Woolworths Holdings Limited (WHL) Earnings Call Transcript & Summary

Good morning, and welcome to our 2022 interim results presentation. I'm really hopeful that this will be our last results presentation that we undertake virtually, and that the next time, we will be able to engage with many of you in person and in our stores, where you can get a real sense of our strategies in action. Joining me today is Reeza Isaacs, our Financial Director, who will take you through the group's financial performance for the half. And thereafter, there are three things I'd like to cover. Firstly, I'll provide you with an update on some of our strategic initiatives. Secondly, I'll address some of the questions that may well be top of mind for you. And then I'll also share some perspectives as to how we view our group, its various businesses, the respective opportunities both strategically and financially and where and how we are looking to create value. But before we do that, let's kick off with an overview of the period. The first half has not been without its challenges, particularly those related to the continuing impact of COVID-19, especially in Australia, with stores accounting for around 70% of our brick-and-mortar sales, were closed for the majority of the period as a result of the government lockdown. Nonetheless, we continue to focus on trading our businesses, managing inventory, tightly controlling costs and converting sales into cash. Notwithstanding the impact that lockdowns had on sales, our group revenues were still pretty much in line with last year. Our reported profits were down 16%, largely due to the various impacts of the lockdowns. And were it not for these and some of the one-off impacts in the base, profits would have, in fact, grown by around 10%. But Reeza will talk to this in some detail a little bit later on. From an overall trading perspective, the group experienced strong momentum over the last 6 weeks of the period. And within that, however, there was a mix of performances with a really strong rebound across our Australian businesses, a relative slowdown of fashion in South Africa, which I'll come back to later, and of course, a pleasing pickup in our South African Food business. A key highlight for us, particularly considering where we were just 18 months ago, is that we've reduced our gearing by a further ZAR 7 billion since December 2020. And we ended the half in a net cash position with the strongest balance sheet since 2014. I also gave you our commitment that no further funds would flow from WHL to David Jones. And I'm pleased to announce that, in fact, we are repatriating ZAR 1 billion from our David Jones business in the form of a special dividend, which will be used to reduce our South African debt. With regards to dividends to our shareholders, we've declared an interim dividend of just over ZAR 0.80 per share. We have also begun to relook at how and where we allocate capital, particularly in the light of our current balance sheet position, and I want to share a bit more of this with you later on. We're not only improving our productivity and efficiency in relation to our financial assets, but also in terms of how we enhance our structures and processes, so that our teams can perform to their full potential. Towards the end of last year, we introduced a more agile operating model, aimed, in part, at increasing the speed of our decision making and driving greater accountability across our organization. Interestingly, through our new ways of working, we've already cut about 20% of the time spent in meetings just by simplifying and streamlining some of our processes. Getting after things with greater speed and agility is critical to our success, and these changes will help us get there. A further key highlight for us and in line with our sustainability goals, we have become the first major South African retailer to publish a list of suppliers that manufacture its fashion, beauty and home products. We're doing this for all of our apparel businesses. This is not only a vital step towards a fashion industry becoming more environmentally sustainable and accountable, but it also empowers our customers to make informed, and therefore, better choices. Before I hand over to Reeza, I would like to take a moment to acknowledge all our stakeholders. Many of you may have noticed that we celebrated our 90th birthday in October last year, 90 years of quality and innovation, 90 years of making a difference and doing the right thing, something we're very proud of. I would like to thank our 45,000 team members across all of our markets for their passion and dedication to our organization and to serving our millions of customers. It is how each and every one of our teams show up each and every day that sustainably sets us apart. A big thank you as well to our suppliers and other business partners. Our partnerships with you are central to our success. And of course, I'd like to thank our customers for their continued support. We don't take for granted the deep trust they place in our brands, it is paramount to our success, and we will continue to do everything we can to protect and nurture it. Briefly, regarding vaccinations, we have continued to prioritize the health and safety of our people and our customers, and we have been particularly focused on driving vaccination rates throughout our businesses through educating, encouraging and enabling our employees to get vaccinated. As a result of our ongoing initiatives in South Africa, over 70% of our people are now vaccinated. Additionally, our head office and regional offices are now COVID-safe spaces, where access is restricted to individuals who are either vaccinated or who present a negative test. Our teams have done an incredible job managing some of the most challenging and frustrating circumstances of working virtually. In the case of our office teams, I'm really excited about the recent official return to office and the implementation of our new hybrid model, which will afford us many advantages, including the opportunity to reconnect and to collaborate on a face-to-face basis, build camaraderie and drive our competitive spirit. I will now hand over to Reeza to take you through some of the financial highlights over the past 6 months. Reeza, over to you.

