Woolworths Group plc
Address
242 Marylebone Road
London
NW1 6JL
Telephone
+44 (0)20 7262 1222
Facsimile
+44 (0)20 7706 5416
Woolworths Group plc
2008 ANNUAL REPORT AND ACCOUNTS
www.woolworthsgroupplc.com
2008
ANNUAL REPORT
AND ACCOUNTS
>
Retail
Woolworths
Our stores comprise traditional Woolworths outlets located
in small towns and city suburbs, targeted at meeting basic
everyday shopping requirements, as well as larger stores
located on prime shopping streets in major regional
shopping centres. The product offer covers Toys, Children’s
Clothing, Events, Confectionery, Home and Entertainment;
larger stores include a more comprehensive range of Home
and Children’s Clothing.
Through its website and catalogue, The Big Red Book,
Woolworths offers customers a multichannel shopping
solution across a broad range of products. Orders can be
placed at home or in-store with delivery to either the
customer’s home or for collection in-store.
www.woolworths.co.uk
>
Entertainment Wholesale
and Publishing
2 | Entertain
02
03
Contents
Financial and Operational Highlights
Chairman’s Statement
04
10
16
20
21
22
Directors’ Report
Business Review
Our Resources
Chief Executive’s Report
Finance Director’s Report
Risk Factors
Corporate Social Responsibility
Board of Directors
24
28
31
40
41
42
43
44
45
82
83
84
85
91
|
2 Entertain
The Group holds a 40 per cent share in this joint venture,
combining the former VCI audio and video business with
BBC Worldwide’s video publishing arm. Recent video titles
include “Clarkson – Supercar Showdown” and “Top Gear –
Interactive DVD” and on audio, the “100 Hits” range.
www.2entertain.co.uk
Entertainment UK Limited (‘EUK’)
EUK is the UK’s leading distributor of entertainment products,
generating an annual turnover in excess of £1.1 billion.
EUK’s product portfolio covers all of the major
entertainment formats – music, DVD, games and books –
as well as mobile phones. In turn, these products are
supplied to some of the country’s best known store groups
and online retailers.
Corporate Governance
Other Information
Directors’ Remuneration Report
Statement of Directors’ Responsibilities
Independent Auditors’ Report
Group Income Statement
Group Statement of Recognised Income and Expense
Group Balance Sheet
Group Cash Flow Statement
Notes to the Group Accounts
Five Year Record
Independent Auditors’ Report
Company Balance Sheet
Notes to the Company Accounts
Shareholder Information
www.entuk.co.uk
Bertram Group Limited
Bertram Group consists of the following three divisions:
Bertrams | THE, the UK’s leading book wholesaler with a
growing number of international customers.
Bertram Publisher Services provides distribution services
to a wide range of client publishers.
TOTAL HOME ENTERTAINMENT
THE
Bertram Library Services, an industry leading supplier of
books, tapes, CDs, games and many other audio-visual
products to public libraries, schools, universities and
educational institutions in the UK and around the world.
www.bertrams.com
Woolworths Group plc
Annual report and accounts 2008
WOOLWORTHS GROUP PLC
is principally a UK retailer and
Entertainment distributor focused
on the home, family and entertainment.
Woolworths offers its customers
value-for-money on an extended range
of products. It is built around the well
known Woolworths brand which is
represented in towns and cities
throughout the UK.
Through Entertainment UK, Bertram
Group and 2 entertain, Woolworths
Group also has leading positions in
UK Entertainment and Books wholesale
distribution and publishing.
01.
Woolworths Group plc
Annual report and accounts 2008
02.
Financial
Highlights
>
Group revenue increased by 8.5 per cent
to £2,969.6 million
>
Adjusted profit* before taxation increased
£6.5 million to £28.3 million
>
Profit before taxation decreased £4.3 million
to £11.7 million
>
Adjusted basic earnings per share** increased
to 1.4 pence per share from 1.2 pence per share
>
Basic earnings per share decreased to
0.5 pence per share from 0.9 pence per share
>
Net debt at the year-end of £123.7 million
2008
Operational
Highlights
>
Entertainment Wholesale business enhanced
by supply to new customers including Asda and
Zavvi (formerly Virgin Megastores) and the planned
integration of THE and Bertram Group
>
Bertrams acquisition cleared following
investigation by the Competition Commission
>
Woolworths like-for-like sales down
3.2 per cent
>
Multichannel revenue increased by 5.2 per cent
>
Woolworths gross margin increased by 101
basis points
>
Entry price point range launched with 1,417 items
branded Worthit!, generating 11.6 per cent
of transactions in peak week
* Throughout this document, adjusted profit before taxation is calculated as set out on page 17.
** Throughout this document, adjusted basic earnings per share is as calculated in note 9 to the
financial statements.
Woolworths Group plc
Annual report and accounts 2008
03.
Chairman’s
Statement
Against a difficult trading
environment, we have managed
substantial change across
the Group as a whole. Profit
before tax and exceptional
items increased to £14.9m
from £7.3m in the prior year.
Adjusted profit (which is
before tax, exceptional items,
adjustment for fixed rental
uplifts and amortisation of
certain intangible assets)
increased from £21.8 million
to £28.3 million for the 52
weeks to 2 February 2008.
We are pleased to report that
the retail business returned to
profitability this year. Whilst likefor-like sales were down 3.2 per
cent, gross margin improved by
101 basis points and costs
were contained below the rate
of retail cost inflation. The
business did benefit by £10.9
million (2007: £5.8 million) from
the full year effect of relifing
certain fixed assets; and from
property profits, some
£5.0 million higher than last
year. Nonetheless, adjusted
profit improved by £16.3 million
to £3.4 million.
For the Entertainment Wholesale
business, it was a year of major
change. Over a period of 18
months we have gone from a
business with one dominant
third party customer, the main
contract with whom terminated
in May 2007, to one with six
significant third party customers.
At the same time we have
become far less dependent on
the CD market and more
exposed to the growing books
and computer games markets.
Sales increased by 36.6 per
cent to £1,176.6 million and
adjusted profit was broadly
unchanged.
2 entertain, our joint venture
with BBC Worldwide had an
outstanding year. Adjusted
attributable profit increased by
£6.7 million due to a number
of successful releases, most
notably “Planet Earth” in
America.
In January 2008 we announced
that we had completed a
refinancing of the Group. The
new £350 million asset based
lending facility and the £35
million 2nd lien loan provide us
with long term finance, the level
of which flexes with our working
capital requirements.
The Board has taken the
decision to cut the dividend.
Taking into account the
Group’s plans, the Board is
recommending a final dividend
of 0.17 pence per share. At this
lower level the full year dividend
of 0.6 pence per share is
covered 2.4 times by adjusted
earnings and provides a base
from which to grow it as
performance improves. The
Board believes that payment
of a dividend at this level
represents an appropriate
balance between providing a
return to shareholders and
preserving the financial flexibility
necessary to support the plans
and ongoing development of
the business over both the short
and longer term.
On behalf of the Board I would
like to thank our colleagues in
the business for their sheer
enthusiasm, hard work and
dedication. It is evident that they
are committed to the future
success of the business.
Richard North
Chairman
2 April 2008
Woolworths Group plc
Annual report and accounts 2008
04.
Directors’ Report
Business Review
Our Resources
The Directors are pleased to present their report
and the consolidated financial statements of the
Company and its subsidiaries for the financial year
ended 2 February 2008.
>
Retail
Stores
Woolworths Group plc is principally a
UK general retailer and entertainment
distributor focused on the home
and family. The Group is comprised
of two main divisions; Retail, and
Entertainment Wholesale and
Publishing. The key assets of these
divisions are reviewed over
pages 04-09.
Since opening its first store in 1909, Woolworths has become a
familiar feature on the UK’s high streets. Over four million people
shop in our stores each week. There are today 801 Mainchain
stores located in small towns and city suburbs, targeted at meeting
basic everyday shopping requirements, as well as larger stores
located on prime shopping streets in major regional shopping
centres. The product offer covers Toys, Children’s Clothing, Events,
Confectionery, Home and Entertainment. In Woolworths’ out-oftown stores, a wider selection of Toys, Outdoor goods, kids’
bedroom ranges and Entertainment products can be found. With its
rich and well-loved heritage, Woolworths continues to refresh its
store formats and the shopping environment to meet its customers’
requirements.
Number of stores:
Average sq ft:
Mainchain
Out-of-town
Total
801
8,359
17
50,763
818
9,240
Through its website and catalogue, The Big Red Book, Woolworths
offers customers a multichannel shopping solution across a broad
range of products. Orders can be placed at home or in-store with
delivery to either the customer’s home or for collection in-store.
Woolworths Group plc
Annual report and accounts 2008
05.
> Since opening its first store in 1909
Woolworths has become a familiar
feature on the UK’s high streets.
Over 4 million people shop in our
stores each week.
> Woolworths offers its customers
value-for-money on an extended
range of products.
> The product offer includes Toys,
Children’s Clothing, Events,
Confectionery, Home and
Entertainment.
> Ladybird is one of the
best selling childrenswear
brands in the UK.
Focusing on clothing for
children age 1-10 years,
the brand offers fun,
fashionable clothing at
affordable prices.
Woolworths Group plc
Annual report and accounts 2008
06.
Directors’ Report
Business Review
Our Resources –
Colleagues
Retail
(cont’d)
The quality of Woolworths’ colleagues, in-store, in our distribution
centres and at Head Office is vital to the Group’s success.
Employing around 30,000 people, we place an emphasis on high
standards of customer care and service, so our colleagues’
development and training is a priority. We encourage and enable our
people to develop their knowledge, skills and career options across
all facets of our business. We offer high quality business education
and practical training in specific skills.
Woolworths offers a leadership programme for graduates
(Woolworths Group Leadership Programme). WGLP is a
development framework for people with potential to become future
business leaders. It develops people within chosen functional areas,
including Business Development, Marketing, Commercial, Retail,
Supply Chain and Distribution, Finance, Human Resources or IT.
For more information on a career at Woolworths, go to
www.woolworthscareers.co.uk.
Brands
Ladybird – Dating back to the 1950s, Ladybird-branded Children’s
clothing is now synonymous with Woolworths, which secured
exclusive rights to the brand in 1984. Ladybird clothes are popular,
modern and continue to appeal to today’s parents and their
children.
Chad Valley – the Chad Valley brand first appeared on toys in
around 1920 and was acquired by Woolworths in 1988. Today it
comprises an extensive range of high quality, value-for-money toys
and games suitable for all children.
Worthit! – A range of entry price items, under consistent Worthit!
livery, launched in the early part of 2007. The range currently
includes over 1,000 products spread across every category in store
and includes seasonal items. The Worthit! brand presents a very
clear statement about the competitiveness of Woolworths’ prices.
Licences
Through our focus on ‘Kids and Celebrations’, Woolworths strives
to be the natural partner of choice for leading Children’s brands
from around the world. By developing bespoke strategies with
licensors, Woolworths has created exclusive branded promotions
and products which offer a clear point of difference to customers.
Supply Chain
Castleton
Bedford
Swindon
Before products can reach our stores, they must be sourced,
purchased, transported and stored. As a general merchandise
retailer, this is a complex business involving buying and logistics
teams located at Head Office and at Woolworths Group Asia
Limited, our Hong Kong based sourcing facility. Separate buying
teams are in place for each product category and include category
planners, buyers, merchandisers, marketeers and supply chain
specialists. Our strategy is to reduce costs by buying directly from
suppliers or from low cost manufacturers in Asia, Eastern Europe
and the Middle East. In addition, this means that new product
innovation can be delivered more quickly through closer cooperation
with manufacturers. Woolworths’ distribution network principally
consists of three core distribution centres through which
merchandise is distributed to the individual stores.
Woolworths Group plc
Annual report and accounts 2008
Directors’ Report
Business Review
Our Resources
>
Entertainment
Wholesale and
Publishing
Broad Market Reach
Through Entertainment UK and
Bertram Group, we have leading
positions in UK Entertainment and
Books wholesale distribution.
As intermediaries between suppliers and retailers
we aggregate entertainment hardware, software
and books from the world’s leading publishers
and manufacturers into a single store shipment
for our customers.
Value Added Services
We add value through managing the retailer’s
inventory and, using our detailed know-how and
market research, assist our customers in determining
the best range of product required. We then source
this product, receive stock at our distribution sites,
pick and aggregate orders and packages for
individual customers.
We offer sale or exchange rights to customers,
marketing or promotional management, store fixtures
and point of sale design, in-store merchandising and
dedicated call centres dealing with customer queries.
We also provide technical support and fulfilment to
online retailers and digital distribution solutions to
support their multichannel strategies.
07.
Woolworths Group plc
Annual report and accounts 2008
08.
Directors’ Report
Business Review
Our Resources –
Customer and Supplier
Relationships
Entertainment
Wholesale and
Publishing (cont’d)
We value our long-standing and trusted relationships with the
music, film, books and games publishing communities. We make
it our business to understand their market, products and priorities
and strive to bring vision and innovation to the retail supply chain.
All of our customers are important to us and we have structured
EUK, and Bertrams | THE to meet the varied needs of independent
stores, major entertainment and bookselling chains along with the
supermarket sector. We are proud to include Sainsbury’s, Zavvi,
Morrisons, Asda and Tesco amongst our customers.
|
2 Entertain
BBC Worldwide’s
Partner of Choice
2 entertain is a music and video publishing joint venture between
Woolworths Group and BBC Worldwide Limited, the consumer
commercial arm of the BBC. The Group holds a 40 per cent share
in the venture.
2 entertain Video, is the UK’s largest independent video
publisher/distributor, a dynamic player in the UK market
championing British programmes and talent both at home and
internationally. The video division has a key licensing agreement with
BBC Worldwide. In addition, the business enjoys many relationships
with other key major talent and content providers in the
entertainment industry.
Expertise in
Packaged Media
2 entertain specialises in acquiring DVD publishing rights to core
BBC productions along with those of the leading independent
production houses. Through Demon Music Group, and Banana Split
Productions, the venture also has leading positions in recorded
music and video production respectively. With extensive experience
in packaged media, and as the UK’s largest independent video
publisher/distributor, 2 entertain brings industry leading expertise to
the process of producing, selling, marketing and merchandising
some of the UK’s best loved programming to retail.
Woolworths Group plc
Annual report and accounts 2008
09.
> www.woolworths.co.uk offers excellent
home entertainment products including
CD’s, computer games and DVD’s.
> We value our long standing relationships
with the music, film, books and games
publishing communities.
> 2 entertain Video,
is the UK’s largest
independent video
publisher/distributor,
a dynamic player in
the UK market.
> Woolworths Group has
leading positions in
UK Entertainment
wholesale distribution
and publishing.
Woolworths Group plc
Annual report and accounts 2008
10.
Directors’ Report
Business Review
“Overall, across the Group we
believe we enter 2008/9 with the
businesses strengthened relative
to the prior year and well set up
for the challenge ahead.”
Chief
Executive’s
Report
In the 52 weeks ended
2 February 2008, total Group
revenue from continuing
operations was £2,969.6 million.
This represents an 8.5 per cent
increase over the prior year.
Each of our businesses made
significant progress during the
year and overall the strategic
positioning of the Group has
been strengthened. At a sales
level, this was particularly
evident in our Entertainment
Wholesale distribution business,
where third party sales increased
by 36.6 per cent over the prior
year, as new customers and
acquisitions were integrated into
the business. 2 entertain, our
music and video publishing joint
venture with BBC Worldwide,
increased its third party sales by
21.2 per cent, particularly helped
by developing international
sales. Sales at Woolworths fell
3.2 per cent like-for-like,
reflecting our key focus of not
chasing unprofitable sales and
returning the Retail business to
profit. This goal was achieved
and was a key driver in
delivering improved year-on-year
Group profits.
Adjusted profit (which is before
tax, exceptional items,
adjustment for fixed rental uplifts
and amortisation of certain
intangible assets) was £28.3
million, an increase of 29.8 per
cent over the prior year. This
increase was delivered despite
a challenging external
environment and in the midst
of extensive internal change
in our businesses.
Retail
The key focus of the year at
Woolworths was to return the
business to profitability and
establish a profit base on which
to build. The adjusted profit was
£3.4 million compared with a
loss of £12.9 million in the prior
year. This turnaround came
thanks to further enhancement
of gross margins, rigorous
control of costs, the full year
benefit of asset relifing,
continued exploitation of the
property portfolio and active
management away from lossmaking sales.
Total like-for-like sales declined
by 3.2 per cent largely for the
following reasons:
Firstly, and most materially, just
over half of the decline in like-forlike sales was due to the decision
not to chase unprofitable sales,
particularly of electrical and
computing products. These
markets are highly competitive,
with the internet allowing easy
price comparisons. As a
consequence, gross margins
are low. Add to this the high
servicing costs of delivery,
technical support and customer
returns, and the overall net
profitability can be negligible
or often negative.
Secondly, Woolworths has
historically been a leading
beneficiary of shopping voucher
redemptions bought via savings
clubs. Following the bad
publicity attached to the failure
of Farepak in 2006, sales of
vouchers fell dramatically. We
believe that this reduced likefor-like sales by 1.1 per cent.
Thirdly, the decision was taken
not to advertise on TV during
the Christmas trading period to
the same extent as prior years.
While this may well have held
back sales, the overall impact
on Woolworths’ profit and loss
account was positive.
Woolworths Group plc
Annual report and accounts 2008
11.
Transport
Vehicle kilometres
(millions)
Fuel consumption
(million litres)
2008
2007
25.9
27.2
7.7
8.0
Vehicle mileage has reduced by 4.8 per cent year-on-year, with a
corresponding reduction in fuel consumption of 3.8 per cent. This has been
achieved via a new routing and scheduling system for deliveries from
Distribution Centres to Stores, improved flexibility in Store delivery windows
and increased use of double deck trailers.
Service centre
Calls received
(000’s)
Service level
2008
2007
826
846
93%
90%
The Woolworths Customer Support department handles customer enquiries
and complaints for all stores and also our websites, along with orders and
queries relating to our Big Red Book catalogues. The number of contacts
decreased in 07/08, due to the use of pro-active SMS messaging, whilst the
level of service increased by 3.3 per cent year-on-year.
At a category level, the
strongest area of the business
was computer games. Demand
for new formats such as
Nintendo Wii, Nintendo DS and
Sony PS3 continued to outstrip
supply. We anticipate that this
growth will continue and will
more than counter the decline in
the traditional music market as
was the case in 2007/8. DVD’s
and Books both held up well
in the year and we anticipate
that this will continue in the
medium term.
In our Toy business, sales were
held back as spend was
diverted to computer games,
particularly when there was
availability of Nintendo Wii and
DS, which appeal to the core
Toy market age group. Younger
age toy categories such as
pre-school were less
susceptible and were our most
buoyant Toy categories.
Another area of product
success was the continued
progress of our Ladybird
clothing ranges, where total unit
sales surpassed the prior year
and market share continued
to grow, albeit in a market
experiencing price deflation.
Our Confectionery business
also experienced price
deflationary pressure. This was
particularly so in the gift market,
where products tend to be used
by the supermarkets to drive
value price perception. Against
this backdrop, we continued
to seek to differentiate the
Woolworths offer and were
selective with our price
investment. In everyday
Confectionery ranges, the
launch of a full range of
Woolworths Worthit! sweets has
provided a point of difference
from the competition and
enhanced our value positioning,
driving incremental volumes.
Across the entire business, the
introduction of the entry price
Worthit! range has been very
well received by customers.
Indeed, to an extent we have
been victims of our own success.
Rates of sale have been higher
than anticipated and maintaining
availability in what is typically
long lead time product has
sometimes been a challenge.
In its peak week, Worthit!
products accounted for 7.9 per
cent of total sales and 11.6 per
cent of total transactions.
Following Christmas trading,
Self-audit
Compliance points score (out of 100)
Compliance score
2008
2007
77.1
77.4
The store self-audit is a scheme to check that our stores are compliant with
Company procedures and also external factors such as trading standards
and health and safety issues. Store standards are broadly consistent yearon-year, with a slight decline in average store score of 0.4 per cent.
Mystery shopper
Service standards (out of 100)
Mystery shopper score (Xmas cycle)
2008
2007
76.6
76.4
All stores receive regular visits from “mystery shoppers”. This allows us to
gain a true reflection of how our stores are performing and to benchmark
our service standards. The Christmas cycle is a key review to ensure that
stores are ready for the busy Christmas trading period. This shows a slight
improvement year-on-year, demonstrating continued advancement of
customer service.
Woolworths Group plc
Annual report and accounts 2008
12.
Directors’ Report
Business Review
Chief
Executive’s
Report (cont’d)
it now is clear that Worthit!
products are relevant in seasonal
as well as everyday ranges. The
Worthit! Christmas products
such as trees, decorations and
cards all sold out early in the
season. During the year 1,417
Worthit! lines were launched
and we continue to refine and
develop the product and its
sourcing. In 2008, a new range
of approximately 2,200 products
branded “Woolworths” will be
launched to provide the logical
“sell up” alternative to Worthit!
This is designed to increase
sales, drive up basket spend
and improve overall margins.
Multichannel
Following initial rapid growth
and the establishment of a
multichannel sales base in
2007/8 we chose to move away
from electricals restricting
headline sales growth to 5.2 per
cent. We traded toward higher
margin categories and reduced
unit despatch costs by utilising
the Woolworths distribution
network instead of couriers.
Feedback on the Big Red Book
catalogues continues to be very
positive with customers enjoying
its manageable and focused
Kids based offer. This channel
of business provides significant
opportunity for the future, both
in terms of sales growth and a
step change in profitability as
fulfilment is further integrated
into the Woolworths network
over the next two to three years.
Evolving the supply chain
We continued to make progress
in enhancing our supply chain
capability, in terms of both the
warehouse and transportation
network, as well as increasing
the sophistication of the IT
systems that drive replenishment.
Over the Christmas trading
period, inventory levels were
kept very tight to ensure sell
through of seasonal ranges and
thereby reduce exposure to
unplanned mark down. As at
the end of the first week of the
January sales, inventory in
Woolworths was some £61
million lower than the prior year
and was of a superior quality.
Improving stock control was a
contributory factor in enhancing
margin, alongside increased
direct supply of product from
the Far East, where shipments
grew by 12 per cent. The lower
cost prices achieved from
greater use of direct supply
allowed us to improve our price
competitiveness.
Overall margin increased by 101
basis points.
We believe that significant
opportunity remains to enhance
the profitability of the business
through a combination of
increased direct sourcing,
greater efficiency in the
distribution network and still
further sophistication of the
IT systems that handle
replenishment. The business
is targetting a further 40 basis
point improvement in margin
and a reduction of £8 million in
costs in the coming year.
Capital Expenditure and Store
Portfolio Management
During the year some £33.3
million of capital expenditure
was invested including the
acquisition of four store
freeholds, repairs, renewals and
enhancements to the physical
estate, opening five new stores
and refurbishing 10 older stores.
Trading from the newly opened
stores has been encouraging.
A programme of low cost
refurbishments in 77 stores has
provided good levels of return.
Given the size and nature
of the property portfolio, it is
appropriate that it is actively
managed and we have achieved
property profits from a number
of transactions including
disposals, sublets, store cut
downs or store swaps with
other retailers.
Retail Summary
The prime objective for the year
was to enhance profitability. This
was achieved as we continued
to improve cost performance,
worked hard to deliver profitable
sales and continued to focus on
enhancing both the service and
product offer for our customers.
We now have a base on which
to build for the coming years.
Woolworths Group plc
Annual report and accounts 2008
Entertainment Wholesale and
Publishing
Entertainment Wholesale
(EUK / Bertrams / THE)
This was a pivotal year for the
longer term development of the
Entertainment Wholesale
business. Having made two
acquisitions in the prior year and
won two new major accounts,
there was a significant
operational challenge for the
business to integrate the
acquisitions, cease supply of
CD’s, DVD’s and computer
games to Tesco and commence
trading with the new customers.
During the year, key activities
undertaken by the
Entertainment Wholesale
division include:
– The integration of Bertrams
following its acquisition in
January 2007
– Securing clearance from the
Competition Commission
following its investigation into
the Bertrams acquisition
– The commencement of
supply to Zavvi (formerly
Virgin Megastores)
– The commencement of
supply to Asda
– The closure of one
warehouse and physical
relocation of supply to other
EUK sites
– Cessation of supply of CD’s,
DVD’s and computer games
to Tesco
Against this dynamic
background, the business
delivered sales growth of
36.6 per cent, taking total third
party sales to £1,176.6 million.
