK, and Bertrams | THE to meet the varied needs of independent
stores, major entertainment and bookselling chains along with the
supermarket sector. We are proud to include Sainsbury’s, Zavvi,
Morrisons, Asda and Tesco amongst our customers.
|
2 Entertain
BBC Worldwide’s 2 entertain is a music and video publishing joint venture between
Partner of Choice Woolworths Group and BBC Worldwide Limited, the consumer
commercial arm of the BBC. The Group holds a 40 per cent share
in the venture.
2 entertain Video, is the UK’s largest independent video
publisher/distributor, a dynamic player in the UK market
championing British programmes and talent both at home and
internationally. The video division has a key licensing agreement with
BBC Worldwide. In addition, the business enjoys many relationships
with other key major talent and content providers in the
entertainment industry.
Expertise in 2 entertain specialises in acquiring DVD publishing rights to core
Packaged Media BBC productions along with those of the leading independent
production houses. Through Demon Music Group, and Banana Split
Productions, the venture also has leading positions in recorded
music and video production respectively. With extensive experience
in packaged media, and as the UK’s largest independent video
publisher/distributor, 2 entertain brings industry leading expertise to
the process of producing, selling, marketing and merchandising
some of the UK’s best loved programming to retail.Woolworths Group plc 09.
Annual report and accounts 2008
> www.woolworths.co.uk offers excellent
home entertainment products including
CD’s, computer games and DVD’s.
> We value our long standing relationships
with the music, film, books and games
publishing communities.
> 2 entertain Video,
is the UK’s largest
independent video
publisher/distributor,
a dynamic player in
the UK market.
> Woolworths Group has
leading positions in
UK Entertainment
wholesale distribution
and publishing.10. Woolworths Group plc
Annual report and accounts 2008
Directors’ Report
Business Review
“Overall, across the Group we
believe we enter 2008/9 with the
businesses strengthened relative
to the prior year and well set up
for the challenge ahead.”
Chief
Executive’s
Report
In the 52 weeks ended Adjusted profit (which is before Firstly, and most materially, just
2 February 2008, total Group tax, exceptional items, over half of the decline in like-for-
revenue from continuing adjustment for fixed rental uplifts like sales was due to the decision
operations was £2,969.6 million. and amortisation of certain not to chase unprofitable sales,
This represents an 8.5 per cent intangible assets) was £28.3 particularly of electrical and
increase over the prior year. million, an increase of 29.8 per computing products. These
Each of our businesses made cent over the prior year. This markets are highly competitive,
significant progress during the increase was delivered despite with the internet allowing easy
year and overall the strategic a challenging external price comparisons. As a
positioning of the Group has environment and in the midst consequence, gross margins
been strengthened. At a sales of extensive internal change are low. Add to this the high
level, this was particularly in our businesses. servicing costs of delivery,
evident in our Entertainment technical support and customer
Retail
Wholesale distribution business, returns, and the overall net
The key focus of the year at
where third party sales increased profitability can be negligible
Woolworths was to return the
by 36.6 per cent over the prior or often negative.
business to profitability and
year, as new customers and
establish a profit base on which Secondly, Woolworths has
acquisitions were integrated into
to build. The adjusted profit was historically been a leading
the business. 2 entertain, our
£3.4 million compared with a beneficiary of shopping voucher
music and video publishing joint
loss of £12.9 million in the prior redemptions bought via savings
venture with BBC Worldwide,
year. This turnaround came clubs. Following the bad
increased its third party sales by
thanks to further enhancement publicity attached to the failure
21.2 per cent, particularly helped
of gross margins, rigorous of Farepak in 2006, sales of
by developing international
control of costs, the full year vouchers fell dramatically. We
sales. Sales at Woolworths fell
benefit of asset relifing, believe that this reduced like-
3.2 per cent like-for-like,
continued exploitation of the for-like sales by 1.1 per cent.
reflecting our key focus of not
property portfolio and active
chasing unprofitable sales and Thirdly, the decision was taken
management away from loss-
returning the Retail business to not to advertise on TV during
making sales.
profit. This goal was achieved the Christmas trading period to
and was a key driver in Total like-for-like sales declined the same extent as prior years.
delivering improved year-on-year by 3.2 per cent largely for the While this may well have held
Group profits. following reasons: back sales, the overall impact
on Woolworths’ profit and loss
account was positive.Woolworths Group plc 11.
Annual report and accounts 2008
Transport
2008 2007
Vehicle kilometres (millions) 25.9 27.2
Fuel consumption (million litres) 7.7 8.0
Vehicle mileage has reduced by 4.8 per cent year-on-year, with a
corresponding reduction in fuel consumption of 3.8 per cent. This has been
achieved via a new routing and scheduling system for deliveries from
Distribution Centres to Stores, improved flexibility in Store delivery windows
and increased use of double deck trailers.