Thank you, Roy, and good morning, everyone. Just a few opening remarks before I dive into the numbers. So even though most income statement metrics show a decline, this should be seen in the context of the lockdowns in Australia, where about 70% of our stores did not trade for more than 3 months. Country Road and David Jones had a strong rebound, when stores reopened, and the impact on the balance of the half was less severe than initially expected. And this can be seen from our adjusted diluted HEPS, which was down 16.3% for the half. With our Trading segment in November, we guided to a decline of more than 20%. A few of the group performance highlights on the right. Group sales was essentially flat on last year, in constant currency, which was a good result. Adjusted EBIT was ZAR 3.2 billion, 18% down on last year and 9% up, if we adjust for the effects of store closures, JobKeeper and rent relief. We ended the half in a net cash position of ZAR 258 million at a group level, with $400 million of cash in hand in Australia and the strongest balance sheet we have had for a long time. Net debt-to-EBITDA is at 2x, and this includes our lease liabilities. Working capital was down ZAR 400 million, with inventory levels very well managed despite the disruptions, and we continue with the dividend out of Woolworths South Africa at a 60% payout ratio. Having successfully executed our restructuring plan in Australia, and as a result of our ongoing cash generation initiatives, David Jones ended the period with net cash of $347 million. And in line with optimizing capital across the group, David Jones declared a special dividend to WHL of $90 million or ZAR 1 billion of the period end. This will, in the interim, be used to reduce our debt in South Africa. Moving on to sales performance. Here, we show the first-half sales trends for each of the businesses. You have seen these numbers in our various trading updates. FBH is up 4.2% for the half, a declining run rate over the period, but skewed by the timing of winter clearance at the start of the half. You will see this trend again at the start of H2 with the early clearance of summer. So if we adjust for this in the base, growth would have been 3.4% for the 6 weeks and 6.1% for the half, which is reflected in the dotted lines. We're focused on improving the financial health of FBH. Space was reduced by a further 6% with rationalized brands and SKUs, and the consequences of these deliberate actions have impacted sales growth, but we are satisfied that we have improved the quality of sales achieved. We did have fashion misses in certain categories of womenswear. But on the positive side, we saw good performances from kidswear, men's, beauty and home. Moving on to Foods. We referenced a high base and shifting consumption patterns in foods. And there's no doubt that we benefited disproportionately from higher home consumption during COVID, given the dominance of fresh in our offering. There were other factors that affected the top line this year like low produce inflation, adverse weather, which impacted supply, and the unavailability of certain lines. Space expansion was also negligible in the 6 months. And pleasingly, we saw -- we had a very strong Christmas week, which was up over 10%. We're looking at Australia, and we have said this a few times. Sales were down in the first quarter due to the store closures, essentially the gray-shaded areas on the graph. But you can see the strong rebound coming out of lockdown. And if you adjust for Boxing Day -- for the Boxing Day shift to H2, sales growth in David Jones in the last 6 weeks would have been 7.7%. Country Road was up 1.7% for the last 6 weeks and somewhat affected by labor shortages, which impacted performance. Moving on to EBIT. Group adjusted EBIT was down 18% on last year, but not unexpected for the reasons mentioned. And in the operating profit for each of our businesses in relation -- also in relation to last year. Foods profit was down 8%, but this should be seen in the context of the fact that we grew profit by over 23% last year through a strong top line and a margin that was boosted by a combination of high volumes and low waste. FBH was up 34% to ZAR 780 million. And David Jones delivered $31 million and contributed $48 million of earnings, both, obviously, not comparable to last year. We will unpack the segmental performances a little later, but this is a very good result in the context of a significantly-disrupted first quarter. Moving on to the next slide. Here, we adjust EBIT for store closures, JobKeeper and rent relief in the base and in the current year, and this shows the profit impact of these adjustments, essentially, normalized EBIT. And you can see that this is significant, with David Jones profit up 30% for the half and Country Road up 10% and the Group up 9%, if one were to make these adjustments. Moving on to the EPS slide. Here, we show the movement from adjusted HEPS to HEPS to EPS, a function of earnings on the earlier slide. Adjusted diluted HEPS comes in at ZAR 1.622 per share, and then some minor adjustments were lease exits and modification gains and also the SA unrest costs to get to diluted HEPS and diluted EPS of just over ZAR 1.65 per share. Far fewer adjustments in last year, when we had the profit on the sale of Bourke Street Men's and significant adjustments for lease modification gains in David Jones, which accounted for the big differences between AdHEPS HEPS and EPS in 2020. Moving on to the segmental results, starting with FBH. I covered turnover on the earlier charts, up 4.2% for the half, online sales up nearly 20% and now 4.4% of total sales. And as we have said before, our focus is on improving the financial health of the business. So despite the womenswear misses this season, we are making encouraging progress in executing our strategies to drive full-price sales, rationalized brands and reduced space. This is reflected in our GP margin, which was up 40 basis points. TPMs, which was up over 10% and operating profit, which was up 34%. Costs were really well controlled, down 1% for the period, and adjusted EBIT was up 34% to ZAR 780 million. A number of key indicators are moving in the right direction, but there is still much to do in FBH, but we are also encouraged by the progress. Moving on to Food. A solid performance in what continues to be an increasingly competitive space and against a very tough macro backdrop. Top line grew 3.8% for the half and 5.8% in the last 6 weeks, back above the market in December after taking a bit of a dip in November. And I made the points on low produce inflation, space growth and high proportion of fresh, which benefited through COVID. We did not repeat our bulk deals in produce, which, in hindsight, was not the right thing to do. And one of our key deli meat suppliers unexpectedly shut the operation. I also made the point on GP margin, high volumes and low waste last year. And this year, we also saw higher fuel prices. Investment in price, however, continues. Return on sales was 7.2% for the half, with an operating profit of ZAR 1.4 billion. And just in closing, I'd like to say that the EBIT decline of 8% should be seen in the context of the high base. We grew profit by over 23% last year. Moving on to Financial Services. Our WFS business continues its post-COVID recovery, testament to a resilient business model, quality of its book and strong management team. The lead indicators have recovered also much earlier than expected, closing book was up 5% book growth, higher interest rates and store footfall, positively