An important part of our
development strategy was to
increase exposure to both the
books and computer games
markets. This is important in the
longer term as both markets are
inherently attractive in terms of
size and growth prospects.
They also have less immediate
threat from digital formats when
compared to the music and
DVD markets which historically
have made up the bulk of EUK’s
sales.
We have also sought to diversify
the customer base in a
progressive manner. We are
now pleased to service a broad
spectrum of customers who
supply the consumer through a
variety of traditional and non
traditional channels.
As a consequence of this
considerable change
programme, EUK, THE and
Bertrams incurred additional
costs, some of which were
exceptional and others that
resulted from the inefficiency
associated with change. These
costs held back profitability but
by their nature will not reoccur
in the coming year and
accordingly we expect to make
progress in 2008/9.
Having traded through its peak
season, the enlarged business
is now well placed going
forward. Without the distraction
of business integration, we will
be able to focus on developing
our customers’ businesses,
enhancing and differentiating
our service proposition and
driving efficiency across our
operations.
13.
Retail stock
(£m)
2008
288.7
2007
290.6
EUK unit handling cost
(pence per unit handling cost)
% change YOY
2007/08
24.7
+9.4
2006/07
22.6
-9.3
2 entertain DVD rankings
(Source British Video Association)
TV Genre
Ranked 1st
Interactive Genre
Ranked 1st
Sports and Fitness Genre
Ranked 3rd
Special Interest Genre
Ranked 2nd
Retail margin
(basis points improvement)
2007/08
50
40
40
20
105
2006/07
50
40
40
20
105
2005/06
50
40
40
20
2004/05
50
40
40
2003/04
50
40
2002/03
50
101
Retail shrinkage
(£m)
2007/08
36.9
2006/07
36.5
2005/06
36.3
2004/05
42.2
2003/04
41.8
2002/03
47.7
2001/02
53.2
Retail like-for-like sales
-3.2%
Woolworths Group plc
Annual report and accounts 2008
14.
Directors’ Report
Business Review
EUK and Bertrams now have
a wide spread of customers,
covering multiple and
independent specialists,
general retailers, the growing
supermarket channel and
increasingly a range of online
retailers.
Chief
Executive’s
Report (cont’d)
Another business stream that
has developed well during the
year is the supply to the public
library network through Bertram
Library Services. Total sales
increased by 6.7 per cent
during the year.
It is inevitable that over time
some of the markets which
our Entertainment Wholesale
businesses serve will move from
physical to digital delivery. In
readiness for this we continued
to develop our digital capabilities.
Having already established a
successful presence in digital
music, supporting EUK’s retail
customers and a network of
digital jukeboxes, the key activity
during the year was to build the
capability to offer new digital
markets such as movie and
computer game downloads,
alongside mobile phone content.
Trialling this new service offer
began in early 2008.
2 entertain
2 entertain had an exceptionally
good year. Total sales grew by
23.5 per cent, climbing to
£240.7 million. Dividends
received from the joint venture
increased by 59.5 per cent to
£18.5 million. There were many
successful product releases
during the year but undoubtedly
the most significant was the
release of “Planet Earth” in the
US which caught the imagination
of the American consumer,
yielding excellent sales of both
the high definition and normal
resolution product. In the
relatively new high definition
market, “Planet Earth” is the
highest grossing release to date.
declining traditional music
market. Demon’s core business
is in producing budget and midrange compilations and it
continues to capitalise on its
strong relationships with key
retailers. New product ranges
like “100 Hits”, “The Red Box”
and “Music Club Deluxe” sold
well and ensured that, despite
lower sales value than the
previous year, strong volume
sales and product mix drove a
favourable margin.
In the UK, the best selling
products were “Clarkson –
Supercar Showdown” and the
“Top Gear Interactive DVD”.
Total DVD sales in the UK were
marginally below the overall
market as there was no
“runaway” success from the
release schedule,
notwithstanding a broad spread
of solidly performing titles.
Banana Split Productions, the
in-house production arm of
2 entertain, traded solidly across
the year and continues to occupy
a niche position as a low cost
producer of video based content.
The success of “Planet Earth” has
helped develop the international
component of the business.
International sales accounted for
46 per cent of total sales. After
North America, the next largest
sales region is Australia / Far
East, where programmes like
“Dr Who” and “Little Britain”
continue to grow their franchise.
Demon Music Group, the
recorded music publishing
subsidiary of 2 entertain, had a
very successful year, especially
when set against the rapidly
Entertainment Wholesale and
Publishing Summary
Our Entertainment Wholesale
business had a transformational
year. We are now positioned as
a market leader in the supply
of books and entertainment
product. A strong platform has
been established which in the
short term we shall exploit by
returning efficiency to the
business, and longer term look
to move into adjacent markets
as a route for growth.
2 entertain continued to develop
during the year and whilst the
success of “Planet Earth”
contributed significantly, the
overall business continued to
build underlying profitability.
Woolworths Group plc
Annual report and accounts 2008
Outlook
We are cautious about
consumer spending going
forward and are therefore not
planning for the Woolworths
business to grow its sales
line. This is a sensibly
prudent approach to sales,
notwithstanding the clear
opportunities which exist from
increased exploitation of our
multichannel capability and
further development of our inhouse brands. A key focus of
the retail business will be further
margin development set
alongside a significant rebasing
of cost levels from business
simplification. The key enabler
for business simplification is a
reduced exposure to larger,
over-spaced stores. We will now
actively restrict the maximum
traded store footprint within the
estate, which will have a marked
impact on both central and
store costs.
At 2 entertain the key driver of
success will be the quality of the
release schedule. Our unique
and extensive relationships with
key content providers puts
2 entertain in a good position
to develop the business further.
For the Entertainment Wholesale
division, we anticipate overall a
comparatively benign market
across the core categories, with
growth in computer games
more than offsetting the decline
in music. The key opportunity
for EUK/Bertrams lies in
enhancing operational efficiency
now that the integration of
acquisitions and new customers
is complete. In this more stable
position, many of the friction
costs experienced in this year
will not be present, which will
enhance profitability.
Overall, across the Group we
believe we enter 2008/9 with
the businesses strengthened
relative to the prior year and well
set up for the challenge ahead.
Trevor Bish-Jones
Chief Executive
2 April 2008
15.
Woolworths Group plc
Annual report and accounts 2008
16.
Directors’ Report
Business Review
“The results reflect a highly
challenging retail environment
and a year of change for our
Entertainment Wholesale
business.”
Finance
Director’s
Report
The results for the year are
produced under International
Financial Reporting Standards
(IFRS) and to aid understanding
we show in tables on page 17
the reconciliation of profit under
IFRS to the Adjusted Profit
numbers used by management
and most of the analyst
community.
Earnings per Share
and Dividend
Basic earnings per share was
0.5 pence per share compared
to 0.9 pence per share in the
previous year. Adjusted basic
earnings per share (which
removes the effect of fixed
rental uplifts, amortisation of
certain intangible assets and
exceptional items) was 1.4
pence per share against 1.2
pence per share last year.
A final dividend of 0.17 pence
per share has been
recommended by the Board.
This will be paid, subject to
shareholders’ consent, on
25 June 2008 to shareholders
on the register at close of
business on 11 April 2008.
This proposed dividend,
together with the interim
dividend of 0.43 pence per
share paid on 12 December
2007, brings the total dividend
for the year to 0.6 pence per
share, compared with a total of
1.77 pence per share in the
prior year. This level of full year
dividend is covered 2.4 times by
Adjusted Profit after tax and at
this level forms a base from
which to grow with further
improvement in profitability.
The results reflect a highly
challenging retail environment
and a year of change for our
Entertainment Wholesale
business. They include a
number of one-off costs and
the full year benefit of a number
of accounting changes made
during the prior year.
Profit before tax
Adjusted Retail Profit was
£3.4 million, an improvement of
£16.3 million on the prior year
loss of £12.9 million. Whilst the
retail environment remained
challenging, the business
benefitted from the investment
and accounting changes put in
place during the prior year and
the absence of one-off costs.
The full year benefit of asset
relifing was £10.9 million,
compared to £5.8 million in the
prior year.
Further details of the various
retail initiatives are included in
the Chief Executive’s Report on
pages 10 to 15.
Adjusted Profits from
Entertainment Wholesale and
Publishing amounted to £54.8
million compared to £53.1 million
in the previous year. This reflects
a highly successful year from
2 entertain, our joint venture
with BBC Worldwide, offset by a
substantial reduction in the level
of releases of historic accruals
no longer required. The adjusted
profits of EUK together with
THE and Bertram were down
£0.4 million on the previous year
having benefitted by £3.8 million
from asset relifing. This reflects
a year of substantial change.
Further details of the
developments in the businesses
are again included in the Chief
Executive’s Report.
Balance Sheet
Overall Group stock increased by
£13.9 million to £391.0 million.
This reflects the growth of the
Entertainment Wholesale and
Publishing business, more than
offsetting the £1.9 million
reduction in Woolworths retail
stock. The decrease in retail
stock, achieved by tight control
of purchasing, has been
somewhat masked at year-end
by setting the business up for
the much earlier Easter in 2008.
During the year, four store
freeholds were purchased at a
cost of £5.1 million and £11.6
million was received from the
sale of the freeholds of the
Woolworths Group plc
Annual report and accounts 2008
17.
Reconciliation of Adjusted Profit
Profit before tax and exceptional items
Add back:
– amortisation of certain intangible assets*
– fixed rental uplifts
Adjusted profit before tax
52 weeks to
2 February
2008
£m
53 weeks to
3 February
2007
£m
14.9
7.3
7.6
5.8
28.3
3.9
10.6
21.8
Interest
£m
Total
£m
Adjusted Segmental Analysis
for the 52 weeks to 2 February 2008
Entertainment
Wholesale and
Retail
Publishing
£m
£m
Guernsey and Jersey stores.
The £8.6 million profit from the
sale of the Channel Island
freeholds is treated as an
exceptional item. Profits of
£11.4 million were earned on
the assignment of store leases
during the year against £6.4
million in the prior year.
Cash Flow and Net Debt
The Group’s average net debt
increased from £113.0 million
to £246.3 million, reflecting the
full year effect of the THE and
Bertram acquisitions and the
increased working capital
requirements of the enlarged
Entertainment Wholesale
business. Capital expenditure
in the Retail business reduced
from £62.4 million to £33.3
million, reflecting the completion
in the prior year of the 10/10
store refit programme.
The year-end net debt of
£123.7 million was up from
£103.3 million in the prior year.
This reflects the substantial
increase in working capital
required by the growth in the
Entertainment Wholesale
business, more than offsetting
cash generated in the other
parts of the Group.
Exceptional Items
As described above, the
disposal of the Guernsey and
Jersey store freeholds resulted
in an exceptional profit of £8.6
million. This was more than
offset by (i) exceptional costs in
the Entertainment Wholesale
business of £8.4 million relating
to the operational integration of
the EUK, THE and Bertram
businesses and the costs of the
Competition Commission inquiry
into the acquisition of Bertram
and (ii) a provision of £3.4
million in relation to payments
made under the terms
establishing the 2 entertain joint
venture which could not be
ascertained at that time.
Reported
profit/(loss)
before taxation
Adjust for:
exceptional
items
(Loss)/profit
before
exceptional
items
Add back:
– amortisation
of certain
intangible assets*
– fixed rental
uplifts
Adjusted
(loss)/profit
before tax
6.2
35.4
(8.2)
(21.7)
11.7
(8.6)
11.8
–
–
3.2
(2.4)
47.2
(8.2)
(21.7)
14.9
–
7.6
–
–
7.6
5.8
–
–
–
5.8
3.4
54.8
(8.2)
(21.7)
28.3
Adjusted Segmental Analysis
for the 53 weeks to 3 February 2007
Entertainment
Wholesale and
Publishing
Retail
£m
£m
Taxation
The effective tax rate was 36
per cent compared to 15 per
cent in the prior year. The prior
year rate was lower than usual
due to the effect of a £5.6
million prior year tax credit
which primarily arose as a
number of historic tax provisions
were identified as no longer
required following agreement of
a number of historic queries.
Under existing tax legislation it is
anticipated that the effective
Group tax rate will be marginally
above the main UK Corporation
Tax rate.
Unallocated
£m
Reported
(loss)/profit
before taxation
Adjust for:
exceptional
items
(Loss)/profit
before
exceptional
items
Add back:
– amortisation
of certain
intangible
assets*
– fixed rental
uplifts
Adjusted
(loss)/profit
before tax
Unallocated
£m
Interest
£m
Total
£m
(14.8)
49.2
(7.7)
(10.7)
16.0
(8.7)
–
–
–
(8.7)
(23.5)
49.2
(7.7)
(10.7)
7.3
–
3.9
–
–
3.9
10.6
–
–
–
10.6
(12.9)
53.1
(7.7)
(10.7)
21.8
* Amortisation of certain intangible assets arising on consolidation, namely
underlying rights, customer relationships and trade names.
Woolworths Group plc
Annual report and accounts 2008
18.
Directors’ Report
Business Review
Pensions
The Group retains a Final Salary
Pension scheme open to all
employees who have been with
the Group for a minimum period
of 12 months.
Finance
Director’s
Report (cont’d)
The Scheme was created at
the time of demerger and only
comprised active members at
that time. It is therefore a much
less mature scheme than most.
It has 5,112 active members,
3,707 deferred members but
only 1,256 current pensioners
and therefore the Scheme
receives more in contributions
from the Group and members
than it pays out in pensions.
This is likely to continue to be
the case for approximately
11 years.
The assets of the Scheme are
managed by external Fund
Managers and at 2 February
2008 were £316.8 million (2007
£316.0 million). The allocation
of Scheme assets is kept under
regular review by the Trustees
of the Scheme. The liabilities
calculated at the current level
of fixed rate bond yields were
£383.7 million (2007: £400.0
million), giving an IAS 19 deficit
of £48.2 million (2007: £58.8
million) net of tax relief.
However, the proportion of
current active members and the
timescales until pensions are
due to be payable does not
make the calculation particularly
relevant. The full triennial
actuarial valuation at 31 March
2005 showed that the Scheme
was 89 per cent funded with a
deficit of £28.9 million. The
contribution rate paid by
participating companies remains
at 13.5 per cent of pensionable
salaries. The next triennial
actuarial valuation is due to be
carried out at 31 March 2008
and has just commenced.
In January 2008, when the
Group moved its bank financing
to a secured basis, the Trustee
was granted a £63 million 3rd
lien security. It was also agreed
that the Scheme would receive
the first £50 million of proceeds
from any future disposal of the
Group’s investment in 2
entertain, at which point an
equivalent amount of the 3rd
lien security would be released.
Treasury Policy
The Group’s Treasury Policy is
structured to ensure that
adequate financial resources are
available for the development of
its business whilst managing its
currency, interest rate and
counterparty credit risks. The
Group’s Treasury strategy, policy
and controls are developed
centrally and approved by the
Board. The Group does not
engage in speculative
transactions.
The main elements of Treasury
activity are outlined below:
Funding
The Treasury function arranges
sufficient secure financial
resources to enable the Group
to meet its medium-term
business objectives whilst
arranging facility maturities
appropriate to its projected
needs.
During the year, the Group
arranged various additional
facilities to finance its increased
working capital whilst carrying
out a full review of how best to
finance its ongoing
requirements. In particular, this
review incorporated the
continued growth of the
Entertainment Wholesale
division, with its associated
additional working capital.
The review concluded that the
most appropriate structure
would be to move to an asset
based lending facility, secured
primarily against EUK’s debtors
and the Group’s stock. In
January 2008, facilities
comprising a £350 million asset
based lending facility and a £35
million 2nd lien loan, were put in
place for a period of four years.
These, together with an existing
£20 million invoice discounting
facility available to Bertram,
provide the Group with flexible
facilities to meet its financing
requirements as the businesses
continue to develop.
Woolworths Group plc
Annual report and accounts 2008
Currency
The Group’s main currency
translation exposure is limited to
movements in exchange rates
to the extent that they affect
balances held on its currency
bank accounts and certain
foreign currency assets and
liabilities in the books of its
Hong Kong-based product
sourcing company, Woolworths
Group Asia Limited. Foreign
currency bank balances are
controlled by the Treasury
function and are actively
managed to a level that
minimises currency translation
exposures. The Group’s main
currency exposure is its
transaction exposure through
movements in exchange rates
on its purchases overseas that
are not denominated in Sterling.
These are mainly imports from
Asia denominated in US dollars
and imports from Europe
denominated in Euros.
The Treasury Policy sets out a
framework through which the
Group’s forecasted foreign
currency transactions are
hedged.
Interest
The Treasury Policy requires that
an interest hedging plan for
each year is approved by the
Finance Director at the time of
the annual budget. The Treasury
function is permitted to hedge in
accordance with this plan using
interest rate products such as
swaps, options, forward rate
agreements and futures.
The Group will keep under
review the opportunity to hedge
its interest exposure following
the increase in its debt profile
during the year.
To date, the interest payable on
drawings from the Group’s
facilities has been at floating
rates driven by the variation in
amounts borrowed during the
period. Interest receivable on
investments has also been at
floating rates for short
maturities, given the seasonality
of the Group’s cash flows.
Counterparty Credit Risk
The Group actively manages its
relationships with a panel of
high quality financial institutions.
Credit risk is controlled by the
Treasury function setting
counterparty credit limits by
reference to published rating
agency credit ratings. The
Treasury Policy recognises that
an exposure to a counterparty
arises in relation to investments,
derivatives and financial
instruments.
Going Concern
The Directors confirm that, after
making enquiries, they have a
reasonable expectation that the
Group has adequate resources
to continue in operational
existence for the foreseeable
future. For this reason they
continue to adopt the going
concern basis in preparing
these accounts.
Stephen East
Finance Director
2 April 2008
19.
Woolworths Group plc
Annual report and accounts 2008
20.
Directors’ Report
Business Review
Any business undertaking will
involve risk. Many risk factors
are common to any business,
no matter what sector it
operates in. The Group’s
approach to Financial Risk
Management is set out in the
Notes to the Group Accounts.
Risk
Factors
The Directors consider that
certain key risks and
uncertainties however are more
germane to Woolworths Group
and the markets in which its
various businesses operate.
As part of the Business Review,
an assessment of such factors
is set out below:
1. Competition
The Group operates in highly
competitive markets. In
particular, in recent years the
retail landscape has seen
significant changes and
trends in retail and consumer
behaviour and spending
which are challenging for
Woolworths Retail. The
Group has faced and expects
to face increased competition
from existing UK general and
specialist retailers, food
retailers that have expanded
and are further expanding
into general merchandising,
foreign retailers entering the
UK market and newly formed
competitors.
Further, the growth of
internet retailing and out-oftown shopping has required
and will require the Group
to adopt and invest in
new strategies to remain
competitive.
The Directors believe that
where Woolworths offers
customers product
innovation, exclusivity and
value-for-money, it can
continue to combat these
pressures. However, actions
taken by competitors as well
as action taken by the Group
to maintain its competitiveness
and its reputation for value,
have placed and will continue
to place pressure on the
Group’s merchandise pricing,
margins and profitability,
which have had in the past
and could have in the future,
an adverse effect on the
Group’s business and
financial condition.
2. Growth of the Digital
Entertainment Market
A key driver of footfall and
sales within Woolworths
stores and the core stock-intrade for Entertainment UK,
Bertrams | THE and 2
entertain is physical
entertainment media ie CD’s,
DVD’s, Books and Games.
In recent years, technological
advances and changing
consumer preferences have
given rise to new markets
providing delivery of music,
films, games and books to
portable players and to the
home via digital delivery,
bypassing the purchase of
traditional physical media
platforms. This trend may
result in decreased demand
for such products in stores.
Decreased sales of home
entertainment products at
retail or wholesale level may
have an adverse effect on the
Group’s business and
financial condition.
The Directors believe that
digital entertainment also
offers opportunities for the
Group and it has developed
strategies to participate,
including in Woolworths, a
multichannel retail offer and
investment in digital rights
and online delivery technology
within Entertainment
Wholesale and Publishing.
However, the growth of digital
markets and the increasing
uptake of Broadband access
will continue to place
pressure on the Group’s
participation in traditional
entertainment retail and
distribution channels.
3. Seasonality
The Group’s business is
highly seasonal. Historically,
the Group’s most important
trading period in terms of
sales, profitability and cash
flow has been the Christmas
season. Lower than
expected performance in this
period may have an adverse
impact on results for the fullyear which may also result in
excess inventory, especially
in seasonal merchandise that
is difficult to liquidate.
To a lesser extent a lower
than expected turnover over
the Easter period may also
have an adverse effect on the
Group’s business and
financial condition.
4. Damage to Reputation
or Brands
The Woolworths name is a
key asset of the business
and maintaining the reputation
of the brand is key to the
success of the Group. The
many separate product lines
of general merchandise
handled by the Group means
the supply chain is complex
and is subject to increasingly
stringent laws and regulations
governing issues of health
and safety, packaging and
labelling, pollution and other
environmental factors.
The Group has a Quality
Assurance team and legal
and regulatory control
processes both in-house and
externally to advise and take
action on existing and
emerging risk management
issues. However, these
systems cannot guarantee
compliance or fully protect
against quality, regulatory,
safety and environmental risk
in the supply chain. The
Group is therefore potentially
vulnerable to an event or
circumstances adversely
affecting the supply chain or
merchandise which gives rise
to liability claims and/or
reputational damage.
Substantial erosion in the
value of the Woolworths
name could have an adverse
effect on the Group’s business
and financial condition.
Woolworths Group plc
Annual report and accounts 2008
21.
Directors’ Report
Business Review
Corporate Social
Responsibility
Recycling
Tonnage of packaging recycled
Woolworths
2008
2007
18,051
17,577
EUK
2,916
1,622
Total
20,967
19,199
Wherever possible, card and plastic materials, the major packaging
constituents in our business, are taken back to our Distribution Centres.
The materials are then baled and passed to recycling businesses for
reprocessing. During 2007/08, 20,967 tonnes were recycled by the
Group. This reflects a 9.2 per cent increase year-on-year, with a 2.7 per
cent improvement in Retail and significant progress in the Entertainment
Wholesale business, however, this partly reflects the growth of this
element of the Group.
Electricity usage
Tonnes of CO2 emitted
2008
2007
77,593
84,971
EUK
7,677
5,959
Total
85,270
90,930
Woolworths
During the year, the Group’s electricity consumption decreased by 6.2
per cent. This represents a decline of 8.7 per cent within Retail, driven
particularly by specific initiatives within stores, however, the impact of this
is negated by an increase in usage within the Entertainment Wholesale
part of the Group, attributable to sales growth and acquisitions.
Staff stability
2008
2007
Woolworths Offices
83%
86%
Woolworths Retail
71%
70%
Woolworths Distribution
97%
89%
EUK
91%
81%
Our business is built on a core team of dedicated staff. During
2007/08, staff stability increased most significantly within the
Woolworths Distribution and EUK workforce, however, there was a
slight decline in stability rates within Woolworths Offices.
The theme of Corporate Social
Responsibility (“CSR”) has once
again kept us busy during the
year as we endeavour to do
business in a socially responsible
way throughout our operations.
More details are given in our
sixth online CSR report. For
Woolworths Group plc, as for
every major retailer, balancing
the needs of our business with
our commitment to CSR can at
times be extremely challenging.
We are, however, determined to
meet those challenges head-on.
Often we can plan in advance
how to address new business
issues. For instance, how best
to meet forthcoming legal
obligations. But we also have to
be prepared for the unexpected,
as was the case with the toy
industry recall issues last
Summer. We have well
established procedures in place
to ensure that products sold by
us are safe and legal and we
have strengthened our producttesting regime still further,
introducing extra tests for lead
for all our toys in order to
prevent this sort of issue
recurring.
We believe it is important to give
our customers as wide a choice
as possible in the products we
offer. At the same time we are
continually mindful of the need
to reduce our energy
consumption and, what’s more,
to encourage our customers to
do the same.
During 2007, Greenpeace
claimed that Woolworths was
not moving fast enough to
remove incandescent light bulbs
from sale in our stores. The
Government has set a voluntary
target to end their sale by 2012
and Woolworths will not be
selling incandescent light bulbs
by the end of 2010, well before
the target date. We will also be
phasing out the most energy
inefficient light bulbs in the runup to 2012 and we have already
removed 100W-plus bulbs from
our shelves. Additionally, we
have launched a new Worthit!
energy-saving light bulb at a
highly competitive price to
encourage our customers to go
for the energy-efficient option.