Service centre
2008 2007
Calls received (000’s) 826 846
Service level 93% 90%
The Woolworths Customer Support department handles customer enquiries
and complaints for all stores and also our websites, along with orders and
queries relating to our Big Red Book catalogues. The number of contacts
decreased in 07/08, due to the use of pro-active SMS messaging, whilst the
level of service increased by 3.3 per cent year-on-year.
At a category level, the Our Confectionery business
strongest area of the business also experienced price Self-audit
was computer games. Demand deflationary pressure. This was Compliance points score (out of 100)
2008 2007
for new formats such as particularly so in the gift market,
Nintendo Wii, Nintendo DS and where products tend to be used Compliance score 77.1 77.4
Sony PS3 continued to outstrip by the supermarkets to drive
supply. We anticipate that this value price perception. Against The store self-audit is a scheme to check that our stores are compliant with
Company procedures and also external factors such as trading standards
growth will continue and will this backdrop, we continued
and health and safety issues. Store standards are broadly consistent year-
more than counter the decline in to seek to differentiate the on-year, with a slight decline in average store score of 0.4 per cent.
the traditional music market as Woolworths offer and were
was the case in 2007/8. DVD’s selective with our price
and Books both held up well investment. In everyday Mystery shopper
in the year and we anticipate Confectionery ranges, the Service standards (out of 100)
that this will continue in the launch of a full range of 2008 2007
medium term. Woolworths Worthit! sweets has Mystery shopper score (Xmas cycle) 76.6 76.4
provided a point of difference
In our Toy business, sales were
from the competition and All stores receive regular visits from “mystery shoppers”. This allows us to
held back as spend was
enhanced our value positioning, gain a true reflection of how our stores are performing and to benchmark
diverted to computer games, our service standards. The Christmas cycle is a key review to ensure that
driving incremental volumes.
particularly when there was stores are ready for the busy Christmas trading period. This shows a slight
availability of Nintendo Wii and Across the entire business, the improvement year-on-year, demonstrating continued advancement of
customer service.
DS, which appeal to the core introduction of the entry price
Toy market age group. Younger Worthit! range has been very
age toy categories such as well received by customers.
pre-school were less Indeed, to an extent we have
susceptible and were our most been victims of our own success.
buoyant Toy categories. Rates of sale have been higher
than anticipated and maintaining
Another area of product
availability in what is typically
success was the continued
long lead time product has
progress of our Ladybird
sometimes been a challenge.
clothing ranges, where total unit
In its peak week, Worthit!
sales surpassed the prior year
products accounted for 7.9 per
and market share continued
cent of total sales and 11.6 per
to grow, albeit in a market
cent of total transactions.
experiencing price deflation.
Following Christmas trading,12. Woolworths Group plc
Annual report and accounts 2008
Directors’ Report
Business Review
it now is clear that Worthit! Evolving the supply chain is targetting a further 40 basis
products are relevant in seasonal We continued to make progress point improvement in margin
as well as everyday ranges. The in enhancing our supply chain and a reduction of £8 million in
Worthit! Christmas products capability, in terms of both the costs in the coming year.
such as trees, decorations and warehouse and transportation
Capital Expenditure and Store
cards all sold out early in the network, as well as increasing
Portfolio Management
season. During the year 1,417 the sophistication of the IT
During the year some £33.3
Worthit! lines were launched systems that drive replenishment.
million of capital expenditure
and we continue to refine and Over the Christmas trading
was invested including the
develop the product and its period, inventory levels were
acquisition of four store
Chief sourcing. In 2008, a new range
of approximately 2,200 products
kept very tight to ensure sell
through of seasonal ranges and
freeholds, repairs, renewals and
enhancements to the physical
Executive’s branded “Woolworths” will be
launched to provide the logical
thereby reduce exposure to
unplanned mark down. As at
estate, opening five new stores
and refurbishing 10 older stores.
“sell up” alternative to Worthit! the end of the first week of the
Report (cont’d) This is designed to increase
sales, drive up basket spend
January sales, inventory in
Woolworths was some £61
Trading from the newly opened
stores has been encouraging.
A programme of low cost
and improve overall margins. million lower than the prior year
refurbishments in 77 stores has
and was of a superior quality.
Multichannel provided good levels of return.
