Well Woolies gave and promised the market everything. A reasonable
profit for the 2004 year, higher dividend, hints of more capital
management rewards for shareholders after the bid for Australian
Leisure was settled one way or other, moderate sales growth in the
coming year and earnings up a forecast 10% and 15% in the same time.

Like so many of the company’s 12 hundred or so supermarkets, a
veritable smorgasbord to be seduced by and to chose from. But
will shareholders pay a price for such an all signing, all dancing
outcome and promise?

Can’t say, but it will be a bigger result than Coles Myer which is
reporting earnings around $100 million or so shy of the Woolies’
figure. But there were a few things to note from the result.

Earnings after tax rose by almost 13% to just on $687 million, with
earnings before interest and tax up 12.4% to just over $1.065
billion. So despite the slowdown in sales growth in the core
supermarkets business, the company is still immensely profitable.

The costs of doing business fell half a per cent, sales “from
continuing operations” rose 6.7% across the group for the year
(although they slowed sharply in the supermarkets and liquor business),
stock turn fell, inventory costs fell and working capital needs
declined. Free cash flow was slightly lower but still accounted for
around 93% of net earnings (last year it was 109% of the net).

In many ways it was another standard Woolies earnings result, but without the WOW factor of previous years.

There was much detail on the coming impact from the next round of
Project Refresh changes to the company’s logistics and distribution
chain, while more detail on how that would start tying more directly
into individual stores to reduce costs.

But some interesting figures. Woolies received $547.3 million in “other
income”, which, according to the ASX announcement consisted of rebates,
discounts received and other” of a massive $547.3 million, up almost
11% on the $493.2 million in 2003.

That’s the company’s suppliers who give Woolies these benefits to help
push product through the supermarkets and stores. It comes from food
groups, liquor companies and suppliers to Dick Smith and Tandy. It is a
major source of earnings because it is all pure profit with very little
cost attached.

Coles gets the same sort of support from its suppliers but both are
reluctant to talk about it too expansively because it marks how
successful they have been in ‘convincing’ suppliers to help.

Sales catalogues are often heavily financed by these sorts of rebates
and discounts. Suppliers often pay or give discounts for position in
certain high profile marketing points within stores, such as end of
rows and gondolas.

To suppliers of all types, its a “cost” to doing business with these
giants and remaining a supplier, although they are very reluctant
themselves to discuss these in public for fear of retribution from the
Big Two.

These are the so-called “terms” you might hear companies talking about
in their dealings with the big two or competitors such as Metcash and
others in discussing how they compete with Coles and Woolies.

Meanwhile elsewhere in the Woolies result a very, very poor outcome for the company’s petrol business.

“Competition” pushing the profit down 38% to %18.6 million from 2003’s
record of $29.9 million. That’s despite a rise in volumes and in
the number of outlets. However the slow roll-out of the Caltex joint
venture seems to have hurt and Woolies is expecting a more rapid pace
of growth in outlet numbers this year to a maximum of around 470,
compared to the Coles Express-Shell venture of more than 540.

Earnings from Woolies supermarket rose almost 14% to $965 million,
General Merchandise by 13.5% to more than $164 million (made up of Big
W 12% to $116 million and Dick Smith and Tandy chains, up 17% to $48.2
million) That gave earnings from trading operations of $1.14 billion,
up 12.3%.

And a suggestion again from CEO Roger Corbett that the company is
looking to a slow down in the explosive growth of Coles Express to
‘even’ up the comparison between the two stores.

And, Roger said that since the June balance date, same store sales
growth in supermarkets had risen to 2.65% from the weak 1.5% in the
fourth quarter. That was pleasing, but its still far below what Coles
was getting in the fourth quarter. Group sales have risen at a
similar rate to 2004 of 6.7% from “continuing operations”.