Woolworths Holdings Limited (WHL) Earnings Call Transcript & Summary

Good morning, and welcome to our 2021 results presentation. I've been with Woolworths for almost 18 months now and to say that this period has been eventful would certainly be something of an understatement. None of us could have imagined or contemplated what we've all been through over the last 18 months. I believe that true character really emerges during a time of crisis, when the odds are stacked against you and the pressure is on. Navigating the challenges of COVID and everything that has come with it has given me the opportunity to experience the true character of our organization in a very short space of time, its fundamental strengths, but also some of its vulnerabilities. And what this has done is really reinforce my strong belief in this organization and what we can achieve. The results we're going to share with you today, I think, begin to demonstrate that. I have Reeza Isaacs, our Group Financial Director with me, and he and I will be taking you through the group's performance for the 2021 financial year. I'm also looking forward to sharing with you our refreshed group strategic framework, as well as outlining the progress that we've made against each of our strategic initiatives. Overall, it's been a good year for us. And this notwithstanding the continued impacts and disruptions brought about by the pandemic on our trading environments both here in South Africa and Australia. More recently, we've also witnessed the devastating impact of civil unrest in KwaZulu-Natal and Gauteng, and the traumatic and severe effect that, that has had on our country. While these events were outside of our control, how we chose to respond was not. We have prioritized the health and safety of our employees and customers in every instance as well as the protection of jobs for our employees. During last year's results announcement, I did highlight a number of things that we were going after. Some of these were tactical and in a direct response to the impact of the pandemic, while others were longer term in nature aimed at reestablishing our financial credentials and positioning the group for sustainable growth and value creation. Today, I'll share with you our progress against those commitments. And through this, I'd like to demonstrate the importance we at Woolworths place on doing what we say we will do. We are focused relentlessly on trading the business and innovating to better respond to customers' changing expectations. And we're doing this in a way that is far more agile than what we would have done in the past. This is exemplified through the rapid rollout of some of our online initiatives, such as our Click & Collect offer as well as our on-demand offer, Woolies Dash. In addition to that, we've also trialed a number of new pop-up stores and formats. The successful execution of our capital plan, which has enabled us to separate the David Jones and the Country Road Group covenant arrangement, has unlocked value for both of these businesses and for our group as a whole. We have strengthened our balance sheet and significantly reduced net debt by more than 90% or over ZAR 10 billion. We have also reprioritized investment towards our digital and data transformation and simplified our organizational structures to reduce complexity and enable more agile ways of working. Additionally, this year, we've introduced new sustainability targets for 2025 and beyond. And as a first for our South African retail business, we've secured a sustainability-linked loan facility. To intensify our focus on the social and people facets of our good business journey, we have also launched our Inclusive Justice Initiative, which I'll touch on later. I'm truly proud of our teams and the strong results we've delivered in a very challenging environment. Here are some of the highlights. For the year, group sales are up by almost 10%. We grew operating profit by 44%, and we doubled earnings. We've delivered improved cash flow, a significantly strengthened balance sheet and achieved demonstrable progress against our strategic initiatives. And pleasingly, we're also resuming dividends. So we have ended the year in a far stronger position and having formulated a refreshed group strategic framework, which I'll share with you a bit later, we're well set up for the year ahead. Clearly, none of this would have been possible were it not for the passion and the commitment of our people. Over the past year, it is fair to say that our resolve as an organization has been tested. COVID-19 has had an enduring impact on all of us, both professionally and personally. I would like to take a moment here to acknowledge our 34 colleagues who have succumbed to the virus, loved ones who have been lost, as well as our team members, who have suffered illness during this time. The recent unrest in South Africa has also been particularly distressing. Members of the exco and I recently visited our distribution center and a number of our stores in KZN, which had been impacted by the unrest. And we came away feeling truly humble by the courage, the resilience and the commitment of our people. The way our teams have come together over the past year to bravely and decisively face the challenges and the trying circumstances has been nothing short of remarkable. I would like to thank our 45,000 employees across the 13 markets in which we operate and particularly those on the front line who show up every day and courageously put the needs of their colleagues and our customers ahead of their own, and continue to deliver the exceptional service for which we are known. I would also like to thank our suppliers, our partners who are integral to our success for their loyal commitment to our business. Lastly, I'd like to thank our customers for their continued support. It's important to remind ourselves regularly why we do what we do. In the end, it's all for our customers. If I reflect on the time I've spent in our stores over the past year, whether it's directly engaging with our customers or getting feedback from focus groups, I am truly moved to see and experience the love they have for our brands. If we think about it, what is the brand all about? What does it stand for? It's simply a trusted promise kept. And so you can be sure that we'll keep doing what we need to, to safeguard the privilege of that trust. I'd like to now hand over to Reeza to take you through the financial results.