Following initial rapid growth Improving stock control was a
Given the size and nature
and the establishment of a contributory factor in enhancing
of the property portfolio, it is
multichannel sales base in margin, alongside increased
appropriate that it is actively
2007/8 we chose to move away direct supply of product from
managed and we have achieved
from electricals restricting the Far East, where shipments
property profits from a number
headline sales growth to 5.2 per grew by 12 per cent. The lower
of transactions including
cent. We traded toward higher cost prices achieved from
disposals, sublets, store cut
margin categories and reduced greater use of direct supply
downs or store swaps with
unit despatch costs by utilising allowed us to improve our price
other retailers.
the Woolworths distribution competitiveness.
network instead of couriers. Retail Summary
Overall margin increased by 101 The prime objective for the year
Feedback on the Big Red Book
basis points. was to enhance profitability. This
catalogues continues to be very
positive with customers enjoying We believe that significant was achieved as we continued
its manageable and focused opportunity remains to enhance to improve cost performance,
Kids based offer. This channel the profitability of the business worked hard to deliver profitable
of business provides significant through a combination of sales and continued to focus on
opportunity for the future, both increased direct sourcing, enhancing both the service and
in terms of sales growth and a greater efficiency in the product offer for our customers.
step change in profitability as distribution network and still We now have a base on which
fulfilment is further integrated further sophistication of the to build for the coming years.
into the Woolworths network IT systems that handle
over the next two to three years. replenishment. The businessWoolworths Group plc 13.
Annual report and accounts 2008
Entertainment Wholesale and party sales to £1,176.6 million. Retail stock
Publishing An important part of our (£m)
Entertainment Wholesale development strategy was to
(EUK / Bertrams / THE) increase exposure to both the 2008 288.7
This was a pivotal year for the books and computer games 2007 290.6
longer term development of the markets. This is important in the
Entertainment Wholesale longer term as both markets are
business. Having made two inherently attractive in terms of
acquisitions in the prior year and size and growth prospects. EUK unit handling cost
won two new major accounts, They also have less immediate (pence per unit handling cost)
there was a significant threat from digital formats when % change YOY
operational challenge for the compared to the music and 2007/08 24.7 +9.4
business to integrate the DVD markets which historically 2006/07 22.6 -9.3
acquisitions, cease supply of have made up the bulk of EUK’s
CD’s, DVD’s and computer sales.
games to Tesco and commence
trading with the new customers. We have also sought to diversify
the customer base in a 2 entertain DVD rankings
During the year, key activities progressive manner. We are (Source British Video Association)
undertaken by the now pleased to service a broad
Entertainment Wholesale spectrum of customers who TV Genre Ranked 1st
division include: supply the consumer through a Interactive Genre Ranked 1st
– The integration of Bertrams variety of traditional and non Sports and Fitness Genre Ranked 3rd
following its acquisition in traditional channels.
Special Interest Genre Ranked 2nd
January 2007 As a consequence of this
– Securing clearance from the considerable change
Competition Commission programme, EUK, THE and
following its investigation into Bertrams incurred additional Retail margin
the Bertrams acquisition costs, some of which were (basis points improvement)
exceptional and others that
– The commencement of resulted from the inefficiency 2007/08 50 40 40 20 105 101
supply to Zavvi (formerly associated with change. These 2006/07 50 40 40 20 105
Virgin Megastores) costs held back profitability but
2005/06 50 40 40 20
– The commencement of by their nature will not reoccur
in the coming year and 2004/05 50 40 40
supply to Asda
accordingly we expect to make 2003/04 50 40
– The closure of one progress in 2008/9.
2002/03 50
warehouse and physical
relocation of supply to other Having traded through its peak
EUK sites season, the enlarged business
is now well placed going
– Cessation of supply of CD’s, forward. Without the distraction Retail shrinkage
DVD’s and computer games of business integration, we will (£m)
to Tesco be able to focus on developing
our customers’ businesses, 2007/08 36.9
Against this dynamic
background, the business enhancing and differentiating 2006/07 36.5
delivered sales growth of our service proposition and 2005/06 36.3
36.6 per cent, taking total third driving efficiency across our
operations. 2004/05 42.2
2003/04 41.8
2002/03 47.7
2001/02 53.2
Retail like-for-like sales
-3.2%14. Woolworths Group plc
Annual report and accounts 2008
Directors’ Report
Business Review
EUK and Bertrams now have increased by 59.5 per cent to declining traditional music
a wide spread of customers, £18.5 million. There were many market. Demon’s core business
covering multiple and successful product releases is in producing budget and mid-
independent specialists, during the year but undoubtedly range compilations and it
general retailers, the growing the most significant was the continues to capitalise on its
supermarket channel and release of “Planet Earth” in the strong relationships with key
increasingly a range of online US which caught the imagination retailers. New product ranges
retailers. of the American consumer, like “100 Hits”, “The Red Box”
yielding excellent sales of both and “Music Club Deluxe” sold
Another business stream that
the high definition and normal well and ensured that, despite
Chief has developed well during the
year is the supply to the public
resolution product. In the
relatively new high definition
lower sales value than the
previous year, strong volume
library network through Bertram
Executive’s Library Services. Total sales
increased by 6.7 per cent
market, “Planet Earth” is the
highest grossing release to date.
sales and product mix drove a
favourable margin.
