Woolworths Holdings Limited (WHL) Earnings Call Transcript & Summary

Good morning, and welcome to our 2025 annual results presentation. We'll begin this morning with a high-level overview of our performance for the past 12 months, after which I'll hand over to Zaid, our Group Financial Director, who will take you through the financial results for the year in more detail. Following that, I'll provide an update on our strategic priorities and importantly, how we see these evolving into FY '26 and beyond and share some thoughts on the outlook before moving. So starting with the FY '25 proved to be more challenging than we'd expected. I think we're all okay with the persistent macroeconomic headwinds across our geographies and the significant uncertainty in global trade relations and that was never going to make it easy from a trading conditions perspective. But to be candid, our financial performance has been more symptomatic of where we have found ourselves as a group in the midst of significant transformation, particularly within our apparel businesses. A transformation, I'm very pleased to say we've now completed. Within this context, group sales increased by almost 7%. Adjusted EBIT, however, was down 10.9% and adHEPS down 19%. From a divisional perspective, our Foods business remains the standout performer, delivering another excellent result. Month-on-month share gains and positive underlying volume growth were underpinned by increased customer visits and basket sizes, clear evidence of the strength of our brand and the compelling quality innovation and value we offer our customers. Importantly, even as we continue to make significant investments in future growth, our return on capital remains industry-leading. In Fashion, Beauty and Home , it was very much a tale of 2 halves. As you may recall, in the first half, operational challenges with our new DC technology, combined with late supplier deliveries, constrained product availability, particularly during our peak trading period. We moved swiftly to address these issues, and I'm encouraged that the second half told a very different story. FBH gained market share and delivered the strongest like-for-like sales growth in the sector. Our financial services business, WFS, continues to perform well, delivering a strong underlying result and consistently the healthiest impairment ratio in the industry. That resilience remains a key differentiator for us. And Woolworths Ventures, our recently launched strategic growth accelerator, delivered mid-teens sales growth and profit growth of over 20%, notwithstanding the investments we are making. It's early days, but it's already proving the strength of our innovation pipeline. So in summary, looking at the combined performance of our South African business, which includes our growing African markets, I think Woolworths delivered a reasonable performance for the full year, being a combination of a weak first half, but a much improved and pretty solid second half where we grew sales by 10%. And in fact, when adjusting for noncash effects of our increased CapEx, we grew EBITDA by 10% as well. That, I believe, is a much fairer reflection of what we are capable of delivering in the longer term. Turning to Australia. There is no denying the performance of Country Road Group has been very disappointing. Unquestionably, the macro headwinds in the first half remained a factor throughout the second half. But to be frank, our financial performance is primarily the result of deliberate decisions we took to restructure the business following the sale and separation from David Jones. Any restructuring of this magnitude undertaken in an accelerated time frame, and in the context of a tough and highly promotional trading environment inevitably creates disruption and all of that weighed on the short-term results of the business and in turn, on our group's overall performance. To be clear, I'm not at all happy with this outcome. It is well short of our plans and our potential. But importantly, the upshot is, that the complexity and knock-on effects of this transformation are now behind us. The David Jones chapter is finally closed. We won't talk about this again. From here, the trading momentum is already improving, and we will be building back our profit from this year onwards. Looking back over the past few years, we've done the heavy lifting, putting in place the structures, the processes and the capabilities our group needed across our business, but particularly in apparel, where to be frank, underinvestment over a lengthy period had left us exposed. Yes, there were setbacks along the way, like our DC transition in the first half. But the decisions we took were deliberate and sound. And I can say with confidence that not only will we no longer refer to David Jones again, we will also no longer talk about turnarounds. Both our apparel businesses are now fundamentally transformed. And from here, our focus is squarely on how we trade our business and drive long-term profitable and sustainable growth now that we have the fundamental wherewithal to do so. Before I hand over to Zaid, I'd like to spend a minute on our Woolworths brand. Whilst the various transformative initiatives we've undertaken over the past few years are essential for lasting success, the most fundamental asset is one which cannot be quickly bought or built. It is our strongest asset, a loved and trusted brand established over decades and anchored in market-leading quality, innovation and sustainability, which we are so deeply entrenched with across all aspects of our group. And I was very proud to see this recognized externally to, when Woolworths won the Grand Prix Award for the most Admired South African Brand at the recent Brand Africa Awards, where we were recognized for purpose-led excellence, a steadfast commitment to sustainability, social impact and building a better Africa. We were also recognized in the 2024 Sunday Times GenNext Awards as the coolest grocery store in South Africa and we were ranked in the top 5 in the coolest online beauty and loyalty program categories. We were named the top 3 brands overall, but the top retailer most likely to be recommended by South Africans. And we've been acknowledged by Newsweek as one of the world's most trustworthy companies. Whilst we do what we do for our customers, not for awards, these accolades are powerful testaments to the strength of our brand and the loyalty of our customers. These recognitions are also an acknowledgment of our continued commitment to sustainability through our good business journey or what we call GBJ, which, as you know, is not a separate initiative, but the very way we run our business. It's about making a real positive difference to our planet, our communities and, of course, our people. Whilst we have always led the way in sustainability on all fronts, we are especially committed to making a difference in the lives of our employees. One of the ways we are doing this is by introducing private day-to-day Medicare effectively health insurance to over 24,000 of our people, most of whom work in our stores and supply chain. This is not only a first for them, but a first of its kind benefits package in South African retail and something we're incredibly proud of. But it's not just about our own people. We're equally committed to making a difference to the lives and livelihoods in the communities we serve. You've heard me talk about our approach to social justice and I'm very pleased to share the recent launch of our Inclusive Justice Institute. This institute houses 2 nonprofit companies. The first focusing on social impact programs that address food security and contribute to quality basic education with the goal of driving community resilience and economic inclusion. And the second, focused on enterprise development, ensuring that small businesses continue to receive mentorship and financial support to grow and become sustainable Woolworths suppliers. To date, ZAR 300 billion has already been committed. And I firmly believe that the institute will be an engine room for sustainable economic impact and inclusive growth at scale, igniting meaningful change in our country. We have made a meaningful difference to our broader communities, too. We've increased procurement spend on micro, small and medium enterprise development by over 40%. We've contributed ZAR 7 billion to the revenues of black and black women-owned suppliers. And we've donated almost ZAR 820 million worth of our premium quality surplus food to under-resourced communities and charities and uplifting young entrepreneurs through our second annual Youth Makers competition. This initiative not only provides small business owners with mentorship and funding to help build their brand and market their products to Woolies' customers in our stores, it also creates a pipeline for future employment, too. This is a vital step towards building a more inclusive future for young South Africans and growing not only just our business, but also our communities and our country for good. And with that, let me hand over to Zaid, who will take you through the detailed financial results.

