Woolworths Group PLC

Woolworths Group PLC

This study provides tools for doing strategic determinations on Woolworths Group plc, one of the taking participants in the general retail merchants sector in the UK and the 4th largest section shop concatenation in the United Kingdom in footings of gross ( Business ratio study 2005 ) .

As portion of the fiscal profile appraisal, the information presented enquiries the company’s capacity of making growing compared with its closest equals and the on-going strategic platform to surpass macroeconomic conditions confronting the hereafter market mentality in the UK.

The decisions accomplished reflect the company’s underside line to recover impulse after its strategic demerger from Kingfish and in the model of strong market competition accelerated by multiples offering non-food merchandises.

This report’s lineation illustrates an overview on the company’s public presentation based on its fiscal status and concern high spots. In add-on to it, the analysis focuses on the president statement presented in the 2006 one-year study.

Executive Summary

Company: Frank winfield woolworths Group PLC

Reuters Ticker: WLW.L

FTSE Sector: General Retailers

FTSE Sub sector:Broadline Retailers

Major Rivals: Amazon.com, Blockbuster Inc, Debenhams Plc, HMV Group, House Of Fraser Group PLc, John Lewis Partnership plc, M & A ; S Group plc, Next Plc, Wal-Mart Stores Plc, WH Smith Plc and Yahoo! Inc.

Presently Trading at: 3275p ( London Stock Exchange ) 200652w scope:28.82-39.50

Chart

Beginning: Yokel Finance

1. Company Overview

The history of Woolworths PLC goes back to 1909, when F.W Woolworths was founded and its first shop in Liverpool opened as a subordinate of the US parental company. In the 80’s decennary, Woolworths decided to concentrate its merchandise land on amusement, place, confectionery and kids’ portfolio scope. After its successful growing in the retail concern and distribution channels, the “Woolworths” trade name became E.UK’s largest consumer ( 1966 sweeping platform ) , and so both officially became portion of the same group acquired by Kingfisher group in 1986. On 28 August 2001, Woolworth’s group demerged from Kingfisher and began merchandising on the London Stock Exchange.

The group comprises two chief concern watercourses, Retail ( mainchain ) and Entertainment Wholesale and Publishing. The group scheme has been focused on trade name enlargement and acknowledgment under Woolworths mercantile establishments located in UK metropoliss and suburbs and through 2Entertain online market place. ( 2006 Annual Report )

Inside the retail concern unit, the group presently trades in two formats ; traditional metropolis and suburbs layout with presence in major premier locations nationally, with 803 shops that include a merchandise scope covering: Toys, Children’ vesture, confectionery, place and amusement, events and other daily shopping demands. The 2nd format is made up of 18 superstores, which widen the place scope, babe vesture and kid’s sleeping room portfolio.

The amusement wholesale and publication concern is divided into two distribution trade names ; on one manus “2Entertain” in which the group holds 40 % of the interest to its joint venture with BBC worldwide picture arm. The 2nd distribution trade name is Entertainment UK Limited, UK’s largest distributer of sweeping amusement providing all scope to UK retail merchants.

2. Business Environment and Market Outlook

The UK retail ingestion has been depressed over the last 12-18 months compared to booming old ages.Macroeconomic conditions, chiefly inflationary menaces pose farther pecuniary adjustments on the money supply taking to a possible addition on involvement rate by the Bank of England.

As portion of the committedness to maintain monetary value stableness, ingestion indexs are expected to be around the same degrees. For Woolworths this is non exciting as the current market mentality is non expected to be more active in the following twelvemonth. Therefore, growing and profitableness will necessitate to come from better patterns or concern enlargement elsewhere.

