The results for 2003 have now delivered a 3-year compound annual growth rate in headline earnings per share of 36,6% from 25.4 cents per share (cps) to 64.8cps.  They are a continuation of the group’s strong performance and reflect the implementation of the ongoing strategies of the business.

In line with our objective of optimising the financial structure of the balance sheet, a further 49.3 million shares totalling R235.  1m were repurchased by a subsidiary company as treasury stock at an average price of R4.77 per share.  This had the effect of enhancing headline earnings per share by 5,8% and further improving return on equity.  A total of 82,4 million shares, representing 8,8% of issued share capital have now been bought back, totalling R369.8m and at an average price of R4.49.

Group turnover from continuing operations rose by 12,8% to R9 500.3m, with Woolworths sales in the 52 weeks to June up 15,4% to R8 430.0m.  The impact on sales of the additional week in the previous year was approximately 1,9%.  Clothing and Home sales increased by 11,6% against last year (10,2% on a comparable stores basis) and Foods sales by 20,6% against last year (14,7% on a comparable stores basis).

The store expansion programme delivered an additional 33 new stores both locally and internationally.  The bulk of our new food stores opened in the last quarter and are expected to contribute more significantly to next year’s sales growth.  Total trading area in Woolworths grew 4,6% to 349 773m².  Franchise stores now account for 23,0% of total trading space, up 23,5% from the previous year to 80 297m².  Clothing and Home corporate footage reduced 1,9% as a result of the conversion of 4 corporate stores to franchises, whilst franchise footage increased 23,2%.  Foods corporate footage increased 6,0% with franchise footage increasing 29,5% with the extension of the Foods franchise pilot.

Country Road’s revenue from continuing operations, in Australian dollar terms at A$207.1m, translated into a 3,8% reduction in Rand terms as a result of the stronger Rand.

The gross profit margin in Woolworths decreased marginally from 31,4% to 30,7% due to the increased contribution to the group from Foods sales and franchised operations.  Close attention continued to be placed on maintaining primary buying margins.  Despite tough conditions, Country Road’s gross margin increased by 2,8% through improved sourcing, reduced markdowns, further improvements in cost control and favourable exchange rate movements.

Interest received increased 46,9% to R522.3m predominantly earned by Woolworths Financial Services which achieved growth of 23,9% in its retail, credit card and personal loan books.

The performance of the debtors’ books was bolstered by high interest rates experienced throughout the year.  R200m of the book is protected from reductions in interest rates by an interest rate swap agreement that pays interest at a minimum of 11,1% and at 70% of any amount above 11,1% against JIBAR until 29 April 2004.

Operating expenses were well managed during the year, growing 13,3% in Woolworths.  This growth was achieved despite forex losses of R14.6m incurred against forex gains of R22.9m made in the previous year, gross operating costs of the Visa card business fully accounted for, and a higher provision for profit share payments

Norman Thomson Director: Finance and Franchise

A significant portion of Woolworths operating costs are variable, particularly in the Foods business, moving in line with the increase in sales volumes.  Country Road’s costs in their continuing operations were 4,8% higher in Australian dollar terms, including a one-off cost of A$0.7m incurred in successfully outsourcing the distribution centre and a A$1.4m increase in advertising costs.  Costs were 1,9% up in Rand terms.

Operating profit from continuing operations increased by 29,6% to R888.0m,Woolworths contributing R870.7m and Country Road R17,3m, although the latter suffered from the effects of the stronger Rand on translation.  In Australian dollar terms, Country Road’s operating profit improved from A$2.2m to A$3.6m.

Finance costs increased 96,4% to R87.4m as a result of the higher levels of gearing.  The increased gearing, whilst aimed at enhancing return on equity, also creates a natural hedge against reductions in the interest earned on the debtors’ books.

Net profit before tax and exceptional items from continuing operations, increased 25,0% to R800.6m.

The exceptional items relate to a R16.1m provision for uneconomic leases in the group, less the R2.4m reversal of the provision taken against the lease obligation relating to the CNA distribution business and goodwill amortisation of R10.0m arising from the acquisition of inthebag.

The effective tax rate for the year, excluding exceptional items, was 28,9% (2002: 32,1%) as a result of tax adjustments of R31.5m relating to previous years’ over provisions, and the effect of the utilisation of tax losses.

Net profit attributable to ordinary shareholders from continuing operations increased 39,3% to R548.3m.

A cash distribution from the share premium account was proposed by the directors in lieu of a dividend for the year ended 30 June 2003.  The distribution is a cost effective way of distributing cash to shareholders and, if authorised by shareholders, brings the total distribution to 29c per share, 45% more than the total dividend of the previous year.

Capital expenditure totalled R414.1m, Woolworths accounting for R377.9m and Country Road R36.2m.  The increase in capital investment in Woolworths relates to property, the upgrade of point-of-sale and warehouse management IT infrastructure and initial expenditure incurred on renewing our merchandise management systems.  The investment in systems is aimed at providing a simpler and more productive operating environment.  Capital commitments at the end of June 2003 totalled R189.2m, of which Woolworths accounted for R152.6m and Country Road R36.6m.  The principal commitments relate to store openings, existing store refurbishments, and IT commitments.

Banking facilities available to the group total R1 962.6 million, of which R1 266.8m were undrawn at the end of the year.  The unutilised facilities are in excess of our estimated peak funding requirement.  Interest rates and forward exchange exposures continue to be managed within strict treasury policy guidelines overseen by a treasury committee that ensures that a conservative approach is adopted.  At the end of the year all foreign exchange liabilities were covered by foreign exchange contracts.  Interest-bearing borrowings net of cash totalled R513.7m, up from R361.7m in the previous year.  As our gearing increases,we are ensuring that the nature of our debt is optimally structured from both a cost and risk perspective.