Thank you, Roy. Hello, everyone, and welcome again to our annual results presentation. Today, I will walk you through our 2025 financial year-end results. and provide some insights on our performance and key financial metrics. Since we have already covered the first half during the interim results presentation, I will spend more time on the second half. In the outlook, I will also share our sales for the first 7 weeks of the new financial year. At the outset, I think it's important to note that our statutory results are not comparable to last year. 2024 was a 53-week reporting period while this financial year is a normal 52-week period. In this presentation, all my commentary is on a comparable 52-week basis. Before I get into the numbers, I would like to start with a summary of the year. Woolworths South Africa delivered a creditable performance with positive trading momentum in the second half and strong like-for-like sales growth for both Food and Fashion, Beauty and Home. In the Country Road Group, it was a very disappointing year, a combination of significant organizational change and tough trading conditions resulted in an operating loss. This underperformance has resulted in a reassessment and write-down in the carrying value of the underperforming brands within the Country Road Group. On a positive note, the reconfiguration of Country Road Group's operating model was completed during the period, and this has enabled us to fully address the stranded and dis-synergy costs following the separation from David Jones, and effectively reset the cost base of the business. We believe that the Country Group is now well positioned with a stronger foundation going into the new financial year. By focusing on not was within our control, we exercised strict cost discipline across all businesses, even with heightened strategic OpEx costs impacting near-term profitability and return metrics. We have made significant investments as part of our capital plan, which positions us well for future growth and value delivery. Net debt levels were held steady year-on-year, supported by the sale of the Bourke Street property in Australia, which also enabled us to continue investments in our strategic growth drivers. During the year, we returned ZAR 2 billion of dividends to shareholders. Looking at the key financial metrics of the group, we generated turnover and concession sales of ZAR 81 billion, an increase of over 6% for the year. Within this, Woolworths South Africa increased sales by 9.4%, which is commendable in a tough environment. From an earnings perspective, the group adjusted EBITDA of ZAR 8.7 billion was 3.8% lower than last year, while adjusted EBIT of ZAR 5.2 billion was down 10.9%. I will cover this in more detail shortly. Group earnings were impacted by the negative operating leverage of our apparel businesses as well as a 4.9% increase in finance costs. Consequently, adjusted diluted HEPS of ZAR 3.03 per share declined by 19%. Our total dividend for the year is ZAR 1.88 per share in accordance with our dividend policy of a payout ratio of 70% of headline earnings. Our balance sheet remains healthy with net borrowings of ZAR 5.6 billion, which is in line with our net debt position at the end of last year. We remain comfortable with our level of borrowings with net debt-to-EBITDA of 1.46x, including lease liabilities, which is well within our internal limit and bank covenants. A healthy balance sheet has enabled us to continue investing in maintaining our core assets and in future growth opportunities while withstanding internal and external pressures. Our return on capital employed of 16.4% remains well above our cost of capital. Moving on to segmental earnings for the year. The group reported adjusted EBIT of ZAR 5.2 billion, which is 10.9% below last year, while adjusted EBITDA is down a lesser 3.8%. And the gap between the EBIT and the EBITDA performance reflects the impact of increased capital investments. The adjusted EBITDA for Woolworths South Africa, which includes the food, FBH and financial services was up 6.8% on last year, with adjusted EBIT increasing by 1.5%. Food EBIT at ZAR 3.6 billion is up by 7.4%, while FBH is 9.1% lower at ZAR 1.6 billion. However, FBH reported positive EBIT growth in the second half, up 0.5%. Woolworths Financial Services underlying profit after tax increased by 26%, excluding the one-off IFRS '17 adjustment in the prior period. As is evident, the Country Road Group performance had a material negative impact on the overall group performance with an operating loss of $18 million. I will now cover the Woolworths South Africa business, providing some macro context as well as a deep dive into each of our business units and thereafter, look at the Australian environment and the performance of the Country Road Group. As always, it's important to frame our performance within the operating context, and this should be quite familiar to most. In South Africa, the weak GDP growth and lack of job creation remains concerning. Real disposable incomes have remained under pressure, particularly for South Africa's middle class despite interest rate cuts and using inflation. The impact of U.S. trade tariffs remain uncertain, and is expected to be negative for the overall economy. And considering this economic backdrop, Woolworths South Africa delivered a commendable result. Our sales increased by 9.4% for the year and by 9.8% in the second half. Our Food business had an excellent year with sales growth of 11% and sector-leading like-for-like growth of 7.7%. And we achieved this by further improving availability, reinforcing product innovation and enhancing our customer proposition. Internal price inflation moderated to 5.3% for the year and by 4.2% in the second half which supported the positive underlying volume growth. Notably, Woolworths Dash sales grew by over 40%. In Fashion, Beauty and Home sales increased by 4.7% and grew by 7% in the second half, a strong recovery from the first half. FBH also saw positive volume growth with very low price movement of 2.2% and 0.4% in fashion. Our beauty business had another outstanding performance, and increased by almost 15% on the back of a 16% increase last year, reaffirming Woolies as the #1 beauty shopping destination in South Africa. Our Home business also had a pleasing performance, especially in the second half with 9.5% growth and online grew by 23%, now contributing 6.6% to FBH sales. Our other markets in Africa also contributed positively to growth despite the disruption we experienced in some countries. Before we deep dive into our Woolworths businesses, I want to take a moment to reflect on the performance in the second half. We had a vastly improved second half in Woolworths South Africa, owing to a recovery in FBH, which had been impacted by stock flow issues over the festive season in the first half. Total Woolworths South Africa sales of ZAR 34.9 billion, was up almost 10% in H2, while EBITDA increased by 11%. Let's now turn to the segmental results for food, FBH and financial services. I will talk to the key highlights, and you can find the detail in the appendix to the presentation pack. Starting with our Food business. Once again, Food delivered an outstanding result with consistently strong top line growth and gross profit margin improvement as well as best-in-class return metrics. This is testament to the strength of our brand, and our leading customer proposition. Gross profit margin increased to 24.9%, which was up 20 basis points, and this was driven by more effective promotions as well as value chain efficiencies, which offset and dilutive impact of increased online sales. Our investments in growth initiatives, together with the inclusion of Absolute Pets, which annualized in the fourth quarter as well as the absorption of group stranded costs resulted in expense growth of 14.5%. EBIT increased by 7.4% to ZAR 3.6 billion, with an EBIT margin of 6.9% and 7% in the second half. Importantly, EBITDA is up almost 12% and our return on capital employed remains best-in-class at 41%. Turning to FBH. We continued to make significant progress to improve the foundational capabilities of this business to enable us to deliver a consistent performance. In particular, the improvement in availability has underpinned the second half result. Gross profit margin reduced by 1.2 percentage points to 47.3% due to the higher supply chain costs associated with the distribution center transformation, a higher promotional contribution to sales and a growing beauty contribution, which is margin dilutive. Expense growth was contained to 5.7%. This was supported by space rationalization, partially offsetting the increased cost from investments in strategic projects. The improved second half performance resulted in EBITDA growth of 7.6% and EBIT growth of 0.5%, returning a second half EBIT margin of 11%. Our return on capital for FBH was 16.1% and remains above our cost of capital. Woolworths Financial Services has continued to contribute positively to the group. We closed the year with a book of ZAR 15 billion, which is 0.5% up, excluding the sale of part of the legal book of ZAR 1.6 billion. Net interest income declined by 3.5%, primarily due to successive decreases in the repo rate and was maintained at 12.2% of the book. The impairment rate of 6.1% remains sector-leading, as we have been quite deliberate in containing our risk exposure. Profit after tax of ZAR 216 million was 26.3% up on last year when excluding this IFRS 17 adjustment in the prior period. And the return on equity of 18.4% is very pleasing, given the tough macro environment. Turning to Australia. The prolonged high cost of living and elevated levels of household debt persisted throughout the reporting period, contributing to GDP per capita declining sharply. The pressure on the consumer has resulted in the retail sector becoming heavily promotional, causing a shift in consumer behavior towards value. Moving on to Country Road Group, sales of over $1 billion declined by 5.4% on the prior year. Encouragingly, fourth quarter sales were almost flat on last year, with positive growth in June. It's important to note than the Country Road and Trenery brands have traded ahead of the other Country Road Group brands and CRG sales in South Africa were are ahead of last year. CRG was also impacted by the internal disruption arising from the significant organizational restructuring that was undertaken and completed during the year. We acknowledge that the Country Road Group performance for the year and especially in the second half, was extremely disappointing. As we responded to the weak trading environment, our promotion activity also intensified as we sought to clear stock and reduce inventory levels. This, coupled with the weak Australian dollar, compressed our gross profit margin by 390 basis points to 56.4%. The organizational restructure I referred to earlier resulted in reduced operational costs, which in effect, offset the stranded and dis-synergy costs arising from the separation from David Jones and the full benefit of this will be evident in the following year. Costs, therefore, declined by 1.5% for the period. Given the negative operating leverage from the very weak top line and the gross profit margin erosion, CRG incurred an operating loss of $18 million for the year. Adjusted EBITDA of $103.9 million was down 41%. As previously mentioned, we impaired the value of our underperforming brands, namely Witchery, Mimco, and Politix by $78 million. Let's have a look at our capital expenditure, balance sheet and cash flow. The 2025 financial year is the second year of our heightened CapEx investment plan in our strategic journey that we previously shared with you. We spent ZAR 3 billion in CapEx during the period. and some of our major strategic initiatives are multiyear programs, including our Midrand DC expansion and the value chain transformation, which will be completed in FY '26. Our plan for FY '26 includes CapEx of ZAR 2.7 billion. The investments that we have made are fully aligned with our strategies to drive long-term growth and value. This involves building capacity, enhancing capability and customer experiences through our next-generation stores and formats, data and analytics, AI, digital and online as well as loyalty. Our balance sheet remains healthy and was bolstered by the sale of the property in Australia. We covered this in detail at the half. Net borrowings for the group were held at ZAR 5.6 billion and gearing metrics remain well within our targeted range and bank covenants. Inventory levels have increased by 20% year-on-year. In FBH, this was as a result of the stock flow challenges in H1, coupled with the investment in key categories. The CRG increase was due to softer trade, despite efforts to clear excess stock. We expect inventory levels to normalize going forward. Our return on capital employed for the year was 16.4% and remains well ahead of our cost of capital. The decline from the prior period was a result of the lower earnings of the group, particularly the Country Road Group and by the increased capital spend on long-term investments. In terms of cash flow, we generated ZAR 8.4 billion of cash from trading and free cash flow of ZAR 1.9 billion. The higher working capital investment has been driven by inventory, as mentioned earlier. The Bourke Street sale proceeds assisted in funding strategic CapEx, working capital investment and share scheme purchases, enabling net debt to remain in line with last year. We paid ZAR 2 billion of dividends to our shareholders out of operating cash flows and purchased shares off market for purposes of our employee share plan of approximately ZAR 550 million. Lastly, and importantly, the group remains very cash generative with a healthy cash conversion rate of 83%. I want to end with an update on recent trading for the first 7 weeks of the new financial year as well as sharing with you our expectations of price movement and space growth. The sales growth for food continues to be strong at 6.9%. This remains well above our price inflation, which is expected to average between 4.5% to 5.5% in H1, while net space is expected to grow by almost 3%. In FBH, the 7-week trade has maintained its momentum and is up 8.3%. Similar to Food, we expect the price movement in H1 to average between 4.5% to 5.5%. For the Country Road Group, while trading conditions remain tough, CRG sales are up 1.2%. In both FBH and CRG, we plan to reduce unproductive space by approximately 1.4%. In closing, while it's been a tough year and a disappointing group result, we are pleased with the strength and resilience of Woolworths South Africa, particularly in the second half and acknowledge the challenging year we had in Australia. We have good businesses with strong brands, which we are confident will perform to their potential through clear strategies and focused execution. We will continue to invest responsibly in our growth drivers, using our capital allocation framework and have a healthy balance sheet to enable that. Thank you again for joining us today. Over to you, Roy, for the strategic update.