affected interest income and noninterest revenue. The impairment charge was 4%, which is market leading, a really strong result for the period with an ROE of 19.3%. David Jones still delivered an EBITDA of $100 million, despite the store closures. The top line was obviously impacted more than Country Road, given the higher concentration of trading footprint in Victoria and New South Wales and also in CBD locations. Sales was down 9% for the half but still up 3% over a very strong last 6 weeks of the previous year, and this growth excludes Boxing Day, which falls into H2 this year. We reduced space by 5.8% for the period and are on track to deliver our targeted 20% space reduction. So with the store closures, there was the expected shift to online, which was up 44%, and it's now 28% of total sales, a very significant increase over a short space of time. Gross margin was up 20 basis points on last year, despite having to clear the stock buildup during lockdown. And expenses were down 2% for the period, a really good outcome considering the one-offs in the base from JobKeeper and the rent relief. And then on expenses, the team is on target to deliver another $25 million of annualized cost savings for the year. If you adjust for the sales disruptions and one-offs in the base, EBIT, as I mentioned before, improves by 30%. So in summary, $100 million of EBITDA in a significantly-disrupted half, good expense and working capital management with cash of $347 million at the end of the period. Country Road, a really good performance despite the disruptions, with sales down only 3% over the half. The performance of Country Road and Trenery and Witchery turnaround was especially pleasing. Online was up 4% and is now about 1/3 of sales. We experienced some labor shortages, which affected online fulfillment. Gross margin stabilizing at about 60%, marginally down, but we had to clear the stock buildup from store closures. And we also had to contend with higher freight costs due to the increase in global demand. Expenses were up 15%, not comparable to last year for the reasons mentioned and the base effects of JobKeeper and the rent relief. The focus on space optimization continues with the closure of stores and unproductive space down 7.4%. It is pleasing to note that our Country Road Group brands in South Africa is also performing exceptionally well and grew sales by 28% in the half. And as I mentioned before, on a normalized basis, profit actually improved by 10%, and strong trade momentum continues in the second half. Moving on to CapEx. Our total spend for the half was under ZAR 1 billion, with a forecast of ZAR 2.3 billion for the full year. CapEx was underspent in the period, and we will be below our previous guidance of ZAR 2.8 billion for the year. The pullback was in the main due to the store closures in the first quarter in Australia. Again, a demonstration of one of the levers that we can't pull, when looking at preserving cash. The $18 million set aside for the consolidation of Bourke Street will be spent this year and that project is on track. And the shift of spend from bricks-and-mortar to IT and tech continues, which is reflected, obviously, in the continued growth in online. Moving on to the balance sheet. Just a reminder that all numbers are post IFRS 16. Property, plant and equipment down by 1/3, but the right-of-use assets is up, and this is due to the sale and leaseback of Elizabeth Street. Working capital is down a pleasing ZAR 400 million and net equity is up significant 40% on last year. Net debt to EBITDA, including lease liabilities, is at 2x. SA gearing is under 1x on a pre-IFRS 16 basis. And SA has a strong record of cash generation with the underpin of the Foods business. Net borrowings is down ZAR 7 billion on last year. The balance sheet does not cover gearing in any great detail. We did that in previous presentations, and this is in the back of the pack. But a specific call-out I wanted to make, and this is in respect of our sustainability-linked goals in respect of SA debt. And currently, we have converted nearly 60% of our SA debt, including bonds and working capital facilities, which is a first in South Africa, into that with sustainability-linked targets. And our aim is to convert all our debt into that with ESG attributes. So overall, a very good gearing and balance sheet story, which lays a good foundation for future growth and expansion. Okay. Cash generation. Cash generated from operations was ZAR 5.5 billion on the left. Positive working capital movement, despite the buildup of inventory, as a result of the store closures in Australia, I mentioned the ZAR 400 million. And in maintenance and expansion, CapEx is under ZAR 1 billion. At the end of '21, we also took the decision to resume dividends from all of South Africa, and this ZAR 638 million flowed in September last year. Total gearing was down ZAR 1 billion over the 6-month period. And just a reminder again that this is despite the store closures in Australia. Dividends and capital structure. As we have said previously, dividends will be considered in the context of prevailing conditions. Our borrowings are within the targeted ratio of 1.5x for SA, 1x for Country Road and no debt in David Jones. We've successfully delinked to our Australian businesses from a financial-covenant perspective, and both businesses are in a cash positive position, despite the massive trade disruption in the first quarter. We are pleased to continue paying dividends from all over South Africa at a 60% payout ratio, which translates into a dividend of ZAR 0.805 per share to shareholders. And as mentioned, we have declared a $90 million special dividend from David Jones to WHL. We will also revisit dividends in respect of Country Road and our longer-term payout ratios at the end of the year. We are currently reviewing our capital allocation framework, which Roy will speak to a little bit later. And this is with the aim of further optimizing shareholder value. COVID has taught us many lessons, and we must be cognizant of unforeseen external shocks, and the recent invasion of Ukraine is a stark reminder of just how quickly things can change. We must strike the right balance between balance sheet robustness and efficiency. And then just to end up on recent trading. This is an extension of the sales slides presented earlier with the first 8-week trade figures of the second half added. Growth at the start of the calendar year can be affected by cutoff, timing of summer clearance and back-to-school dates. FBH traded up 14%. 7%, if you adjust for the timing of summer clearance, and the 14% will moderate as we head further into the quarter. And just a reminder that from July this year, we will be anniversarizing our new trading calendar. Foods traded up 3.5% for the first 8 weeks, in line with the overall first-half run rate. We are still comping a high base, just as a reminder. And then in the case of Australia, Omicron, no doubt, affected and continue to affect footfall. However, we have seen a sharp recovery, which is very pleasing. David Jones was up nearly 8% and Country Road up 14% on last year. That brings us to the conclusion of the final section. So in summary, a significantly-disrupted first quarter, which explains the drop in earnings. Working capital and expense management has been sound. Despite the disruption, we ended the half with a stronger balance sheet, which allows us to resume our interim dividend after a 2-year hiatus. We have a solid foundation on which to execute our strategy. And on this note, let me hand you back to Roy.