Thank you, Roy, and good morning, all. This year, we are pleased to report a strong recovery in sales, earnings and cash flows, a much stronger balance sheet as well as a resumption of dividends. Group sales was up 9.7%, 5.9% in constant currency. Adjusted EBIT was up 44% to ZAR 6.9 billion, and adjusted diluted HEPS doubled to ZAR 3.41 per share. Free cash flow was up despite the reinvestment in working capital, both the cash generation and preservation measures last year. One of the real highlights of the year was that we executed on our capital plan and reduced group borrowings by over ZAR 10 billion. And within that, Australia in a net cash position of about $360 million, a significant turnaround from a year ago. The pay down of debt in Australia allowed us to separate the covenant group and enables Country Road and David Jones to pursue their own paths. The significant reduction in our borrowings also gives us greater scope in deploying our capital, one of which is resuming dividends, which we are pleased to announce. Our net equity position is up 50% to just under ZAR 10 billion, also very different to where we were a year ago when there was some speculation about the need for us to raise equity. Then looking at sales performance for H2, here we graphically show the second half sales trends for the businesses. At the top of the chart, we show the various lockdowns between January and June, and the graphs reflect growth. The blue line represents growth on 2020, and the red line shows growth on 2019. I'll give you a bit of a moment to orientate, quite a lot of variability given the disrupted base. Some of the key takeaways, starting with FBH. Sales growth in 2019, the red line, is down 5.7% for the half. Slow COVID impacted, but also less space, fewer private labels and lower demand for formal wear. There is strong growth on 2020 at 24%, which is what one would expect, but also noncomparable as it was 6 weeks of lockdown in 2020 where we did not trade at all. For food, growth as part is more or less consistent on 2019, if you look at the shape of the red line. But up a very healthy 17% on 2019, significantly ahead of the market. The growth of 3.2% on 2020, the blue line below, reflects the abnormally high panic buying and stockpiling base last year. The second half was up 13.2% last year, if you can recall. Looking at the H2 sales performance in Australia, 2021 was still a COVID impacted here in Australia. David Jones was 3.2% down in 2019 in the context of lease space, no international travel and also far less local tourists. Also a higher proportion of CBD stores, which are disproportionately impacted by the lower footfall, up 16.9% on 2020, but not unexpected, given the negatively impacted pace. Country Road was up 39.5% in the second half, also noncomparable. Stores were closed for a significant period last year, but a particularly pleasing performance if you compare to 2019, up 2.1% for the half, notwithstanding COVID and a number of stores in airport locations, which saw very little activity. The operating profit for each of our businesses in relation to last year, a fairly simple and clear slide. Foods, up 4% of the high base last year; FBH, up 14%; Financial Services, up 17%; David Jones, nearly 4x their earnings last year; and Country Road, nearly 3x what we delivered in 2020, with the group operating profit up 44% to ZAR 6.9 billion. We'll unpack the segmental performance a little later, but this is a very good result across the board in the context of a still COVID disrupted and impacted year. The team is focused on trade, managed working capital and CapEx tightly and also continue to focus on cost optimization. Moving on to EPS, HEPS and AD HEPS. A bit of a busy slide. Here, we show the reconciliation of adjusted HEPS to HEPS to EPS, the dark blue bars. Adjusted diluted HEPS more than doubled last year at ZAR 3.41 per share. There are adjustments of ZAR 0.42 per share relating to the renegotiation of various leases, mainly David Jones, which resulted in lease exit and modification gains under IFRS 16. Prior year sales losses were also utilized against the profit on the sale of the buildings, which resulted in deferred tax credits with a net impact of ZAR 0.15 per share. This takes us to HEPS of ZAR 368.9 per share. The profit on the sale of the property is ZAR 0.087 per share. This is a capital item so it's excluded from HEPS, but included in EPS along with impairments. The COVID-19 impact persists, which, again, required an assessment of the carrying values of assets, resulting in impairments of approximately ZAR 364 million pretax or ZAR 0.289 per share. Further detail on especially the adjustments is in the appendix in the back of the pack. Moving on to the segmental results, starting with Fashion, Beauty and Home. We show H2 separately like we did last year. This is hopefully helpful to you given the disrupted base. I covered turnover on the earlier charts, up 3.5% for the year and 24% for the second half. We had a positive start to winter, which was hampered by the onset of the third wave. We also had a strong season in Beauty and Home. We have made progress on the repositioning of product and assortment. But it is fair to say that the performance of women's outerwear, our largest category is still not where we want it to be. And we saw over index in formal way, also in men's. We introduced athleisure in brands in the second half of the year. The performance has been encouraging, and we've seen good growth, but this is still a small part of the overall business. A few other call-outs. Online sales more than doubled and is now 4.1% of total sales. Gross margin at 45.5% has improved, but it's not yet at pre-COVID levels. And going forward, the focus is on reducing markdowns. Costs were well controlled, up 5.4% for the year due to COVID-related costs and also COVID-related savings in the base such as government support and rental concessions, which impacted H2, which was up 21%. However, space was also down by 6.4%. Adjusted EBIT was up 14% to ZAR 1.08 billion. We are encouraged by the progress made and pleasingly, a number of the key indicators are moving in the right direction but there is still much to do in FBH. Woolworths Food, another outstanding performance in what continues to be a very tough macro environment. Top line grew by 6.9% for the year and 3.2% for the half, 3% above the market on a 12-month moving average basis. GP margin was 40 basis points down on last year, partly due to price investment, but the margin last year also benefited from the high volumes which saw reduced waste and better distribution cost productivity. Costs were well controlled with positive [indiscernible]. And overall pre-IFRS 16 return on sales was 7.6% for the year, with an operating margin of ZAR 3 billion. This is off a strong base and notwithstanding trade restrictions on wine, cafes not operating fully, reduced trading hours and