Thank you, Zaid. You may recall from our FY '24 annual results presentation, I shared this slide with you highlighting how far we've progressed in our multistep strategic journey. Over the past year, I am very pleased to say that we've largely completed what we called our fix, strengthen and reposition phase. Whilst our overarching strategies have not changed, and we will continually improve and strengthen our foundations, I am particularly excited that we can now double down on the optimize, invest and growth phase. This is where the energy shifts and where our focus turns fully to growth. As we continue to differentiate ourselves in our respective markets, our drivers of growth are clear. Firstly, we remain firmly committed to protecting and growing what we are already known and loved for. Our core businesses that consistently deliver innovative, high quality and sustainable products that customers trust. At the same time, we are going beyond our core, what we describe as expanding for more, be it through focusing on growth in adjacent categories new formats or strategic market opportunities. And all of this is anchored in leading customer experience across all channels through our new loyalty program and perhaps more importantly, by continuing to provide the best in-store service in the country. Starting with CRG. I'd like to take a moment to remind you of the deliberate actions we have implemented with regards to our Australian business. And importantly, the sequence in which we undertook those. To recap, our first priority was to successfully separate the financial arrangement which bound CRG to David Jones. Then having turned David Jones around, we proceeded to divest of the business itself, a transaction which was not only very well timed, but more crucially, transformational for our group. The third step involved extensive work to untangle the deeply integrated shared services between CRG and David Jones, enabling CRG to enter FY '25 free from David Jones, but with a compromise business model, wholly unsuited for a stand-alone business. This brings us to the fourth and final phase of our plan. which has been the business's primary focus throughout the last financial year. Reconfiguring our operating model and setting up CRG as a stand-alone business with the ability and capabilities it needs to execute on its strategic potential. The restructuring was complex and comprehensive as it effectively reshaped our entire end-to-end operating model, optimizing structures, processes and ways of working to drive the efficiency, the flexibility and scale needed to support a true House of Brands strategy. This was the most significant transformation in CRGs history. Over 80% of nonstore roles were impacted in some way or another through streamlining, role changes or new positions and all of this was completed in just 10 months. We're committed to getting this done by our financial year-end, and we did that. Yes, a protracted approach may have meant less business disruption and less impact on short-term financials, but it would have compromised how quickly CRG would take to realize its longer-term potential. And that's now firmly underway. Today, CRG enters FY '26 with a fit-for-purpose operating model, leaner, agile and efficient and critically, greater levels of accountability all aligned to a true House of Brands strategy. But House of Brands is only as strong as the brands themselves. And we've done a lot of work here, driving clarity and distinction between the brands so that each of them has its own distinct market position, unique style aesthetic and clear strategic direction. In our interim results presentation, we shared the really positive outcomes of Trenery's repositioning. We also said we expected Witchery to start delivering an improving performance from this winter, which is exactly what we've seen. Witchery is now delivering double-digit growth, and over the past few months has been the top-performing brand, not only in our business, but also throughout the department store channel, and we expect this momentum to continue building through FY '26. Geographically, we're also growing our wholesale presence in Australia and New Zealand, which has enabled us to hold our market share, notwithstanding the disruption we have faced over the past year. We're also leveraging our unique and market-leading position in South Africa, where we generate over ZAR 1 billion in sales. All 3 regions offer discrete opportunities and significant runway for growth, and we'll continue to expand our presence in these areas in addition to growing our core business. Lastly, I'm very pleased to announce that from the beginning of July, Steven Cook has been appointed as the CEO of the Country Road Group. Steven is a highly accomplished retail executive with over 30 years of global experience and is a results-driven people-focused leader. Make no mistake, CRG is a great business, deeply ingrained in Australian Retail and society. Yes, the results aren't what we would have liked for the reasons I've just explained. But it will return to the stature and the financial outcomes that can be expected from it. We already started to see some traction. And with the solid foundation we have now established, both structurally and strategically, and with new leadership in place, we have what it takes to deliver a much improved result from FY '26 onwards. Turning now to FBH, where we have spent the past couple of years fundamentally fixing and repositioning our fashion business under a very deliberate 2-phase approach. You'll recall that phase 1 was all about getting more and more of the product right. Essentially, product design and buying. And we've made really good progress in this regard. Our products now truly provide our customers with the trusted value, the quality and the difference they expect from Woolies. We are constantly pushing ourselves to raise the bar. And you'll see shortly in our quality reset program what that's all about. With this stronger foundation, we shifted our focus to the next phase in our turnaround by addressing inventory management and product availability. We've been quite candid about the legacy issues we faced here and the extent of historic underinvestment, and that overcoming these issues required not only substantial investment, ZAR 1.5 billion, in fact, but a fundamental transformation of our systems and processes across planning, logistics and inventory management, the science behind successful apparel retailing, to get our right product to the right stores in the right quantities and sizes at the right time. Let me be clear, our turnaround is now complete, and we can see this demonstrated in the key indicators we've trapped over time as we've edited to amplify. We've rationalized unproductive space by more than 15%. We've improved SKU productivity. Our full price sales now is consistently over 80%. We've reduced markdowns by close to 10 percentage points. Availability is now north of 90%, and we've increased our trading densities by almost 40%. A large focus of the turnaround was our value chain transformation or, what we call, VCT, something we've spoken about at length. And I'd like to take a moment to update you on the progress we've made in this regard. Through VCT, we've increased our DC capacity by 40%. We've completed our transport optimization program, leading to more frequent deliveries and efficiency gains. We've also reconfigured our operating model, establishing both a supplier facing and a customer-facing center of excellence. We have further consolidated our supplier base, and we've increased our levels of local production. And we have also now fully completed the rollout of RFID, reducing stock-outs and increasing product availability on the sales floor. I have long said that improving our availability was our biggest commercial opportunity, and we're now seeing the benefits of that. Our fourth quarter saw double-digit growth in our Winter merchandise with underlying volume growth of 7% across the broader FBH business. We've gained market share on both a 3-month and 6-month moving average basis. Now that our product is where it needs to be, delivering the strongest like-for-like sales growth in the sector and momentum continuing to build into the new financial year. This is further evidence that we've fixed and repositioned our FBH business. And so this is the last time we're going to be referencing a turnaround when we talk about FBH. From here, we are shifting our focus to relentlessly executing against our various growth and growth-enabling initiatives. So it's all about execution. Key to protecting and growing our core business is providing the most wanted, best-in-class quality essential and stylish go-to pieces for everyday living. We're investing behind our quality reset, which embraces all aspects of quality throughout the value chain and our customers' experience from fabric and fit to in-store execution and service, effectively reclaiming our position as the undisputed end-to-end quality authority in the market. [Presentation]