In footings of the market section in overall, the sections shop industry has faced intense competition and impregnation over the last old ages due to new entrants in the vesture section chiefly from the superstores/multiples section leaders such us Tesco ( Largest UK Supermarket concatenation ) and Asda ( A Wall-Mart Company ) ( Datamonitor, June 2006 ) . The amusement concern in specific has given signals of strong growing chiefly pulled by Tesco’s and Asda’s public presentation in DVD and CD gross revenues ( Business Ratio study, 2005 edition )

Table 1.0 Top Five UK Department Stores

Company

T/over

Net income Margin

Asset Use

Entire Debt/Net Worth

Gross saless growing

Report Average

03/04

9.0

02/03

8.8

01/02

7.7

03/04

1.55

02/03

1.56

01/02

1.53

03/04

48.2

02/03

42.7

01/02

26.1

6

M & A ; S Plc

8019.1

8.9

4.2

1.9

0.92

0.92

1.05

59.4

58.5

38.5

0

John Lewis Plc

4414.6

2.0

1.9

2.1

1.58

1.55

1.61

37.6

35.0

29.0

5

Following Plc

2516

14.1

13.7

14.3

2.16

2.22

1.90

228.0

105.9

5.4

16

Woolworths PLC

2120.1

1.1

0.9

-0.7

2.6

2.46

2.47

311.6

360.3

338.5

1

Debenhams Retail PLC

1810.2

8.0

8.9

8.6

1.44

1.41

1.38

54.8

47.2

50.3

7

Beginning: Business Ratio study 2005

3. Fiscal Performance

Using McKenzie’s methodological analysis, this subdivision shows a image of the company’s fiscal profile, demoing its concern efficiency in footings of its profitableness tendency and the strengths acquired over the last five old ages in relation to liquidness to fund working capital and capital outgo and the ability in maintaining growing impulse reflected on P and L and balance sheet statements:

Table 2. Business Performance ( 2001-2006 )

2001 UK GAAP

2002 UK GAAP

2003 UK GAAP

2004 UKGAAP

2005 IFRS

2006 IFRS

Gross

2525

2599

2690

2774

2742

2630

VAR %

2.93 %

3.50 %

3.12 %

-1.15 %

-4.08 %

Retail Unit of measurement

2118

2293.7

2284.9

2091.7

1918.5

8.30 %

-0.38 %

-8.28 %

Publish/Entertain

1034

1055.4

1165.2

650.7

712.2

2.07 %

10.40 %

9.45 %

Gross Net income

761.2

716.70

756.30

778.80

726.90

696.00

VAR %

-5.85 %

5.53 %

2.98 %

-6.66 %

-4.25 %

Operating Net income

68.9

-23.5

55.7

75.7

8.2

70.9

Net Net income

40.5

-47.90

25.30

46.00

-8.10

10.20

Adjusted Net incomes before TX

Retail

11.50

28.10

46.20

39.80

17.10

VAR %

144.35 %

64.41 %

-13.85 %

-57.04 %

Entertainment

18.50

23.40

42.20

49.10

56.40

VAR %

26.49 %

80.34 %

16.35 %

14.87 %

Net incomes Per Share

2.9

-3.4

1.8

3.3

-0.6

0.7

Net Assetss

2721.2

425.9

431.1

457.3

332.4

302.6

VAR %

1.22 %

6.08 %

-27.31 %

-8.97 %

Beginning: Writer computations based on Group Annual Reports from 2001/02/03/04/05/06

Gross growing:Since 2002 the company has shown low ability to raise gross revenues, which have non surpassed the barrier of 3.5 % per twelvemonth, underlying that 2005 and 2006 have represented a autumn of 1.15 % and 4.08 % severally in the overall group’s gross. By sections, the retail concern unit has faced the strongest battle, in peculiar in the last twelvemonth after posting 8.28 % decrease in its go oning gross revenues operations. Conversely, publication and amusement sweeping business’s gross revenues increased by 9.45 % .

Historically the retail concern has non deployed growing since 2003, while Entertaining & A ; Publishing has had a sustained gross addition.