Report (cont’d) during the year.
It is inevitable that over time
In the UK, the best selling
products were “Clarkson –
Banana Split Productions, the
in-house production arm of
Supercar Showdown” and the 2 entertain, traded solidly across
some of the markets which
“Top Gear Interactive DVD”. the year and continues to occupy
our Entertainment Wholesale
Total DVD sales in the UK were a niche position as a low cost
businesses serve will move from
marginally below the overall producer of video based content.
physical to digital delivery. In
market as there was no
readiness for this we continued Entertainment Wholesale and
“runaway” success from the
to develop our digital capabilities. Publishing Summary
release schedule, Our Entertainment Wholesale
Having already established a
notwithstanding a broad spread business had a transformational
successful presence in digital
of solidly performing titles. year. We are now positioned as
music, supporting EUK’s retail
customers and a network of The success of “Planet Earth” has a market leader in the supply
digital jukeboxes, the key activity helped develop the international of books and entertainment
during the year was to build the component of the business. product. A strong platform has
capability to offer new digital International sales accounted for been established which in the
markets such as movie and 46 per cent of total sales. After short term we shall exploit by
computer game downloads, North America, the next largest returning efficiency to the
alongside mobile phone content. sales region is Australia / Far business, and longer term look
Trialling this new service offer East, where programmes like to move into adjacent markets
began in early 2008. “Dr Who” and “Little Britain” as a route for growth.
continue to grow their franchise. 2 entertain continued to develop
2 entertain
2 entertain had an exceptionally Demon Music Group, the during the year and whilst the
good year. Total sales grew by recorded music publishing success of “Planet Earth”
23.5 per cent, climbing to subsidiary of 2 entertain, had a contributed significantly, the
£240.7 million. Dividends very successful year, especially overall business continued to
received from the joint venture when set against the rapidly build underlying profitability.Woolworths Group plc 15.
Annual report and accounts 2008
Outlook For the Entertainment Wholesale
We are cautious about division, we anticipate overall a
consumer spending going comparatively benign market
forward and are therefore not across the core categories, with
planning for the Woolworths growth in computer games
business to grow its sales more than offsetting the decline
line. This is a sensibly in music. The key opportunity
prudent approach to sales, for EUK/Bertrams lies in
notwithstanding the clear enhancing operational efficiency
opportunities which exist from now that the integration of
increased exploitation of our acquisitions and new customers
multichannel capability and is complete. In this more stable
further development of our in- position, many of the friction
house brands. A key focus of costs experienced in this year
the retail business will be further will not be present, which will
margin development set enhance profitability.
alongside a significant rebasing
Overall, across the Group we
of cost levels from business
believe we enter 2008/9 with
simplification. The key enabler
the businesses strengthened
for business simplification is a
relative to the prior year and well
reduced exposure to larger,
set up for the challenge ahead.
over-spaced stores. We will now
actively restrict the maximum
traded store footprint within the
estate, which will have a marked
impact on both central and
store costs.
Trevor Bish-Jones
At 2 entertain the key driver of Chief Executive
success will be the quality of the 2 April 2008
release schedule. Our unique
and extensive relationships with
key content providers puts
2 entertain in a good position
to develop the business further.16. Woolworths Group plc
Annual report and accounts 2008
Directors’ Report
Business Review
“The results reflect a highly
challenging retail environment
and a year of change for our
Entertainment Wholesale
business.”