We are also amplifying our focus on our sharply defined must-win categories with targeted price investments and range enhancements. This will ensure that we remain relevant and competitive and that we deepen our presence where it matters most to our customers. For example, we're now offering the same Woolies quality at more compelling price points across essential kidswear items. This not only reestablishes our presence and our leadership in kidswear, it enhances our competitiveness in the category, and it leverages the halo effect across our broader business. We know that customers who shop kidswear spend on average 6x more across the FBH business than customers that don't. And so we're doing a lot more with this category in a far more deliberate way, given the role it plays in driving overall basket size and category penetration. And that's how we protect and grow our core but also expand for more. Our Africa business represents a great expand for more opportunity for us. These are markets where we already operate. So we have deep local knowledge and importantly, our brand is well recognized and trusted by customers there. We also see exciting white space opportunity in our newest smaller format WEdit stores, which I'll come back to later. Turning to beauty, a category in which we continue to take significant market share. We expanded space in more than 30 doors this past year with another 40 planned for expansion and upgrade in FY '26, confirming our position as the beauty shopping destination in the South African market. We've also expanded in Africa, taking branded beauty to more of our stores and our WBeauty range to 40 of them. We're on track to have tripled the size of this business in just a few years. And why? Because we have a significant competitive advantage in this space, given the frequency of footfall, driven by our Foods business, a strong beauty online offering and a loyal customer base. In fact, we now have over 1 million loyal beauty customers shopping with us. That is a remarkable milestone and clear evidence of the power of Woolworths to lead and win in this space. What's more, whilst we are increasingly regarded as the destination of choice for aspirational beauty brands and houses, what really differentiates us is our WBeauty private label range, accounting for 1/4 of our total beauty turnover. And like we have in our foods space, it's the quality, innovation and sustainability credentials of our private label offering that really sets us apart, supported by the recent opening of our Greenleaf WBeauty factory, a winning formula of both private label and third-party brands, exceptional service and a world-class experience is clearly visible in our recently opened Tiger Valley store, and I look forward to sharing a video of this with you a little later in the presentation. Another business where we see great growth potential is in home, which we expect to double in the next few years. This division delivered 10% growth in the past half. And like Beauty, it holds distinctive competitive advantages in driving greater levels of cross shop with our loyal food customer. And so we're expanding both our range and our in-store space allocation to provide our customers with an inspiring lifestyle destination, bringing the Woolies difference to all aspects of their lives and homes. We've also made a leadership change in FBH. Manie has led this business for the past 5 years, during which time we have not only fixed and repositioned our business, but I believe firmly turned it around. And now with our shift in focus, I'm very pleased to welcome Nuholt Huisamen as the new CEO of FBH. Nuholt brings a wealth of global retail and brand building experience to our group and a strong track record of delivering performance across diverse markets and channels. His deep appreciation for customers and brands and a strong focus on execution will be invaluable as we increasingly turn our attention towards growth. The high potential growth categories we're pursuing, particularly beauty, kids and baby are inherently lower GP margin categories. Beauty, in fact, has a GP margin easily 10% to 15% below that of fashion. And within fashion, kids and baby trade at a much lower margin than you would typically find in core women's and men's wear. We're seeing greater opportunity than we did even a year or 2 ago to expand our market share, our authority in some of these key areas. As these categories become an even bigger part of our overall FBH business, they obviously have an impact on our aggregate margin. In other words, whilst the category margins themselves remain unchanged, the overall mix evolves, and that has a dilutionary impact on the blended FBH GP margin and, in turn, the blended EBIT margin. To reflect the impact of the shifting mix, we're moderating the EBIT margin target for our overall FBH business from what we had greater than 14% and to greater than 12%. Again, let me clarify, this does not reflect any moderation in the outlook for our FBH business. To the contrary, it is because of our confidence in the potential of beauty, kids and baby that we are growing our range and space allocations in these areas, effectively growing a bigger overall FBH business in rand terms, albeit with a different blend from a margin mix perspective. Turning now to what is effectively the engine room of our group, our market-leading food business. I am very proud of the performance we've delivered this year. This business didn't miss a beat. Notwithstanding the leadership transition to Sam, who is firmly in the saddle, but supported by more than 100 cumulative years of Woolies food-specific experience amongst our Foods top team. But what truly makes us leaders in this space goes well beyond short-term financial results. It's the exceptionally strong foundation we've built over decades, underpinned by fundamentals that not only differentiate us, but are incredibly difficult to authentically replicate. From our unmatched expertise in food science and technology to our best-in-class cold chain, our obsession with quality, our unrivaled innovation capabilities and our sustainability credentials, these are the qualities that I've spoken about before and which truly set our food business apart. And that's the simple truth. Let's take a look. [Presentation]