stores not being able to trade as a result of COVID. And an outstanding performance showing remarkable consistent year-on-year growth. Woolworths Financial Services. Our Financial Services business continues its post-COVID recovery despite the tough credit and collections environment, testament to its resilient business model and the quality of its book. The closing book grew just under 1%. Lower interest rates and store traffic affected interest income, transactional revenue and collections. The impairment charge was 5.3%, with a book coverage at 25%, a healthy book with a market-leading impairment rate. Better revenue and collections delivered an improved result for the year and an ROE of 13.6%. David Jones also had much improved results over last year. Sales up 2.3% for the year and 17% for the half. CBDs were affected by the lower footfall and notwithstanding this, Elizabeth Street was also up nearly 17% on 2020. There was the expected shift to online with strong growth in this channel, up 24% and now 17% of total sales, a significant shift in a very short space of time. Gross margin was 270 basis points up from last year with [ own brand ] up 370 basis points. Clearance stock was down by about 1/3 and stock turn improved to nearly 3x, a much healthier overall stock position. Expenses were marginally up for the year, despite the additional rental in respect of Elizabeth Street and Bourke Street men's. H2 cost growth was up 19% due to this as well as the JobKeeper and rent concessions in the second half of last year. The team delivered another ZAR 20 million of annualized cost savings with space also down 6.3%. We had a similar level of COVID support in both years through JobKeeper benefits and rent concessions. So the year's result is comparable in that sense. Food was a ZAR 15 million drag on EBITDA for the period with the limited actions taken enough to stem these losses, which we will expand on later. Moving on to Country Road. An exceptional performance despite the COVID-related lockdowns with full year sales up 13.5% and H2 up 39.5%. A shift to online with the store closures, up 31% and about 1/3 of sales for the year. Gross margin on a sharply improving trend, up 220 basis points. Expenses were down 0.4% for the year despite a high incentive given the stronger performance. H2 growth also impacted by JobKeeper support and rent concessions last year. The focus on space optimization continues with an entry versions closure of stores and unproductive space. An outstanding performance despite COVID and the strong momentum being interrupted by the recent lockdowns, which started just before year-end. Moving on to CapEx. CapEx was again a focus area for -- with us pulling back on nonessential spend but also accelerating investment in areas like online, loyalty and data, especially in the second half as conditions started to improve. Total spend for the year was ZAR 1.4 billion, ZAR 1.1 billion lower than 2020. The planned CapEx for 2022 is ZAR 2.8 billion. This is in line with what we spent in 2019. However, a significant part of the spend shifting to online, value chain and data and digital as opposed to bricks and mortar, with ZAR 18 million set aside for the consolidation of Bourke Street men's and women's stores. Further detail on spend per business and depreciation is also in the back of the pack. Moving on to net borrowings. One of the highlights of the presentation today is this slide. We have maintained that our levels of debt in Australia were not sustainable and was single-mindedly focused on addressing this. Net gearing at year-end is down ZAR 10.5 billion on last year. We executed on our capital plan, as I mentioned before. We had about ZAR 5.5 billion cash on hand at the end of the period with the bulk of that in Australia. SA gearing is at 1.2x, well within the covenant levels and our own internal targets. SA has a strong track record of generating cash with a strong underpin in the Foods business. We are in a net cash position in Australia, $286 million in David Jones and $71 million in Country Road, and borrowing costs have reduced by 20%. And of course, going forward, the annualized savings will be higher. Overall, a very good gearing and balance sheet story. Cash generated from operations was ZAR 12 billion. We took the decision to suspend dividends and we also cut back on CapEx. Positive working capital movement despite the reinvestment in inventory post the extension and deferral of credit payments to preserve cash last year. And just on this point, we have demonstrated our ability to pull various levers in the business to generate and also preserve cash when we need to do so. We successfully concluded the sale of the Bourke Street men's and Elizabeth Street buildings, which generated ZAR 7.3 billion. Dividends and capital structure. As we have said previously, a dividend will be considered in the context of prevailing conditions. Our borrowings are within the targeted ratios of 1.5x for SA, 1x or Country Road and no debt in David Jones. We are pleased to announce the resumption of dividends in respect of all of South Africa for H2. At a 60% payout ratio, this translates into a payment of ZAR 0.66 per share to shareholders. We will also revisit dividends next year in the respect of Country Road and our longer-term payout ratio once conditions have stabilized. Then just to end up on recent trading. This is an extension of the sales slides presented earlier with the post year-end 7-week trade figures. The start of the year can fluctuate depending on cutoff and with changes in clearance states. We have had a good year, but we are still living with COVID with the third wave in South Africa and the stringent lockdowns in Australia. As with most retailers, the recent unrest has been disruptive and we have also had the recent port cyber attack, which impacted stock availability. FBH traded at 17% for the first 7 weeks of the new year off a COVID base and positively impacted by pulling forward the August clearance. We'll also be launching spring/summer earlier this year. Foods traded up 3% for the first 7 weeks, in line with the second half run rate with positive momentum continuing, but still comping a high base. In the case of Australia, very stringent, full lockdowns announced over a number of states. A large 1 of our business is in New South Wales and Victoria, and these 2 states make up more than 50% of our business in Australia. David Jones was down 26% in the case of Country Road, with lease concentration in CBDs, down 14% on last year. That brings us to the end of the finance section. An eventful but good year for the group with the recovery in earnings and a restructured balance sheet, which means we end the year in a much better position and with a stronger foundation on which to execute our strategy. On this note, let me hand you back to Roy, who will update you on the progress against our strategic priorities.