Finance
Director’s
Report
The results for the year are share, compared with a total of Adjusted Profits from
produced under International 1.77 pence per share in the Entertainment Wholesale and
Financial Reporting Standards prior year. This level of full year Publishing amounted to £54.8
(IFRS) and to aid understanding dividend is covered 2.4 times by million compared to £53.1 million
we show in tables on page 17 Adjusted Profit after tax and at in the previous year. This reflects
the reconciliation of profit under this level forms a base from a highly successful year from
IFRS to the Adjusted Profit which to grow with further 2 entertain, our joint venture
numbers used by management improvement in profitability. with BBC Worldwide, offset by a
and most of the analyst substantial reduction in the level
The results reflect a highly
community. of releases of historic accruals
challenging retail environment
no longer required. The adjusted
Earnings per Share and a year of change for our
profits of EUK together with
and Dividend Entertainment Wholesale
Basic earnings per share was THE and Bertram were down
business. They include a
0.5 pence per share compared £0.4 million on the previous year
number of one-off costs and
to 0.9 pence per share in the having benefitted by £3.8 million
the full year benefit of a number
previous year. Adjusted basic from asset relifing. This reflects
of accounting changes made
earnings per share (which a year of substantial change.
during the prior year.
removes the effect of fixed Further details of the
rental uplifts, amortisation of Profit before tax developments in the businesses
Adjusted Retail Profit was are again included in the Chief
certain intangible assets and
£3.4 million, an improvement of Executive’s Report.
exceptional items) was 1.4
£16.3 million on the prior year
pence per share against 1.2 Balance Sheet
loss of £12.9 million. Whilst the
pence per share last year. Overall Group stock increased by
retail environment remained
£13.9 million to £391.0 million.
A final dividend of 0.17 pence challenging, the business
This reflects the growth of the
per share has been benefitted from the investment
Entertainment Wholesale and
recommended by the Board. and accounting changes put in
Publishing business, more than
This will be paid, subject to place during the prior year and
offsetting the £1.9 million
shareholders’ consent, on the absence of one-off costs.
reduction in Woolworths retail
25 June 2008 to shareholders The full year benefit of asset
stock. The decrease in retail
on the register at close of relifing was £10.9 million,
stock, achieved by tight control
business on 11 April 2008. compared to £5.8 million in the
of purchasing, has been
This proposed dividend, prior year.
somewhat masked at year-end
together with the interim
Further details of the various by setting the business up for
dividend of 0.43 pence per
retail initiatives are included in the much earlier Easter in 2008.
share paid on 12 December
the Chief Executive’s Report on
2007, brings the total dividend During the year, four store
pages 10 to 15.
for the year to 0.6 pence per freeholds were purchased at a
cost of £5.1 million and £11.6
million was received from the
sale of the freeholds of theWoolworths Group plc 17.
Annual report and accounts 2008
Reconciliation of Adjusted Profit
52 weeks to 53 weeks to
2 February 3 February
2008 2007
£m £m
Profit before tax and exceptional items 14.9 7.3
Add back:
– amortisation of certain intangible assets* 7.6 3.9
– fixed rental uplifts 5.8 10.6
Adjusted profit before tax 28.3 21.8
Adjusted Segmental Analysis
for the 52 weeks to 2 February 2008
Entertainment
Wholesale and
Retail Publishing Unallocated Interest Total
£m £m £m £m £m
Guernsey and Jersey stores. Exceptional Items Reported
profit/(loss)
The £8.6 million profit from the As described above, the before taxation 6.2 35.4 (8.2) (21.7) 11.7
sale of the Channel Island disposal of the Guernsey and Adjust for:
freeholds is treated as an Jersey store freeholds resulted exceptional
exceptional item. Profits of in an exceptional profit of £8.6 items (8.6) 11.8 – – 3.2
£11.4 million were earned on million. This was more than (Loss)/profit
before
the assignment of store leases offset by (i) exceptional costs in exceptional
during the year against £6.4 the Entertainment Wholesale items (2.4) 47.2 (8.2) (21.7) 14.9
million in the prior year. business of £8.4 million relating Add back:
to the operational integration of – amortisation
Cash Flow and Net Debt of certain
the EUK, THE and Bertram intangible assets* – 7.6 – – 7.6
The Group’s average net debt
businesses and the costs of the – fixed rental
increased from £113.0 million
Competition Commission inquiry uplifts 5.8 – – – 5.8
to £246.3 million, reflecting the
into the acquisition of Bertram Adjusted
full year effect of the THE and (loss)/profit
and (ii) a provision of £3.4
Bertram acquisitions and the before tax 3.4 54.8 (8.2) (21.7) 28.3
million in relation to payments
increased working capital
made under the terms
requirements of the enlarged
establishing the 2 entertain joint
Entertainment Wholesale
venture which could not be
Adjusted Segmental Analysis
business. Capital expenditure for the 53 weeks to 3 February 2007
ascertained at that time.
in the Retail business reduced Entertainment
from £62.4 million to £33.3 Taxation Wholesale and
million, reflecting the completion The effective tax rate was 36 Retail Publishing Unallocated Interest Total
£m £m £m £m £m
in the prior year of the 10/10 per cent compared to 15 per
store refit programme. cent in the prior year. The prior Reported
year rate was lower than usual (loss)/profit
The year-end net debt of before taxation (14.8) 49.2 (7.7) (10.7) 16.0
due to the effect of a £5.6
£123.7 million was up from Adjust for:
million prior year tax credit exceptional
£103.3 million in the prior year.