What you've seen is what sets our food business apart. Why we liken it to the Holy Grail, the enviable sweet spot, which balances giving our customers the best offer in every sense in the market, whilst at the same time delivering shareholders the highest return on capital in the sector. And we'll continue to do just that. In fact, you're going to be seeing a lot more from our food business as we keep raising the bar. But first, let me remind you of what we've done and what we'll continue to do to protect and grow our core business. We have further improved our on-shelf availability through a more elevated and sophisticated approach to inventory management and demand planning. We have fundamentally shifted our value perception by investing in price and amplifying our trusted value proposition, the Woolies difference in quality at the best possible price. And we've really dialed up our marketplace presence. This goes beyond space growth and online expansion. It is also about our share of voice, what we communicate to our customers and how we go about doing that, whether it be through conventional advertising, social media or in-store messaging. We become more deliberate and effective in sharing our stories with our customers. It is, after all, what they love about our products and our brand. That said, it is also, of course, how we grow our footprint across our channels. This year, we opened our 100th Forecourt. We partnered with Uber Eats to launch Woolies After Dark, which is now live in over 70 food stops, offering customers the best of our curated Woolies assortment, conveniently delivered until midnight. We've continued to build the momentum of our on-demand DASH platform, which has not only grown by over 40%, but has done so profitably. What's more 5% of DASH customers are brand new to the Woolies business. And we are rolling out our best-in-class next-generation stores, which I'll share more with you later. Whilst we've increased our presence, our consistent month-on-month market share gains haven't been reliant on indiscriminate space growth. It's coming from increased spend from our existing customers and through attracting new customers into our brand. And this is because we are widening the gap with our competitors by consistently providing superior quality and constant innovation. Looking beyond South Africa, much like with FBH, we recognized significant potential in our African operations. We've invested time and resource in thoroughly understanding these markets, fostering strong relationships, securing direct supply and supporting local farmers. And we'll continue to leverage these efforts to drive even further growth across our existing African markets. It goes without saying that growing a world-class Foods business requires ongoing investment. And a key part of this is the ZAR 1.7 billion we're investing in our state-of-the-art Midrand DC, with the first phases already coming online. Let's take a look. [Presentation]