Over the past year, we have given significant thought to our group's ambition and strategies. And while some aspects of our strategies have been working really well, others have become less relevant, particularly in our rapidly changing retail landscape. We have developed a new strategic framework that translates right the way across the group. This is to ensure that our divisional and functional strategies support our overarching WHL growth ambition. I'd like to share with you a high-level version of this framework, which is really anchored in being a leading purpose-driven and truly connected retailer. Our framework centers around 3 strategic themes. The first is to protect and grow our core. This is to ensure that we safeguard the foundation of what truly differentiates us from our competitors. This isn't just about core businesses, but aspects or components within them that are core to our proposition, whether it be core customers and categories or core stores and formats. So in Australia, it's about unlocking value for DJs and Country Road Group. In South Africa, it means maintaining our leadership position in food and also turning around the Woolworths Fashion business by focusing on what makes us really great, what sets us apart. So this first theme is really about protecting our platform for growth. The second theme is what we are calling expand for more, how we leverage our platform further by pursuing underdeveloped or new opportunities for growth. So for example, it's how we grow our Beauty and Home businesses or build the momentum in our margin-accretive Africa business, become more accessible in Food by trialing new formats or how we expand the reach of some of our CRG brands. Integral to this is enhancing the data analytics capabilities of our entire organization. The third theme we've called leading in customer experience. We became a great business by putting our customers at the center of everything we do. and this must remain the case as we both protect and grow our core business and expand for more. While our customer databases provide us with great insights, there is much more we can do to integrate and leverage these insights into our decision-making processes, and to drive engagement and loyalty in a more proactive and effective manner. So this last theme is really about ensuring that everything we do intersects and resonates in the customer's world. These 3 strategic themes are supported by a range of enabling initiatives across operational excellence, our people and our good business journey. Within each of these strategic themes and enablers are a series of initiatives. Now many of these will sound familiar to you as we began sharing our progress against some of them in our last results presentation. But what you'll see now is how they flow from and knit back into a consolidated framework that translates across the group to support our growth ambition. I'd now like to share with you some specifics around how we've unlocked and created value in Australia and New Zealand. As you know, our primary focus during the year was the restructuring of our balance sheet which I'm very pleased we have concluded. You will recall, we successfully executed the sale of our Bourke Street menswear and Elizabeth Street buildings and used these proceeds to pay down debt, enabling us to split the covenant group that existed between DJs and CRG. This unlocked value for both entities and for the group as a whole. And as I previously committed to you, no further funds have flowed to Australia. With both David Jones and Country Road Group now set up independent of each other, we can now focus on improving the underlying operational and financial performance, particularly in the case of David Jones. We have developed a revised strategy for David Jones, with a new merchandise focus being the mainstay. This will include the expansion of our premium and emerging brands to drive a more relevant and differentiated product proposition. In doing so, we'll improve intake margins, we'll reduce markdowns and reverse the declining trend we've had in our GP margins for some time now. In fact, we've begun to see the benefit of this already with our GP margin for the year improving by 2.2 percentage points. The start of the new financial year, unfortunately, again, has been disrupted by lockdowns, affecting the majority of our store base in Australia, but we've been here before and we know what to focus on. And so as soon as trading restrictions lift, we'll quickly return to our margin improvement initiatives. Key to improving our financial performance is optimizing the shape of our real estate footprint. Over the past year, we have reduced David Jones' footprint by over 6% and Country Road's footprint by almost 3%. And we now have a clear pathway to reduce occupancy costs in both of those businesses. We're also very pleased to be nearing the completion of a value-accretive agreement with 1 of our major landlords, which will enable us to reduce the David Jones footprint by a further 50,000 square meters. And this will come through a reduction in store size and some closures where it makes sense. In line with our network strategy, this will meaningfully reduce our occupancy cost to sale across all of these stores. While this is clearly an important step we're by no means out of the woods, but it is a step towards us delivering what we said we would, and it does pave the way for further negotiations with landlords to keep improving the financial feasibility and flexibility of our lease portfolio. In line with our commitment to you, we've taken decisive action to stem the losses in our DJs Foods business. We have now closed smaller format loss-making food stores and have brought a concession partner into our 2 flagship stores and are in the process of exiting from our trial with BP. Turning to CRG, the Country Road brand performed exceptionally well in the current year, achieving double-digit growth off a pre-COVID base. This is really the outcome of a repositioning journey, which we started over 2 years ago, going back to the core of what makes this brand great. And I wanted to share a little bit of this with you. [Presentation]