which primarily arose as a items (8.7) – – – (8.7)
This reflects the substantial
number of historic tax provisions (Loss)/profit
increase in working capital before
were identified as no longer
required by the growth in the exceptional
required following agreement of items (23.5) 49.2 (7.7) (10.7) 7.3
Entertainment Wholesale
a number of historic queries. Add back:
business, more than offsetting
Under existing tax legislation it is – amortisation
cash generated in the other of certain
anticipated that the effective
parts of the Group. intangible
Group tax rate will be marginally assets* – 3.9 – – 3.9
above the main UK Corporation – fixed rental
Tax rate. uplifts 10.6 – – – 10.6
Adjusted
(loss)/profit
before tax (12.9) 53.1 (7.7) (10.7) 21.8
* Amortisation of certain intangible assets arising on consolidation, namely
underlying rights, customer relationships and trade names.18. Woolworths Group plc
Annual report and accounts 2008
Directors’ Report
Business Review
Pensions relevant. The full triennial Funding
The Group retains a Final Salary actuarial valuation at 31 March The Treasury function arranges
Pension scheme open to all 2005 showed that the Scheme sufficient secure financial
employees who have been with was 89 per cent funded with a resources to enable the Group
the Group for a minimum period deficit of £28.9 million. The to meet its medium-term
of 12 months. contribution rate paid by business objectives whilst
participating companies remains arranging facility maturities
The Scheme was created at
at 13.5 per cent of pensionable appropriate to its projected
the time of demerger and only
salaries. The next triennial needs.
comprised active members at
actuarial valuation is due to be
Finance that time. It is therefore a much
less mature scheme than most.
carried out at 31 March 2008
and has just commenced.
During the year, the Group
arranged various additional
It has 5,112 active members, facilities to finance its increased
Director’s 3,707 deferred members but
only 1,256 current pensioners
In January 2008, when the
Group moved its bank financing
working capital whilst carrying
out a full review of how best to
Report (cont’d) and therefore the Scheme
receives more in contributions
to a secured basis, the Trustee
was granted a £63 million 3rd
finance its ongoing
requirements. In particular, this
from the Group and members lien security. It was also agreed review incorporated the
than it pays out in pensions. that the Scheme would receive continued growth of the
This is likely to continue to be the first £50 million of proceeds Entertainment Wholesale
the case for approximately from any future disposal of the division, with its associated
11 years. Group’s investment in 2 additional working capital.
entertain, at which point an
The assets of the Scheme are The review concluded that the
equivalent amount of the 3rd
managed by external Fund most appropriate structure
lien security would be released.
Managers and at 2 February would be to move to an asset
2008 were £316.8 million (2007 Treasury Policy based lending facility, secured
£316.0 million). The allocation The Group’s Treasury Policy is primarily against EUK’s debtors
of Scheme assets is kept under structured to ensure that and the Group’s stock. In
regular review by the Trustees adequate financial resources are January 2008, facilities
of the Scheme. The liabilities available for the development of comprising a £350 million asset
calculated at the current level its business whilst managing its based lending facility and a £35
of fixed rate bond yields were currency, interest rate and million 2nd lien loan, were put in
£383.7 million (2007: £400.0 counterparty credit risks. The place for a period of four years.
million), giving an IAS 19 deficit Group’s Treasury strategy, policy These, together with an existing
of £48.2 million (2007: £58.8 and controls are developed £20 million invoice discounting
million) net of tax relief. centrally and approved by the facility available to Bertram,
However, the proportion of Board. The Group does not provide the Group with flexible
current active members and the engage in speculative facilities to meet its financing
timescales until pensions are transactions. requirements as the businesses
due to be payable does not continue to develop.
The main elements of Treasury
make the calculation particularly
activity are outlined below:Woolworths Group plc 19.