So as you can see, we're growing our core business across multiple channels. We're also expanding for more by investing in a number of very specific growth initiatives. To this end, we've recently launched Woolies Ventures, designed to accelerate and scale high potential adjacent businesses backed by a dedicated team and simplified processes, focused exclusively on unlocking strategic growth opportunities with greater speed and agility. The unique benefit of Woolies Ventures is it brings together an entrepreneurial spirit and a start-up mentality with the capabilities on a 90-year-old powerhouse retailer, effectively creating a 90-year-old startup. A number of these ventures are within the broader food space, such as our food services business, being our more than 200 cafes, coffee pods or hatches and our quick service now in our format. WCellar which now includes almost 30 stand-alone offering a curated selection of alcoholic beverages within an elevated retail experience and PET, which now has around 250 locations. This includes our acquisition of Absolute Pets, which continues to trade ahead of expectations, realizing synergy benefits across multiple areas and demonstrating our ability to make judicious acquisitions and leveraging the role of WVentures in enabling successful implementation. Last, but by no means least, WVentures also includes our specialty apparel offering, WEdit. We've got 40 doors already. And having tested this concept and gained a number of learnings, we're now in a position to really double down on the opportunity we see here. Woolies Ventures is really paying off for us, delivering the fastest growth of anywhere in the business, and that's given its strong like-for-like sales as well as the opening of almost 60 new doors across various ventures in the past year alone. Very importantly, we're also seeing it bring new customers into the brand. This year, we'll open another 60 doors across our formats and launch some exciting new concepts. And in fact, I'm confident that within the next 2 years, we'll have doubled the size of this overall business. I am very excited about the various growth opportunities, but I'm equally passionate about how we lead in customer experience. Earlier this year, I was delighted to welcome back Spencer Sonn as our Chief Customer Officer. Spencer is no stranger to Woolies. He has an exceptional track record in our business, having served in various key senior roles across our organization, the most significant of which was heading up our Foods business from 2015 to 2020. Under his leadership, we've now consolidated all customer touch points across all our channels and engagements, ensuring that our customers remain at the center of everything we do. Whilst we continue to invest in our data and analytics center of excellence and our various digital and AI initiatives, including growing online and on-demand offerings, it's in brick-and-mortar our stores that true differences really come to life. And so we have fundamentally rethought the role that stores play in our customers' lives. Our next-generation store format is driving significant uplift across must-win categories like bakery, produce and our newly introduced kitchen. We've launched over 20 of these so far with a further 10 in the immediate pipeline including, of course, our first-of-a-kind food emporium in Durbanville Cape Town and our full-line Tygervalley store. What you'll see here isn't just a beautiful new store design. It's a bit of a sneak preview of where we're headed as a business and as a brand. It's a glimpse of what's possible when we truly reimagine premium food, premium fashion and beauty and home and premium service and experience guided, of course, always by what matters most to our customers. Let's take a look. [Presentation]

These stores truly embody what Woolies stands for: quality without compromise, innovation with a clear purpose and leading sustainability credentials. These are the things that truly underscore the extraordinary Woolies difference. Of course, this is only possible because of the remarkable team of people we have working for us. You simply cannot lead in customer experience without also leading in your people experience. That's why we invest in our people from training and development, to paying them a just wage, to providing comprehensive health care. And we see the power and benefit of that in the caliber of staff we're not only able to attract but also retain. In fact, our staff turnover numbers are more than 4 percentage points lower than the industry average. That has an impact on our store experience. It has an impact on our customer experience, and not only does it make good business sense, it's the right thing to do. And on that note, I want to pause to sincerely thank our people. We are privileged to have an extraordinary team whose passion, whose hard work and commitment are the cornerstone of our success. I also want to thank our customers and acknowledge them for their loyalty and trust, and our suppliers and partners for their collaboration and dedication. Before moving to the outlook, I'd like to talk about capital allocation, given the role that this plays in shaping what's to come. As you know, we are an incredibly cash-generative business, largely by virtue of our fresh foods business. Notwithstanding the additional investments in working capital this past year, we still generated a cash conversion ratio of over 80%. What is critical, however, is where and how that capital is deployed. We continue to refine our capital allocation approach to ensure our framework and process support our strategies and growth ambitions to drive long-term value creation for all stakeholders. And that's not only about generating good profits. It's about how the cash and capital we generate over time is then utilized, and that's resulted in a number of shifts. Our capital structure has evolved significantly as we divested from underperforming assets in Australia and shifted our capital and management focus to our core Southern African businesses. We have embarked on a sizable CapEx program, reinvesting in our own businesses. This was necessary not only to make up for an extended period of underinvestment during the David Jones era, but to shore up the foundational capabilities needed to drive sustainable and profitable growth. Yes, this has meant a drag on short-term profit and returns, which culminated this past year, but it was essential to longer-term value creation. We've also proven our ability to make value-accretive acquisitions. Our acquisition of Absolute Pets has not only proven margin and earnings enhancing from day 1, but is generating a return on investment of around 20% for us. Very importantly, we have shifted our approach to returning excess cash to shareholders, and I'm very pleased to share that following our successful repurchase of shares in 2023, we've commenced a further share buyback program. So a number of shifts from capital structure and CapEx prioritization to investment parameters and evaluation criteria, to how we reward shareholders, shifts which have been absolutely necessary to set this business up for longer-term success. So in summary, and as I've shared, FY '25 has been a disappointing year for us from a financial perspective. These are results that will not be repeated. It is a trough year for our group. But at the same time, and what isn't apparent from the financial scoreboard is the extent to which we've shifted our core capabilities as a result of some very tough but absolutely necessary capital allocation decisions. So whilst we can't control the macro, which is likely to remain constrained for the foreseeable future, we have completed a lot of heavy lifting in laying the groundwork for years to come. We have a strong leadership team in place. We have clear strategies and the capabilities to execute them. We have a world-class foods business that remains the engine room of our value creation, and we have 2 apparel businesses that present significant and realizable opportunity for us as a group to unlock further value. Looking ahead, I have every confidence that we'll return an improved performance from this year onwards. We will resume the path to our margin targets. We will see the benefits of our strengthened brands and growing customer base and our competitive advantages as well as the investments we have made, and we'll deliver the sustainable returns that you, as shareholders, can and should expect from us. And with that, let's open for questions.