I think there's a lot here to be really excited about and for us to learn from. It takes a little while to reposition any business, particularly a fashion business. But in going back to the basics, listening to what our customers are saying, bringing back the quality of our brand and products and continuing to test and learn in everything we do, we have fundamentally shifted the trajectory of this business. While we will keep driving the momentum in Country Road, we also need to improve the performance of the other brands in the portfolio, particularly Witchery and Politix, which were brands that were more directly impacted by the shift into casual wear as a result of the pandemic. We are also exploring new growth opportunities and have recently partnered with The Iconic, the leading online marketplace for fashion in Australia and New Zealand, the early results of which are very encouraging. Through the use of our customer data, we have been able to curate more localized offerings and test low-cost and low-risk pop-up stores. These have all exceeded our expectations, with trading densities well above the brand average. And we're excited to explore this growth opportunity even further in the year ahead. Whilst talking about unlocking value in Australia, I think it's fitting to welcome our new CEO of the Country Road Group, Raju Vuppalapati. We are looking forward to the contribution he'll bring to our group. Moving to FBH. We are clear that turning around our fashion business represents the single biggest opportunity to reset the value of the group. And to make that happen, we're going to go back to the basic principles of what makes a great apparel retailer, not dissimilar in fact, to what we've done at Country Road. One of the central principles is, in fact, developing a deep appreciation and understanding of who your customer is. In our last results presentation, we shared with you a more holistic and granular understanding of our customer. When you segment the market, you need to define where your opportunities are and where you want to play. You can't be all things to all people, you don't want to be a broad church. You want to identify where specific opportunities lie and more importantly, where they intersect with who you are as a brand. We've now done this work and as a result are focusing on 2 core segments. The graph you see now talks to the overall apparel market in South Africa by segmenting customers along 2 axes. The horizontal axis plots the spectrum of customers' preferences in terms of comfort versus style. And the vertical axis, customer preferences for quality versus price. Our primary segment is what we have defined as the savvy customer. Someone who is pressed for time, values quality and well-cut, well-made clothing that embodies understated style. Our secondary segment is what we've called the trainspotter, someone who values quality basics and essentials, but looks to express their style with bold, unique, on-trend fashion. Together, these 2 segments represent just under 1/2 of the total apparel market, of which our share is less than 10%, and this clearly presents a meaningful opportunity for us. These target customer segments also overlap with a common need for quality basics, essentials and convenience. This is, in fact, who we are and what we stand for. We are anchored in our wardrobe essentials, every day wear for the family and what we call our beautiful basics, which is essentially our core proposition. Our men's chinos and golfers, our women's tees and knitwear and baby rompers, all of which are underpinned by strong sustainability credentials. These insights are being integrated into our product design and development processes, and you will start to see their influence in the upcoming spring/summer assortment with full implementation by autumn/winter next year. With these insights informing our thinking, we are refining our product offering by reducing the proliferation in private label brands, color and styles. We're also selectively introducing guest brands that authenticate specific categories such as Sunglass Hut, BIRKENSTOCK and Levi's. We have exited from our Studio.W and W Collection clothing brands and are now proudly anchored in our Heartland Woolworths brand. What you'll also notice in our stores is that we're increasing our mix of casual offerings. Part of which includes a stronger athleisure range. We're also simplifying our trend and color messaging. And by way of an example, we have previously made use of up to 48 individual color pallets in a typical season. However, this upcoming spring and summer, our collection will see us use only 6 complementary pallets. In fact, this is also a great example of how we're sharing learnings across the group. Here, we are leveraging Country Road's expertise in color direction. By curating our ranges in this way, we'll enhance and simplify the shopping experience for our customers. While turning around our fashion business is clearly critical to protecting our core, the growth in Beauty and Home provides us with the opportunity to expand for more. We are building our beauty business as a destination category. And we're doing this through extending our offering to more doors, adding new brands, some of which are going to be exclusive to us and growing our online presence. During the year, we launched our virtual beauty consultations and virtual try-ons, the first for a South African retailer, and I've been very pleased with the impact that this has had on conversion and sell-through rates. There is also a real opportunity to grow our market share of the Home business, both in terms of our physical footprint as well as online. And in the coming months, we'll open the first of our Food plus Home stores, which leverages the cross-shop potential we see in the Foods customer. I've said to you before that our propositions in fashion have become too expensive. And so over the past year, we have invested ZAR 250 million into price in specific areas. This has really resonated with customers, and these targeted lines are now up over 20% year-on-year. From here, we will now focus on right price first time. This is to drive increased full price sales, reduce our time spent being on sale and reduce our markdown. This last point is a particular opportunity for us. As you'll see in the chart on the screen, our markdown has grown significantly over the last several years, and addressing this is a key lever in improving our underlying profitability. We are also investing in transforming our value chain to be more agile and future-fit. To be very candid, we have not invested in our supply chain technologies to the extent that we should have, and that's impacted on our ability to deliver. Whilst product is central to the success of any apparel business, it's not the only thing. It's the entire ecosystem around it that makes the difference. It's how we get the right product at the right price to the right place at the right time. We're really good at doing this in our Foods business, but these back-end capabilities aren't as strong in our Fashion business. So we've begun what will be a 2- to 3-year process to fundamentally upgrade our value chain. From supplier right through to the store by relooking at all of our planning systems and processes and logistics, all of which are pivotal to a sustainable turnaround of our Fashion business. We have also reviewed our people structures and processes. All our FBH structures have now been simplified with fewer management layers to speed up decision-making and instill a greater ownership and accountability. We have also increased our speed to market by upwards of 30 days in certain categories, and we will continue to look for opportunities to drive further efficiencies. As we streamline our brand and product portfolio, as we rationalize our physical footprint and simplify our structures and processes, we are editing to amplify. We are doing more with less. I want to make a point here. We are not simply chasing market share in the aggregate over the short term. Our immediate and overarching priority is to restore the underlying financial health of our FBH business. And central to this is our approach of driving quality over quantity through increasing full price sales, lowering markdown and improving trading densities to support an improving return on sales percentage. We're beginning to deliver on this already. Reeza has given you the key highlights in the P&L, but driving the uptick in our FBH EBIT margin was, in fact, an increase in full-price sales, improved trading densities and lower markdowns. Clearly, there's a lot to do. No repositioning of this magnitude takes place overnight. It is early days. There is more to come and more that must come. But I believe that we're doing the right things to establish a solid foundation from which we will then be able to drive sustainable, profitable market share gains for this business. Turning to our Foods business. sustaining the momentum of our Foods business is key to our success. Critical to this is a deep understanding of our customer and our ability to deliver a world-class experience for them. All of this is not only underpinned by our commitment to quality and sustainability, but also to critical back-end capabilities, such as innovation, new product development, our superior culture and our long-standing partnerships with suppliers, many of which go back over 50 years. These competitive advantages of our remarkable Foods business have, in fact, supported over 10 consecutive years of market share gains. Over the past year, we have responded to our customers' evolving wants and needs by introducing over 2,000 new or upgraded product lines. We've also invested over ZAR 250 million into pricing. Notwithstanding this, there is still scope for us to further grow our share of customers and share of wallet by remaining aspirational whilst at the same time, becoming more accessible, whether it be in terms of price, format or channel. In this regard, we are now