Annual report and accounts 2008
Currency To date, the interest payable on
The Group’s main currency drawings from the Group’s
translation exposure is limited to facilities has been at floating
movements in exchange rates rates driven by the variation in
to the extent that they affect amounts borrowed during the
balances held on its currency period. Interest receivable on
bank accounts and certain investments has also been at
foreign currency assets and floating rates for short
liabilities in the books of its maturities, given the seasonality
Hong Kong-based product of the Group’s cash flows.
sourcing company, Woolworths
Counterparty Credit Risk
Group Asia Limited. Foreign
The Group actively manages its
currency bank balances are
relationships with a panel of
controlled by the Treasury
high quality financial institutions.
function and are actively
Credit risk is controlled by the
managed to a level that
Treasury function setting
minimises currency translation
counterparty credit limits by
exposures. The Group’s main
reference to published rating
currency exposure is its
agency credit ratings. The
transaction exposure through
Treasury Policy recognises that
movements in exchange rates
an exposure to a counterparty
on its purchases overseas that
arises in relation to investments,
are not denominated in Sterling.
derivatives and financial
These are mainly imports from
instruments.
Asia denominated in US dollars
and imports from Europe Going Concern
denominated in Euros. The Directors confirm that, after
making enquiries, they have a
The Treasury Policy sets out a
reasonable expectation that the
framework through which the
Group has adequate resources
Group’s forecasted foreign
to continue in operational
currency transactions are
existence for the foreseeable
hedged.
future. For this reason they
Interest continue to adopt the going
The Treasury Policy requires that concern basis in preparing
an interest hedging plan for these accounts.
each year is approved by the
Finance Director at the time of
the annual budget. The Treasury
function is permitted to hedge in
accordance with this plan using
interest rate products such as Stephen East
swaps, options, forward rate Finance Director
agreements and futures. 2 April 2008
The Group will keep under
review the opportunity to hedge
its interest exposure following
the increase in its debt profile
during the year.20. Woolworths Group plc
Annual report and accounts 2008
Directors’ Report
Business Review
Any business undertaking will margins and profitability, trading period in terms of
involve risk. Many risk factors which have had in the past sales, profitability and cash
are common to any business, and could have in the future, flow has been the Christmas
no matter what sector it an adverse effect on the season. Lower than
operates in. The Group’s Group’s business and expected performance in this
approach to Financial Risk financial condition. period may have an adverse
Management is set out in the impact on results for the full-
2. Growth of the Digital
Notes to the Group Accounts. year which may also result in
Entertainment Market
A key driver of footfall and excess inventory, especially
The Directors consider that
sales within Woolworths in seasonal merchandise that
certain key risks and
stores and the core stock-in- is difficult to liquidate.
uncertainties however are more
germane to Woolworths Group trade for Entertainment UK, To a lesser extent a lower
Risk and the markets in which its
various businesses operate.
Bertrams | THE and 2
entertain is physical
than expected turnover over
the Easter period may also
Factors As part of the Business Review,
an assessment of such factors
entertainment media ie CD’s,
DVD’s, Books and Games.
have an adverse effect on the
Group’s business and
is set out below: In recent years, technological financial condition.
1. Competition advances and changing 4. Damage to Reputation
The Group operates in highly consumer preferences have or Brands
competitive markets. In given rise to new markets The Woolworths name is a
particular, in recent years the providing delivery of music, key asset of the business
retail landscape has seen films, games and books to and maintaining the reputation
significant changes and portable players and to the of the brand is key to the
trends in retail and consumer home via digital delivery, success of the Group. The
behaviour and spending bypassing the purchase of many separate product lines
which are challenging for traditional physical media of general merchandise
Woolworths Retail. The platforms. This trend may handled by the Group means
Group has faced and expects result in decreased demand the supply chain is complex
to face increased competition for such products in stores. and is subject to increasingly
from existing UK general and Decreased sales of home stringent laws and regulations
specialist retailers, food entertainment products at governing issues of health
retailers that have expanded retail or wholesale level may and safety, packaging and
and are further expanding have an adverse effect on the labelling, pollution and other
into general merchandising, Group’s business and environmental factors.
foreign retailers entering the financial condition.
The Group has a Quality
UK market and newly formed
The Directors believe that Assurance team and legal
competitors.
digital entertainment also and regulatory control
Further, the growth of offers opportunities for the processes both in-house and
internet retailing and out-of- Group and it has developed externally to advise and take
town shopping has required strategies to participate, action on existing and
and will require the Group including in Woolworths, a emerging risk management
to adopt and invest in multichannel retail offer and issues. However, these
new strategies to remain investment in digital rights systems cannot guarantee
competitive. and online delivery technology compliance or fully protect
within Entertainment against quality, regulatory,
The Directors believe that
Wholesale and Publishing. safety and environmental risk
where Woolworths offers
in the supply chain. The
customers product However, the growth of digital
Group is therefore potentially
innovation, exclusivity and markets and the increasing
vulnerable to an event or
value-for-money, it can uptake of Broadband access
circumstances adversely
continue to combat these will continue to place
affecting the supply chain or
pressures. However, actions pressure on the Group’s
merchandise which gives rise
taken by competitors as well participation in traditional
to liability claims and/or
as action taken by the Group entertainment retail and
reputational damage.
to maintain its competitiveness distribution channels.