I would like to take a moment to remind you of our strategic framework, which really describes our purpose and provides an integrated view on our key strategies. In support of being a leading, purpose-driven and truly-connected retailer, we are focused on the following 4 core strategic things: Firstly, protecting and growing our core. This is to ensure that we safeguard the foundation of what truly differentiates us from our competitors. Next, expanding for more, which is how we leverage our core platform further by pursuing both underdeveloped and new opportunities for growth. And thirdly, how we lead in customer experience, which essentially means putting the customer at the forefront of everything we do. Within each of these strategic themes are a series of initiatives, I have shared a fair bit of detail with you at our last results presentation. So I'm not going to run through all of them again. But I do want to spend a few minutes on just two of them, our fashion turnaround and our leading Food business, particularly in the context of our interim results. And in doing so, I hope to preempt some of the questions, I imagine, you may have around our performance over the period. Starting with our turnaround in fashion. A question, I imagine you may have, is why we're not making more progress, particularly in the case of womenswear. The short answer is, we are. When I came on board, I shared with you that I believe our challenges in turning our Fashion business around lay in both strategy and execution. I am confident that we now have the right strategy, and I firmly believe we're on the right track. Our execution, though, is still a work-in-progress. And although we're beginning to see some successes, we are aware and focused on what still needs to be done. Our immediate and overarching priority is to restore the underlying financial health of our business, and that's exactly what we're doing. We're improving the quality of our sales base. We're doing this in this in a number of different ways. We've defined what we call the "must-win" categories we're going after, categories we've historically been renowned for and loved for and where we know we can deliver differentiated, superior quality and value to our customers. Our wardrobe essentials, denim, athleisure, smarter work leisure, kids and baby. We're also elevating our apparel credentials in a number of these must-win categories through the introduction of select global and national brands. guest brands, which also serve to differentiate and enhance our customer experience. These third-party brands will be most prevalent in Beauty and Home. In the case of fashion, they represent a significantly smaller part of the mix, currently only around 1% of turnover. But as mentioned, they do have a disproportionate strategic impact, in that they enable us to establish category legitimacy in the categories in which we want to lead. For example, in denim, where we have partnered with Levi's and GUESS, and we're very pleased with the results we're seeing so far. An important component of our holistic clothing offering is the Country Road Group brands, including Trenery and Witchery, which compete in the premium segment of the market. Interestingly, they also represent a significant cross-shop opportunity with our Foods customers. These brands collectively grew at around 30% over this half. In fact, if you look at our total clothing sales in South Africa, including all our brands, we're growing market share. And importantly, we're doing it in a far more profitable way. So we've defined where we want to play and how we will win. And we're shaping our offering accordingly. And this is based on what we know about the market and more importantly, our target customer. Through advanced analytics, we are now generating the insights, which, in turn, inform the decisions of our design and buying teams in a far more granular way. And we're seeing our proposition resonating with the customer more than it's done in quite some time. So how do we know this? Well, while our overall sales grew by around 4% for the period, our full-price sales grew at twice that pace. We've reduced our rand value of markdown by almost 20% over the half. We've improved our trading densities by over 10% and more importantly, improved our profit per square meter by over 40%. We've edited our menswear range by almost 30%, where, to be frank, we just overproliferated. And that's now our best-performing category, in terms of full-price sales. Even in the case of something as simple as socks, where we offered over 150 different styles, we've now reduced that down to 90, and we've still got a way to go. So we've begun to shift the scales, in terms of the number of things we're doing and getting right versus the ones we're not. But there's still work to be done. In particular, we are focusing on our planning and allocation capabilities and processes. This is really where we face some of the challenges in womenswear in the first half. While product resonance has improved, where we really came up short was not having the right depth of that product in the right areas. And this was particularly prevalent, as we tracked performance across our store base down to our small- and medium-sized stores, which in fact, account for over 2/3 of our sales and an even greater share of our profits. Within our Fashion business, womenswear is the largest ship to turn. It is the area that requires the biggest changes, from structures to ways of working, across design, planning and buying. Progress is well underway but will still take more time before we're firing on all cylinders. Positively though, our womenswear full-price sales grew by 8% over the half, in fact, exactly in line with the broader business. And we also doubled our stock turn. We're getting more of the right product into the right stores, priced right but not nearly enough and not yet consistently enough. The investment though that we're making in systems and technology, our value chain transformation, as we call it, is fundamental to enabling this. We know that getting the ship turned around may take some time, but we are clear in our direction, confident in our strategy and confident in our teams being able to shift the trajectory of this business. Now, on to Food. This business is and always will be the engine room of the group. And so it is critical that we not only sustain our momentum but further expand our leadership position in Food. Now, I know many of you have questions around the recent slowdown in our trading momentum. As the country's preeminent food retailer, we're fully aware of intensifying competition. But while competitors obsess about coming after us, we remain focused and obsessed about our customers and what they expect from us. In doing so, we will keep raising that competitive bar. Innovation is in our DNA. as is our unwavering commitment to quality and sustainability, and we're continuing to invest in these areas. But we also keep challenging ourselves as to what more we can do to truly differentiate ourselves. Over the past half alone, we've continued to respond to our customers' evolving wants and needs by introducing over 1,000 new or upgraded product lines. A great example of this is how we've grown our Chuckles range. Chuckles is now our #1 bite-size chocolate brand, made with 100% responsibly-sourced cocoa. Our total Chuckles brand growth has increased fourfold, as we've expanded across confectionery, ice cream and bakery, 35 branded Chuckles items, in fact. And it's been a great success for us. We now sold the same amount of our traditional red-bag Chuckles in weight, annually, as that of a Boeing 747. Our product innovation is something we really pride ourselves in. And in fact, we walked away with 8 awards at the recent Symrise New Product Competition awards, maintaining our position as the country's leader in quality, newness and innovation. We've also reconfigured the structure of our Foods leadership team under the helm of Zyda Rylands. Zyda is putting together a refreshed strategy, which we'll share with you in due course, but it is predicated on the opportunity we have to grow both our share of customers and our share of wallet through becoming increasingly accessible, but while still remaining aspirational. Now, there are a number of ways one can become more accessible. Price is certainly a lever. And we're looking to deliver better pricing to our customers without any compromise to our superior quality through an enhanced promotional and everyday pricing strategy. There are select categories in which we're looking to expand our range. And through this, we see the opportunity to grow the market and our share of it. And there are a number of exciting new concepts in the pipeline, which we are testing and are looking to roll out over the coming months. The team is also rethinking what we call our white space opportunities and where scope exists through different formats and catalogs to service areas, where we either underrepresented or not represented at all. So I know, I'm being a bit cryptic here and deliberately so, particularly when it comes to new sources of growth. But we do look forward to sharing more of this with you at our year-end results and at other future engagement opportunities. So I've taken a moment to provide some perspectives and hopefully answer some questions that may be top of mind for you, in respect of our recent performance. Of course, we'll have more time to cover further questions, you may have, in the Q&A, post the presentation. But now, I'd like to look ahead. I'd like to share with you what we believe sets us apart and how we're going to leverage our differentiators, our uniquely-positioned businesses to create meaningful, sustainable value to the benefit of all stakeholders, including, of course, to our shareholders. The first point here is that our Foods business is the highest-return food retailer in South Africa and would, in fact, probably rank amongst the highest, globally. But I don't think we've actually shared with you the true extent of that. Our return on capital is north of a 50%. And on a pre-IFRS 16 basis, north of 70%. So what that means is that for every rand of sales through our tills, we generate multiples of the economic profit versus that of our listed peers. We are very clear on how important this is to our overall investment thesis and how important it is, therefore, that our engine room sustains its momentum. And I am confident that we have the underlying fundamentals and credentials not only to win but also to entrench our leading position. On to our Fashion business. As I've said before, our biggest opportunity lies in