Gross Net income: Based on the last five old ages figures this is an country of concern. Within a low-growth gross scenario, Woolworths Group has continuously reduced its profitableness at the top portion of the net income and loss tabular array ; significance that the group has non been capable to countervail gross through bettering cost efficiency per unit sold. However, as can be seen in table 3 ( fiscal ratios and efficiency ) , the degree of gross net incomes in 2005 was located amongst its equals ( HMV and WH Smith ) .

Operating Net income:After its lowest degree in 2005, the company shows promoting informations in the in-between portion of its P and L as it recovered its degrees of profitableness chiefly by cut downing ?64.6 million in disposal costs. In order to determine whether this is a recovery form, the analysis should be carefully extended to 2007 and 2008. Therefore, the nature of the operating net incomes outcome is explained by a clear decrease in Non-sales nucleus activities ( McKenzie, p263 ) .

Net Net income:The Company is back once more on the black Numberss zone. This consequence has a historical significance after the demerger from Kingfish sing that the group has shown ups and downs in the manner net profitableness can be reached. The implicit in net incomes increased by ?18 million lbs compared to a loss on the old twelvemonth.

Net incomes per Share: Indicate a better off place for stockholders, from 60 pence loss per portion in 2005 to 70 pence net incomes in 2006. However, the consequences in footings of historical public presentation do non fulfill the appetency of investors seeing that the company delivered 1.8 and 3.3 pence net incomes per portion in 2003 and 2004 severally.

Table 3 and 4 indicate the company’s fiscal place against its closest rivals HMV and WH Smith ( as stated by Datamonitor, June 2006 ) and its ain public presentation tendency within a five twelvemonth mentality.

Table 3. Fiscal Ratios against Retailers ( 2005 )

Ratio

Woolworths Group Plc

HMV Group

WH Smith

Current Ratio

1.46

0.63

0.86

Liquidity Ratio

0.72

0.29

0.45

Solvency Ratio

41.89 %

-1.01 %

7.18 %

Net income Margin

0.33 %

7.08 %

2.55 %

Tax returns on Stockholders Fundss

2 %

n/a

152.38 %

Tax return on Capital Employed

1.52 %

98.27 %

33.51 %

Stockholders Liquidity ratio

3.19

-0.60

0.28

Tax return on Total Assetss

0.84 %

29.16 %

10.94 %

Interest screen

1.78

11.26

6.82

Stock Employee turnover

7.64

11.94

15.48

Collection Time period

12.72

2.26

5.38

Net Current Assetss

229.200

-167.000

-54.000

Gross Margin

25.87 %

12.62 %

28.47 %

EBIT border

0.75 %

7.77 %

2.99 %

Net incomes per Employee ( unit )

273

10077

2760

Beginning: Fame Database- British Library Access/Author computations ( McKenzie,Fiscal rations 267-274 )

Table 4. Financial Highlights Trend ( 2001 – 2006 ) : Beginning FAME/AMADEUS

2001

2002

2003

IFRS

2004

2005

Fixed Assetss ( % )

-3.39

-3.75

-3.44

-1.47

3.07

Current Assets ( % )

-80.76

13.23

7.42

6.34

10.33

Stock ( % )

-22.53

12.08

4.19

2.12

-7.25

Debtors ( % )

-15.35

54.57

12.54

-11.32

42.01

Entire Assets ( % )

-70.83

6.01

3.23

3.52

7.83

Current Liabilities ( % )

-29.27

11.48

1.3

3.14

34.3

Creditors ( % )

27.75

25.38

0.14

12.13

5.37

Loans/Overdraft.