Substantial erosion in the
and its reputation for value,
3. Seasonality value of the Woolworths
have placed and will continue The Group’s business is name could have an adverse
to place pressure on the highly seasonal. Historically, effect on the Group’s business
Group’s merchandise pricing, the Group’s most important and financial condition.Woolworths Group plc 21.
Annual report and accounts 2008
Directors’ Report
Business Review
The theme of Corporate Social highly competitive price to
Responsibility (“CSR”) has once encourage our customers to go
again kept us busy during the for the energy-efficient option.
year as we endeavour to do
We very much welcomed the
business in a socially responsible
dialogue with Greenpeace on
way throughout our operations.
this issue, although the
More details are given in our
behaviour of some of their
sixth online CSR report. For
members towards our store
Woolworths Group plc, as for
Corporate Social every major retailer, balancing
the needs of our business with
colleagues and executives was
unacceptable and not
conducive to a sensible debate.
Responsibility our commitment to CSR can at
times be extremely challenging. Woolworths is committed to
We are, however, determined to working to combat the effects of
meet those challenges head-on. climate change and was invited
Often we can plan in advance to join over 1,000 other
Recycling how to address new business
Tonnage of packaging recycled
business leaders at the Prince
2008 2007 issues. For instance, how best of Wales’s May Day Summit on
Woolworths 18,051 17,577 to meet forthcoming legal Climate Change. We pledged to
obligations. But we also have to take positive action within our
EUK 2,916 1,622 be prepared for the unexpected, companies, and with our
Total 20,967 19,199 as was the case with the toy suppliers, colleagues and
industry recall issues last customers to tackle this threat
Wherever possible, card and plastic materials, the major packaging Summer. We have well to our planet.
constituents in our business, are taken back to our Distribution Centres.
established procedures in place
The materials are then baled and passed to recycling businesses for The summit was organised by
reprocessing. During 2007/08, 20,967 tonnes were recycled by the to ensure that products sold by
Business in the Community, one
Group. This reflects a 9.2 per cent increase year-on-year, with a 2.7 per us are safe and legal and we
cent improvement in Retail and significant progress in the Entertainment of a number of organisations
have strengthened our product-
Wholesale business, however, this partly reflects the growth of this which promote CSR and to
element of the Group. testing regime still further,
which Woolworths belongs.
introducing extra tests for lead
Another is the British Retail
for all our toys in order to
Consortium, where I have a seat
prevent this sort of issue
Electricity usage on the Board. Through the BRC,
Tonnes of CO2 emitted
recurring.
Woolworths Group, along with
2008 2007
We believe it is important to give other retailers, does a great deal
Woolworths 77,593 84,971 our customers as wide a choice to promote the highest
EUK 7,677 5,959 as possible in the products we environmental and ethical
Total 85,270 90,930
offer. At the same time we are standards in our business
continually mindful of the need sector.
During the year, the Group’s electricity consumption decreased by 6.2 to reduce our energy
In the coming year, we will
per cent. This represents a decline of 8.7 per cent within Retail, driven consumption and, what’s more,
particularly by specific initiatives within stores, however, the impact of this continue to ensure that CSR is
to encourage our customers to
is negated by an increase in usage within the Entertainment Wholesale considered in every part of our
part of the Group, attributable to sales growth and acquisitions.
do the same.
business, to live up to the
During 2007, Greenpeace standards we have set. For a
claimed that Woolworths was full report on the Group’s CSR
Staff stability not moving fast enough to activities, please refer to the
2008 2007 remove incandescent light bulbs Company’s website. Alternatively,
Woolworths Offices 83% 86% from sale in our stores. The for a hard copy of the 2008
Government has set a voluntary CSR report please contact the
Woolworths Retail 71% 70%
target to end their sale by 2012 Company Secretary.
Woolworths Distribution 97% 89% and Woolworths will not be
Yours sincerely,
EUK 91% 81% selling incandescent light bulbs
by the end of 2010, well before
Our business is built on a core team of dedicated staff. During the target date. We will also be
2007/08, staff stability increased most significantly within the phasing out the most energy
Woolworths Distribution and EUK workforce, however, there was a
slight decline in stability rates within Woolworths Offices. inefficient light bulbs in the run-
up to 2012 and we have already Trevor Bish-Jones
removed 100W-plus bulbs from Chief Executive
our shelves. Additionally, we 2 April 2008
have launched a new Worthit!
energy-saving light bulb at aYou can also read