restoring the underlying financial health of our Fashion business. while simultaneously growing profitable market share in Beauty and Home. Whilst this is our biggest delta, in terms of value creation, it is also the area with the most low-hanging fruit or what we call "self-help" opportunities. We are very clear on who our customer is, where we need to play to win and how we're going to do that. I'm confident that we now have the right strategy, and we're now relentlessly focused on its execution. Having successfully executed on our capital plan and having split the covenant groups that existed between David Jones and the Country Road Group, we have unlocked value for both entities and for the group as a whole. Both David Jones and CRG are now independently set up to pursue their own respective ambitions. We are now in a position to make important independent choices to improve the underlying operational and financial performance of David Jones and drive our refreshed Country Road Group's growth ambition of becoming a bigger omni-player in Australia and beyond. Now if we look at the performance of great companies, whether locally or globally, capital allocation is quite clearly a driver and a differentiator of that performance. And we know it's an important determinant of market valuation. And so over the past year, we've begun to fundamentally reevaluate our approach to capital allocation to ensure that our principles support our strategies and support our growth ambitions, whilst also meeting our targeted gearing structure and shareholder aspirations. So we've done a lot over the past 18 months to improve the health of our balance sheet, and we are now in a position with the firepower to shift some of our focus towards improving shareholder returns and investing in new growth opportunities. As Reeza mentioned, we've declared an interim dividend, based on 60% of our South African earnings, and we're likely to revisit this ratio as well as the potential inclusion of CRG earnings at year-end. We've been asked if we'd considered special dividends. And I think that's less appealing to us, certainly relative to the option, for example, of buying back our own shares. We also see significant opportunity, more so than we have in the past, to invest in new growth opportunities within our existing businesses. To support this, we've made some changes to ensure that when we look at investing, we take a holistic view across the organization, ensuring that there is competition between businesses for CapEx. We also prioritized and ranked projects relative to our strategic goals and relative to our return requirements and those of our shareholders because these investments need to compete with returning cash to you. Integral to our investment thesis is our pioneering Good Business Journey, or what we call GBJ, which is embedded in everything we do and how we go about doing it. I spent quite a bit of time in our last analyst presentation, sharing aspects of our GBJ with you and I think many of you had the opportunity to attend our recent inaugural GBJ Investor Day as well. So I won't spend too much time on this, right now, other than to say that we remain deeply committed to our vision of being one of the world's most responsible retailers. And that's reflected quite clearly in the sustainability targets we've set for ourselves through 2025 and beyond. Whilst it's not the reason why we do it, the fact is this is a competitive advantage for us, and we're doing more to ensure that our GBJ and our commitment to sustainability and doing the right thing is better understood by our customers as much as it is by our shareholders. So hopefully, this gives you some insight into how we look at our business and what those areas are that we believe define our investment case. While these are key aspects of what is effectively our investment thesis, I think it's equally important to share with you how we see our strategies translating into financial performance and ultimately into economic value. Starting with FBH. Our Fashion, Beauty and Home business is where we have the most self-help opportunities. And as you can see from the slide, every key line of the P&L has a role to play in improving the underlying profitability of this business and, in turn, resetting the value of our group. Starting with our sales line and notwithstanding our space reduction targets, which remain intact, we are intending to grow sales in real terms, on a compounded basis. Additionally, by rationalizing unproductive space, this will translate into even stronger growth in trading densities. The bigger opportunity, however, is in our margins. We're already improving our intake margins, achieving far better full-price sales and reducing our time spent on clearance, and we'll keep doing this to effectively halve our markdown-to-sales percentage over the next few years. This should see us achieving GP margins of at least 48%, which, coupled with our cost-out initiatives, will see us achieving a medium-term margin target of more than 12%. As Reeza showed you, we've already begun this journey with our first-half EBIT margin up by more than 250 basis points on last year. In contrast to our FBH business, we see the biggest opportunity to create value in our Food business coming not from margin, but from our top line, which we intend to keep growing above market. This will require investment, whether it be in price, format or channel, which may mean some sacrifice of GP margin but probably not more than 50 basis points. And so we're confident that despite these investments in new sources of growth, we will still sustain a 7% to 8% EBIT margin, and more importantly, we'll be banking more EBIT rands, which is really what matters. And now, to the Country Road Group. I'm really excited by the opportunities we see for this division, particularly in the case of the Country Road business, which is a truly iconic brand. We already have a market-leading omnichannel experience in CRG, but there is scope for us to drive this harder and further. And so we're investing to deliver continued market share gains in Australia and beyond. We have identified several opportunities to enhance GP margin from sourcing benefits to greater efficiencies from our online fulfillment center. While some of this will be reinvested into building our brands, some will also fall to the bottom line to achieve our medium-term margin target of greater than 12%. When considering our cost-to-sell ratio and the subsequent impact on our ROS percentage, it is important to remember that the FY '21 metrics you see here on the screen benefited from one-off JobKeeper and rent relief initiatives last year, which Reeza has already unpacked for you. So when adjusting for the various impacts of the lockdown, our medium-term target does imply an improvement, on a normalized basis, to more than 12% by FY '24. Now, as you'll recall from our last results presentation, we haven't provided any margin target guidance in the case of David Jones. So we haven't shared with you those building blocks. There are a number of initiatives currently underway, which are being refined, and they do need to be further progressed before we're really in a position to provide definitive guidance. Unfortunately, the recent lockdown in Australia pushed out the timing on some of these. We will, however, have a firm view on margin outlook for the business at the time of our year-end results. So that hopefully provides you with some insight into the building blocks behind our margin targets. Our focus over the past two years has really been about protecting, and in some instances, rebuilding our core businesses, so that as we emerge from the COVID lockdowns, we do so with a stronger, leaner and future-fit business. A big part of this has been improving our balance sheet and return metrics. With a very well-capitalized balance sheet, we are now in a strong position to invest in our business and continue the journey of creating meaningful value for all our stakeholders. Now we have 4 distinctly different businesses with distinctly different opportunities, when it comes to value creation, as you saw from our building block slides. Starting with Food, we believe that incremental capital allocated to this business will continue to produce exceptional and market-leading returns. We are therefore upping our level of investment in our Food business to support our future growth. As mentioned, we'll share more of this with you at our year-end. This may be slightly margin dilutive in the near term, but more importantly, the exceptional return on capital that this investment generates is what this business is all about. In FBH, we are absolutely focused on improving margin, which is already coming through and which we will continue to enhance whilst also investing in a business, which we have historically underserved, from a CapEx perspective. CRG is in a sweet spot of being able to simultaneously drive top-line growth and expand margins, and it is on track to becoming a much bigger omni-player, by expanding not only in its home market but well beyond this, through its existing brands and channels and the possibility of new ones. And finally, David Jones. We've done a lot of work to stabilize this business and are focused on actively trading and improving its profitability. We're also doing this in a more CapEx-efficient way than perhaps what we've done in the past and are funding this internally out of operating cash flows. So from all of this, you will see that we have given structured thought to allocating capital to where it will generate the biggest returns. Turning to our outlook for the second half. South Africa's economic outlook remains challenging for reasons we all know. Australia's economy is in better shape, notwithstanding the recent impacts of the Omicron variant on consumer spending. And yes, while the external environment is, no doubt, challenging, and the near-term global outlook has become even more uncertain, given the recent events in Ukraine, we are certainly not short of opportunities or ideas across each and every one of our businesses. In fact, it's the very diverse nature of our group and the respective prospects of each of our businesses that is one of our biggest strengths. We have a runway for growth, independent of the macro outlook. We have a series of strategies and initiatives to ensure that we grow profits ahead of sales. And I really believe we are on track to rebuild our financial credentials, drive long-term value creation and really restore our business to its rightful place in the hearts and minds of all our stakeholders. And with that, let's open up for questions.