97.65

-11.31

-74.5

-15.79

2990.63

Long term Liabilities ( % )

310.37

2.36

0.72

15.1

53.57

Net Cash from operation ( ?m )

-6600

206800

76300

113000

162200

Net Cash signifier Investments ( ?m )

-14600

-16700

-9200

-6300

-2400

CAPEX ( ?m )

-117400

-77400

-43400

-51200

-73700

Taxation ( ?m )

-32500

-7300

-2900

-16800

-14200

Net hard currency flow from Financing ( ?m )

311500

34700

0

1400

7000

2006

2005

Before exceeding points

Exceeding points

( Note 3 )

Entire

Before exceeding points

Exceeding points

( Note 3 )

Entire

?m

?m

?m

?m

?m

?m

Continuing operations

Gross

2,630.7

2,630.7

2,742.4

2,742.4

Cost of goods sold

( 1,940.7 )

6.0

( 1,934.7 )

( 1,998.2 )

( 17.3 )

( 2,015.5 )

Gross net income

690.0

6.0

696.0

744.2

( 17.3 )

726.9

Selling and selling costs

( 534.1 )

( 534.1 )

( 560.2 )

( 560.2 )

Administrative disbursals

( 124.7 )

11.8

( 112.9 )

( 134.1 )

( 43.4 )

( 177.5 )

Other runing income

21.9

21.9

16.1

2.9

19.0

Operating net income

53.1

17.8

70.9

66.0

( 57.8 )

8.2

Interest payable and similar charges

( 13.7 )

( 13.7 )

( 14.6 )

( 14.6 )

Interest receivable

4.3

4.3

3.5

3.5

Profit/ ( loss ) before revenue enhancement

43.7

17.8

61.5

54.9

( 57.8 )

( 2.9 )

Tax

( 13.3 )

( 6.9 )

( 20.2 )

( 19.0 )

14.4

( 4.6 )

Profit/ ( loss ) for the twelvemonth from go oning operations after revenue enhancement

30.4

10.9

41.3

35.9

( 43.4 )

( 7.5 )

Discontinued operations

Loss after revenue enhancement for the twelvemonth from discontinued operations

( 5.1 )

( 26.0 )

( 31.1 )

( 0.6 )

( 0.6 )

Profit/ ( loss ) for the twelvemonth

25.3

( 15.1 )

10.2

35.3

( 43.4 )

( 8.1 )

Attributable to:

Equity stockholders

25.2

( 15.1 )

10.1

35.1

( 43.4 )

( 8.3 )

Minority involvement

0.1

0.1

0.2

0.2

25.3

( 15.1 )

10.2

35.3

( 43.4 )

( 8.1 )

Earnings/ ( loss ) per portion ( pence )

Basic

0.7

( 0.6 )

Diluted

0.7

( 0.6 )

Earnings/ ( loss ) per portion from go oningoperations ( pence )

Basic

2.8

( 0.5 )

Diluted

2.8

( 0.5 )

Table 5. Group Profit and Loss

For the 52 hebdomads ended 28 January 2006 and 29 January 2005

Beginning: Woolworths Group plc – Annual Report ( 2006 )

Liquid:

Liquidity has a better place compared to HMV and WH Smith and does the degree of current assets from 2005. The balance sheet, ratios public presentation and hard currency flow statement indicate that the company has been argus-eyed in footings of overdriving hard currency militias on capital outgo ( CAPEX ) since its investings activities have been reduced from ?74.5 million in 2005 to ?56.6 1000000s in 2006 ( McKenzie, p9-10 ) .

The above information implies that on one manus the group has more comfort on hard currency militias for future events. On the other manus, it could convey concerns on how the company is fixing to get by with high competition and medium-term programs to happen new beginnings of gross growing. Another positive note in footings of the group’s liquidness is represented by the current plus construction where 31 % is hard currency, 43 % stock lists and 26 % creditors ( 1 twelvemonth ) .

Frank winfield woolworths Group

2006 ( ?m )

2005 ( ?m )

Entire current assets

?803

?770

Creditors: Sums falling due one twelvemonth

?211

?196.6

Beginning: Woolworths Annual Report ( 2006 )

Sing stocks direction the five-year tendency and turnover compared to HMV and WH Smith shows betterment, accordingly profiting the company’s acid test place.