working closely with our suppliers to follow through on our intended investment of ZAR 750 million into price over the next 2 to 3 years. We are also focused on how we deliver our offering to our customers through easy and accessible channels and formats, both online and in store. This includes the continued growth of our Click & Collect offer, which is now available in almost 80 stores, and the full launch of our on-demand delivery service Woolies Dash, which will soon come out of trial and be rolled out further. At the same time, we're still making smaller stores bigger where it makes sense to do so and trialing new formats such as our reinvented NOW NOW concept store, which is opening next month. and our first stand-alone WCellar wine and liquor store in Gauteng, which has really received strong customer endorsement and something that we're really excited about and look to expand further. Another strategic focus area is our digital transformation, which has the potential to become a real game changer for us. As I've mentioned to you before, we have a lot of data at our disposal. In part, as a result of our various loyalty programs, but there is certainly more we can do to leverage the insights we get from that data with greater speed and agility. Over the past year, we have improved our advanced analytics capabilities, and we've also introduced a new point-of-sale system. With this now in place, we will refresh the loyalty proposition across all of our businesses to enable greater differentiation and personalization as a driver of incremental spend and engagement. We are also establishing a new data and analytics team tasked with accelerating the implementation of our digital transformation strategy. Aligned with our ambition to be a leading truly connected omnichannel retailer, we are continuing to fast track the building of our online capability to provide our customers with a seamless quality shopping experience regardless of the channels they choose to shop in. In South Africa, we are pursuing an ambitious plan to grow the online contribution of Food to the upper single digits and FBH into the double digits. We are well aware that while the online channel in DJs, CRG and FBH is in fact margin accretive for us, this is not the case for us in Food. So as we continue to grow our online penetration in Food, we are very mindful of needing to achieve an appropriate balance between meeting our customers' needs and the trade-off of margin dilution as a result of the shift in channels. To achieve this goal, improving the profitability of online through scale, channel mix and channel efficiency is a key focus for us in the year ahead. You would have seen from Reeza's earlier slides,that we're shifting our operational and CapEx spend towards our digital transformation. We've also begun the implementation of a new operating model to not only fast track the building of our capabilities in this space, but fundamentally change our processes and ways of working so that we can innovate at speed and build that scale. To support this, we've appointed a Chief Technology Officer and a Head of Digital to ensure that we build capability and resource in a synergized and holistic way. Turning to cost efficiency and operational excellence. The impact of COVID-19 has certainly shown the importance of adaptability in times of sales volatility. And so we're ratcheting up our focus on all costs across the group. Part of this is about driving appropriate levels of discipline around spend and achieving greater flexibility in our overheads, but it's also about ensuring that where we are spending is directed in pursuit and support of our strategic growth ambitions. Our people are critical to the successful execution of our strategies. As I've mentioned before, whilst we are a big group, we've tended to operate very much in silos. We have both economies of scale and scale across our business. But if we are truly to derive the benefits from this, we need to better leverage our scale and diversity. So we are delayering our organization internally to reduce complexity, and to enable more responsiveness and agile ways of working to ensure that we drive effective execution of our strategies. One of the reasons I joined Woolworths was because it is so much more than simply a business. It has real purpose and it plays a crucial role in positively impacting the lives of our employees, their families and the communities in which we operate. We are deeply committed to our vision of being one of the world's most responsible retailers. Many of you are already familiar with our pioneering Good Business Journey, or GBJ. Having delivered substantial achievements against our 2020 GBJ goals, we are now stretching and challenging ourselves even further into exciting sustainability territory with the launch of our new sustainability targets that stretch beyond 2025. We are specifically emphasizing 4 industry-leading sustainability goals. Firstly, fully transparent and traceable supply chains by 2025. Secondly, all our private label fashion and home products designed to be reused, repaired, repurposed or recycled by 2025. Thirdly, all our energy to be sourced from renewable sources by 2030. And finally, to achieve net 0 carbon emissions by 2040 as a group. The pandemic has undoubtedly had a catastrophic impact on humanity, and we have, therefore, deliberately reconsidered and elevated the people aspects of our sustainability strategy. As mentioned earlier, we are on a journey which we have called the Inclusive Justice Initiative. The IJI has been developed to acknowledge and address systemic inequality and ensure inclusive growth for all our people. This important initiative addresses issues of diversity and inclusivity, and has a strong focus on racism, gender-based violence and the advancement of women across our group. Now many companies and industries across the globe recognize the sustainability imperative, but it is not enough for companies to simply talk about it or to just set targets and to think that these alone will get us to where we need to be. We have to move from plans to action if we're to hold ourselves accountable, and this is exactly what we intend to do. The business imperative is overwhelming. In fact, I really believe that it is the only way to ensure long-term business continuity and success. This brings us to the outlook for the year ahead. South Africa's recovery from COVID has been impacted by the third wave of infections and consequential lockdown restrictions, and we expect this to further constrain consumer confidence and spend. We've all witnessed the devastating civil unrest in July and the widespread destruction of property, which has impacted many communities, and the effects of this will be felt for some time to come. In the case of Australia, more than half of the population is now in hard lockdown, and current restrictions significantly impact our ability to trade our stores. Whilst we are clear that these restrictions will not last forever. They do place significant pressure on consumption expenditure, certainly at least in the short term. And this brings me to our medium-term or 3-year margin targets. Note that these are on a post-IFRS 16 basis. We are targeting a 7% to 8% EBIT margin in Food. Where we land from year-to-year may vary slightly, depending on whether we're investing in growth or consolidating our efforts, but we're confident either way in our ability to maintain an industry-leading margin in this range. So with regards to FBH and CRG, we are targeting double-digit EBIT margin. While our CRG margin is likely to be in the lower teens, our FBH business does, in fact, have the potential to go after a bit more. That said, our #1 priority is restoring its financial health. And this does require some balancing between making what we have more efficient, but also investing in areas like our value chain, as I've mentioned, and our online offering to drive our business forward. Once we're a little further progress on this journey, we'll provide you with more explicit guidance. We are not providing any specific margin targets in respect of David Jones at this stage. As mentioned, there are a number of initiatives underway, which Scott and the team are working on, and these need to be further progressed for us to provide definitive guidance. The new financial year is likely to call on our resolve once again, but I think we've proven we're up to the challenge. And we've got the benefit of a far stronger foundation than we had this time last year. I want to recap on our commitments to you so that you know what to expect from us. We will improve the operational and financial health of our apparel businesses, specifically FBH and DJs. We will protect and grow our market-leading Food business. We'll accelerate our digital and data transformation and we'll become more efficient and effective in terms of our structures, processes and ways of working. And we'll do all of this as we continue to drive sustainability in everything we do. There are no doubt headwinds that we need to continue to navigate. But as I've said before, our challenges are not insurmountable. We've demonstrated that success will come if we, as an organization, focus on controlling what is within our control. So you can expect us to keep showing real progress against our strategic initiatives. In closing, I would like to say a final thanks again to our teams for their collective passion, their determination and commitment for what we have accomplished over the past year. I see significant opportunity for us as an organization to be more externally focused, to sharpen our competitive edge, dial up our sense of urgency and drive real accountability. I personally am truly excited about the opportunities that lie ahead. We are on track to rebuild our financial credentials, drive long-term value creation and restore our business through its rightful place in the hearts and minds of all our stakeholders. And with that, I'd like to open up for questions.