So straight into Q&A. Roy, our first question for the avoidance of doubt, you believe you're gaining share in SA apparel? Or are you saying, only in certain categories?

Well, thank you very much for the question. Certainly, in our Apparel business, we've defined what we term our "must-win" categories. And it's critical that we grow share profitably in those particular categories. And we are, in fact, growing share in a number of those categories. But yes, very specifically, when you look at our entire offering to the South African market, collectively, we're in fact ahead -- growing ahead of the market, so growing share, overall.

Could you comment in more detail about the misses in the FBH performance? How much of the underperformance was intentionally exiting categories and brands? And how much was product core misses?

Yes, there's no doubt that when you, sort of, do exit categories and brands that you'd over-proliferated it in the past and you come out of certain amounts of space that, that will have an impact on the top line. Having said that, though, our major area of underperformance, relative to our expectations, was in the womenswear business. But bear in mind that, that business is really accounts for about 1/5 of our total FBH business. And in fact, in that business, our sales were up around 1%. And the important key there, too, our full price-sales in womenswear was up almost 8% versus the same period last year. So when we look at some of the things that, I think, we did get right, again, going back to these "must-win" categories, areas such as denim, dresses, athleisure, swimwear, knit tops, all of those categories traded exceptionally well for us. We've also reduced our markdown across the womenswear categories by over 32%. Obviously, a really big driver of the improved margins there. And very encouragingly, our stock turns doubled across womenswear. Where I think we did get it wrong, was much more in terms of our [ store ] count. We did reduce [ store ] count and we could have done that a little bit more. But importantly, our volume buyers were too shallow. And so the metric that we track really closely around availability, is the one where we came up short. Particularly, as you look at how we've allocated product to our, sort of, midsize and smaller stores, where this makes a significantly-greater difference. So this concept of not being able to find your size, which underpins this concern that we have around availability, is probably the area where we came up, as I say, short of expectations, and that potentially contributed mostly to the underperformance in women's.

Reeza, perhaps a question for you. Could you please let me know the calculation for getting to a 30% increase in EBIT for David Jones?

Okay. Thanks for the question. And what I'm going to say applies to Country Road as well. But the way to think about this is that we -- adjusting for sales in the first quarter, we use effectively our budget as a bit of a reference point. We then make another adjustment for online, and we pull effectively online back because obviously, we don't want to double count on the online line in respect of total sales. And then coming out of lockdown, we also make provision for the pent-up demand and that also gets pulled back. And then on the cost line, in the prior year, obviously, we adjusted for JobKeeper and rent relief. And in the current year, the impact of staff that was stood down, we effectively add that back to costs. And then we make other adjustments for variable costs in the calculation. So hopefully, that helps.

Another question on David Jones. Roy, David Jones seems to be making some good progress on cost savings and gross margins, but you don't give targets. Why not?

No, I would agree. I mean I think we're very pleased with the progress we're seeing with a number of the turnaround initiatives underway at David Jones. We've always spoken about our approach being a bit of a 3-phased approach. And we're certainly onto that third phase where a number of the strategic initiatives are targeted at improving various line items across the income statement. And margins have improved. We have taken out fairly significant amounts of cost. We've dealt very decisively with our loss-making food business there as well. But yes, there are a number of initiatives going on around our real estate footprint and discussions with landlords. But we're pretty much sort of fairly early into that process. Some of what we were going after was also, to an extent, set back by the fact that we were in lockdown for almost 4 months, between 3 and 4 months during the first half. And so we want to give it a little bit more time to get greater traction behind some of these initiatives for us to be able to sort of provide targets with a strong level of conviction. So that's really why we are not providing targets at this point. Having said that, though, I would imagine that by the end of our financial year, we certainly will be -- we should be in a position to give you very clear targets there.

Another question, could you let me know the proportion of Country Road sales by value in South Africa? I'm happy to take that. It's just under 10%. Another question, which I can probably answer. What is the food inflation in the post-period sales update? And what is the outlook for food inflation in the rest of the year? We are expecting food inflation of around 4%. And just in case any questions on FBH, that's slightly higher at around 6%. Roy, a question for you. Are the new markets to be explored in CRG product or geographical?

It's, in fact, potentially a combination of both. I think there are opportunities to look at where we are, for example, in the Country Road brand as far as our homeware category is concerned. So from a product perspective, certainly, a big opportunity we see going forward. But we've seen how the brand resonates and we've seen the opportunity for us to do more with that brand in markets beyond where it's at today, which is essentially Australia and South Africa. So we'll selectively choose where I think we can go with that brand. But having said that, there is also fairly significant opportunities in the existing markets, too. But we're excited about the opportunity to take particularly the Country Road brand beyond Australia and South Africa.