Good morning, again, and welcome to the Q&A section of our results presentation. Roy, our first question, what gives you confidence this isn't another false dawn in the FBH business?

Right. I think a nice punchy, I think, first question. But I guess, I mean, it's important to remember that there's always going to be a degree of cyclicality in apparel retailing. But there are fundamental capabilities and disciplines that can mitigate for that. And that's what I think we've tried to sort of show you and what we've done in our 2-phase turnaround plan. First phase was all about getting the product increasingly right and the second phase about improving our operational performance and driving up availability. We've invested very significantly over the last couple of years in our value chain transformation over ZAR 1.5 billion to really support the ships needed to implement the technologies and the capabilities across the business. And that's fundamentally what's transformed our ability to execute and deliver a more consistent and more sustainable level of performance. So it isn't what you've called a false dawn and that's already evident. In fact, if you look at some of the various operational proof points we've shared with you, our full price sales are increasingly and consistently above 80%. Our availability now well above 90%. And financially, you're seeing it now, too, in improving trading momentum, and we certainly expect to see that sustained.

Your revised FBH margin target comes as a bit of a surprise. Why are you growing low-margin categories if they dilute profitability? Why not focus on higher-margin ones?

Yes. I mean, a good question, an important one, I think. But we absolutely see opportunity to take meaningful market share in those categories. These are the categories which for sure, play to our strengths. The categories in which we have distinctive competitive advantages, and we believe the right to win, where quality really is a big differentiator. There are also categories where we can capture the foods footfall and the cross-shop opportunity. And there are also categories, I think, which drive a halo effect into other categories across the business. I think it's important that when one thinks about the size of the price, you need to think about it in terms of GP rands, not percentage terms. As a retailer, we obviously bank rands, not percentages. And frankly, I mean we see the value of the opportunity here, far outweighing the opportunity in other categories where margins may be higher, but growth potential here a little bit lower. So it's both a customer and a commercial decision for us.

Another question, I think, covering both apparel businesses. Your stock levels are up significantly year-on-year, which must surely mean further markdown risk in both FBH and CRG. How should we think about the outlook for GP margins as a result?

Yes, Zaid do you want to take that question?

Sure. Thanks, Roy. Yes, of course, we did end the year with higher stock levels that we had planned, so roughly about 20% up year-on-year and mostly coming from the apparel businesses. Let me just talk to them individually. So from an FBH perspective, we did have a temporary setback with stock flow issues as we had called out in the first half. But we've also made significant investments in certain key categories such as kids, and we've been quite deliberate in driving availability in FBH. So that certainly contributed towards FBH having higher stock levels However, the stock that we do have within FBH is predominantly what we call all year product. So they're not seasonal product and we can work through that over the course of the year. In the Country Road Group, of course, it's been because of largely the tough trading environment, and even though we had tried to sort of trade through that towards the end of the year, we did end up with an elevated level of inventory. However, what we've done actually cut back on orders by more than 10% and we've sort of kept at 10% open to buy to be held in reserve uncommitted and which enables us to lever and to chase trade if we need to. We will -- we would expect certainly inventory to be at more normal levels towards the end of the year. And also keeping in mind, again, from a GP margin perspective, the FY '25, we saw a number of headwinds to the GP margin. We had high levels of promotions in both FBH and in CRG. In FBH, we had one-off supply chain costs. We also had the weak Australian dollar, which we don't really expect to comp or to have to the same degree in the current year. So net-net, I don't foresee any material risk to GP margins year-on-year.

Thanks, Zaid. Roy, a couple of questions around food and specifically food inflation. One of your competitors reported results yesterday and your price inflation in foods seems well above theirs. Why is that? And to what extent is higher inflation supporting your top line growth and GP margins? Another similar question. Morning, your food business has posted market-leading inflation levels, indicating a pricing move above market levels. Post period food performance appears a bit softer. Do you not think you're pricing customers away from your offering?

Thanks for the question. Well, we're certainly not lifting pricing. In fact, we continue to invest in price, and we've invested just under ZAR 1 billion now in price over the past couple of years. And that's had a very positive impact on what we call our trusted value. There are probably 3 reasons why our inflation is slightly higher. Firstly, it's a mix effect. You're seeing higher inflation in key categories where we have higher market shares, coffee, chocolate, produce, for example. The price drops that we've seen, though, are more in commodity lines, which make up a bigger share of basket for our competitors. Secondly, our internal inflation typically lags that of our peers. And it's really a function of our exclusive supply arrangements. That's why our inflation seems to be more stickier when we're sort of going up and also more stickier when inflation is coming down. Thirdly, I think we're driving more effective promotions. So we're, in fact, selling more at full price. And that's because our customers really trust the premium quality they get at a fair price. What I mentioned we refer to as trusted value. So no, I mean, we're definitely not pricing customers away from our offering. And you can see that in our volume growth and in our market share, not just in value terms, but also in volume terms.

Thanks, Roy. What has led to the slowdown or slight slowdown in SA Food post period end? Is it inflation? Is it base effect? Is it promo activity?