Good morning, and thank you. We've had quite a few questions come through over the webcast already. We'll do our best to get through as many of them as we can. And what we don't have time to cover, we'll come back to either over e-mail or on our subsequent one-on-ones. Our first question, could you please give more details on the 50,000 square meter reduction in space in David Jones as regards timing and rental reduction? Thanks. Roy?

Yes. Thank you. Thanks, Jeanine. I mean you'll know that we've been talking about the fact that we've been overstored with David Jones in Australia for some time now. And we have a lot of excess space. And we recently put out a commitment around reducing our footprint by 20% over the next 2 to 3 years. This last year, we've obviously made some really good progress. We've sort of progressed towards that target by about 1/3, [ 6% to 7% ] space reduction. And that work continues. I think as we as we sort of talk about this 50,000 square meter opportunity, I can't really provide you too many details on it specifically now, but obviously, that will become more evident later. But it will actually obviously progress us by potentially another 50% in terms of getting to our targets. So a very significant move. And it's really a combination of both space reduction in existing stores, making some of our bigger stores smaller and refurbishing and remodeling those, closing certain stores where it makes sense and also just overall rent reductions in terms of the negotiations with our landlords. So making some good progress there, and we should expect to see this coming through within the next 2 to 3 years.

Thank you. Our next question, what actions does the ZAR 750 million price reduction investment entail? Roy, I think that's obviously specific to the [ Food business ].