We very much welcomed the
dialogue with Greenpeace on
this issue, although the
behaviour of some of their
members towards our store
colleagues and executives was
unacceptable and not
conducive to a sensible debate.
Woolworths is committed to
working to combat the effects of
climate change and was invited
to join over 1,000 other
business leaders at the Prince
of Wales’s May Day Summit on
Climate Change. We pledged to
take positive action within our
companies, and with our
suppliers, colleagues and
customers to tackle this threat
to our planet.
The summit was organised by
Business in the Community, one
of a number of organisations
which promote CSR and to
which Woolworths belongs.
Another is the British Retail
Consortium, where I have a seat
on the Board. Through the BRC,
Woolworths Group, along with
other retailers, does a great deal
to promote the highest
environmental and ethical
standards in our business
sector.
In the coming year, we will
continue to ensure that CSR is
considered in every part of our
business, to live up to the
standards we have set. For a
full report on the Group’s CSR
activities, please refer to the
Company’s website. Alternatively,
for a hard copy of the 2008
CSR report please contact the
Company Secretary.
Yours sincerely,
Trevor Bish-Jones
Chief Executive
2 April 2008
Woolworths Group plc
Annual report and accounts 2008
22.
Richard North (57), Chairman
Appointed as a Non-Executive Director in October 2006 becoming Chairman in June 2007.
Richard was Chief Executive of InterContinental Hotels Group plc and previously Group Finance
Director of Bass plc and The Burton Group plc. Previous Non-Executive Directorships include
Asda Group plc, and Logica CMG plc.
Board of
Directors
Top row, from left
Richard North
Trevor Bish-Jones
Stephen East
Peter Bamford
Andrew Beeson
Fru Hazlitt
Bottom row, from left
Steve Lewis
Tony Page
Roger Jones
David Simons
Trevor Bish-Jones (47), Chief Executive
Appointed in March 2002. Trevor held various senior positions at the Dixons Group plc between
1994–2001, latterly as Managing Director of Currys. Prior to Dixons Group plc, Trevor was at
Boots PLC for 13 years in a number of senior retail, buying and marketing roles. Trevor is a
Non-Executive Director of Royal London, the mutual life and pensions business.
Stephen East (50), Finance Director
Appointed to the Board as Group Finance Director on 1 July 2005. Stephen was formerly
Finance Director of MEPC plc and previously held senior positions with Redland plc including
as Group Treasurer. He is currently a Non-Executive Director of Regus Group plc and is a past
President of the Association of Corporate Treasurers.
Steve Lewis (43), Executive Director
Steve was appointed to the Board in June 2005. He was Woolworths Operations Director
(2001–2008) and is now Managing Director of Entertainment UK. Steve was previously
Operations Director of the Dixons retail chain. With over 20 years of retail experience, he has
been instrumental in improving operating standards and in-store disciplines throughout the
Group.
Tony Page (41), Executive Director
Appointed in September 2006. Tony was previously Non-Food Trading Director of Asda –
Wal-Mart, having held a number of senior positions in that business since joining in 1994.
Prior to joining Asda, Tony had been a senior buyer with J. Sainsbury plc.
Woolworths Group plc
Annual report and accounts 2008
Peter Bamford (53), Non-Executive Director
Peter was appointed to the Board in February 2008. He served on the Main Board of Vodafone
Group plc (1998-2006) holding a number of senior executive roles in that business including
Chief Executive Vodafone UK Limited (1999-2001), Regional Chief Executive (2002-2003) and
Chief Marketing Officer (2003-2006). Previously, he has held a number of senior general and
commercial management positions in the retail sector including at WH Smith Group plc,
Kingfisher plc, and Tesco plc. He is a Non-Executive Director of Rentokil Initial plc, Mobile Partners
Group Limited and Chairman of The Key Revolution Limited.
Andrew Beeson (63), Non-Executive Director
Appointed in July 2001. He was, until January 2003, Chairman of Evolution Group plc, which
merged with Beeson Gregory Group in 2002, the firm he founded in 1989. Prior to that he was
a Director of ANZ McCaughan from 1987–1989, and a Director of ANZ Merchant Bank from
1985–1987. Andrew is a Non-Executive Director of NB Real Estate and Schroders plc.
Fru Hazlitt (44), Non-Executive Director
Appointed in January 2006. Fru is Chief Executive of GCap Media PLC, having previously held
the same role at Virgin Radio (a division of SMG plc). Fru previously held senior positions at the
internet services business, Yahoo! (including as Managing Director UK and Ireland 2003–2005)
and at Capital Radio (Sales Director 1997–2000). She is a Non-Executive Director of Betfair,
the online betting exchange.
Roger Jones (70), Non-Executive Director
Appointed in July 2001. Previously a Director of Kingfisher plc and Managing Director of
Woolworths plc from 1995 until his retirement in 1998. Prior to this he was Managing Director of
Superdrug from 1992. Roger has spent the majority of his career at Woolworths, having joined
F.W.Woolworth in 1958.
David Simons CBE (61), Non-Executive Director
Appointed in September 2005. David is Chairman of PIPC, global management consultants
and a Non-Executive Director of Greencore Group plc, the food manufacturer and supplier.
Previously he held a number of senior retail positions including Chairman of Littlewoods Shop
Direct Group, the UK’s largest home and online shopping operator (2001 – 2007), Chief Executive
of Somerfield Plc (1993–2000), Group Finance Director of Storehouse Plc (1991–1993) and
Group Finance Director of House of Fraser Ltd (1989–1991).
23.
Woolworths Group plc
Annual report and accounts 2008
24.
CORPORATE GOVERNANCE
Corporate Governance – Combined Code Statement
The Company recognises the importance of, and is committed to, high standards of Corporate Governance. During June 2007, upon Richard North
becoming Chairman, and up to 31 January 2008, Non-Executive Directors made up less than half of the Board membership. An additional NonExecutive Director was appointed on 4 February 2008. With the exception of the aforementioned period, during the financial year, the Group has
complied with the main and supporting principles of the 2006 Financial Reporting Council (FRC) Combined Code. Compliance with the principles of
good governance and the specific provisions of Section 1 of the Combined Code has been effected by the Company in the following way:
The Board of Directors
The Board comprises the Chairman, the Chief Executive, the Finance Director, two further Executive Directors and five Non-Executive Directors,
appointed for periods of three years. The Board is satisfied that, having considered the background and current circumstances of each of the NonExecutive Directors, there are no relationships or other matters which could affect their respective judgement in carrying out their duties. Accordingly,
the Non-Executive Directors are considered by the Board to be independent of management. Their biographies appear on pages 22 and 23 and
illustrate the Directors’ range of backgrounds which provide an experienced and balanced Board to lead and control the Group. Andrew Beeson is
the senior independent Non-Executive Director. The Non-Executive Directors have disclosed to the Chairman and the Company Secretary their
significant commitments other than their directorship of the Company. Similarly, the Chairman has discussed with the Board the time commitment
expected from his various roles outside the Group. For both the Chairman and the Non-Executives, it has been agreed that all are able to meet their
respective obligations to the Company, provided that any proposed changes or additional commitments are notified to the Board. All Directors have
access to the Company Secretary and may take independent professional advice at the Company’s expense. Each Director may also receive
appropriate training as necessary and a record of training undertaken is maintained by the Company Secretary.
The Board meets not less than 11 times a year and has adopted a schedule of matters reserved for its decision. The Board receives detailed proposal
papers in advance of meetings, together with management presentations to facilitate proper consideration and debate of matters brought before it.
The Board is primarily responsible for the strategic direction of the Group. Major strategic initiatives involving significant cost or perceived risk are
only undertaken following their full evaluation by the Board. Matters of an operational nature are delegated to the Group’s management. Progress on
key initiatives is reported regularly and minuted, together with routine matters such as financial performance and current trading in each of the
Group’s business divisions.
In accordance with Combined Code principles, the Board undertook a formal and rigorous evaluation of its own performance both as a board and
on an individual basis (including the performance of the Chairman), and that of its core standing Committees. The process was administered by the
Company Secretary and commenced with completion by the Directors of a detailed questionnaire. This followed the questions used in the prior year
and sought views on the existing Board processes, and recommendations for areas to develop. Matters considered by the Directors included the
suitability and structure of the standard agenda, the quality of presentation and time apportioned for debate on issues of strategy, financial reporting,
and current trading.
The questionnaire also sought to measure the performance of the Directors in leading the Group toward its strategic and financial objectives, the
respective skills and competencies of each of the Directors and to formulate areas of potential development to enhance further the Board’s ability to
both challenge and support the Group.
The evaluation process has helped to identify and address important views held by the Directors as to the priorities going forward. For instance a
common theme arising in the prior year was the need for more strategic analysis and Board debate around the challenges facing the Group. Given
the limited time allowed by each routine meeting, this has been addressed by adding an additional Board “away day” to the Board calendar, with the
agenda dedicated largely to matters of strategy.
In the coming year, as a consequence of the evaluation, a number of initiatives and recommendations to strengthen the effectiveness of the Board
will be considered.
During the year 16 Board meetings were held. The Directors attended as follows during the year or since appointment:
Board of Directors’ Attendance
Andrew Beeson
Trevor Bish-Jones
Gerald Corbett (resigned 6 June 2007)
Stephen East
Fru Hazlitt
Roger Jones
Steve Lewis
Richard North
Tony Page
David Simons CBE
Lloyd Wigglesworth (resigned 31 January 2008)
14
16
7
16
14
16
16
16
16
15
15
Woolworths Group plc
Annual report and accounts 2008
25.
CORPORATE GOVERNANCE (cont’d)
The Board has established three core standing Committees, with defined terms of reference, as follows:
The Audit Committee
Chaired by Roger Jones, the Committee comprises those independent Non-Executive Directors listed below. This Committee is responsible for
providing the Board with independent and objective assurance on the control environment across the Group, for ensuring that the subsidiary
companies are subject to an internal audit of the required quality and for making recommendations to the Board on the appointment of auditors and
the audit fee. It also reviews the performance of the Group’s auditors to ensure an independent, objective, professional and cost-effective
relationship is maintained. The Committee’s terms of reference are available on the Group’s website.
As well as reviewing the Company’s published financial results, the Committee reviews the Group’s corporate governance processes (including risk
analysis), accounting policies and procedures, reporting to the Board on any control issues identified.
Internal audit plans and the relationship between the internal audit function and the external auditors are routinely assessed at Committee meetings.
The Audit Committee has also sponsored the development of arrangements throughout the Group to deal, in confidence, with complaints from
colleagues about any accounting or financial management impropriety or other questionable business practice or conduct. These arrangements are
periodically reviewed.
To ensure the independence of the Group’s external auditors, the Committee has reviewed the relevant policies and practices of the external
auditors. The rotation of key partners at appropriate intervals, in accordance with guidance provided by the Institute of Chartered Accountants in
England and Wales, and monitoring the extent of non-audit work and related fees are established principles which are implemented as necessary
and regularly reviewed by the Committee to safeguard the independence and objectivity of the external auditors.
Each of the Non-Executive Directors has, through their other business activities, significant experience in financial matters. In particular, David
Simons CBE, who is a qualified FCMA, Andrew Beeson (a Non-Executive Director of Schroders plc and former Chairman of Evolution Group plc,
a leading corporate finance and stockbroking business) and Richard North (who has held the position of Finance Director in two large businesses)
have significant, recent and relevant experience of financial and accounting issues.
The Committee is also responsible for the proper reporting of the financial performance of the Group and for reviewing financial statements before
publication.
The meetings of the Audit Committee are also the forum used by the Non-Executive Directors to meet without the Executive Directors present to
discuss the performance of the Group, its management and their ongoing stewardship of shareholders’ interests. The Non-Executive Directors and
the external auditors have the opportunity at this time to raise and discuss any issues of concern in this regard.
During the year three Audit Committee meetings were held. The Directors attended as follows during the year or since appointment:
Audit Committee Attendance
Andrew Beeson
Roger Jones
David Simons CBE
Richard North (resigned from Audit Committee June 2007)
Following his appointment to the Board on 4 February 2008, Peter Bamford will also serve on the Audit Committee.
3
3
3
1
Woolworths Group plc
Annual report and accounts 2008
26.
CORPORATE GOVERNANCE (cont’d)
The Nominations Committee
Comprising the Chairman and the Non-Executive Directors, the Committee is chaired by Richard North and is responsible for monitoring and
reviewing the composition, balance and expertise of the Board and for reviewing and recommending appointments to the Board. Prospective
appointments are considered by the Committee which agrees a detailed job description and the capabilities required for the role. The Committee
generally engages external consultants to administer the search process, prepare a shortlist of potentially suitable candidates and to advise generally
on prospective appointees. Only after a rigorous interview process is any appointment recommended to the Board. The terms of reference of the
Committee are available on the Group’s website. The meetings of the Nominations Committee are also the forum used by the Chairman to meet
with the Non-Executive Directors without the executives present to discuss any concerns about the running of the Company. During the year three
Nominations Committee meetings were held. The Directors attended as follows during the year or since appointment:
Nominations Committee Attendance
Andrew Beeson
Gerald Corbett (resigned 6 June 2007)
Fru Hazlitt
Roger Jones
David Simons CBE
Richard North
3
N/A
3
2
2
3
Following his appointment to the Board on 4 February 2008, Peter Bamford will also serve on the Nominations Committee.
The Remuneration Committee
Comprising the Group Chairman and the Non-Executive Directors named below, the Committee is chaired by Andrew Beeson. The Committee’s
terms of reference are available on the Group’s website. The Committee’s aim is to ensure that the Executive Directors are rewarded for their
contribution to the Group and motivated to enhance the return to shareholders. The Remuneration Committee is responsible, on behalf of the
Board, for the Group’s policy on the grant of share incentives to Executive Directors and other senior management as well as the specific
remuneration and benefits packages for Executive Directors.
During the year three Remuneration Committee meetings were held. The Directors attended as follows during the year or since appointment:
Remuneration Committee Attendance
Andrew Beeson
Fru Hazlitt
Roger Jones
David Simons CBE
Richard North
3
2
3
3
3
The Corporate Social Responsibility Committee
The CSR Committee is chaired by the Company Secretary. Further details can be found on page 21 and in the 2008 CSR report available on the
Group’s website, www.woolworthsgroupplc.com.
Accountability and Audit
Going Concern
A statement in accordance with the going concern principle is included in the Finance Director’s Report on page 19.
Woolworths Group plc
Annual report and accounts 2008
CORPORATE GOVERNANCE (cont’d)
Relations with Shareholders
The Company maintains an active dialogue with its investors through a planned programme of investor relations activities. This is a key component
of its corporate communications programme and is headed by the Finance Director with the Chief Executive also attending the majority of these
shareholder meetings.
The investor relations programme includes formal presentations in the UK and overseas (where appropriate) on full-year and interim results. One-toone meetings between institutional investors and senior management are also held regularly.
Feedback from these meetings (including the non-attributed views of major institutional shareholders) is reported back to the Board. The Company
Secretary is also charged with bringing to the attention of the Board any material matters of concern raised by the Company’s stakeholders,
including private investors.
Communication with investors also takes place through the Annual and Interim Reports and via the Group website, www.woolworthsgroupplc.com.
In addition, the Annual General Meeting provides an important opportunity for communication with both institutional and private shareholders.
Internal Control
The Board of Directors has overall responsibility for the system of internal control and for reviewing its effectiveness throughout the Group. However,
such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can provide only reasonable and
not absolute assurance against material misstatement or loss. The effectiveness of the Group’s systems of internal control is reviewed by the Audit
Committee on behalf of the Board.
The Board considers risk assessment and control to be fundamental to achieving its corporate objectives within an acceptable risk/reward profile,
and confirms that there is an ongoing process for identifying and evaluating the significant risks faced by the Group and the effectiveness of related
controls. The Board confirms that necessary actions have been or are being taken to remedy any significant failings or weaknesses identified from
that process. This process is regularly reviewed by the Audit Committee and accords with the Turnbull guidance (2005). The key procedures in place
to enable this responsibility to be discharged are:
The Board of Directors
— has approved a set of policies, procedures and frameworks that are designed to facilitate the operation of effective internal control and which
include the provision of quality internal and external reporting and compliance with applicable laws and regulations. These are periodically
reviewed and updated;
— regularly reviews the Group’s strategy and the strategies of the subsidiary companies;
— reviews and assesses the Group’s key risks at least annually;
— reviews performance through a comprehensive system of reporting, based on an annual budget with monthly business reviews against actual
results, analysis of variances, key performance indicators and regular forecasting;
— has well defined policies governing appraisal and approval of capital expenditure and treasury operations;
— seeks assurance that effective control is being maintained through regular reports from the Audit Committee and the Internal and External
Audit functions.
Each Operating Company Board
— maintains systems for the continuous identification and evaluation of significant risks resulting from their strategies and their areas of the business;
— self certifies that it is clearly accountable for establishing and monitoring internal controls within its business, that processes are in place to
provide reasonable assurance that material business risks are identified and managed appropriately, that internal controls have been effected and
that they comply with the Group’s policies; and reports on any control weaknesses or breakdown considered as material to the Group;
— reviews and monitors the effectiveness of the system of internal control through reports from the Group Internal and External Audit functions.
The Internal Audit Function
— is responsible for providing the Board with independent and objective assurance on the control environment across the Group and for ensuring
that the subsidiary companies are subject to internal audit of the required quality.
These processes and organisational procedures enable the Directors to confirm that they have reviewed the effectiveness of the system of
internal control.
27.
Woolworths Group plc
Annual report and accounts 2008
28.
OTHER INFORMATION
Principal Activities
The Group trades principally as a UK-based General Merchandise retailer and Entertainment wholesaler and publisher.
Review of Activities
A detailed review of the Group’s activities and of future plans is contained within the Chief Executive’s Report on pages 10 to 15.
Results and Dividends
The profit from continuing operations of the Group before taxation amounted to £11.7 million (2007: profit of £16.0 million) and the profit after
taxation amounted to £7.5 million (2007: profit of £13.6 million).
During the year the Company paid the prior year final dividend of 1.34 pence per share. The interim dividend for the current year of 0.43 pence per
ordinary share was paid on 12 December 2007, making a total paid for the year of 1.77 pence per ordinary share. This has absorbed £25.7 million
of shareholders’ funds. The Directors are proposing a final dividend for the current year of 0.17 pence per share. This will be paid on 25 June 2008,
to shareholders on the register at close of business on 11 April 2008 subject to shareholder approval. Hence, it is not recognised in these financial
statements. The Company provides a Dividend Reinvestment Plan enabling shareholders to apply their cash dividends to purchase additional
ordinary shares in the market at competitive dealing rates. Full details can be obtained from the Registrar. If you have previously completed a
mandate form to join the Plan you need take no further action.
Directors
The Directors of the Company are shown on pages 22 and 23. The following have been Directors of the Company during the financial year ended
2 February 2008: Andrew Beeson, Trevor Bish-Jones, Gerald Corbett, Stephen East, Fru Hazlitt, Roger Jones, Steve Lewis, Richard North, Tony
Page, David Simons CBE and Lloyd Wigglesworth.
Directors’ Interests
The Directors’ interests in shares of the Company are shown within the Remuneration Report on pages 31 to 39. No Director has any other interest
in any shares or loan stock of any Group company. No Director was or is materially interested in any contract other than his/her service contract,
subsisting during or existing at the end of the financial year which was significant in relation to the Group’s business. As at the date of this report,
indemnities are in force under which the Company has agreed to indemnify the Directors, to the extent permitted by law and the Company’s Articles
of Association, in respect of all losses arising out of, or in connection with, the execution of their powers, duties and responsibilities, as Directors of
the Company or any of its subsidiaries.
Re-election of Directors
The Articles of Association require one-third of the Directors who are subject to retirement by rotation to retire and submit themselves for re-election
each year. Stephen East, Fru Hazlitt and David Simons will retire by rotation at the Annual General Meeting and being eligible offer themselves for
re-election. The Articles of Association also require any Directors appointed by the Board to retire at the next Annual General Meeting. Any such
Director may, if willing to act, be re-elected. Accordingly, Peter Bamford holds office until the Annual General Meeting and, being eligible offers
himself for re-election. Details of Directors submitting themselves for re-election are shown on pages 22 and 23.
Directors’ Remuneration
The Remuneration Committee, on behalf of the Board, has adopted a policy that aims to attract and retain the Directors needed to run the Group
successfully. The Directors’ Remuneration Report is shown on pages 31 to 39.
Annual General Meeting
Details of the Company’s forthcoming Annual General Meeting are set out in a separate circular that has been sent to all shareholders with the
Annual Report and Accounts.
Woolworths Group plc
Annual report and accounts 2008
29.
OTHER INFORMATION (cont’d)
Employee Involvement
The Board seeks to instill high standards of customer care and service in each subsidiary company and the commitment of every employee to this
business requirement is considered to be critical. Accordingly, the Corporate Centre has established a communication framework for employees
concerning Group-wide business performance, community involvement, company benefits, people and innovation. Each subsidiary company has,
in addition, its own communication strategies concerning their brands, company performance and people issues.
Training and links with the educational sector reinforce the Group’s commitment to employee involvement and development. The Woolworths Group
Leadership Programme (WGLP) is the development framework for managers at all levels of seniority who have the potential to be our future leaders.
A brochure describing the programme and a micro site specifically for graduates have been produced. Employees are represented on the Trustee
Board of the Group’s pension schemes. Over 4,000 colleagues in the Group participate in the Woolworths Group ShareSave Scheme.
Equal Opportunities
The Group is committed to the principle of equal opportunity in employment and to ensuring that no applicant or employee receives less favourable
treatment on the grounds of gender, marital status, race, colour, nationality, ethnic or national origin, religion, HIV status, disability, sexuality, or
unrelated criminal convictions and without arbitrary restrictions in respect of age, or is disadvantaged by conditions or requirements which cannot be
shown to be justified.
The Group applies employment policies which are fair and equitable and which ensure entry into and progression within the Group. Appointments
are determined solely by application of job criteria, personal ability and competency. The Group gives full and fair consideration to the possibility of
employing disabled persons wherever suitable opportunities exist.
Supplier Payment Policy
The Group’s policy, in relation to all of its suppliers, is to negotiate its terms of payment when agreeing the terms of the transactions, to ensure that
those suppliers are made aware of the terms of payment and to abide by those terms provided that it is satisfied that the supplier has provided the
goods or services in accordance with the agreed terms and conditions. The Group does not follow any universal code or standard on payment
practice but subsidiary companies are expected to establish payment terms consistent with local procedures, custom and practice. Woolworths
Group plc, the parent company, has no trade creditors. It is therefore not appropriate to provide creditor day statistics for the Company. However
the number of days purchases outstanding for payment by the Group at the year-end was 65 (2007: 45).
Political Contributions
During the year the Company made no political contributions (2007: £nil).
Charitable Donations
During the year the Group has contributed £233,000 (2007: £119,000) to communities in the UK.
Major Shareholders
As at 2 April 2008, the Company had been notified of the following interests in 3 per cent or more of the Company’s shares.
Unity Investments ehf
Resolution Asset Management Limited
Barclays plc
AXA S.A.
Legal and General Group plc
Newton Investment Management Limited
ABN AMRO Bank NV
Number of
ordinary shares
Voting interest
146,000,000
98,870,257
87,789,751
63,732,471
60,546,301
53,303,595
48,966,000
10.01%
6.78%
6.02%
4.37%
4.14%
3.65%
3.36%
Woolworths Group plc
Annual report and accounts 2008
30.
OTHER INFORMATION (cont’d)
Authority to Purchase Own Shares
At the Annual General Meeting of the Company held on 6 June 2007, the Company was given authority to purchase up to £18,237,368.01 nominal
value of its ordinary shares in the market. This authority, which has not been used, expires at the conclusion of the Annual General Meeting to be
held in 2008 and a resolution will be put to that meeting to provide a similar authority for a further year.
Significant agreements – change of control
EUK is a party to significant customer agreements which contain certain termination and other rights for the counterparties upon a change of control
of EUK or alternatively the Group, if a competitor of such counterparty assumes control.