Reeza a question for you. It would be insightful to hear the key drivers for the better than previously guided profit outcome. You had previously indicated the initial profit warning was driven by your expectation of markdowns at the end of season trading in the Australian business. Was the outcome better than expected in the Australian operations? Or was the performance of the SA business better and thus offset Australia?

Yes. As I said in the presentation, actually, the rebound coming out of Australia was much stronger than expected. So you are correct. We guided in our trading statement in November to profits -- to AdHEPS at least being down by more than 20%, and we're quite certain about that. But we landed at 16.3%. So much, much better than expected. And essentially, it's due to the rebound coming out of Australia. The demand for the product was better, and obviously, markdowns and GP margin consequently much better, and cost management, obviously, as Roy mentioned.

Roy, as David Jones improves its financial performance, should we factor in management to consider selling the asset?

Yes. I mean, I guess I would be surprised if we never got that question. We seem to pick that question up in most of our engagements. And clearly, that's something that we may get to at a point in time. We're really very focused on the work I was referring to earlier on. And that is really getting the business stabilized, which we've done and beginning to turn it. We're not firing up down that particular pathway. But clearly, at the right point in time, we'll make a decision, which is in the best interest of us as a group and certainly of that of our shareholders, but we're not commenting further on that at this point.

Thanks, Roy. As previously noted, the food space is currently a highly competitive space, especially given the rise in the convenience home delivery space. What is Woolworths doing to stay relevant and competitive in this regard?

Yes. So great question. Thank you. Yes, I mean there's no doubt that the shift to online is a somewhat of a permanent and growing feature of our overall proposition of retail in general within the context of our market. And playing there and having the right sort of propositions and the ways of intersecting with our customers is going to be such an important and pivotal source of future growth, and a component of our overall sort of makeup within the customer ecosystem. And I've acknowledged this before. I think we may have, at the outset of the pandemic, been off to a slightly slower start than we would have liked to have been. But I'm tremendously proud of what the teams have been able to do in building capability to service this online space. We actually now have a series of online propositions that are accessible to our customers. We have our conventional online shop, which is the next day or day after sort of delivery. We have a Click & Collect component, where customers can go online and place their orders and then drive through to the mall and pick it up and not spend their time grocery shopping, but spend their time shopping elsewhere. And then we have the on-demand component, which is what we've called Woolies Dash. And we've been quite measured in our approach as to how we've gone about executing Dash. You must bear in mind that our Dash and on-demand sort of service really skews quite heavily towards fresh product, not necessarily the long-life product. And in addition to that, I mean, we've invested in capabilities that are genuinely differentiated when it comes to that. We're the only player in the market that has a cold chain solution, so that you order products through the cold chain, and they arrive in the way and condition that you expect them to find them when you were shopping them had you shopped them in the store. So that's important. But as I said, we've been fairly measured in our approach. We're available with our Dash proposition across 30 stores now in the country, by Easter, we'll be up at 50 stores, and by the end of the year, 100 stores, so continue to expand that. But I also got to appreciate that it is a model which is not fundamentally value-accretive or profit-accretive to us. We're getting better and better in understanding the cost drivers and the efficiency opportunities within that. And we're improving the levels of profitability in this particular mode, but we have some way to go before it gets to even break even. And you can imagine the costs involved with the servicing and the delivery of 30 grocery items at the margins that they're at and all that goes into sort of the payment processes and the picking and the packing and then putting it into a container until the back end of a scooter, et cetera, et cetera, very little margin to play with there. And so it is a challenging component, frankly, for all retailers, but something that I think we're pleased with the progress we're making on and we should expect to see that improve over time. So yes, I think that's sort of where we stand. The other important point I'd like to mention, though, is that these 3 sort of online components are, in fact, going to be integrated into 1 single app, which makes it a lot more seamless for the customer to shop us online. And again, we're the only retailer in the market that has these particular propositions. We don't only have an on-demand capability. We have a capability where you can do a more extensive shop, your monthly grocery shop online, and then we obviously have the Click & Collect that I've mentioned.

Thanks, Roy. What percentage of sales in Woolworths clothing are made in South Africa? I'm happy to answer that question. It's about 30% or just over 30%. We have a target of 40% over the next few years. That's specifically South Africa. If we look at the broader SADC region, you could add another 20 percentage points to that. Roy, what does the highest pricing and promotional strategy in Food imply for gross margin in the Foods business?

Yes. Well, I mean, I think we've got various strategies that we're underway with in terms of the pricing and promotional capability and competitiveness of our approach. Many of these initiatives are, in fact, co-funded by our suppliers. And so whilst they may have an impact on margin, they holistically are accretive because they also obviously drive up volumes in the process. So yes, there is an impact on margin at the outset. In addition to the fact that when you look at what we're doing online, when you roll that all up, as I've mentioned, there's probably about a 50 basis point impact on margin overall.

Reeza, can we have a bit of background around the food waste saving in the base that did not repeat?

Yes. Thanks, Jeanine. Firstly, sort of our waste levels in the business -- in our Foods business is world-class, and it continues to be world-class. During last year, we still experienced, during COVID, quite a significant increase in volumes. And that, together with the rebates, obviously, that we got from suppliers, resulted in improved gross margin. But the real impact was obviously on reduced waste, given the big sort of fresh component within the business. So as volumes normalize, waste levels also normalize. So it's not like the waste levels are going higher. It's normalizing off a low base.

Another question and a comment first, well done on the presentation and detailed sales guidance. So we saw Edgars bring in third-party brands. Jury is out on whether it worked or not. But why would a customer come to Woolies to buy Levi's and not go to the Levi's or GUESS store?