Yes. Thanks for the question. Again, we've communicated that we're making this investment really across both apparel and food business, but the ZAR 750 million specifically allocated to Foods is really being targeted against certain categories that we've identified provide us with opportunity to make our proposition more accessible while staying aspirational, but more accessible to more of our customers. So we've leveraged off our data analytics capabilities to really identify that in the course of the last year. We specifically went off to poultry and looked at where we could sort of bring price down, make it more affordable. That clearly has had a pretty remarkable impact on our poultry performance, not only driving unitary growth but also share gains in that space. And when you bring consumers or customers into your store to buy into a category like that, they also spend on a number of other categories. There's a big halo impact here as well. But through this process, we've also been able to improve the penetration of our existing customer base in terms of poultry purchases as well, which has obviously led to some of the upside. So we'll continue to look for very specific opportunities around price investment, but it's likely that going forward, we'll apply that type of analytic and execution to a much broader range across the basket.

Thanks, Roy. Reeza, probably a question for you. Can you elaborate on the expected annual cost savings as a result of the reduced debt? To what extent would you expect the finance charge of circa ZAR 2.5 billion to decline in FY '22?

Yes. Thanks, Jeanine. Important to note the ZAR 2.5 billion, includes the finance costs on leases in respect of IFRS 16. So the finance cost in respect of borrowings in SA is expected to reduce by about ZAR 80 million, given the reduced -- or the reduction in base rates. And we shared that detail in one of the slides in the pack. And obviously, in Australia, we have cash on hand, so a positive balance on which we expect to earn interest, albeit at reduced rates, minimal rates.

Thanks, Reeza. Does the disposal of Elizabeth Street and Bourke Street mean we've exchanged current headroom in exchange for future problems?

Yes. I mean I think it is true to say that we did exchange financial leverage for operating leverage. And that does mean we're going to have to ensure that our operations run much more efficiently going forward. But based on the outlook for David Jones, assuming a normalized market, we think these increased rentals will, in fact, be affordable. I think it's just important to be reminded that this time last year, we were in a net borrowing position in Australia. And without selling the buildings, it would not have been possible to pay down the debt and decouple the Australian borrowing group that we had in place. And frankly, if we hadn't done that, we would be navigating through a very different situation today given the current context. But that certainly has provided us with significant additional breathing space on our balance sheet. So we do recognize the increased strain of future operating cash flows, but we are comfortable with this. And, yes, the right course of action, given the current situation is what we basically executed upon.

Thanks, Roy. Reeza, perhaps a follow-on question to that. Can you provide some guidance on the step-up in lease or rental costs in FY '22 post the sale of Bourke Street and Elizabeth Street stores?

Sure. So with regard to Bourke Street, Bourke Street men's. So first thing to note is that last year, essentially, it represents a full year of rental. Given that we disposed of that building effectively, we see the proceeds in August last year, and that's about $3.5 million. That lease is for 2 years with an option to renew for another year. We start with that refurbishment quite soon, as I mentioned earlier, and we do expect to complete it within FY '22. So that rental effectively falls away. In the case of Elizabeth Street, we disclosed the annual rental in the sense on the 21st of December. I think it was $25.5 million, giving us a yield of 5% on the purchase -- or the proceeds. And we incurred about 1/4 of that this past year. So another step-up of about ZAR 18 million in respect of Elizabeth Street.

Thanks, Reeza. Understandably, the group's focus over the past few years has been internally focused. In your closing comments, Roy, you mentioned a shift to focus more externally and specifically, to sharpen WHL's competitive edge. What actions would that entail?