Under a £350 million multicurrency revolving facility agreement dated 30 January 2008 between, amongst others, the Company, GMAC
Commercial Finance Plc as agent (the Agent) and GMAC Commercial Finance Plc and Burdale Financial Limited as joint arrangers (the “Senior
Facility Agreement”), on a change of control of the Company, if the majority lenders so require, the Agent may and shall, by notice to the Company,
(i) declare that an event of default has occurred; and/or (ii) cancel the facilities; and/or (iii) declare all or part of the utilisations, together with accrued
interest and all other amounts accrued or outstanding under the finance documents immediately due and payable; (iv) declare that all or part of the
utilisations be payable on demand; and (v) declare that the Company immediately pay or procure the payment of cash cover in respect of the
outstanding purchase prices and the letters of credit (all such amounts being immediately due and payable).
Under a £35 million sterling second lien term loan facility agreement dated 30 January 2008 between, amongst others, the Company, Woolworths
Jersey Finance Limited, The ADM Maculus Fund III L.P. as facility agent (the “Facility Agent”) and DK Acquisition Partners L.P. as mandated lead
arrangers (the “Second Lien Facility Agreement”), on a change of control of the Company, if the majority lenders so require, the Facility Agent may
and shall, by notice to the Company, (i) declare that an event of default has occurred; and/or (ii) cancel the facility; and/or (iii) declare all or part of
the loan, together with accrued interest and all other amounts accrued under the finance documents immediately due and payable; (iv) declare that
all or part of the loan be payable on demand.
Under the terms of both facility agreements, a change of control occurs if any person or group of persons acting in concert gain control of the
Company other than as a result of a permitted reorganisation (the criteria for which is set out in the both facility agreements).
Compensation for loss of office or employment – takeover bid
Four senior Group employees have employment terms which entitle them to serve notice following a change of control with entitlement to 10
months notice. The aggregate cost to the Group in respect of such compensation right would currently be £736,000.
Disclosure of Information to the Auditors
Each of the Directors has confirmed that, so far as he or she is aware, as at 2 April 2008, there is no relevant audit information (that is, information
needed by the Company’s auditors in connection with preparing their report) of which the Company’s auditors are unaware and that the Director has
taken all the steps that he or she ought to have taken as a Director in order to make himself or herself aware of any relevant audit information and to
establish that the Company’s auditors are aware of that information.
Auditors
PricewaterhouseCoopers LLP have indicated their willingness to accept reappointment as auditors of the Company and a resolution proposing their
reappointment is contained in the Notice of Annual General Meeting and will be put to the shareholders at the Annual General Meeting.
By Order of the Board
Jonathan Bloom
Company Secretary
2 April 2008
Woolworths Group plc
Annual report and accounts 2008
DIRECTORS’ REMUNERATION REPORT
for the financial year ended 2 February 2008
The following is a report by the Remuneration Committee which has been approved by the Board for submission to shareholders.
Composition and Terms of Reference
The Remuneration Committee consists of the Group Chairman, Richard North, Andrew Beeson (Chairman), Roger Jones, David Simons, and Fru
Hazlitt. Its composition and terms of reference are in line with the Combined Code. The Company complies with Section B of the Combined Code
provisions on Directors’ remuneration and in respect of the Remuneration Report content.
The Committee’s aim is to ensure that the Executive Directors are rewarded for their contribution to the Group and are motivated to enhance the
return to shareholders. The Remuneration Committee is responsible, on behalf of the Board, for setting the remuneration policy for Executive
Directors. In addition, they have regard to pay and conditions for other employees in the Group especially the arrangements for Directors of
subsidiaries who are not Directors of the Company.
The Committee is advised internally by the Human Resources Director and the Head of Group Reward. The Committee took into account
information from various remuneration surveys and also received advice from Deloitte in respect of long term incentive plans.
Remuneration Policy
The Committee continues to maintain a policy consistent with Group Reward Principles applied for all employees throughout the Group and in line
with the Company’s business objectives which:
•
attracts, retains and motivates high calibre Directors;
•
is appropriate to the Company, taking into account information from independent sources and from within the retail sector as well as other
companies of a comparable size;
•
aligns the interests of Directors and shareholders by linking share and cash incentives to performance;
•
complies with best practice and comprises a mix of fixed and variable pay with longer-term incentives.
When comparing remuneration packages with those in other companies, particular regard is taken of other retailers and companies whose annual
turnover is similar to that of the Group.
The reward principles applied throughout the Group provide for basic salaries to be set at the median for a range of comparative companies with
reward for performance aimed at delivering an overall package that is competitive. For the Chief Executive, the variable, performance related
remuneration, represents 58 per cent of the total package for ‘on target’ performance. For other executive directors, the variable, performance
related remuneration, represents 44 per cent of the total package for ‘on target’ performance.
Components of Remuneration
Basic Salary
Basic salary for each Director is reviewed each year in the context of market conditions affecting executive remuneration, affordability and the level of
increases awarded to staff throughout the Group. Basic salary levels are generally set at not more than the median for a range of comparative
companies. During the year ended 2 February 2008, directors and colleagues in the Group generally received a salary increase of 2.5% except for
increases awarded on promotion. Salaries for directors will next be reviewed in August 2008.
Benefits
In addition to salaries and the items described below, the Company provides a range of competitive benefits including pension, a fully-expensed car
(or non-pensionable cash allowance) and private medical insurance.
Service Contract
The policy of the Committee is that notice periods should be set at not more than 12 months and no Executive Director currently has a service
contract with a notice period longer than 12 months.
Bonus
Executive Directors and directors of subsidiaries participated in the Woolworths Group Annual Incentive Plan (AIP) during the year (see page 32).
Richard North, the Chairman, does not participate in any incentive plans. Bonuses are non-pensionable.
31.
Woolworths Group plc
Annual report and accounts 2008
32.
DIRECTORS’ REMUNERATION REPORT (cont’d)
for the financial year ended 2 February 2008
Share Options
Executive Share Option Schemes
The Company no longer grants share options under the Woolworths Group plc 2002 Executive Share Option Scheme.
For options granted in earlier years, the performance targets declared in the 2003 Directors’ Remuneration Report apply. Fully diluted, adjusted
Earnings Per Share, as calculated in accordance with the Scheme rules (“Scheme EPS”), must increase by 6 per cent per annum (commencing with
the Company’s financial year immediately prior to the date of grant) plus RPI over a three-year period in order for the option to be exercised in full. If
this is not achieved, growth in Scheme EPS of 5 per cent per annum plus RPI over the same period is required in order for up to 50 per cent of the
option to be exercised. If either of these targets is not met after the first three-year period there will be a retest one year later over a four-year period,
from the same base, and the same proportion of the option will be available for exercise. If neither of the targets has been achieved after four years
the option will lapse.
The performance target for share options granted in March 2003 and September 2003 was not met and these options lapsed during the year
ended 2 February 2008.
The performance target for the options granted in March 2004 has not been met and the options lapse on the date of this report.
A limit of 5 per cent (of the total issued share capital) on the number of new shares that can be issued to satisfy executive options granted
under Executive Share Schemes applies over a ten-year period. At the year end, outstanding share options represented 2.3 per cent of the total
share capital.
Savings-Related Share Options
A savings-related share option scheme (‘ShareSave’) is open to all eligible employees in the UK. The seventh grant of options under ShareSave was
made in May 2007 and it is intended that options will be granted annually under this arrangement provided the scheme continues to provide a cost
effective method of enabling employees to share in the success of the Group.
Incentives and bonuses
Calculation of EPS in respect of share-based incentive plans is in accordance with the individual plan rules.
Woolworths Group Incentive Plan
The Woolworths Group Incentive Plan (WIP) was replaced by the Annual Incentive Plan (described below) in 2004. Executive Directors previously
had an opportunity to defer receipt of their declared bonus for three years, at the completion of which it is matched by 25 per cent in shares which
are purchased in the market at the time of the election to defer. The outstanding share awards made to Executive Directors are shown on page 38.
The Woolworths Group Annual Incentive Plan
Executive Directors, Directors of subsidiaries and other senior employees participate in the Plan. It operates on an annual basis and participants do
not participate in any other annual bonus schemes.
The Plan provides for two types of Award:
•
a Cash Award, which is paid after the end of the financial year and which, for Executive Directors is based on the achievement of financial
targets and meeting personal objectives. The Cash Award for the Chief Executive will be 60% at target rising to a maximum of 120%. For other
Executive Directors, the Cash Award will be 40% at target rising to a maximum of 80%. The main financial targets are Group profit, operating
company profit, sales, cash targets, stock, margin and costs;
•
a Share Award, which is made after the end of the financial year and which is based on the achievement of Group financial targets. For
Executive Directors the Share Award for achieving target performance is 20 per cent of salary rising to a maximum of 40 per cent for
exceptional performance. Shares comprised in a Share Award will be held in an employee share trust for a vesting period of three years. At the
end of the vesting period a multiplier will be applied if a performance target is met. For on target performance the multiplier for Executive
Directors will be 1.3 rising to a maximum of two for exceptional performance. If a participant leaves the Company during the vesting period no
multiplier will apply. On a change of control of the Company the Committee will determine whether the multiplier will apply taking into account
the performance from the Award date to the date on which the change of control occurs.
The Committee considers it important that Directors and senior employees focus on delivering annual targets set each year. Cash Awards and Share
Awards are based on the achievement of these targets. The performance measure for the multiplier is growth in adjusted, fully diluted Earnings Per
Share from continuing operations (“Plan EPS”).
Woolworths Group plc
Annual report and accounts 2008
33.
DIRECTORS’ REMUNERATION REPORT (cont’d)
for the financial year ended 2 February 2008
Awards for the year ended 2 February 2008
Awards are earned both for the achievement of financial targets and meeting personal objectives. The main financial targets are Group profit,
operating company profits, cash and stock. The Group profit was in line with expectations and the performance of operating companies was mixed.
The Cash Award for the Chief Executive reflects an increase in adjusted Group profit of 29.8%. Cash and stock targets were not fully met and the
overall bonus rate was therefore reduced. The bonus rate for the Group Finance Director was similarly affected and the total Cash Awards
percentages are 29% for the Chief Executive and 15% for the Group Finance Director.
Cash Awards for other Executive Directors also reflected the improvement in Group profit and a similar improvement in the performance of
Woolworths plc. Profit at Entertainment UK Limited did not improve. Cash and stock targets were also missed thus reducing bonus rates. The
outcome in Woolworths plc is that the Managing Directors of Retail and Distribution, and Commercial and Supply Chain, are each due a bonus of
25% of salary. The Managing Director of Entertainment UK Limited left the Company on 31 January 2008 and his bonus rate is 23.5%.
The Group profit is in the range set for Share Awards (the lower end of the range was not reached in the previous year) and Share Awards at 13.5%
are due for Executive Directors. The Core Share Award may increase by a multiplier of between 1.3 and 2.0 provided that performance targets are
met. As in previous years when share awards have been made, the target is Plan EPS. For growth in Plan EPS of 2 per cent per annum over three
years (in addition to the increase in the Retail Prices Index), the multiplier will be 1.3 rising to a maximum of 2.0 if the Plan EPS growth over three
years is 5 per cent per annum (in addition to the increase in the Retail Prices Index). No extra shares will be awarded if Plan EPS growth over three
years is less than 2 per cent per annum and there will be no retesting if this not achieved.
Awards for the year ending 31 January 2009
The Cash Award will again be based on the achievement of financial targets and meeting personal objectives. The main financial targets are Group
profit, operating company profit, cash and stock. The Cash Award for the Chief Executive will be 60% at target rising to a maximum of 120%. For
other Executive Directors, the Cash Award will be 40% at target rising to a maximum of 80%.
Share Awards, to be made after the end of the financial year, will also be based on the achievement of Group profit targets with additional shares
awarded on the basis described above. For Executive Directors, the target Share Award will be 20% of salary rising to a maximum of 40%.
Matching shares will also be subject to Plan EPS performance targets to be set when the Share Award is made.
In the event of a change of control of the Company, the Committee may consider it appropriate to waive the performance targets for the Chief
Executive’s Awards so that the Chief Executive receives a cash bonus of up to 100% of salary in lieu of any other Cash or Share Awards that may
be payable for that year under the Plan.
The Woolworths Group Performance Share Plan
Executive Directors and Directors of subsidiaries participate in this Plan. It provides for participants to receive an Award of Shares every six months,
after the announcement of annual and half-yearly results. For Executive Directors the value of the shares comprised in each Award will be equal in
value to 20 per cent of basic salary at the date the Award is made. The shares will be held in an employee trust for a vesting period of three years.
For exceptional performance the Award may increase to 50 per cent of salary.
Awards made to Executive Directors during the year to 2 February 2008 are shown on page 38.
For Awards to be made during the financial year ending 31 January 2009, there will be two performance criteria. One half of the Awards will vest if
Plan EPS targets are met and one half will be dependent on the Total Shareholder Return (TSR) performance. The minimum increase in Plan EPS
will be 2 per cent per annum (in addition to the increase in the Retail Prices Index). TSR will be measured against the FTSE General Retailers Index
with vesting only if the Company is at the median or above. The following tables illustrate the targets.
Increase in EPS
Award (% of salary)
Less than 2%
2%
3%
4%
5%
6%
nil
5%
10%
15%
20%
25%
TSR Performance
Award (% of salary)
Below median
Median – 60th per centile
61st – 70th per centile
71st – 80th per centile
Upper quintile
nil
5%
10%
15%
25%
Performance targets for awards made under the Plan in 2005 have not been met and these awards have now lapsed.
Woolworths Group plc
Annual report and accounts 2008
34.
DIRECTORS’ REMUNERATION REPORT (cont’d)
for the financial year ended 2 February 2008
Special Arrangements for the Chief Executive
In 2005, the Company introduced special incentive arrangements for the Chief Executive. These included a three year share-based Plan which could
deliver shares equal in value to three times salary (as at 30 June 2005) in June 2008. Two-thirds of the total award (a maximum of 2,651,934 shares)
is linked to the Company’s TSR performance vs. the General Retailers Index. No vesting will occur unless this performance is at least at the median
with a maximum award if the Company performs in the top 20% of this peer group. The remaining one-third of the total award (1,325,967 shares)
will vest provided that the Chief Executive is still employed by the Company on 30 June 2008 and conditional on him retaining his existing
shareholding in the Company until that date. The number of shares awarded was based on a price of 36.2p per share being the average share price
over the period of one month prior to 30 June 2005.
No new shares will be issued in respect of this Plan.
Special Share Award for Tony Page
As part of the package agreed when Mr Page joined the company, he received an Award of shares equal in value to £300,000. The number of
shares awarded was based on a share price of 31.5p per share being the share price on 1 September 2006. This Award will vest on 31 August
2009, provided that he remains in employment with the company. This Award was made partly to compensate Mr Page for incentives with his
previous employer which he forfeited when he joined the company.
No new shares will be issued in respect of this Plan.
Management Investment Plan for Senior Executives
A Management Investment Plan was established in June 2005, which provides the directors of subsidiary companies and selected members of
senior management (52 individuals in total) with an opportunity to invest their own money in the Company’s shares. No Executive directors participate
in the Plan. The maximum investment for each individual was dependent on their grade and the highest amount that a director of a subsidiary
company could invest was £20,000. Over £500,000 was invested in total and participants will become entitled to awards of matching shares each
year for three years, provided that profit targets are met and that the participant does not dispose of any of the purchased shares. At the first
anniversary of the initial investment a matching share award of 50% of the shares purchased was made which will vest on 30 June 2008. The profit
targets set in 2005 and 2006 have not been met but a further matching award will become due on 30 June 2008. All the share allocations will be
released to participants who remain employed in the Group after three years and the Company will not issue any new shares in respect of this Plan.
Performance Graph
The Committee is required to include a graph showing the Total Shareholder Return (‘TSR’) for the Company against an appropriate index.
The Committee has decided that the Index of General Retailers is appropriate for this purpose.
Value of hypothetical £100 holding
£220
£180
FTSE All-Share
General Retailers Index
£140
£100
£60
Woolworths
Group plc
£20
Feb 2003
Feb 2004
Feb 2005
Average taken over 30 trading days prior to the year end.
Feb 2006
Feb 2007
Feb 2008
Woolworths Group plc
Annual report and accounts 2008
35.
DIRECTORS’ REMUNERATION REPORT (cont’d)
for the financial year ended 2 February 2008
Service Contracts
Effective
Date of contract
Director
Trevor Bish-Jones
Stephen East
Steve Lewis
Tony Page
18/03/02
01/07/05
10/06/05
01/09/06
Notice
Period from
Director
6
6
6
6
months
months
months
months
Notice
Period from
Company
12
12
12
12
months
months
months
months
Provision for
compensation
on early
termination
see
see
see
see
below
below
below
below
The service agreement of Executive Directors can be terminated by the Company giving 12 months written notice and by the Director giving six
months written notice. There are no special terms that apply on early termination.
The service agreements of Executive Directors also contain post-termination restrictive covenants and a provision which permits the Company either
to require the Director to perform duties outside the Director’s normal duties or not to provide the Director with work during the notice period.
During the year, Trevor Bish-Jones served as a Non-Executive Director elsewhere and has retained earnings of £45,667 in respect of this service.
Stephen East also served as a Non-Executive Director elsewhere and has retained earnings of £71,250 in respect of this service.
Non-Executive Directors
Non-Executive Directors’ remuneration consists of an annual fee for their services as members of the Board and of selected Committees.
They do not have service contracts but instead have letters of appointment for a three-year period. During that period, the appointment may be
terminated by either party giving three months prior written notice. For Andrew Beeson and Roger Jones, the three year period ends on 31 May
2010. David Simons was appointed on 1 September 2005 for three years until 31 August 2008 and Fru Hazlitt was appointed on 17 January 2006
for three years until 16 January 2009. The Chairman, Richard North was appointed on 9 October 2006 for three years until 8 October 2009. NonExecutive Directors’ remuneration is determined by the Board.
Directors’ Interests in Shares
Andrew Beeson
Trevor Bish-Jones
Stephen East
Fru Hazlitt
Roger Jones
Steve Lewis
David Simons CBE
Tony Page
Richard North
2008
Ordinary shares
2007
Ordinary shares
250,000
682,944
400,000
50,000
166,252
203,557
2,000
30,000
10,000
206,115
462,402
100,000
Nil
139,011
39,246
Nil
10,000
Nil
Woolworths Group plc
Annual report and accounts 2008
36.
DIRECTORS’ REMUNERATION REPORT (cont’d)
for the financial year ended 2 February 2008
Auditable information
The following information has been audited by the Company’s auditors, as required by Schedule 7A to the Companies Act 1985.
Directors’ Remuneration – for year or from date of appointment
Executive
Gerald Corbett (resigned 6 June 2007)
Trevor Bish-Jones
Stephen East
Steve Lewis
Lloyd Wigglesworth (resigned 31 January 2008)
Tony Page (appointed 1 September 2006)
Total
Non Executive
Richard North (Chairman) (appointed 9 October 2006)
Andrew Beeson
Roger Jones
Prue Leith OBE (resigned 14 June 2006)
David Simons CBE
Fru Hazlitt
Total
Compensation
for loss of
Benefits
office
£’000
£’000
2008
Total
£’000
2007
Total
£’000
69
799
428
436
699
449
200
797
458
397
473
376
2,880
2,701
186
42
42
186
42
42
36
36
36
36
11
41
41
13
36
36
342
342
178
Salary
£’000
Pension
Supplement
£’000
Bonus
£’000
69
503
314
304
277
304
116
45
33
21
46
154
48
78
66
78
26
21
21
29
21
1,771
261
424
118
306
306
Notes
Benefits incorporates all taxable benefits and expense allowances arising from employment and relate mainly to the provision of a company car and
the cost of medical insurance.
Lloyd Wigglesworth left the Company on 31 January 2008. Following the end of the financial year he received a sum of £306,236 under the terms
of a compromise agreement. This sum represents one year’s salary plus pension supplement for one year as provided under the terms of his
service contract.
Woolworths Group plc
Annual report and accounts 2008
37.
DIRECTORS’ REMUNERATION REPORT (cont’d)
for the financial year ended 2 February 2008
Directors’ Share Options
Number of options
Executive Share
Option Schemes
Trevor Bish-Jones
At start
of year/
date of
Date of
Grant appointment
24/04/02
24/04/02
11/09/02
27/03/03
11/09/03
25/03/04
Total
Steve Lewis
26/09/01
26/09/01
24/04/02
11/09/02
27/03/03
11/09/03
25/03/04
Trevor Bish-Jones
Total
Stephen East
25/03/04
25/03/04
28/05/04
27/05/05
02/06/06
01/06/07
28/05/04
27/05/05
02/06/06
01/06/07
Total
Lloyd Wigglesworth
Total
Date from
which
exercisable
Expiry
date
60,000
2,040,000
595,238
50.0
50.0
31.5
30.5
43.5
41.5
24/04/05
24/04/05
11/09/05
27/03/06
11/09/06
25/03/07
23/04/12
23/04/12
10/09/12
26/03/13
10/09/13
24/03/14
30.5
30.5
50.0
31.5
30.5
43.5
41.5
26/09/04
26/09/04
24/04/05
11/09/05
27/03/06
11/09/06
25/03/07
25/09/11
25/09/11
23/04/12
10/09/12
26/03/13
10/09/13
24/03/14
41.5
41.5
25/03/07
25/03/07
24/03/14
24/03/14
At end
of year/
date of
cessation
Option
exercise
price
pence
Date from
which
exercisable
Expiry
date
5,263
11,333
12,600
40.5
36.0
33.0
30.0
01/08/07
01/08/08
01/08/09
01/08/10
31/01/08
31/01/09
31/01/10
31/01/11
33.0
01/08/09
31/01/10
40.5
36.0
33.0
30.0
01/08/07
01/08/08
01/08/09
01/08/10
31/01/08
31/01/09
31/01/10
31/01/11
36.0
33.0
01/08/08
01/08/09
31/01/09
31/01/10
530,120
1,161,485
3,225,358
63,360
285,246
127,500
222,619
257,787
185,632
204,819
443,419
903,544
72,289
168,373
240,662
240,662
Granted
during
year
9,308
5,263
11,333
Exercised
during
year
Lapsed
during
year
9,308
12,600
12,600
9,308
29,196
11,333
11,333
11,333
11,333
9,308
5,263
11,333
12,600
25,904
27/05/05
02/06/06
Option
exercise
price
pence
72,289
168,373
25,904
02/06/06
Lapsed
during
year
655,738
505,747
63,360
285,246
127,500
222,619
257,787
185,632
204,819
At start
of year/
Date of
date of
Grant appointment
Total
Steve Lewis
60,000
2,040,000
595,238
655,738
505,747
530,120
1,346,963
Total
ShareSave
Exercised
during
year
4,386,843
Total
Lloyd Wigglesworth
Granted
during
year
At end
of year/
date of
cessation
9,308
5,263
11,333
12,600
12,600
9,308
29,196
10,527
11,333
10,527
11,333
21,860
21,860
Executive share options granted to Lloyd Wigglesworth have lapsed on the date of this report. He remains entitled to exercise part of his ShareSave
options until 31 July 2008.
Woolworths Group plc
Annual report and accounts 2008
38.