By 2005 ( 52 hebdomads ended in January ) cyberspace current assets degree remained strong compared to HMV and WH Smith, which in both instances their liabilities exceeded current assets. For Woolworths the major disposal of current assets was in 2001 when the company reduced the degree by 80 % ; since so the company has been focused on bettering its place.

Debt composing:On the balance sheet there is a debt restructuring program by altering the composing of long-run debt for short-run, doing usage of the company’s net plus place with the intent of bettering fiscal flexibleness through set uping early refunds.

Table 6. Group Balance Sheet

For the 52 hebdomads ended 28 January 2006 and 29 January 2005

28 January

2006

29 January 2005

?m

?m

Assetss

Non-current assets

Good will

31.9

31.8

Intangible assets

63.8

68.5

Property, works and equipment

274.2

287.2

Investings – accounted for utilizing the equity method

0.2

Fixed plus investings

0.2

Deferred revenue enhancement assets

22.8

9.4

392.9

397.1

Current assets

Inventories

344.2

358.3

Trade and other receivables

211.0

196.6

Financial assets

– Derivative fiscal instruments

1.0

Cash and hard currency equivalents

247.3

215.2

803.5

770.1

Current liabilities

Fiscal liabilities

– Borrowings

( 98.6 )

( 0.1 )

– Derivative fiscal instruments

( 22.1 )

Trade and other payables

( 524.6 )

( 552.5 )

Current revenue enhancement liabilities

( 12.8 )

( 8.8 )

Commissariats

( 12.2 )

( 6.3 )

( 670.3 )

( 567.7 )

Net current assets

133.2

202.4

Non-current liabilities

Fiscal liabilities

– Borrowings

( 1.0 )

( 99.6 )

Trade and other payables

( 61.8 )

( 50.8 )

Retirement benefit duties

( 130.9 )

( 97.5 )

Commissariats

( 29.8 )

( 19.2 )

( 223.5 )

( 267.1 )

Net assets

302.6

332.4

Shareholders’ equity

Ordinary portions

182.1

179.4

Share premium

9.3

5.2

Other militias

24.1

24.1

Retained net incomes

87.0

123.7

Entire shareholders’ equity

302.5

332.4

Minority involvements

0.1

Entire equity

302.6

332.4

Beginning: Woolworths Group plc – Annual Report ( 2006 )

Cash flow Analysis

A company with vulnerable hard currency flow place has more chance to default and neutralize than a low-profit operational company ( McKenzie, p9 )

Table 7. Group Cash Flow Statement

For the 52 hebdomads ended 28 January 2006 and 29 January 2005

52 hebdomads to

28 January 2006

52 hebdomads to

29 January 2005

?m

?m

Cash flows from operating activities

Cash generated from operations

129.5

176.9

Interest paid

( 10.5 )

( 11.4 )

Interest received

4.5

3.0

Tax paid

( 16.6 )

( 15.6 )

Net hard currency generated from operating activities

106.9

152.9

Cash flows from puting activities

Purchase of intangible assets

( 10.6 )

( 6.6 )

Purchase of belongings, works and equipment

( 49.0 )

( 66.0 )

Costss associated with the formation of joint venture

( 0.1 )

( 1.7 )

Returns from sale of subordinate ( cyberspace of costs )

3.5

Cash forgone with sale of subordinate

( 0.4 )

( 0.2 )

Net hard currency used in puting activities

( 56.6 )

( 74.5 )

Cash flows from funding activities

Net returns from issue of ordinary portions

6.8

6.8

Refund of adoptions

( 1.8 )

( 16.0 )

Debt issue costs

( 0.4 )

Returns from short-run loan

16.0

Finance rental principal refunds

( 0.1 )

Sale of ain portions held in Trust

1.0

0.2

Dividends paid to Company’s stockholders

( 24.3 )

( 21.6 )

Net hard currency used in funding activities

( 18.8 )

( 14.6 )

Net addition in hard currency and hard currency equivalents

31.5

63.8

Cash and hard currency equivalents at beginning of the twelvemonth

215.2

151.4

Cash and Ca

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