It's a great question. And if you go back to what we've been sharing with you about our clothing strategy, yes, we've done quite a lot of work in editing our overall offering. One of our challenges historically has been that we over-proliferated in terms of not only brands that we brought out, but also product categories. And as a result of that, we really confused our customer. With the better insights we have through the data and advanced analytics capabilities we've built up over the last couple of years, we've been a lot more targeted on the categories that we feel we must win at. And within those particular categories, we see an opportunity to augment our proposition with very selected third-party brands. And those third-party brands have a positive impact on that particular category. They certainly bring more customers into the store and they certainly sort of legitimize our authority as a category player in that space. And denim is one of the great examples where Levi's has, in fact, played an important role. It's important to say, though, that when you take a look at our third-party brand contribution to our overall revenues, they're less than 1% of our sales. And that's probably the sort of level there in the 1% to 2% to 3% range that I think we will be in. They're never going to be a big part of our proposition. They play a slightly bigger role in our beauty business, clearly, and to some extent, in the homeware business, too. But in apparel, they'll always be in the low sort of single-digit sort of level of contribution, but they do bring a halo impact to the category and legitimize ourselves in that particular category. The reason why I think a customer would come in to shop us is because some of the assortment may be slightly different. And the way we bring it to life will be different, and you're there for a whole lot of other reasons. But when you wake up in the morning and you want to buy a pair of jeans, you want to basically know that Woolworths is the destination. And between the propositions we've got, whether it's Levi's or GUESS, or our own really phenomenal rebrand in the space, I think it would be hard for us to leave the store without a pair of denim jeans if that was your intent to begin with.

Thanks, Roy. We've had a couple of questions on the maximum targeted contribution from external brands at FBH, particularly in clothing and fashion? I'm happy to take that. We've said that it will never exceed 10%. This does over-index in the case of Beauty and Home, where you'd appreciate there's a high component of branded products. In the case of fashion specifically, it's likely to remain in the low single digits. And again, from a channel perspective, we'll over-index online relative to in-store. Roy, could you talk a bit more to the rationale to increase your staff wage rates? And if this is going to negatively impact the cost line?

Yes, certainly. Thanks for the question. I think we've been on a journey for some time in terms of elevating our pay levels for particularly our 20,000 frontline employees. Currently, Woolworths pays around 50% above the legislative wage rate. And certainly, relative to the rest of the retail sector, we're around 15% above the average wage rate within the retail sector. I think that our view is that clearly, that people need to be fairly compensated for what they do, meaningful pay for meaningful work is our overall sort of philosophy. And we have earmarked around ZAR 120 million to be invested over the next 3 years to increase our hourly base rate by around 24%. And this will be funded through savings elsewhere. So you're not going to see it negatively impact on the OpEx line going forward. For us, we say that a minimum wage is not a living wage, and a living wage is not a just wage. And so a just wage for us is what we call our Woolies wage is an aspiration we have. I mean, for our people, specifically to ensure that they can secure an appropriate standard of living. Very happy to talk more about that at another opportunity, something we're very passionate about. Thank you.

Thanks, Roy. A question, Reeza, possibly for you. How big an impact has fuel price increases and global supply chains had on your business? What are the likely impacts for the second half?

Yes. Thanks, Jeanine. The impact, I mean, in the first half, was less than 1% in terms of the cost. But obviously, you've got demurrage costs, you've got freight costs, but in the case of, let's say, Country Road, probably the biggest cost for us is lost sales, and there's been some impact there in terms of late deliveries, et cetera, et cetera. But in terms of the actual impact on margin, it is minimal, and we obviously look to recover that from other areas within the margin and whether that's sort of better markdowns or other cost elements within gross margin. Yes. And just talking about the Ukraine crisis, obviously, that will have an impact on fuel and energy costs. And we don't expect that also to be that significant.

Thank you. We have a question on explaining the difference between price movement and underlying product inflation. Also happy to take that one. Underlying product inflation refers to the movement on the same product year-on-year, so effectively a like-for-like movement. Overall price movement refers to the movement on a weighted average basket basis. So effectively, taking into account mix effect and customers trading up or down in pack size. Roy, maybe a final question for you before we look to close the session. Kind of a short question. Losing market share to Checkers in food?

Sorry, to who? Yes. Look, I think it's sort of relatively undisputed that we have a remarkable foods business literally by any measure. It's a world-class business by even global standards and metrics. It's a business that you know we've built over many, many years of investing in the right things. And when we often talk about the real differentiators of that food business, it goes to -- it absolutely goes to the back-end capabilities, the partnerships we have with our suppliers, the investments we're making in innovation. We bring around, as I mentioned, about 1,000 or so products every season that are new or different, responding to where our customers are. It's a very customer-centric business. Food science, technology, quality, the obsessiveness of the team around that. And clearly, we look forward to sort of sharing more of that with you later on in the year when we may have our Foods, sort of, Investor Day session too. But back to that, I mean, I think our business is remarkable. It's been growing market share for 10 consecutive years, and we certainly intend to keep that record intact as we go forward. The point about competitors and share, there are moments in time where competitors do certain things that might change their rate of growth versus yours. Our growth essentially is coming from our existing business, our core business. And we're not laying down loads more space. We're not opening up a ton more stores. So our growth is fundamentally organic, and so one has to look at the businesses on a like-for-like basis and where some of those sources of growth potentially come from. The other thing that's worth mentioning, and I did refer to it in our presentation. But we do have the Foods business and as a retail business, the one that delivers the highest return on capital employed bar any. And the point I think I made in the presentation was, for every growth rand that we gain, our competitors have to grow 3 to 4 to 5x more to earn the same level of economic profit. So a fundamentally very strong and healthy business. We have a ton of things going on. And certainly, we'll share in some specific detail with you what those are. But there are a number of initiatives around making our brands and our product ranges more accessible. We're looking at innovation in that space. We're looking at new formats. We're looking at different white space opportunities. So as we sort of tally up the opportunities, we see significant upside in terms of growing this business on a go-forward basis.

Roy, thanks very much. We've run just over an hour. So I think we'll close it there. Roy, a couple others, but we also have 2 days of fairly heavy investor engagement. So we would have an opportunity to answer them then.

Well, thank you very much. And again, just for making the time, giving us the moment to share with you who we are, our business, where we're at, provide perspective on our results. We really value these opportunities. And certainly, I know we have a couple more coming up over the next couple of days to engage with various stakeholders. Very much looking forward to that. But again, thank you for your time and for your ongoing support and interest in what we're doing. We're very proud of the accomplishments to date, but there's a lot more to come. Thank you.