DIRECTORS’ REMUNERATION REPORT (cont’d)
for the financial year ended 2 February 2008
Directors’ Share Awards
Number of shares
Woolworths Group Incentive Plan
Trevor Bish-Jones
At start
of year/
date of
Date of
Award appointment
31/03/04
Total
Steve Lewis
31/03/04
Awarded
in year
Vested
during
year
119,563
119,563
119,563
119,563
24,259
24,259
Total
24,259
24,259
Woolworths Group Performance Share Plan
At start
of year/
date of
Date of
award appointment
At end
of year/
date of
cessation
Lapsed
during
year
Award
price per
share
Date from
which
restrictions
lift
40.5
31/03/07
40.5
31/03/07
At end
of year/
date of
cessation
Award
price per
share
Date from
which
restrictions
lift
249,351
288,889
340,984
533,000
44.00
38.50
36.00
30.50
20.00
09/09/07
19/04/08
20/10/09
12/04/10
24/09/10
34.25
34.00
36.00
30.50
20.00
28/09/08
27/04/09
20/10/09
12/04/10
24/09/10
44.00
38.50
34.25
34.00
36.00
30.50
20.00
09/09/07
19/04/08
28/09/08
27/04/09
20/10/09
12/04/10
24/09/10
36.00
30.50
20.00
20/10/09
12/04/10
24/09/10
44.00
38.50
34.25
34.00
36.00
30.50
20.00
09/09/07
19/04/08
28/09/08
27/04/09
20/10/09
12/04/10
24/09/10
Number of shares
Trevor Bish-Jones
09/09/04
19/04/05
20/10/06
12/04/07
24/09/07
Total
Stephen East
Total
Steve Lewis
09/09/04
19/04/05
28/09/05
27/04/06
20/10/06
12/04/07
24/09/07
Total
Lloyd Wigglesworth
Total
218,182
203,279
317,800
521,079
1,050,836
34,943
127,273
143,066
160,588
166,667
196,722
307,500
196,722
307,500
504,222
34,943
166,667
1,101,816
196,722
307,500
166,667
196,722
307,500
504,222
670,889
41,761
137,662
154,745
160,588
151,667
646,423
1,412,224
175,182
182,353
172,222
203,279
317,800
34,943
127,273
143,066
160,588
166,667
166,667
09/09/04
19/04/05
28/09/05
27/04/06
20/10/06
12/04/07
24/09/07
873,984
175,182
182,353
172,222
632,537
20/10/06
12/04/07
24/09/07
218,182
340,984
533,000
529,757
Total
Tony Page
218,182
249,351
288,889
756,422
28/09/05
27/04/06
20/10/06
12/04/07
24/09/07
Awarded
in year
Lapsed
during
year
179,017
280,000
41,761
137,662
154,745
160,588
151,667
179,017
280,000
459,017
1,105,440
All Share Awards made to Lloyd Wigglesworth under the Woolworths Group Performance Share Plan lapsed at the date of his ceasing to hold office.
Woolworths Group plc
Annual report and accounts 2008
39.
DIRECTORS’ REMUNERATION REPORT (cont’d)
for the financial year ended 2 February 2008
Directors’ Share Awards (cont’d)
Number of shares
At start
of year/
date of
Date of
award appointment
Woolworths Group Annual Incentive Plan
Trevor Bish-Jones
19/04/05
Total
Stephen East
27/04/06
Total
Steve Lewis
19/04/05
27/04/06
Total
Lloyd Wigglesworth
19/04/05
27/04/06
Total
At end
of year/
date of
cessation
Award
price per
share
Date from
which
restrictions
lift
124,675
124,675
38.50
19/04/08
124,675
124,675
34.50
27/04/09
38.50
34.50
19/04/08
27/04/09
38.50
34.50
19/04/08
27/04/09
Awarded
in year
Lapsed
during
year
98,471
98,471
98,471
98,471
63,636
86,718
63,636
86,718
150,364
150,354
68,831
86,718
68,831
86,718
155,549
155,549
Share Awards made to Lloyd Wigglesworth under the Woolworths Group Annual Incentive Plan will vest on the date of this report.
Pensions
Pensions and life assurance benefits are provided under the Woolworths Group Pension Scheme (a defined benefit arrangement). During the year
ended 2 February 2008, life assurance in excess of the earnings cap was provided for the Executive Directors. Since April 2006, a cash supplement
of 29.8% of salary in excess of the earnings cap has been paid to Trevor Bish-Jones. Steve Lewis is a member of the Woolworths Group Pension
Scheme and receives a cash supplement at 17% on earnings in excess of the earnings cap. Stephen East joined the Woolworths Group Pension
Scheme after completion of one year’s service and currently receives a pension supplement at 22% of salary in excess of the earnings cap, which is
paid directly into a personal pension arrangement. Benefits accrue at one sixtieth of salary for all Executive Directors, and they are all subject to the
earnings cap, which will remain in force in the Woolworths Group Pension Scheme.
Tony Page also joined in the Woolworths Group Pension Scheme after completion of one year’s service and currently receives a pension supplement
at 18% on earnings in excess of the earnings cap.
The table below shows, as at the year end, the accrued pension should the Director leave employment; the increase in the accrued pension during
the year; the increase excluding inflation and member contributions; the transfer value of accrued pension and any increase/(decrease) in this value
assessed on the transfer value basis of the Woolworths Group Pension Scheme. This disclosure is in compliance with both the Stock Exchange
Listing Rules and the Directors’ Remuneration Report Regulations 2002.
Age
Trevor Bish-Jones
Stephen East
Steve Lewis
Tony Page
Lloyd Wigglesworth
47
49
43
41
48
On behalf of the Board
Andrew Beeson
Chairman of the Remuneration Committee
2 April 2008
Accrued
annual
Director’s
pension at contributions
2 February
during
2008
the year
£’000
£’000
11
3
12
1
5
0
0
0
0
0
Increase
in accrued
pension
during
the year
£’000
Increase
in accrued
pension
(net of
inflation)
£’000
Transfer
value of
increase
(net of
inflation and
director’s
contributions)
£’000
2
2
2
1
2
2
2
2
1
2
15
10
12
3
10
Transfer
value of
accrued
pension at
2 February
2008
£’000
89
15
81
3
29
Transfer Increase in
value of
transfer
accrued
value
pension at
(net of
3 February
director’s
2007 contributions)
£’000
£’000
77
6
73
19
12
9
8
3
10
Woolworths Group plc
Annual report and accounts 2008
40.
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
in Respect of the Annual Report, the Directors’ Remuneration Report and the Financial Statements
The directors are responsible for preparing the Annual Report, the Directors’ Remuneration Report and the Group and the parent company financial
statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group
financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union, and the parent
company financial statements and the Directors’ Remuneration Report in accordance with applicable law and United Kingdom Accounting
Standards (United Kingdom Generally Accepted Accounting Practice). The Group and parent company financial statements are required by law to
give a true and fair view of the state of affairs of the Company and the Group and of the profit or loss of the Company and Group for that period.
In preparing those financial statements, the directors are required to:
•
select suitable accounting policies and then apply them consistently;
•
make judgements and estimates that are reasonable and prudent;
•
state that the Group financial statements comply with IFRSs as adopted by the European Union, and with regard to the parent company
financial statements that applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained
in the financial statements;
•
prepare the Group and parent company financial statements on the going concern basis unless it is inappropriate to presume that the Group
will continue in business, in which case there should be supporting assumptions or qualifications as necessary.
The directors confirm that they have complied with the above requirements in preparing the financial statements.
The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the
company and the Group and to enable them to ensure that the Group financial statements comply with the Companies Act 1985 and Article 4 of
the IAS Regulation and the parent company financial statements and the Directors’ Remuneration Report comply with the Companies Act 1985.
They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
So far as each director is aware, there is no relevant audit information of which the Company’s auditors are unaware; and each has taken all the
steps that he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the Company’s
auditors are aware of that information.
By Order of the Board
Stephen East
Finance Director
2 April 2008
Woolworths Group plc
Annual report and accounts 2008
INDEPENDENT AUDITORS’ REPORT
to the Members of Woolworths Group plc (the ‘Group’)
We have audited the group financial statements of Woolworths Group plc for the period ended 2 February 2008 which comprise the Group Income
Statement, the Group Balance Sheet, the Group Cash Flow Statement, the Group Statement of Recognised Income and Expense and the related
Notes to the Group Accounts. These Group financial statements have been prepared under the accounting policies set out therein.
We have reported separately on the parent company financial statements of Woolworths Group plc for the period ended 2 February 2008 and on
the information in the Directors’ Remuneration Report that is described as having been audited.
Respective responsibilities of directors and auditors
The directors’ responsibilities for preparing the Annual Report and the Group financial statements in accordance with applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the European Union are set out in the Statement of Directors’ Responsibilities.
Our responsibility is to audit the Group financial statements in accordance with relevant legal and regulatory requirements and International
Standards on Auditing (UK and Ireland). This report, including the opinion, has been prepared for and only for the company’s members as
a body in accordance with Section 235 of the Companies Act 1985 and for no other purpose. We do not, in giving this opinion, accept or assume
responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly
agreed by our prior consent in writing.
We report to you our opinion as to whether the Group financial statements give a true and fair view and whether the Group financial statements
have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation. We also report to you whether in our
opinion the information given in the Directors’ Report is consistent with the Group financial statements.
In addition we report to you if, in our opinion, we have not received all the information and explanations we require for our audit, or if information
specified by law regarding directors’ remuneration and other transactions is not disclosed.
We review whether the Corporate Governance Statement reflects the company’s compliance with the nine provisions of the Combined Code 2006
specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether
the Board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Group’s Corporate Governance
procedures or its risk and control procedures.
We read other information contained in the Annual Report and consider whether it is consistent with the audited Group financial statements.
The other information comprises only the Directors’ Report, the Directors’ Remuneration Report, the Chairman’s Statement, and the Corporate
Governance Statement. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies
with the Group financial statements. Our responsibilities do not extend to any other information.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit
includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the Group financial statements. It also includes an
assessment of the significant estimates and judgments made by the directors in the preparation of the Group financial statements, and of whether
the accounting policies are appropriate to the Group’s circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us
with sufficient evidence to give reasonable assurance that the Group financial statements are free from material misstatement, whether caused by
fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the Group
financial statements.
Opinion
In our opinion:
•
the Group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the
Group’s affairs as at 2 February 2008 and of its profit and cash flows for the period then ended;
•
the Group financial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation;
and
•
the information given in the Directors’ Report is consistent with the Group financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
London
2 April 2008
41.
Woolworths Group plc
Annual report and accounts 2008
42.
GROUP INCOME STATEMENT
for the 52 weeks ended 2 February 2008 and 53 weeks ended 3 February 2007
52 weeks to 2 February 2008
Note
Revenue
Cost of goods sold
1
Gross profit
Selling and marketing costs
Administrative expenses
Other operating income
Before Exceptional
exceptional
items
(Note 6)
items
£m
£m
53 weeks to 3 February 2007
Total
£m
Before
exceptional
items
£m
Exceptional
items
(Note 6)
£m
Total
£m
2,969.6
(2,245.5)
–
–
2,969.6
(2,245.5)
2,737.0
(2,045.8)
–
–
2,737.0
(2,045.8)
724.1
(583.0)
(124.7)
20.2
–
(2.3)
(9.5)
8.6
724.1
(585.3)
(134.2)
28.8
691.2
(571.6)
(125.1)
23.5
–
3.9
4.8
–
691.2
(567.7)
(120.3)
23.5
Operating profit
Finance cost
Finance income
4
2
3
36.6
(25.7)
4.0
(3.2)
–
–
33.4
(25.7)
4.0
18.0
(14.5)
3.8
8.7
–
–
26.7
(14.5)
3.8
Profit before income tax
Income tax expense
1
7
14.9
(4.1)
(3.2)
(0.1)
11.7
(4.2)
7.3
0.2
8.7
(2.6)
16.0
(2.4)
Profit/(loss) for the year
10.8
(3.3)
7.5
7.5
6.1
13.6
Attributable to:
Equity shareholders
Minority interest
10.8
–
(3.3)
–
7.5
–
7.4
0.1
6.1
–
13.5
0.1
10.8
(3.3)
7.5
7.5
6.1
13.6
29
Earnings per share attributable to the
ordinary equity holders (pence)
Basic
Diluted
9
0.5
0.5
0.9
0.9
GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE
for the 52 weeks ended 2 February 2008 and 53 weeks ended 3 February 2007
52 weeks to 2 February 2008
Before
exceptional Exceptional
items
items
£m
£m
Total
£m
53 weeks to 3 February 2007
Before
exceptional
items
£m
Exceptional
items
£m
Total
£m
Profit/(loss) for the year
Actuarial gain on defined benefit scheme net of tax
Deferred tax adjustment to 28% on defined benefit scheme
Deferred tax on share-based payments
Cash flow hedges:
— Fair value losses net of tax
— Transfer to stock net of tax
10.8
12.3
(1.8)
(0.1)
(3.3)
–
–
–
7.5
12.3
(1.8)
(0.1)
7.5
27.7
–
(0.1)
6.1
–
–
–
13.6
27.7
–
(0.1)
(0.7)
4.7
–
–
(0.7)
4.7
(6.2)
4.1
–
–
(6.2)
4.1
Net gains not recognised in income statement
14.4
–
14.4
25.5
–
25.5
Total gains/(losses) recognised in the year
25.2
(3.3)
21.9
33.0
6.1
39.1
Of the total recognised gain for the year £21.9 million (2007: £39.0 million) is attributable to the equity shareholders of the parent company.
The notes on pages 45 to 81 form an integral part of these financial statements.
Woolworths Group plc
Annual report and accounts 2008
43.
GROUP BALANCE SHEET
at 2 February 2008 and 3 February 2007
Assets
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Fixed asset investments
Deferred income tax assets
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Current asset investments
Cash and cash equivalents
Note
2 February
2008
£m
3 February
2007
£m
10
11
12
13
24
60.9
79.1
298.4
0.2
–
60.7
84.0
311.7
0.2
1.0
438.6
457.6
391.0
444.5
2.8
4.5
39.2
377.1
303.5
–
–
28.4
882.0
709.0
(126.8)
(18.2)
(633.1)
(5.6)
(9.5)
(7.4)
(129.8)
(27.5)
(490.4)
(1.4)
(8.5)
–
(800.6)
(657.6)
81.4
51.4
(36.1)
(78.2)
(66.9)
(23.2)
(1.9)
(72.4)
(84.0)
(33.1)
(204.4)
(191.4)
315.6
317.6
15
16
17
19
18
Current liabilities
Borrowings
Derivative financial instruments
Trade and other payables
Current income tax liabilities
Provisions for other liabilities and charges
Deferred income tax liabilities
20
17
21
22
23
24
Net current assets
Non-current liabilities
Borrowings
Trade and other payables
Retirement benefit obligations
Provisions for other liabilities and charges
20
21
25
23
Net assets
Shareholders’ equity
Ordinary shares
Share premium
Other reserves
Retained earnings
26
27
28
29
182.4
9.7
26.0
97.5
182.4
9.7
22.0
103.5
Total equity
30
315.6
317.6
The notes on pages 45 to 81 form an integral part of these financial statements.
The financial statements on pages 42 to 81 were approved by the Board of Directors on 2 April 2008 and were signed on its behalf by:
Stephen East
Finance Director
Richard North
Chairman
Woolworths Group plc
Annual report and accounts 2008
44.
GROUP CASH FLOW STATEMENT
for the 52 weeks ending 2 February 2008 and 53 weeks ending 3 February 2007
Note
Cash flows from operating activities
Cash generated from/(utilised in) operations
Interest paid
Interest received
Income tax received/(paid)
52 weeks to
2 February
2008
£m
53 weeks to
3 February
2007
£m
61.7
(25.1)
3.4
0.1
(39.6)
(12.6)
2.5
(13.4)
Net cash generated from/(utilised in) operating activities
40.1
(63.1)
Cash flows from investing activities
Acquisition of subsidiaries (net of cash acquired)
Purchase of intangible assets
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Disposal costs on sale of property, plant and equipment
Purchase of minority
Purchase of short-term investments
–
(10.3)
(32.4)
11.8
(0.2)
–
(4.5)
(63.0)
(7.3)
(69.1)
–
–
(2.8)
–
Net cash used in investing activities
(35.6)
(142.2)
–
–
(116.1)
158.9
(8.2)
(1.3)
–
(25.7)
0.7
(97.8)
–
109.7
–
(1.2)
(0.1)
(25.6)
7.6
(14.3)
12.1
27.1
(219.6)
246.7
Cash flows from financing activities
Net proceeds from issuance of ordinary shares
Repayment of Senior Notes
Repayment of bank borrowings
Proceeds from bank borrowings
Debt issue costs paid
Finance lease principal repayments
Net transactions in own shares held by Trust
Dividends paid to Company’s shareholders
31
8
Net cash generated from/(utilised in) financing activities
Net increase/(decrease) in cash, cash equivalents and bank overdrafts
Cash, cash equivalents and bank overdrafts at beginning of the year
Cash, cash equivalents and bank overdrafts at end of the year
32
39.2
27.1
Cash, cash equivalents and bank overdrafts consist of:
Cash
Bank overdrafts
18
20
39.2
–
28.4
(1.3)
Cash, cash equivalents and bank overdrafts at end of the year
32
39.2
27.1
Woolworths Group plc
Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS
Accounting Policies for the Year Ended 2 February 2008
The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently
applied to all the years presented, unless otherwise stated. An explanation is provided where changes have been made to previous policies on the
adoption of new accounting standards in the year.
Basis of Preparation
The financial statements of the Group are made up to the nearest Saturday to 31 January. The financial year for 2008 represents the 52 weeks
ended 2 February 2008. The comparative financial year for 2007 was the 53 weeks ended 3 February 2007.
These financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRS’) and the International
Financial Reporting Interpretations Committee (‘IFRIC’) interpretations endorsed by the European Union, together with those parts of the Companies
Act 1985 applicable to companies reporting under IFRS.
The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of certain financial
assets and liabilities (including derivative instruments) at fair value. The preparation of financial statements in conformity with IFRS requires the use of
certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting
policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the
consolidated financial statements, are disclosed on page 51.
Relevant standards, amendments and interpretations effective in 2008
The following standards amendments and interpretations to existing standards are mandatory for accounting periods beginning on or after
4 February 2007 and are relevant to the Group.
— IFRS 7, ‘Financial instruments: Disclosures, and the complementary amendment to IAS 1, ‘Presentation of financial statements – Capital
disclosures’. IFRS 7 introduces new disclosures relating to financial instruments. This standard does not have any impact on the classification
or valuation of the Group’s financial instruments.
— IFRIC 8, ‘Scope of IFRS 2 Share-based Payment’; clarifies that the accounting standard IFRS 2 applies to arrangements where an entity makes
share-based payments for apparently nil or inadequate consideration. This standard does not have any impact on the IFRS 2 charge recognised
by the Group.
Standards, amendments and interpretations effective in 2008 but not relevant
The following standards, amendments and interpretations to published standards are mandatory for accounting periods beginning on or after
4 February 2007 but they are not relevant to the Group.
— IFRS 4, ‘Insurance contracts’;
— IFRIC 7, ‘Applying the restatement approach under IAS 29, Financial reporting in hyper-inflationary economies’;
— IFRIC 9, ‘Re-assessment of embedded derivatives’;
— IFRIC 10, ‘Interims and impairment’.
Interpretations to existing standards that are not yet effective and have not been early adopted by the Group
The following standards, amendments and interpretations to existing standards have been published and are mandatory for the Group’s accounting
periods beginning on or after 3 February 2008 or later periods, but the Group has not early adopted them:
— IAS 23 (Amendment), ‘Borrowing costs’ (effective from 1 January 2009). The amendment to the standard is still subject to endorsement by the
European Union. It requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying
asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset. The option of immediately expensing
those borrowing costs will be removed. The Group will apply IAS 23 (Amended) from 31 January 2009, subject to endorsement by the EU but is
currently not applicable to the Group or Company as there are no qualifying assets.
— IFRS 8, ‘Operating segments’ (effective from 1 January 2009). The standard is still subject to endorsement by the European Union. IFRS 8
replaces IAS 14 and aligns segment reporting with the requirements of the US standard SFAS 131, ‘Disclosures about segments of an enterprise
and related information’. The new standard requires a ‘management approach’, under which segment information is presented on the same basis
as that used for internal reporting purposes. The Group will apply IFRS 8 from 31 January 2009, subject to endorsement by the EU. The
expected impact is still being assessed in detail by management, but it appears unlikely that the number of reportable segments, or the manner
in which the segments are reported will change.
— IFRIC 14, ‘IAS 19 – The limit on a defined benefit asset, minimum funding requirements and their interaction’ (effective from 1 January 2008).
IFRIC 14 provides guidance on assessing the limit in IAS 19 on the amount of the surplus that can be recognised as an asset. It also explains
how the pension asset or liability may be affected by a statutory or contractual minimum funding requirement. The Group will apply IFRIC 14
from 31 January 2008, but it is not expected to have any impact on the Group’s financial statements as its defined benefit scheme is expected to
remain in deficit and has no surplus capacity.
45.
Woolworths Group plc
Annual report and accounts 2008
46.
NOTES TO THE GROUP ACCOUNTS (cont’d)
Interpretations to existing standards that are not yet effective and not relevant for the Group’s operations
The following interpretations to existing standards have been published that are mandatory for the Group’s accounting periods beginning on or after
31 January 2009 or later periods but are not relevant for the Group’s operations:
— IFRIC 12, ‘Service concession arrangements’; and
— IFRIC 13, ‘Customer loyalty programmes’.
Consolidation
The consolidated financial statements include the financial statements of the Company, its subsidiary undertakings and joint ventures.
Subsidiaries
Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding
of more than one half of the voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are
de-consolidated from the date on which control ceases.
The Group has used the purchase method of accounting for the acquisition of subsidiaries. Under the purchase method of accounting the cost of
an acquisition is measured as the fair value of the assets acquired, plus costs directly attributable to the acquisition. Identifiable assets acquired and
liabilities are measured initially at their fair values. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net
assets acquired is recorded as goodwill.
Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated on consolidation.
Joint Ventures
Joint ventures are jointly controlled entities in which the Group has an interest.
The Group’s interests in joint ventures are accounted for by proportionate consolidation. The Group combines its share of the joint ventures’
individual income and expenses, assets and liabilities and cash flows on a line by line basis with similar items in the Group’s financial statements.
Revenue Recognition
Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group’s
activities. Revenue is shown net of value added tax, returns, rebates and discounts and after eliminating sales within the Group.
(a)
Sales of goods – Entertainment Wholesale and Publishing
The Group sells a range of entertainment products as a publisher and distributor. Sales of goods are recognised when a Group entity has
delivered a product to a customer and there is no unfulfilled obligation that could affect the acceptance of the products. Delivery does not
occur until the products have been shipped to the specified location, the risks of obsolescence and loss have been transferred to the
customer, and the customer has accepted the products.
The entertainment products are often sold with volume discounts and with a right to return products. Sales are recorded based on the price
specified in the sales contracts, net of the estimated volume discounts and returns at the time of sale.
Accumulated experience is used to estimate and provide for the discounts and returns. No element of financing is deemed present as the sales
are made with a credit term of 30-60 days, which is consistent with market practice.
(b)
Sales of goods – Retail
The Group operates a chain of retail outlets. Sales of goods are recognised when a Group entity sells a product to the customer. Retail sales
are usually in cash or by credit card.
It is the Group’s policy to sell its products to the retail customer with a right to return within 28 days (statutory rights not affected). Accumulated
experience is used to estimate and provide for such returns at the time of sale. The Group does not operate a loyalty programme.
(c)
Other
Revenue arising on the sale of credit vouchers represents third party commission arising on these transactions.
Licencing royalties are recognised as revenue when the following criteria are met:
— the licence agreement has been executed by all parties;
— the licence term has commenced and
— the collection of royalties is reasonably assured.
All licence royalties received in advance are included within deferred income until the above criteria are met.
Woolworths Group plc
Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
Segment reporting
A business segment is a group of assets and operations engaged in providing products or services that are subject to different risks and returns
from those of other business segments.
Other Income
Other income, including sales commission, is recognised on an accruals basis to match the provision of the related goods or services.
Interest income is recognised on a time-apportioned basis using the effective interest method.
Dividend income is recognised when the right to receive payment is established.
Foreign Currencies
The functional and the presentational currency of the Group is Pounds Sterling.
Foreign currency transactions are translated into Sterling using the exchange rates prevailing at the dates of the transactions.
Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation at year-end exchange
rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except where hedge accounting
is applied.
The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional
currency different from the presentation currency are translated into the presentation currency as follows:
— assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
— income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation
of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the
dates of the transactions); and
— all resulting exchange differences are recognised as a separate component of equity.
Dividend Payment Policy
Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s financial statements in the period in which the
dividends are approved by the Company’s shareholders or, in the case of interim dividends, when paid.
Exceptional Items
Items that are material in size, unusual and infrequent in nature are presented as exceptional items in the income statement. The Directors are of the
opinion that the separate recording of exceptional items provides helpful information about the Group’s underlying business performance.
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired
subsidiary or joint venture at the date of acquisition. Goodwill is tested annually for impairment and carried at cost less accumulated impairment
losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
Intangible Assets
Brands are stated at cost less amortisation, with amortisation on a straight-line basis over twenty years.
Underlying rights and trade names are stated at fair value at acquisition less amortisation, with amortisation on a straight-line basis over ten years.
Purchased copyrights and licences are stated at cost less amortisation and are amortised on a straight-line basis over the period of the underlying
legal agreements, which typically range from five to ten years.
Customer relationships are stated at fair value determined on acquisition and are amortised on a straight-line basis ranging from three to ten years.
Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. Incremental
employee costs that are directly associated with the production of identifiable and unique software controlled by the Group, and that will generate
economic benefits exceeding costs beyond one year, are recognised as intangible assets. Computer software is amortised over seven years.
Intangible assets are reviewed for impairment based on the ongoing benefit derived from their use, with provision made where required.
47.
Woolworths Group plc
Annual report and accounts 2008
48.
NOTES TO THE GROUP ACCOUNTS (cont’d)
Property, Plant and Equipment
Property, plant and equipment is stated at cost less accumulated depreciation. Cost includes expenditure that is directly attributable to the
acquisition of the items.
Depreciation of property, plant and equipment is calculated by the straight-line method to allocate their cost to their residual values over their useful
economic life as follows:
Land and buildings
Freeholds
Long leaseholds
Short leaseholds
— 2 per cent
— 5 per cent
— over the life of the lease
Fixtures, fittings and equipment
Tenant’s improvements
— shorter of ten years and the remaining life of the lease
Fixtures and fittings
— between 5 per cent and 15 per cent
Computers and electronic equipment — between 14 per cent and 50 per cent
Motor cars
— 25 per cent
Commercial vehicles
— 33 per cent
The Group has adopted a policy of not revaluing freehold properties.
During the year ended 2 February 2008 the Group revised the useful economic lives of certain computer and electronic equipment from five years
to seven years. During the prior year the Group revised the useful economic lives of certain store fixtures and fittings from ten years to twenty years.
The impact of these changes has been quantified in notes 11 and 12.
The assets’ residual values and useful lives are reviewed and adjusted, if appropriate, at each balance sheet date. An asset’s carrying amount
is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.
Disposal of Land and Buildings
Profits and losses on the disposal of land and buildings represent the difference between the net proceeds and the net carrying value at the
date of sale.
Sales are accounted for when there is an unconditional exchange of contracts or where the completion cannot be reasonably withheld.
Financial Assets
The Group’s financial assets are all categorised as loans and receivables and derivatives. Loans and receivables are non-derivative financial assets
with fixed or determinable payments that are not quoted in an active market. They are included in current assets. The Group’s loans and receivables
comprise ‘trade and other receivables’, ‘cash and cash equivalents’ and ‘short-term investments’ in the balance sheet.
The Group assesses at each balance sheet date whether there is objective evidence that a financial asset is impaired. Impairment testing of Trade
Receivables is described under the accounting policy note for Trade and Other Receivables.
Finance Leases
Assets funded through finance leases are capitalised as fixed assets and depreciated in accordance with the policy for the class of asset concerned.
The resulting lease obligations are included in creditors net of finance charges. Interest costs on finance leases are charged to the income statement.
Operating Leases
Operating lease payments, including fixed rental uplifts, are charged to the income statement on a straight-line basis over the life of the lease.
Lease incentives are credited to the income statement on a straight-line basis over the life of the lease.
Inventories
Stocks are stated at the lower of cost and net realisable value. Provisions are made for obsolescence, mark-down and shrinkage. Costs of inventories
include the transfer from equity of any gains/losses on qualifying cash flow hedges on purchases.
Obsolescence and mark-down provisions against stocks identified as residual to the business are calculated by reference to the tracking of
historic recovery rates. Shrinkage provisions are calculated by reference to the stock loss rates derived from the store and distribution centre
stock count programmes.
Woolworths Group plc
Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
Rebates Receivable from Suppliers
Volume related rebates receivable from suppliers are credited to the carrying value of the stock to which they relate. Where a rebate agreement with
a supplier covers more than one year, the rebates are recognised in the period in which they are earned.
Marketing contributions
Marketing contributions receivable from suppliers are credited to the income statement as a reduction to cost for sales in the period in which they
are earned.
Trade Receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less provision for impairment. A provision for
impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according
to the original terms of the receivables. This provision represents the difference between the asset’s carrying amount and the present value of
estimated future cash flows. The amount of the provision is recognised in the income statement as an increase to cost of sales.
Cash and Cash Equivalents
Cash and cash equivalents include cash in hand, deposits at call with banks, other liquid investments with original maturities of three months or less
and bank overdrafts where these are set off against cash to the extent these reduce available cash to nil. Bank overdrafts where there is no right of
set off are shown within borrowings in current liabilities on the balance sheet.
Borrowings
Borrowings are initially recognised at fair value net of transaction costs incurred. Borrowings are classified as current liabilities unless the Group has
an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.
Trade Payables
Trade payables are recognised at fair value.
Provisions
Provisions for restructuring costs and legal claims are recognised when the Group has a present legal or constructive obligation as a result of past
events, where it is more likely than not that an outflow of resources will be required to settle the obligation and the amount has been reliably
estimated. Restructuring provisions comprise the expected costs of the reconfiguration of the out-of-town stores. Provisions are not recognised for
future operating losses.
Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the
balance sheet date.
Current Taxation
The taxation charge for current tax is based on the results for the year, as adjusted for items which are non-assessable or disallowed. It is calculated
using the tax rates that have been enacted by the balance sheet date.
Deferred Taxation
Deferred taxation is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and
their carrying amounts in the consolidated financial statements. The deferred tax is determined using tax rates that have been enacted by the
balance sheet date and are expected to apply when the deferred tax asset is realised or the deferred tax liability is settled.
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences
can be utilised.
49.
Woolworths Group plc
Annual report and accounts 2008
50.
NOTES TO THE GROUP ACCOUNTS (cont’d)
Pensions
All employees are entitled to join the Woolworths Group Pension Scheme (‘WGPS’) after completion of one year’s service. The WGPS is a defined
benefit pension scheme. The Company also facilitates a Stakeholder pension arrangement for employees and makes contributions to a defined
contribution pension scheme (the Woolworths Group Retirement Trust), which was closed to new entrants in June 2003 and currently has no active
members. The Woolworths Group Retirement Trust is in the process of being wound up. Employees of Total Home Entertainment Distribution
Limited participate in the Total Home Entertainment Group Pension Scheme, a defined contribution scheme. Employees of Bertram Group Limited
participate in the Bertram Group Personal Pension Scheme, a defined contribution scheme.
The liability recognised in the balance sheet in respect of the WGPS is the present value of the defined benefit obligation at the balance sheet date
less the fair value of scheme assets, together with adjustments for unrecognised actuarial gains or losses and past service costs. The defined
benefit obligation is calculated by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation
is determined by discounting the estimated future cash outflows using interest rates of high quality corporate bonds that have terms to maturity
approximate to the terms of the pension liability.
Past service costs are recognised immediately in the income statement, unless the changes to the pension scheme are conditional on the
employees remaining in service for a specified period of time (the vesting period). In this case, the past service costs are amortised on a straight-line
basis over the vesting period.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in the
Statement of Recognised Income and Expense (‘SoRIE’) in the period in which they arise.
For defined contribution schemes, the Group pays contributions on an agreed basis. The Group has no further payment obligations once the
contributions have been paid. The contributions are recognised as an employee benefit expense when they are due. Prepaid contributions are
recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.
Share-based Payments
The Company no longer grants share options under its Executive Share Option Schemes. Instead, Share Awards are made to senior management
which vest dependent in part on performance targets being met. A Savings Related Share Option Scheme, which is open to all UK employees,
continues to operate. The fair value of the employee services received in exchange for the grant of the share awards/options is recognised as an
expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the share awards/options granted,
excluding the impact of any non-market vesting conditions. Non-market vesting conditions are included in assumptions about the number of share
awards/options that are expected to vest. At each balance sheet date, the Company revises its estimates of the number of share awards/options
that are expected to vest. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding
adjustment to equity. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share
premium when the options are exercised.
Share Capital
Ordinary shares are shown as equity. Where any Group company purchases the Company’s equity share capital the consideration paid, including
any directly attributable incremental costs (net of income tax), is deducted from equity attributable to the Company’s equity holders until the shares
are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued any consideration received, net of any directly
attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company’s equity holders.
ESOP
The Group’s Employee Share Ownership Plan (‘ESOP’) is a separately administered Trust. The assets of the ESOP mainly comprise shares
in the Company. The purchase or sales of shares in the Trust is accounted for as treasury share transactions and shown as movements in
retained earnings.
Woolworths Group plc
Annual report and accounts 2008
NOTES TO THE GROUP ACCOUNTS (cont’d)
Derivative Financial Instruments
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value.
The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature
of the item being hedged. The Group designates certain derivatives as either: a firm commitment (fair value hedge); or hedges of highly probable
forecast transactions (cash flow hedge).
The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk
management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception
and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or
cash flows of hedged items.
a)
Fair value hedge
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with
any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.
b)
Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in equity.
The gain or loss relating to the ineffective portion is recognised immediately in the income statement.
Amounts accumulated in equity are recycled in the income statement in the periods in which the hedged items affect the income statement.
However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, inventory) or a liability, the
gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or
loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income
statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately
transferred to the income statement.
c)
Derivatives that do not qualify for hedge accounting
Certain derivative instruments may not qualify for hedge accounting. Such derivatives are classified as at fair value through the income
statement, and changes in the fair value are recognised immediately in the income statement.
Fair Value Estimation
The fair values of short-term deposits, loans, and overdrafts with a maturity of less than one year are assumed to be approximate to their book values.
The fair value of forward foreign exchange contracts is determined using forward exchange market rates at the balance sheet date.
The fair value of credit vouchers in issue is the face value of the instruments potentially redeemable outside the Group, that remain unredeemed and
unextinguished at the balance sheet date.
Critical Accounting Judgements and Estimation Uncertainty
Impairment of assets
Goodwill is considered for impairment at least annually. Property, plant and equipment and intangible assets are considered for impairment if there
is a reason to believe that impairment may be necessary. Factors taken into consideration in reaching such a decision include the economic viability
of the asset itself and where it is a component of a larger economic unit, the viability of that unit.
Future cash flows expected to be generated by the assets are projected, taking into account market conditions and the expected useful lives of
the assets. The present value of these cash flows, determined using an appropriate discount rate, is compared to the current net asset value and,
if lower, the assets are impaired to the present value.
Pension assumptions
Post-retirement defined benefits are provided for certain existing and former employees. Actuarial valuations are based on assumptions which include
employee turnover, mortality rates, the discount rate, the expected long-term rate of return of retirement plan assets, healthcare inflation cost and
rates of increase in compensation costs. Full details are contained in note 25. The main financial assumption is the real discount rate, i.e. the excess
of the discount rate over inflation. If this net rate increased/decreased by 0.1%, the pension obligation would decrease/increase by approximately
£9.0m (before tax) and the annual service cost would decrease/increase by approximately £0.7m.
Valuation of intangible assets on acquisition
Estimates are used in the course of acquisitions to determine the fair value of the assets and liabilities acquired. If any intangible assets are identified,
depending on the type of asset and the complexity of determining its fair value the Group either consults with an independent external valuation
expert or develops the fair value internally, using an appropriate valuation technique which is generally derived from a forecast of the total expected
future net cash flows. Assets may be valued using methods based on cost, market price or net present value, depending on the type of asset and
the availability of information.
51.
Woolworths Group plc
Annual report and accounts 2008
52.
NOTES TO THE GROUP ACCOUNTS (cont’d)
Financial Risk Management
Financial risk factors
The Group’s operations expose it to a variety of financial risks that include the effects of changes in foreign currency exchange rates, market interest
rates, counter-party credit risk and its liquidity position. The Group has in place a risk management programme that seeks to limit adverse effects on
the financial performance of the Group by using foreign currency financial instruments. In addition other instruments were used during the year to
manage the Group’s interest rate exposure.
The Board of Directors has approved a Group Treasury Policy that sets out the financial risk management policies applied by the Group. A central
Group Treasury function manages the Group’s financial risk in accordance with this policy, receiving regular information (including forecast information)
from all the operating companies in the Group to prompt identification of financial risks so that appropriate actions may be taken. A procedures
manual is maintained that reflects this policy and sets out specific guidelines to manage foreign exchange risk, interest rate risk, counter-party credit
risk, liquidity risk and the use of financial instruments.
a)
Foreign exchange risk
The Group is exposed to foreign exchange risks against Sterling primarily on transactions in US dollars. It enters into forward currency
contracts to hedge the cash flows of its product sourcing operation (i.e. it buys US dollars forward in exchange for Sterling) and looks forward
12 months on a rolling basis at forecast purchase volumes. The policy framework requires hedging between 50 per cent and 80 per cent of
anticipated import purchases that are denominated in US dollars. All of the forward contracts entered into by the Group qualified as highly
probable purchases for which hedge accounting was used.
Foreign exchange risk sensitivity analysis
The table below shows the effect on post-tax profit and equity from a 10 percent adverse/favourable movement in exchange rates at the balance
sheet date on a total portfolio basis with all other variables held constant, taking into account all underlying exposures and related hedges.
2 February 2008
Post-tax
profit
£m
If there was a 10% adverse movement in exchange rates with all other variables
held constant – (decrease)
If there was a 10% favourable movement in exchange rates with all other variables
held constant – increase
Equity
(Other
reserves)
£m
3 February 2007
Post-tax
profit
£m
Equity
(Other
reserves)
£m
–
(10.8)
–
(8.4)
–
10.8
–
8.4
There is no impact to profit from foreign exchange rate movement due to the Group’s hedging policy.
b)
Interest rate risk
The Group has a seasonal cash flow that moves between net cash and net debt in the course of each year. Other than a small proportion of
finance lease borrowing at fixed interest rates the Group’s borrowings are at floating rates, partially hedged by floating rate interest on deposits
reflecting the seasonality of its cash flow.
Interest rate risk sensitivity analysis
The table below shows the effect on post-tax profit and retained earnings from a 0.5 percent adverse/favourable movement in market interest
rates at the balance sheet date on a total portfolio basis with all other variables held constant, taking into account all underlying exposures and
related hedges.
2 February
2008
Post-tax
profit
£m
If there was a 0.5% adverse movement in market interest rates with
all other variables held constant – (decrease)
If there was a 0.5% favourable movement in market interest rates with
all other variables held constant – increase
c)
3 February
2007
Post-tax
profit
£m
(0.9)
(0.4)
0.9
0.4
Counter-party credit risk
The Group has some significant concentrations of credit risk within its businesses. Policies have been implemented that require appropriate
credit checks on potential customers before sales commence and on potential suppliers before orders can be raised. Individual balances are
closely monitored by management but individual credit limits are not fixed. Trade credit insurance is employed as appropriate to protect a
proportion of the Group’s debtors. Financial instrument and investment counterparties are subject to pre-approval by the Board in accordance
with Group Treasury policy. Exposure to counterparties is managed through a framework that limits amounts invested together with amounts
contracted through financial instruments according to the counter-party’s public credit rating.
Woolworths Group plc
Annual report and accounts 2008
53.
NOTES TO THE GROUP ACCOUNTS (cont’d)
Financial Risk Management (cont’d)
c)
Counter-party credit risk (cont’d)
Credit risk sensitivity analysis
The table below shows the balance of the five major counterparties as at the balance sheet date.
Counterparty
Counterparty
Counterparty
Counterparty
Counterparty
d)
1
2
3
4
5
2 February
2008
£m
3 February
2007
£m
77.0
70.1
50.5
–
–
–
–
42.3
51.4
38.1
Liquidity risk
The Group Treasury function is required to ensure the Group has sufficient committed debt facilities to cover its liquidity requirements for
at least the next 12 months. During the year, the Group replaced its bank facilities with a £350 million asset based lending facility and
£35 million 2nd lien loan. These are in addition to a £20 million invoice discounting facility available to Bertrams. At the year end £234 million
remained undrawn.
Management monitors rolling forecasts of the Group’s liquidity reserve on the basis of expected cash flow.
The table below analyses the Group’s financial liabilities which will be settled on a net basis into relevant maturity groupings based on the
remaining period at the balance sheet to the contractual maturity date. The amounts disclosed in the table are the contractual discounted cash
flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.
As at 2 February 2008
Borrowings
Derivative financial instruments
Trade and other payables
As at 3 February 2007
Borrowings
Derivative financial instruments
Trade and other payables
Less than 1
year
£m
Between
1 and 2
years
£m
Between
2 and 5
years
£m
Over 5
years
£m
126.8
18.2
633.1
0.6
–
–
44.4
–
–
–
–
13.5
Less than 1
year
£m
Between
1 and 2
years
£m
Between
2 and 5
years
£m
Over 5
years
£m
129.8
27.5
490.4
0.5
–
–
0.8
–
–
–
–
11.8
The table below analyses the Group’s derivative financial instruments which will be settled on a gross basis into relevant maturity groupings
based on the remaining period at the balance sheet to the contractual maturity date. The amounts disclosed in the table are the contractual
discounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.
As at 2 February 2008
Forward foreign exchange contracts – cash flow hedges
Outflow
Inflow
Less than 1
year
£m
Between
1 and 2
years
£m
Between
2 and 5
years
£m
Over 5
years
£m
–
2.8
–
–
–
–
–
–
2.8
–
–
–
Woolworths Group plc
Annual report and accounts 2008
54.
NOTES TO THE GROUP ACCOUNTS (cont’d)
Financial Risk Management (cont’d)
d)
Liquidity risk (cont’d)
As at 3 February 2007
Forward foreign exchange contracts – cash flow hedges
Outflow
Inflow
Less than 1
year
£m
Between
1 and 2
years
£m
Between
2 and 5
years
£m
Over 5
years
£m
(4.0)
–
–
–
–
–
–
–
(4.0)
–
–
–
Capital Risk Management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for
shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
The Treasury function arranges sufficient secure financial resources to enable the Group to meet its medium-term business objectives whilst
arranging facility maturities appropriate to its projected needs.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to
shareholders, issue new shares or sell assets to reduce debt.
1.
Segmental Analysis
The Group considers that business segmental analysis is its primary reporting basis. The Group’s business is divided into a Retail segment and
an Entertainment Wholesale and Publishing segment. Woolworths plc, WMS Jersey Limited, Tromax Limited and Flogistics Limited are included
within the Retail segment, with Entertainment UK Limited, THE Distribution Limited (THE), Bertram Group Limited (Bertrams), Disc Distribution
Limited and 2 entertain Limited being the constituents of Entertainment Wholesale and Publishing. No material trading is undertaken outside
the UK and consequently no geographic segmentation has been shown.
52 weeks to 2 February 2008
Entertainment
Wholesale
and
Retail
Publishing Unallocated
£m
£m
£m
53 weeks to 3 February 2007
Total
£m
Entertainment
Wholesale
and
Retail
Publishing
£m
£m
Unallocated
£m
Total
£m
Group
— Gross sales
— Intersegment
1,717.4
–
1,647.0
(394.8)
–
–
3,364.4
(394.8)
1,813.2
–
1,331.7
(407.9)
–
–
3,144.9
(407.9)
Revenue
1,717.4
1,252.2
–
2,969.6
1,813.2
923.8
–
2,737.0
(2.4)
8.6
47.2
(11.8)
(8.2)
–
36.6
(3.2)
(23.5)
8.7
49.2
–
(7.7)
–
18.0
8.7
6.2
35.4
(8.2)
33.4
(25.7)
4.0
(14.8)
49.2
(7.7)
26.7
(14.5)
3.8
Operating profit/(loss)
before exceptional items
Exceptional items
Operating profit/(loss)
after exceptional items
Finance costs
Finance income
Profit before income tax
Income tax expense
11.7
(4.2)
16.0
(2.4)
Profit for the year
7.5
13.6
Attributable to:
Equity shareholders
Minority interest
7.5
–
13.5
0.1
7.5
13.6
Operating profit is stated before management recharges.
Woolworths Group plc
Annual report and accounts 2008
55.
NOTES TO THE GROUP ACCOUNTS (cont’d)
1.
Segmental Analysis (cont’d)
Included within the amounts shown above are the following amounts in respect of joint ventures:
52 weeks to 2 February 2008
Entertainment
Wholesale
and
Publishing Unallocated
Retail
£m
£m
£m
53 weeks to 3 February 2007
Total
£m
Entertainment
Wholesale
and
Publishing
Retail
£m
£m
Unallocated
£m
Total
£m
Revenue
Expenses
–
–
75.6
(49.9)
–
–
75.6
(49.9)
–
–
62.4
(43.4)
–
–
62.4
(43.4)
Operating profit
Finance income
–
25.7
–
25.7
0.8
–
19.0
–
19.0
0.6
Profit before income tax
Income tax expense
26.5
(8.3)
19.6
(5.0)
Share of post tax profits
18.2
14.6
Intersegment transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated
third parties.
At 2 February 2008
At 3 February 2007
Entertainment
Wholesale
and
Retail Publishing Unallocated
£m
£m
£m
Total
£m
Entertainment
Wholesale
and
Retail
Publishing
£m
£m
Unallocated
£m
Total
£m
Total assets
772.5
740.9
614.4
2,127.8
785.9
614.9
560.3
1,961.1
Total liabilities
795.0
608.6
408.6
1,812.2
822.4
505.1
316.0
1,643.5
Included within the amounts
shown above are the
following balances in
respect of joint ventures:
Current assets
Non-current assets
Current liabilities
–
–
–
48.7
3.3
(37.1)
–
–
–
48.7
3.3
(37.1)
–
–
–
43.5
3.6
(33.1)
–
–
–
43.5
3.6
(33.1)
Net assets
–
14.9
–
14.9
–
14.0
–
14.0
27.4
5.9
2.6
4.4
–
–
30.0
10.3
58.8
3.6
8.7
61.2
9.3
–
76.8
64.8
26.6
3.3
–
29.9
35.0
5.6
–
40.6
–
–
–
–
(3.0)
–
–
(3.0)
4.5
10.6
–
15.1
8.1
7.5
–
15.6
(0.4)
4.0
–
3.6
(2.7)
(3.4)
–
(6.1)
1.3
11.4
–
12.7
(1.1)
0.4
–
(0.7)
–
–
1.3
1.3
–
–
1.2
1.2
Other segment items
Capital expenditure:
— Property, plant
and equipment
— Intangible assets
Depreciation of property,
plant and equipment
Impairment of property,
plant and equipment
Amortisation of
intangible assets
Impairment credit
on inventories
Impairment of
trade receivables
Other non-cash expenses:
— Share-based payments
Unallocated costs represent corporate expenses. Segment assets include property, plant and equipment, goodwill, inventories, debtors and
operating cash and intersegment balances. Segment liabilities comprise operating liabilities and intersegment balances.
Unallocated total assets predominantly consist of cash and bank deposits and intersegment receivables. The unallocated total liabilities
predominantly represent corporate borrowings and other sundry creditors.
Total assets and liabilities included within the segmental table differs from the Group Balance Sheet due to the gross-up of intersegment
balances.
Woolworths Group plc
Annual report and accounts 2008
56.
NOTES TO THE GROUP ACCOUNTS (cont’d)
2.
Finance Cost
52 weeks to
2 February
2008
£m
3.
4.
53 weeks to
3 February
2007
£m
Interest expense:
— Senior Notes
— Bank borrowings
— Amortisation of Senior Note and credit facility fees
— Interest payable on finance leases
— Provisions – unwinding of discount
— Other interest expense
–
(22.5)
(0.7)
(0.1)
(0.6)
(1.8)
(6.8)
(5.7)
(0.8)
(0.1)
(1.1)
–
Total
(25.7)
(14.5)
Finance Income
52 weeks to
2 February
2008
£m
53 weeks to
3 February
2007
£m
Interest income:
— Cash deposits and liquidity fund instruments
— Net pension funding credit
— Other interest income
2.8
0.6
0.6
2.5
1.3
–
Total
4.0
3.8
52 weeks to
2 February
2008
£m
53 weeks to
3 February
2007
£m
309.2
296.5
29.3
0.6
–
15.1
1.9
40.4
0.2
(3.0)
15.6
1.7
2.1
161.1
(20.0)
(5.6)
19.3
3.6
12.7
5.4
165.6
(6.4)
(2.5)
17.4
(6.1)
(0.7)
0.2
0.1
0.4
0.2
0.1
–
0.3
0.1
–
0.2
Profit for the year
The following items have been charged/(credited) in arriving at the profit/(loss) for the year:
Staff costs (note 5)
Depreciation of property, plant and equipment:
— Owned assets
— Under finance leases
Impairment of property, plant and equipment
Amortisation of intangible assets
Loss on disposal of fixed assets
Other operating lease rentals payable
— Plant and machinery
— Property
Net income from property portfolio transactions
Rental income
Repairs and maintenance expenditure on property, plant and equipment
Inventory impairment
Trade receivables impairment
During the year the Group (including its overseas subsidiaries) obtained the following
services from the Group’s auditors at costs as detailed below:
Audit services
— Fees payable to the Company’s auditors for the audit of parent company and consolidated accounts
Non-audit services
Fees payable to the Company’s auditors and its associates for other services:
— The auditing of the Company’s subsidiaries pursuant to legislation
including that of countries and territories outside Great Britain)
— Other services supplied pursuant to such legislation
— Tax services
— All other services
Woolworths Group plc
Annual report and accounts 2008
57.