Well, I mean, it's definitely not lost momentum. It may be a percentage point or 2 below where we ended the second half, but that's the result of a couple of factors. Firstly, inflation easing. This point I've just spoken about. We lagged both on the way up and on the way down. Absolute Pet has now annualized. And perhaps a smaller point, but an important one is that our flagship Tygervalley store has been closed for 3 months going through its refurbishment and its remodeling and it's reopened now in mid-August. But I mean, the reality is despite these factors, we continue to grow market share and continue to see positive volume growth, and we are very confident in our ability to continue to deliver strong top line growth across the coming months.

Thanks, Roy. Expense growth in the WSA business has been ahead of sales growth, particularly in food. What was the cause of this? And how should we think about cost growth going forward?

Zaid, do you want to pick that one up?

Sure. Thanks, Roy. Well, cost growth in food certainly has been higher at 14.5%. But in the FBH business actually was very much under control. It was between 5% and 6%. So very much at the sort of inflation level. But let me just talk to the food expense growth number. There are a number of factors that has impacted that growth. I mean, firstly, Roy has just spoken to, we've annualized Absolute Pets. So that's not like-for-like. So we had 3 months of Absolute Pets in the last financial year and 12 months in this financial year. So that's sort of increased the growth rate of expenses. The second important point to also note is that we have now fully absorbed all the unallocated costs from the DJ separation. Again, we had called out at the end of last year quite separately what those unallocated costs were. They were ZAR 130 million. So those costs are now in the base that we see come through in each of our businesses. Thirdly, the high depreciation we've had from the various investments we've made in both strategic and growth-enabling initiatives. Those depreciation charges, of course, increased the cost expense as well. And in addition to that, the OpEx from the various strategic initiatives we've got, particularly in Woolworths Ventures, in the initial years, you'll see higher OpEx costs coming through, and you see them normalizing thereafter. Looking ahead, I think we always endeavor to contain cost growth to within our top line growth, so trying to get positive jaws. That's very much our intent. And that said, we have come through a very -- a heavier period of CapEx spend, which has both an OpEx and a depreciation component associated with that and certainly expect that to -- so it will be sort of short term in nature, but certainly necessary for future growth.

Maybe another question on costs. Could you please quantify how much costs have been taken out of CRG post restructuring?

I made a lot of reference to those restructure work that we did. We have fundamentally sort of rebased the cost in Country Road Group. We -- if you annualize the cost, it's circa about over $30 million that we've taken out. And importantly, these costs that we have taken out is largely offset some of the, what we call, the dis-synergy and the stranded costs we have seen following the David Jones separation. So I think certainly, that business is now well set up for both in terms of top line, but also having a more appropriate cost base for the size of the business.

Seven weeks trading performance from FBH is commendable. Can you comment on the level of promotional activity in this period when compared to the previous year?

Yes. No, thank you. It has been a good quality top line result. And in that full price sales, in fact, has grown ahead of the headline growth we've reported of just over 8%. So very pleased with that performance.

A question on CRG. How realistic is your 10% margin target in the context of the sizable impairment you've just taken?

Yes. So I think bringing the 2 together in terms of the margin and impairment. I think it's important to start off by maybe clarifying the impairment and what it was. The impairment, I think, just to be very clear, specifically relates, and we've called this out a number of times to the underperforming brands. And these are particularly the Politix brand and Mimco and to some extent, Witchery. We've taken a pretty conservative view on these brands going forward. The Country Road brand, which is by far the biggest brand, we haven't impaired nor have we impaired Trenery. And as you know, Witchery as a brand is now after its repositioning is now delivering very strong growth in the new financial year. And also keep in mind that impairment and impairment test is actually at the point in time, we've had 2 years of much lower profit, and that impacts the starting point of when we do our DCF calculation. So in absolute terms, in terms of your numbers, it becomes a much smaller number. And then whilst our plans very much indicate a pathway to the 10% margin return that we expect to get and absolutely for this business, the absolute level of profit is lower than what it was a couple of years ago, which is effectively why we needed to take the impairment of these brands.

Roy, a couple of questions really around the outlook for CRG. How should we think about CRG losses into FY '26? Does it spill over into first half '26? Another one, can we infer from your comments about CRG being through its trough that the business will deliver positive earnings growth in first half FY '26. A similar question.

Sure. I mean FY '25 was the trough for CRG. I mean, we are very confident FY '26 will deliver an improved performance, particularly as our various initiatives gain momentum. We've taken a significant amount of cost out of the business. We've reset the structural economics. The brands have been repositioned. We've got new leadership in place. And all of this will support a return to positive earnings growth, albeit somewhat more skewed to the second half, partly because of macros, which are still quite tough despite easing interest rates, but also because of the excess levels of inventory we're still in the process of clearing.

A couple of questions around our buyback and maybe we'll make this the last topic. You've announced another buyback program? What is the size of the program? And how should we think about the outlook for net debt in the context of that and your heavy CapEx profile?

Okay. Thanks. Well, I mean, you recall that we bought back just under ZAR 4 billion worth of our shares over the past couple of years. We haven't disclosed the size of this program. But what I can say, it's probably the most compelling investment opportunity we see, particularly at this point in time, given where our share price is at and what we expect to deliver from an earnings perspective as a result of the investments we've made to fundamentally transform our apparel businesses. So yes, I mean, I think to your question on debt, no, we don't expect debt to increase as a result of our buyback. In fact, we actually expect net debt to decrease by year-end, given the outlook for a stronger EBITDA, the release of working capital. And in fact, our CapEx spend is also coming down. It's slightly lower this year than it would be -- than it was last year. So net debt will actually come down from here. Our share buyback is going to be funded primarily from the proceeds of the Melbourne property sale, which marks not just the end of the DJ's era, but I think a sound capital allocation decision as well. Of course, we'll sustain our dividend throughout. As you know, we have the highest payout ratio in the sector. So overall, I think some really important capital allocation decisions over the past few years, including buying back our own shares, which continues and all of this, by the way, sets us up to deliver sustainable returns, certainly a sustainable and increasing level of returns for our shareholders going forward.

Roy, Zaid, thank you. To all of our listeners, thank you for joining us online. We look forward to engaging with many of you over the next week or 2. But as always, please feel free to reach out should you have any further questions.

Thank you very much.

Thank you very much. Thank you to everyone.