NOTES TO THE GROUP ACCOUNTS (cont’d)
5.
Employee Benefit Expense
52 weeks to
2 February
2008
£m
53 weeks to
3 February
2007
£m
Wages and salaries
Social security costs
Share-based payments
Pension costs (note 25)
273.7
16.8
1.3
17.4
267.2
15.7
1.2
12.4
Total employment costs
309.2
296.5
52 weeks to
2 February
2008
Number
53 weeks to
3 February
2007
Number
Retail
Entertainment, Wholesale and Publishing
Central
27,380
1,908
24
28,546
1,641
22
Total
29,312
30,209
52 weeks to
2 February
2008
£m
53 weeks to
3 February
2007
£m
Salaries and short-term employee benefits
Post-employment benefits
Share-based payments
Termination benefits
4.8
–
0.6
0.3
5.3
0.3
0.3
–
Total employment costs
5.7
5.9
Average monthly number of people (including Executive Directors) employed
Key management compensation
Included in the above numbers are 11 Directors (2007: 12) and 11 employees (2007: 8) who are considered to be key management as they
have authority and responsibility for planning, directing and controlling the Group or key subsidiaries.
Directors
52 weeks to
2 February
2008
£m
53 weeks to
3 February
2007
£m
Aggregate emoluments
Company contributions to money purchase pension schemes
3.2
–
2.9
0.1
Total
3.2
3.0
Full disclosure of Directors’ remuneration is given on page 36 of the Directors’ Remuneration Report, which forms part of these
financial statements.
6.
Exceptional Items
52 weeks to
2 February
2008
£m
53 weeks to
3 February
2007
£m
‘A-day’ pension credit
Woolworths property income
Competition Commission and restructuring costs
Capital contribution to 2 entertain arising on joint venture
–
8.6
(8.4)
(3.4)
8.7
–
–
–
Total exceptional items before taxation
(3.2)
8.7
Taxation
(0.1)
(2.6)
Total exceptional items after taxation
(3.3)
6.1
Woolworths Group plc
Annual report and accounts 2008
58.
NOTES TO THE GROUP ACCOUNTS (cont’d)
6.
Exceptional Items (cont’d)
During the year Woolworths plc has completed sale and leaseback agreements for the properties in Jersey and Guernsey. The profit from these
transactions has been included within the income statement as an exceptional item.
The expected costs of restructuring the Entertainment Wholesale business following the acquisitions of THE and Bertrams, and the subsequent
referral of the Bertrams acquisition to the Competition Commission, have been treated as exceptional items within the income statement.
On formation of 2 entertain Limited, the Group agreed to guarantee the value of the business transferred to 2 entertain Limited for a period
of three years to September 2007. A provision of £5.2 million was recognised during 2005/06 in respect of the second and third years.
An additional provision of £3.4 million has been provided for within these financial statements. This has been charged to the income statement
as an exceptional item, which is consistent with the treatment in 2005/06. The provision was fully settled during the year.
During the prior year a past service credit of £8.7 million (£6.1 million net of taxation) arising from the ‘A-Day’ legislation changes was included
in the prior year income statement as an exceptional item.
7.
Income Tax Expense
Analysis of charge in period
52 weeks to 2 February 2008
Before
exceptional Exceptional
items
items
£m
£m
53 weeks to 3 February 2007
Total
£m
Before
exceptional
items
£m
Exceptional
items
£m
Total
£m
Current tax
Deferred tax
(4.1)
–
(0.1)
–
(4.2)
–
(1.4)
1.6
–
(2.6)
(1.4)
(1.0)
Total taxation (charge)/credit
(4.1)
(0.1)
(4.2)
0.2
(2.6)
(2.4)
52 weeks to
2 February
2008
£m
53 weeks to
3 February
2007
£m
Tax on items (charged)/credited to equity
Deferred
Deferred
Deferred
Deferred
tax
tax
tax
tax
charge on share-based payments
charge on pension scheme actuarial gains
adjustment to 28% on defined benefit scheme
(charge)/credit on movement in derivatives
Total deferred tax charge
(0.1)
(4.8)
(1.8)
(1.7)
(0.1)
(11.9)
–
0.1
(8.4)
(11.9)
The taxation charge for the year is higher (2007: lower) than the standard rate of Corporation Tax in the UK (30 per cent). The differences are
explained below:
52 weeks to
2 February
2008
£m
53 weeks to
3 February
2007
£m
Profit before income tax
11.7
16.0
Profit multiplied by rate of corporation tax in the UK of 30% (2007: 30%)
(3.5)
(4.8)
Effects of:
Adjustments to tax in respect of prior periods
Adjustments in respect of foreign tax rates
Expenses not deductible for tax purposes
Adjustments in respect of property disposals
Impact of unwinding deferred tax at 28%
Utilisation of brought forward losses
2.7
(0.4)
(5.9)
2.2
0.2
0.5
5.6
(0.5)
(2.7)
–
–
–
Total income tax expense
(4.2)
(2.4)
Woolworths Group plc
Annual report and accounts 2008
59.
NOTES TO THE GROUP ACCOUNTS (cont’d)
8.
Dividends
52 weeks to
2 February 2008
Dividends proposed
Interim
Final
Dividends paid
Interim
Final
53 weeks to
3 February 2007
Pence per
share
£m
Pence per
share
£m
0.43
0.17
6.2
2.5
0.43
1.34
6.2
19.4
0.60
8.7
1.77
25.6
0.43
1.34
6.3
19.4
0.43
1.34
6.2
19.4
1.77
25.7
1.77
25.6
The Directors are proposing a final dividend in respect of the financial year ended 2 February 2008 of 0.17 pence (2007: 1.34 pence) per
share which will absorb an estimated £2.5 million of shareholders’ funds. Subject to shareholder approval, it will be paid on 25 June 2008 to
members registered at the close of business on 11 April 2008. These financial statements do not reflect this proposed dividend.
9.
Earnings per Share
Basic
Basic earnings per share is calculated by dividing the profit attributable to equity shareholders of the Company by the weighted average
number of ordinary shares in issue during the year, excluding interest in own shares purchased by the Woolworths Group Employment Share
Ownership Plan (ESOP) to meet obligations under Employee Share Schemes which are accounted for as treasury shares.
Diluted
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all
dilutive potential ordinary shares. The Company has only one category of dilutive potential shares – share options. For the share options, a
calculation is undertaken to determine the number of shares that could have been acquired at fair value (determined as the average annual
market share price of the Company’s shares) based on the monetary value of the subscription rights attached to the outstanding share options.
The number of shares calculated is compared with the number of shares that would have been issued assuming the exercise of the
share options.
Adjusted
Adjusted earnings per share excludes the fixed rental uplift adjustment, the amortisation of certain intangible assets arising on consolidation,
namely underlying rights, customer relationships and trade names, and the effect of exceptional items. An IFRIC pronouncement in September
2005 required the total minimum payments across the entire lease term to be recognised on a straight-line basis across the life of the lease.
Woolworths Group plc
Annual report and accounts 2008
60.
NOTES TO THE GROUP ACCOUNTS (cont’d)
9.
Earnings per Share (cont’d)
Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below:
2008
Earnings
£m
Weighted
average
number of
shares
m
2007
Earnings
£m
Weighted
average
number of
shares
m
Per share
amount
(pence)
Per share
amount
(pence)
Basic EPS
Earnings attributable to ordinary shareholders
Effect of dilutive securities
7.5
–
1,451.1
–
0.5
–
13.5
–
1,448.9
0.8
0.9
–
Diluted EPS
7.5
1,451.1
0.5
13.5
1,449.7
0.9
7.5
5.6
1,451.1
–
0.5
0.4
13.5
7.4
1,448.9
–
0.9
0.5
4.3
3.3
–
–
0.3
0.2
2.7
(6.1)
–
–
0.2
(0.4)
20.7
1,451.1
1.4
17.5
1,448.9
1.2
7.5
5.6
1,451.1
–
0.5
0.4
13.5
7.4
1,449.7
–
0.9
0.5
4.3
3.3
–
–
0.3
0.2
2.7
(6.1)
–
–
0.2
(0.4)
20.7
1,451.1
1.4
17.5
1,449.7
1.2
Goodwill on
acquisition of
subsidiaries
£m
Goodwill on
acquisition
of joint
ventures
£m
Total
£m
Cost
At 4 February 2007
Adjustment to purchase consideration
Adjustment to fair value
60.2
(0.1)
0.3
38.3
–
–
98.5
(0.1)
0.3
At 2 February 2008
60.4
38.3
98.7
Impairment
At 4 February 2007 and at 2 February 2008
(31.2)
(6.6)
(37.8)
29.2
31.7
60.9
Goodwill on
acquisition of
subsidiaries
£m
Goodwill on
acquisition
of joint
ventures
£m
Total
£m
Cost
At 29 January 2006
Acquisition of Subsidiaries
Adjustment to purchase consideration
31.2
29.0
–
38.5
–
(0.2)
69.7
29.0
(0.2)
At 3 February 2007
60.2
38.3
98.5
Impairment
At 29 January 2006 and at 3 February 2007
(31.2)
(6.6)
(37.8)
29.0
31.7
60.7
Adjusted earnings per share
Basic EPS
Fixed rent adjustment (net of tax)*
Amortisation of intangible assets arising on consolidation
(net of tax)*
Exceptional items (net of tax)
Adjusted basic EPS
Diluted EPS
Fixed rent adjustment (net of tax)*
Amortisation of intangible assets arising on consolidation
(net of tax)*
Exceptional items (net of tax)
Adjusted diluted EPS
* The above items include the related impact of the change in deferred tax rate.
10. Goodwill
Net book amount
At 2 February 2008
Net book amount
At 3 February 2007
Woolworths Group plc
Annual report and accounts 2008
61.
NOTES TO THE GROUP ACCOUNTS (cont’d)
10. Goodwill (cont’d)
The acquired goodwill arising on the acquisition of subsidiaries and the joint venture has been tested for impairment with reference to the value
in use, in accordance with IAS 36 as follows:
THE impairment was tested based on the specific five-year projected pre-taxation cash flows of the cash generating unit which includes EUK,
as cash flows can not be separately identified. These cash flows have been discounted using an applicable pre-taxation rate of return of 7.70
per cent (2007: 7.50 per cent).
Bertrams impairment was tested based on the specific ten-year projected pre-taxation cash flows of the underlying business, with no growth assumed
in years five to ten. These cash flows have been discounted using an applicable pre-taxation rate of return of 7.70 per cent (2007: 7.50 per cent).
The acquired goodwill arising on the acquisition of the joint venture has been tested for impairment based on the specific five-year projected
pre-taxation cash flows of the underlying business, approved by management of the joint venture and discounted using an applicable pretaxation rate of return of 7.70 per cent (2007: 7.50 per cent).
The Directors are of the opinion that there is no impairment of goodwill required based on the levels of headroom calculated.
The goodwill above is split into the following cash generating units:
2 entertain
EUK/THE
Bertrams
52 weeks to
2 February
2008
£m
53 weeks to
3 February
2007
£m
31.7
10.7
18.5
31.7
10.7
18.3
60.9
60.7
Total
intangible
assets
£m
11. Other Intangible Assets
Customer
relationships
£m
Tradename
and brand
£m
Underlying
rights
£m
Purchased
copyrights
and licences
£m
Computer
software
£m
Cost
At 4 February 2007
Additions
Disposals
22.9
–
–
19.9
–
–
30.1
–
–
6.4
1.9
–
105.4
8.4
(0.1)
184.7
10.3
(0.1)
At 2 February 2008
22.9
19.9
30.1
8.3
113.7
194.9
Amortisation
At 4 February 2007
Charge for the year
(0.9)
(4.1)
(4.5)
(1.2)
(7.0)
(3.0)
(3.9)
(1.9)
(84.4)
(4.9)
(100.7)
(15.1)
At 2 February 2008
(5.0)
(5.7)
(10.0)
(5.8)
(89.3)
(115.8)
17.9
14.2
20.1
2.5
24.4
79.1
Customer
relationships
£m
Tradename
and brand
£m
Underlying
rights
£m
Purchased
copyrights
and licences
£m
Computer
software
£m
Total
intangible
assets
£m
Cost
At 29 January 2006
Acquisition of subsidiaries
Additions
–
22.9
–
15.0
4.9
–
30.1
–
–
4.1
–
2.3
99.7
0.7
5.0
148.9
28.5
7.3
At 3 February 2007
22.9
19.9
30.1
6.4
105.4
184.7
Amortisation
At 29 January 2006
Charge for the year
–
(0.9)
(3.7)
(0.8)
(4.0)
(3.0)
(2.2)
(1.7)
(75.2)
(9.2)
(85.1)
(15.6)
At 3 February 2007
(0.9)
(4.5)
(7.0)
(3.9)
(84.4)
(100.7)
22.0
15.4
23.1
2.5
21.0
84.0
Net book amount
At 2 February 2008
Net book amount
At 3 February 2007
Woolworths Group plc
Annual report and accounts 2008
62.
NOTES TO THE GROUP ACCOUNTS (cont’d)
11. Other Intangible Assets (cont’d)
Amortisation of £9.5 million (2007: £12.7 million) is included within administrative expenses, £2.7 million (2007: £2.9 million) is included within
cost of goods sold and £2.9 million (2007: £0.0 million) is included within selling and marketing costs.
Of the other intangible assets, £50.4 million (2007: £56.6 million) is held within the Entertainment Wholesale and Publishing segment and £28.7
million within Retail (2007: £27.4 million).
The customer relationships acquired as a result of the THE acquisition were valued based on specific customer contracts and customer
relationships with no written contracts having an assessed life of two to five years. There are a number of large contracts which have been
separately identified with an average length of two to three years. Customer relationships are stated at cost less amortisation. Amortisation is
calculated on a straight-line basis over the period of the underlying contract term. A review of impairment has been undertaken. No provision is
considered necessary based on the benefit that will be derived from the ongoing use of these intangible assets.
Intangible assets acquired as a result of the Bertrams acquisition relate to customer relationships, a trade name and computer software. These assets
are stated at cost less amortisation with amortisation calculated on a straight-line basis over the useful economic life. The useful economic life of the
trade name is ten years, the useful economic life of the customer relationships are between five to ten years and software has a useful economic life of
five years. No provision is considered necessary based on the benefit that will be derived from the ongoing use of these intangible assets.
The principal brand name within the Retail segment is Ladybird and this is being amortised over twenty years.
Underlying rights relate to 2 entertain’s access to the BBC Worldwide archive, which is being amortised over ten years.
The purchased copyrights and licences relate to production rights for music and video, which are being written off over three to ten years.
Computer software is being amortised over seven years, with internally generated software costs representing £4.1 million of additions in the
year (2007: £4.2 million) and £16.5 million of the closing net book amount (2007: £14.9 million).
At 2 February 2008, the average remaining life of the other intangible assets was five years.
During the year, the Group revised the economic lives of certain computer software. This reduced the amortisation charge for the year by £5.0 million.
12. Property, Plant and Equipment
Land and
buildings
£m
Fixtures,
fittings and
equipment
£m
Cost
At 4 February 2007
Additions
Disposals
19.1
5.2
(3.6)
693.4
24.8
(16.9)
712.5
30.0
(20.5)
At 2 February 2008
20.7
701.3
722.0
Depreciation
At 4 February 2007
Charge for the year
Disposals
(2.7)
(0.2)
0.5
(398.1)
(29.7)
6.6
(400.8)
(29.9)
7.1
At 2 February 2008
(2.4)
(421.2)
(423.6)
18.3
280.1
298.4
Land and
buildings
£m
Fixtures,
fittings and
equipment
£m
Total
£m
7.3
2.4
9.4
–
651.8
5.3
59.7
(23.4)
659.1
7.7
69.1
(23.4)
19.1
693.4
712.5
Depreciation
At 29 January 2006
Charge for the year
Reversal of impairment
Disposals
(2.5)
(0.2)
–
–
(382.4)
(40.4)
3.0
21.7
(384.9)
(40.6)
3.0
21.7
At 3 February 2007
(2.7)
(398.1)
(400.8)
16.4
295.3
311.7
Total
£m
Net book amount
At 2 February 2008
Cost
At 29 January 2006
Acquisition of subsidiaries
Additions
Disposals
At 3 February 2007
Net book amount
At 3 February 2007
Woolworths Group plc
Annual report and accounts 2008
63.
NOTES TO THE GROUP ACCOUNTS (cont’d)
12. Property, Plant and Equipment (cont’d)
Depreciation expense of £2.0 million (2007: £4.1 million) has been charged in costs of sales, £20.1 million (2007: £35.0 million) in selling and
marketing costs, and £7.8 million (2007: £1.5 million) in administrative expenses.
During the year ended 2 February 2008 the Group revised the useful economic lives of certain computers, electronic and distribution centre
equipment. This revision reduced the depreciation charge for the year by £6.8 million.
During the prior year the Group revised the useful economic lives of certain store fixture and fittings from 10 years to 20 years. This revision
reduced the depreciation charge for the year by £2.9 million (2007:£5.8 million).
Assets held under finance leases have the following net book amount:
2 February
2008
£m
3 February
2007
£m
Cost
Accumulated depreciation
5.7
(1.3)
4.3
(0.5)
Net book amount
4.4
3.8
13. Fixed Asset Investments
Fixed asset
investments
£m
At 3 February 2007 and 2 February 2008
0.2
The Group’s shareholding in DX3 Technologies Limited is 4 per cent (2007: 4 per cent).
14. Investments in Subsidiaries
Investments in subsidiaries are stated at cost and eliminated on consolidation. All subsidiaries are consolidated. The Directors consider that
to give full particulars of all subsidiary undertakings would lead to a statement of excessive length. The following information relates to those
subsidiary undertakings and joint ventures whose results or financial position, in the opinion of the Directors, principally affect the figures of the
Group and have been disclosed in accordance with Section 231(5)(6) of the Companies Act 1985. Woolworths Group plc does not hold direct
investments in any of the principal subsidiaries noted below. A full list of investments will be attached to the Annual Return:
Company
Principal subsidiaries
Entertainment UK Limited
Total Home Entertainment
Distribution Limited
Bertram Group Limited
Woolworths Media plc (formerly VCI plc)
Woolworths Group Finance Limited
Woolworths plc
Flogistics Limited
WMS Jersey Limited
Woolworths Group Asia Limited
Woolworths Insurance (Guernsey) Limited
Woolworths Jersey Finance Limited
Entertainment Plus (Guernsey) Limited
Principal joint venture
2 entertain Limited
Country of
incorporation
and operation
% owned and
voting rights
Description
of share and
classes owned
Main activity
Great Britain
100
Ordinary
Wholesaling
Great
Great
Great
Great
Great
Great
Britain
Britain
Britain
Britain
Britain
Britain
Jersey
Hong Kong
Guernsey
Jersey
Guernsey
100
100
100
100
100
100
100
100
100
100
100
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Wholesaling
Wholesaling
Holding company
Finance
Retailing
Sale of gift vouchers
Internet retailing
Product sourcing
Insurance
Finance
Internet retailing
Great Britain
40
Ordinary
Publishing
Woolworths Group plc
Annual report and accounts 2008
64.
NOTES TO THE GROUP ACCOUNTS (cont’d)
15. Inventories
Raw materials
Work in progress
Finished goods
2 February
2008
£m
3 February
2007
£m
1.6
1.5
387.9
1.8
0.3
375.0
391.0
377.1
The Group has a collateralised borrowing facility (note 20). In case of default under the loan agreement, the lender has the right to receive the
future cash flows from the sale of inventories.
The cost of inventories recognised as expense and included in ‘cost of sales’ amount to £2,798.1 million (2007: £2,545.4 million). Within
finished goods inventories, £65.0 million (2007: £80.6 million) are carried at fair value less costs to sell being lower than cost.
16. Trade and Other Receivables
2 February
2008
£m
3 February
2007
£m
Amounts due within one year:
Trade receivables
Less: provision for impairment of trade receivables
363.5
(16.4)
249.4
(7.6)
Trade receivables – net
Receivables from joint venture
Other receivables
Prepayments and accrued income
347.1
1.5
52.3
43.6
241.8
2.0
22.9
36.8
444.5
303.5
Management considers that the fair value of trade receivables approximates to their carrying value.
Management have reviewed concentrations of credit risk within trade receivables with reference to the status of the underlying debtors.
The Group has a collateralised borrowing facility (note 20). In case of default under the loan agreement, the lender has the right to receive the
cash flows from receivable cash receipts. Without default the entities will collect the receivables and allocate new assets as collateral.
As at 2 February 2008, trade receivables of £20.5 million (2007: £19.3 million) were impaired. The amount of the provision against trade
receivables was £16.4 million as of 2 February 2008 (2007: £7.6 million). The individually impaired receivables mainly relate to wholesalers in
difficult economic situations. The ageing of these receivables is as follows:
No more than 3 months
More than 3 months but no more than 6 months
More than 6 months but no more than 12 months
More than 12 months
2 February
2008
£m
3 February
2007
£m
5.6
4.5
7.8
2.6
8.6
4.1
4.8
1.8
20.5
19.3
As of 2 February 2008, trade receivables of £215.4 million (2007: £111.8 million) were past due but not impaired. These relate to a number
of independent customers for whom there is no recent history of default. The ageing analysis of these trade receivables is as follows:
No more than 3 months
More than 3 months but no more than 6 months
More than 6 months but no more than 12 months
More than 12 months
2 February
2008
£m
3 February
2007
£m
212.2
2.8
0.3
0.1
112.6
(1.0)
0.2
–
215.4
111.8
Woolworths Group plc
Annual report and accounts 2008
65.
NOTES TO THE GROUP ACCOUNTS (cont’d)
16. Trade and Other Receivables (cont’d)
The carrying amounts of the Group’s trade and other receivables are denominated in the following currencies:
Pounds Sterling
2 February
2008
£m
3 February
2007
£m
444.5
303.5
2 February
2008
£m
3 February
2007
£m
Movements on the Group provision for impairment of trade receivables are as follows:
At 4 February 2007
Provision for receivables impairment
Receivables written off during the year as uncollectible
Unused amounts reversed
(7.6)
(13.1)
3.9
0.4
(13.1)
(3.5)
3.1
5.9
At 2 February 2008
(16.4)
(7.6)
£12.4 million relating to the creation and release of provision for impaired receivables has been included in ‘cost of sales’ and £0.3 million has
been included in administrative expenses. Amounts charged to the allowance account are generally written off, when there is no expectation of
recovering additional cash.
17. Derivative Financial Instruments
Numerical financial instruments disclosures are set out below. Additional disclosures are set out in the accounting policies relating to risk
management.
2 February 2008
Assets
£m
Forward foreign exchange contracts – cash flow hedges
Credit vouchers
Current portion
Liabilities
£m
3 February 2007
Assets
£m
Liabilities
£m
2.8
–
–
(18.2)
–
–
(4.0)
(23.5)
2.8
(18.2)
–
(27.5)
2.8
(18.2)
–
(27.5)
Forward foreign exchange contracts
The net fair value gain at 2 February 2008 on open forward foreign exchange contracts that hedge the foreign currency risk of anticipated
future purchases are £2.8 million (2007: £4.0 million losses). These will be transferred to the income statement when the related purchases are
realised as cost of goods sold.
Credit vouchers
The fair value of outstanding credit vouchers at 2 February 2008 is the unredeemed face value of all credit vouchers issued and redeemable
outside of the Group that have not been extinguished, as these are all payable on demand if presented for redemption.
Woolworths Group plc
Annual report and accounts 2008
66.
NOTES TO THE GROUP ACCOUNTS (cont’d)
18. Cash and Cash Equivalents
Cash at bank and in hand
Short-term bank deposits
Short-term liquidity fund investments
2 February
2008
£m
3 February
2007
£m
15.7
1.7
21.8
–
4.3
24.1
39.2
28.4
Short-term liquidity fund investments are held in AAA rated funds that give instant access to cash.
The effective interest rate on short-term bank deposits was 5.33 per cent (2007: 5.15 per cent), reflecting an 18 basis point increase in the
base rate year on year. These deposits have an average maturity of one day (2007: three days).
The short-term liquidity fund investments consist of £6.0 million held by Woolworths Insurance (Guernsey) Limited (2007: £10.9 million) which is
subject to restrictions and £15.8 million held by 2 entertain Limited (2007: £13.2 million) which is subject to restrictions for the Group.
The short-term bank deposits are held by 2 entertain Limited and are subject to restrictions for the Group. Included within short-term bank
deposits in the prior year was £0.9m held by 2 entertain Limited which was subject to restrictions for the Group.
19. Current Asset Investments
Current asset investments
2 February
2008
£m
3 February
2007
£m
4.5
–
Current asset investments relate to short-term bank deposits held by Woolworths Insurance (Guernsey) Limited that have a maturity period
greater than three months.
20. Borrowings
2 February
2008
£m
3 February
2007
£m
Current
Bank loans and overdrafts due within one year or on demand:
Unsecured:
Bank overdraft
Bank borrowings
Secured:
Obligations under finance leases
Collateralised borrowing (note 16)
–
–
1.3
115.4
0.7
126.1
1.1
12.0
Total due within one year
126.8
129.8
Non-current
Secured:
Bank borrowings
Obligations under finance leases
33.9
2.2
–
1.9
Total due after more than one year
36.1
1.9
162.9
131.7
Total borrowings
The Group has collateralised borrowing facilities up to £370 million (2007: £40 million) which enable the Company to receive funds in respect
of available assets. This comprises of a £350 million asset based lending facility, established in January 2008 and a £20 million invoice
discounting facility available to Bertrams. The £350 million facility matures in January 2012, with an option to extend for a further year.
Collateralised borrowings are stated net of issue costs of £9.9 million.
The non-current bank borrowings represent the £35 million 2nd lien loan which matures in 2012.
Bank borrowings are stated net of issue costs of £1.1 million.
Finance leases are held at fixed rates of interest.
The current and non-current secured borrowings are secured by fixed and floating charges over primarily stock and debtors.
Woolworths Group plc
Annual report and accounts 2008
67.
NOTES TO THE GROUP ACCOUNTS (cont’d)
20. Borrowings (cont’d)
The exposure of the Group to interest rate changes when borrowings are repriced is as follows:
1 year
1–5 years
5 years
Total
As at 2 February 2008
Total borrowings
Fixed rate borrowings
126.8
(0.7)
36.1
(2.2)
–
–
162.9
(2.9)
Net exposure to interest rate changes (including effect of interest swap)
126.1
33.9
–
160.0
1 year
1–5 years
5 years
Total
Total borrowings
Fixed rate borrowings
129.8
(1.1)
1.9
(1.9)
–
–
131.7
(3.0)
Net exposure to interest rate changes (including effect of interest swap)
128.7
–
–
128.7
2 February
2008
%
3 February
2007
%
–
–
19.54
8.55
13.39
6.25
6.68
–
6.25
7.80
2 February
2008
£m
3 February
2007
£m
162.9
131.7
As at 3 February 2007
The effective interest rates based on average forecast borrowings are as follows:
Bank overdraft
Bank borrowings (unsecured)
Bank borrowings (secured)
Collateralised borrowing
Finance leases
The carrying amount of the Group’s borrowings are denominated in the following currencies:
Pounds sterling
Maturity of financial liabilities
The maturity profile of the carrying amount of the Group’s non-current liabilities at 2 February 2008 was as follows:
2 February 2008
In more than one year but not more than two years
In more than two years but not more than five years
In more than five years
3 February 2007
Debt
£m
Finance
leases
£m
Total
£m
Debt
£m
Finance
leases
£m
Total
£m
–
33.9
–
0.7
1.5
–
0.7
35.4
–
–
–
–
0.6
1.2
0.1
0.6
1.2
0.1
33.9
2.2
36.1
–
1.9
1.9
2 February
2008
£m
3 February
2007
£m
The minimum lease payments under finance leases fall due as follows:
Not later than one year
Later than one year but not more than five
More than five years
Future finance charges on finance leases
0.8
2.0
0.4
(0.3)
1.1
2.1
0.1
(0.3)
Present value of finance lease liabilities
2.9
3.0
Fair value of non-current borrowings
2 February 2008
3 February 2007
Book value
£m
Fair value
£m
Book value
£m
Fair value
£m
Obligations under finance leases
Bank borrowings
2.2
33.9
2.2
43.4
1.9
–
1.9
–
Total
36.1
45.6
1.9
1.9
The fair value of current borrowings equals their carrying amount, as the impact of discounting is not significant.
Woolworths Group plc
Annual report and accounts 2008
68.
NOTES TO THE GROUP ACCOUNTS (cont’d)
20. Borrowings (cont’d)
Borrowing facilities
The Group has the following undrawn committed borrowing facilities available at 2 February 2008 in respect of which all conditions precedent
had been met at that date:
Floating rate
— expiring between one and two years
— expiring in more than two years
2 February
2008
£m
3 February
2007
£m
–
234.0
–
109.6
234.0
109.6
2 February
2008
£m
3 February
2007
£m
399.6
14.0
73.6
74.0
71.9
255.3
–
80.9
77.3
76.9
633.1
490.4
78.2
72.4
78.2
72.4
The facilities incur commitment fees at market rates.
21. Trade and Other Payables
Current:
Trade creditors
Amounts owed to joint ventures
Other tax and social security
Other creditors
Accruals
Non-current:
Accruals
Management considers that the fair value of trade and other payables approximates to their carrying value.
Non-current accruals relate to the fixed rental uplifts on property leases, which are charged to the income statement on a straight-line basis
over the lease term.
The carrying amount of the Group’s non-current liabilities at 2 February 2008 and 3 February 2007 mature in more than five years.
22. Current Income Tax Liabilities
Current tax liabilities
2 February
2008
£m
3 February
2007
£m
5.6
1.4
Onerous
property
contracts
£m
Total
£m
23. Provisions for Other Liabilities and Charges
Out of Town
restructuring
£m
Insurance
£m
Guarantees
arising on
joint venture
£m
At 4 February 2007
Charged to income statement
Unwinding of discount
Utilised during the year
27.7
–
0.6
(4.0)
8.0
2.8
–
(3.7)
5.2
3.4
–
(8.6)
0.7
0.8
–
(0.2)
41.6
7.0
0.6
(16.5)
At 2 February 2008
24.3
7.1
–
1.3
32.7
2 February
2008
£m
3 February
2007
£m
9.5
23.2
8.5
33.1
32.7
41.6
Provisions have been analysed between current and non-current as follows:
Current
Non-current
Woolworths Group plc
Annual report and accounts 2008
69.
NOTES TO THE GROUP ACCOUNTS (cont’d)
23. Provisions (cont’d)
Restructuring
The £24.3 million out-of-town restructuring provision remaining at 2 February 2008 recognises the expected costs of the reconfiguration of the
out-of-town stores and the majority of this is expected to crystallise within the next two years.
Insurance
This includes self-insurance provisions, which represent the aggregate of outstanding claims plus a projection of losses incurred but not
reported. Self-insurance provisions are expected to be utilised over a two to three year period.
Guarantees arising on joint venture
A further provision of £3.4 million was recognised in the year in respect of additional capital contributions for shares issued by 2 entertain
Limited on formation of the joint venture, relating to the guaranteed value of the business transferred to 2 entertain Limited. The liability has
been incurred during the year end 2 February 2008 after the guarantee period ended in September 2007.
Onerous property contracts
Within the onerous property contracts provision, the Group has provided against future liabilities for all long-term idle properties and properties
sublet at a shortfall. The provision is based on the discounted value of future cash outflows relating to rent, rates and service charges based on
the remaining period of the leases, which at 2 February 2008 range between one and ten years.
24. Deferred Income Tax
Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 28 per cent (2007: 30 per cent).
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and
when the deferred taxes relate to the same fiscal authority.
The movement on the deferred tax account is as shown below:
Note
At 4 February 2007
Income statement charge
Tax charge to equity
Acquisition of subsidiary
7
33
At 2 February 2008
2 February
2008
£m
3 February
2007
£m
1.0
–
(8.4)
–
22.8
(1.0)
(11.9)
(8.9)
(7.4)
1.0
Deferred tax assets have been recognised in respect of temporary differences, where it is probable that these assets will be recovered.
The movement in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same
tax jurisdiction, is as follows:
Pensions
£m
Property
leases
£m
Financial
instruments
£m
Other
£m
At 4 February 2007
(Charged)/credited to the income statement
Charged to equity
25.2
0.1
(6.6)
28.0
(0.2)
–
2.2
0.7
(1.7)
3.9
(2.9)
(0.1)
59.3
(2.3)
(8.4)
At 2 February 2008
18.7
27.8
1.2
0.9
48.6
Total
£m
Deferred tax assets
Total
£m
Trade name
and brand
£m
Computer
software
£m
Revaluation
of property
£m
Customer
relationships
£m
Accelerated
tax
depreciation
£m
Underlying
rights
£m
Rolled over
gains
£m
At 4 February 2007
Credited/(charged) to the
income statement
(1.5)
(0.2)
(0.3)
(6.6)
(21.7)
(6.9)
(21.1)
(58.3)
0.3
–
(0.1)
1.5
(0.5)
1.3
(0.2)
2.3
At 2 February 2008
(1.2)
(0.2)
(0.4)
(5.1)
(22.2)
(5.6)
(21.3)
(56.0)
Deferred tax liabilities
Included within deferred tax assets and deferred tax liabilities are amounts of £48.4 million (2007: £58.9 million) and £53.4 million
(2007: £53.5 million) respectively, for amounts expected to reverse after more than one year.
The Group has pre-acquisition losses brought forward, which have not been recognised as a deferred tax asset as recoverability is considered
uncertain. At 2 February 2008 this asset amounts to £8.9 million (2007: £9.7 million)
Woolworths Group plc
Annual report and accounts 2008
70.
NOTES TO THE GROUP ACCOUNTS (cont’d)
24. Deferred Tax (cont’d)
The deferred tax credited to equity during the year is as follows:
52 weeks to
2 February
2008
£m
Deferred
Deferred
Deferred
Deferred
tax
tax
tax
tax
charge on share-based payments
charge on pension scheme actuarial gains
adjustment to 28% on defined benefit scheme
credit/(charge) on movement in derivatives
53 weeks to
3 February
2007
£m
(0.1)
(4.8)
(1.8)
(1.7)
(0.1)
(11.9)
–
0.1
(8.4)
(11.9)
The Chancellor’s Budget Statement on 21 March 2007 announced the reduction in the rate of Corporation Tax from 30 per cent to 28 per
cent with effect from 1 April 2008.
25. Retirement Benefit Obligations
A number of pension schemes operate within the Group. These are the Woolworths Group Pension Scheme (a defined benefit scheme),
the Woolworths Group Retirement Trust (a defined contribution scheme), the Legal & General Stakeholder Plan for Woolworths Group
employees, the Total Home Entertainment Group Pension Scheme (a defined contribution scheme) and the Bertram Group Personal Pension
Scheme (a defined contribution scheme). Colleagues who joined after 3 June 2003 are no longer eligible to join the Woolworths Group
Retirement Trust, although existing membership is allowed to continue at present.
The pension costs for the defined contribution scheme are as follows:
Defined contribution schemes
52 weeks to
2 February
2008
£m
52 weeks to
3 February
2007
£m
0.4
0.3
The most recent valuation of the Woolworths Group Pension Scheme was performed by Hewitt Associates as at 2 February 2008.
The principal assumptions made are:
52 weeks to 53 weeks to
2 February
3 February
2008
2007
% per annum % per annum
Discount rate
Expected return on plan assets
Future salary increases
Future pension increases
– Pre April 2006 service
– Post April 2006 service
Inflation assumption
6.4
7.6
3.9
5.5
7.7
3.5
3.3
2.4
3.3
2.9
2.3
2.9
The main financial assumption is the real discount rate, i.e. the excess of the discount rate applied (6.4 per cent) over the inflation rate applied
(3.3 per cent). If this net rate increased/decreased by 0.1%, the pension obligation would decrease/increase by approximately £9.0 million
(before tax) and the annual service cost would decrease/increase by approximately £0.7 million.
The assumptions used for future life expectancy for members have changed since the last accounting disclosures were produced. The
mortality tables adopted for this year are PM/FA92C2018 for current pensioners and PM/FA92C2028 for future pensioners. Further allowances
for improving longevity are included, in the form of “medium cohort” mortality improvements.
— the assumed average age at death for a current 60 year old pensioner is 86.4 for a male (previously 85.6) and 89.3 for a female
(previously 88.5);
— the assumed average age at death for current active and deferred members when they reach age 60 is 87.1 for a male (previously 86.4)
and 89.9 for a female (previously 89.2).
An allowance has been made for commutation (members taking tax-free cash rather than pension at retirement). This has been allowed for
in the following way:
— the effect of introducing an allowance for commutation at pre 6 April 2006 levels has been incorporated on to the balance sheet via the
SoRIE. For this purpose, we have assumed that 15 per cent of the retirement pension is converted to lump sum with the remaining 85 per
cent taken as pension; and
Woolworths Group plc
Annual report and accounts 2008
71.
NOTES TO THE GROUP ACCOUNTS (cont’d)
25. Retirement Benefit Obligations (cont’d)
— the effect of allowing for the increased commutation lump sums after 6 April 2006 has been incorporated on to the balance sheet via the
income statement. For this purpose, we have assumed that the amount of retirement pension taken as a lump sum increases to 25 per cent
with the remaining 75 per cent taken as pension.
The majority of scheme assets are invested in equities with an expected rate of return of 8.25 per cent per annum (2007: 8.5 per cent
per annum).
The expected return on scheme assets is based on market expectation at the beginning of the period for returns over the entire life of the
benefit obligation.
The amounts recognised in the balance sheet are determined as follows:
2 February
2008
£m
Present value of funded obligations
Fair value of scheme assets
3 February
2007
£m
(383.7)
316.8
(400.0)
316.0
Present value of unfunded obligations (gross)
Deferred tax (note 24)
(66.9)
18.7
(84.0)
25.2
Net deficit
(48.2)
(58.8)
The major categories of scheme assets as a percentage of total scheme assets are as follows:
2 February
2008
%
3 February
2007
%
67.5
20.2
12.3
72.0
18.2
9.8
52 weeks to
2 February
2008
£m
53 weeks to
3 February
2007
£m
Equities
Bonds
Other
The pension scheme assets include ordinary shares issued by Woolworths Group plc with a fair value of £nil (2007: £nil).
The amounts recognised in the income statement are as follows:
Current service cost
Past service credit
Expected return on scheme assets
Interest cost
17.6
–
(22.9)
22.3
22.1
(8.7)
(21.1)
19.8
Total included in staff costs (note 5)
17.0
12.1
Employer pension contributions include amounts that most pension scheme members have agreed to sacrifice from their salary with
a corresponding amount paid directly to the pension scheme by their employing company.
Of the total charge, £17.6 million (2007: £13.4 million) is included in selling, marketing and administrative expenses, with a £0.6 million
credit (2007: £1.3 million credit) included in interest payable and similar charges. The prior year past service credit of £8.7 million reflects the
effect of the ‘A day’ reforms to pensions in relation to the increased amount of future pension which can be commuted into a lump sum on
retirement. This reduces the anticipated cost of meeting the pension scheme’s ongoing obligations.
Changes in the present value of the defined benefit obligations are as follows:
52 weeks to
2 February
2008
£m
53 weeks to
3 February
2007
£m
Opening present value of obligation
Service cost
Interest cost
Net benefits paid out
Contributions by scheme participants
Past service cost
Actuarial gains on scheme liabilities
(400.0)
(17.6)
(22.3)
10.3
(1.1)
–
47.0
(416.8)
(22.1)
(19.8)
9.6
(1.2)
8.7
41.6
Present value of obligation at 2 February 2008 and 3 February 2007
(383.7)
(400.0)
Woolworths Group plc
Annual report and accounts 2008
72.
NOTES TO THE GROUP ACCOUNTS (cont’d)
25. Retirement Benefit Obligations (cont’d)
Changes in the fair value of the scheme assets are as follows:
52 weeks to
2 February
2008
£m
53 weeks to
3 February
2007
£m
Opening fair value of scheme assets
Expected return on scheme assets
Contributions by the employer
Contributions by scheme participants
Benefits paid
Actuarial losses on scheme assets
316.0
22.9
17.0
1.1
(10.3)
(29.9)
285.9
21.1
19.5
1.2
(9.6)
(2.1)
Fair value of scheme assets at 2 February 2008 and 3 February 2007
316.8
316.0
52 weeks to
2 February
2008
£m
53 weeks to
3 February
2007
£m
The movement in the liability recognised in the balance sheet is as follows:
Beginning of the year
Net actuarial gains on scheme assets/liabilities
Total expenses charged in the income statement
Contributions paid by employer
(84.0)
17.1
(17.0)
17.0
(130.9)
39.5
(12.1)
19.5
End of the year
(66.9)
(84.0)
Cumulative actuarial gains and losses recognised in the statement of recognised income and expense:
52 weeks to
2 February
2008
£m
53 weeks to
3 February
2007
£m
Beginning of the year
Net actuarial gains in the year
7.8
17.1
(31.7)
39.5
End of the year
24.9
7.8
53 weeks to
3 February
2007
52 weeks to
28 January
2006
52 weeks to
29 January
2005
The actual return on scheme assets was £(7.0) million (2007: £19.0 million).
History of experience gains and losses:
52 weeks to
2 February
2008
Experience adjustments arising on scheme assets:
Amount (£m)
Percentage of scheme assets
(29.9)
9.4%
(2.1)
0.7%
32.2
11.2%
2.7
1.2%
Experience adjustment arising on scheme liabilities:
Amount (£m)
Percentage of the present value of the scheme liabilities
(1.8)
0.5%
1.1
0.3%
(13.5)
3.2%
5.8
1.8%
(383.7)
316.8
(400.0)
316.0
(416.8)
285.9
(320.8)
223.3
(66.9)
(84.0)
(130.9)
(97.5)
Year-end position
Present value of scheme liabilities (£m)
Fair value of scheme assets (£m)
Deficit (£m)
The contributions expected to be paid during the financial year ending 31 January 2009 amounts to £17.7 million.
Woolworths Group plc
Annual report and accounts 2008
73.
NOTES TO THE GROUP ACCOUNTS (cont’d)
26. Ordinary Shares
Number
of shares
m
Nominal
value
£m
Authorised
Ordinary shares of 12.5 pence each at 28 January 2006, 3 February 2007 and 2 February 2008
1,600.0
200.0
Called up and fully paid
At 28 January 2006
Allotted under share option schemes
1,456.9
2.1
182.1
0.3
At 3 February 2007
Allotted under share option schemes
1,459.0
–
182.4
–
At 2 February 2008
1,459.0
182.4
There were no ordinary shares issued during the year.
Potential issues of ordinary shares
Certain current and former Senior Executives hold options to subscribe for shares in the Company at prices ranging from 30.5 pence to
50.0 pence under the Executive Share Option Schemes approved by shareholders in 2001 and 2002. In addition, 4,028 employees hold
options to subscribe for shares in the Company at prices ranging from 30.0 pence to 40.5 pence under the ShareSave Plan. No options were
exercised in the 52 weeks ending 2 February 2008. The number of shares which may potentially be issued on exercise of options, the periods
in which they were granted and the periods in which they may be exercised are given below:
Share Options outstanding at the end of the period
Potential
share issues
2008
(number)
Potential
share issues
2007
(number)
Date of
Grant
Exercise
price
(pence)
Executive Share Options
26/09/01
24/04/02
11/09/02
27/03/03
11/09/03
25/03/04
30.5
50.0
31.5
30.5
43.5
41.5
26/09/04
24/04/05
11/09/05
27/03/06
11/09/06
25/03/07
–
–
–
–
–
–
25/09/11
23/04/12
10/09/12
26/03/13
10/09/13
24/03/14
394,966
3,429,099
1,882,757
–
–
2,572,415
394,966
4,076,878
2,336,165
4,150,162
4,780,171
4,628,747
ShareSave Options
27/05/03
28/05/04
27/05/05
02/06/06
01/06/07
34.5
40.5
36.0
33.0
30.0
01/08/06
01/08/07
01/08/08
01/08/09
01/08/10
–
–
–
–
–
31/01/07
31/01/08
31/01/09
31/01/10
31/01/11
–
115,694
7,590,925
7,476,462
9,201,276
292,731
6,118,714
9,359,301
9,719,818
–
32,663,594
45,857,653
Exercise period
Senior Executives also hold share awards made under the Woolworths Group Annual Incentive Plan and Performance Share Plan. No new
shares have been or will be issued in respect of these awards.
Employee share-based payment plans
The total charge for the year relating to employee share-based payment plans was £1.3 million (2007: £1.2 million), all of which related to
equity-settled, share-based payment transactions. After deferred tax, the total charge was £1.4 million (2007: £1.0 million). Further details
of the share-based payment plans are provided in the Directors’ Remuneration Report.
Share options
Under the Executive Share Option Schemes, participants were granted options on a half-yearly basis depending on their position in the
Group. The option exercise price was the market price at the time of the grant. Subject to the attainment of performance targets, options are
capable of exercise after at least three years and within ten years of the date of grant. For options granted after September 2001, the
performance target is growth in Earnings per Share (EPS) as defined in the relevant scheme rules. For full vesting, EPS must increase
by a minimum of 6 per cent per annum (in addition to the increase in the Retail Prices Index). There is a facility for one retest at the fourth
anniversary of grant. No further options have been granted since 25 March 2004.
Woolworths Group plc
Annual report and accounts 2008
74.
NOTES TO THE GROUP ACCOUNTS (cont’d)
26. Ordinary Shares (cont’d)
Share options (cont’d)
Under the ShareSave Plan, eligible UK employees can enter into an Inland Revenue approved savings contract for a period of three years
whereby shares may be acquired with repayments under the contract. The option exercise price is the average market price over three days
shortly before an offer is made. No discount has been applied and the options are exercisable within a six-month period from the date the
savings contract matures.
The rules of the Executive Share Option Schemes and ShareSave Plan include provision for the early exercise of options in certain
circumstances.
Options were valued using the Black-Scholes option-pricing model. No performance conditions were included in the fair value calculations.
The expected volatility is based on historical volatility over the last three years. The expected life is the average expected period to exercise.
The risk-free rate of return is the yield on zero-coupon UK government bonds of a term consistent with the assumed option life. Options for
ShareSave participants who cease their savings contracts are treated as having been forfeited. The fair value per option granted during the
year and the assumptions used in the calculation are as follows:
ShareSave options
Share price at grant date
Exercise price
Shares under option
Vesting period (years)
Expected volatility
Option life (years)
Expected life (years)
Risk-free rate
Expected dividends expressed as a dividend yield
Fair value per option
Possibility of ceasing employment before vesting
Expectations of meeting performance criteria
2008
2007
30.0p
30.0p
10,147,536
3.18
30%
3.6
3.3
4.7%
6.3%
3.6p
40%
100%
33.0p
33.0p
15,547,427
3.18
30%
3.6
3.3
4.7%
5.6%
5.6p
46%
100%
A reconciliation of option movements over the year to 2 February 2008 is shown below:
2008
Number
of options
(000’s)
At start of the year
Granted
Forfeited
Exercised
Outstanding at end of the year
Exercisable at end of the year
46,928
10,147
(23,422)
–
33,653
6,896
2007
Weighted
average
exercise
price
Number
of options
(000’s)
Weighted
average
exercise
price
37.6
30.0
37.9
–
35.1
40.8
60,813
10,547
(22,086)
(2,346)
46,928
10,556
38.6
33.0
38.8
31.3
37.6
41.4
The table above includes 990,000 options outstanding at the end of the year which will be satisfied by shares held in the ESOP should they
be exercised.
2008
2007
Range of
exercise
price
Weighted
average
exercise
price
Number
of shares
30.0p–50.0p
35.1p
33,653
Weighted
average
contractual
remaining
life
Range of
exercise
price
Weighted
average
exercise
price
Number
of shares
Weighted
average
contractual
remaining
life
2.8 years 30.5p–50.0p
37.6p
46,928
4.0 years
The weighted average share price during the period for options exercised over the year was not applicable as there were no options exercised
(2007: 35.1 pence).
Woolworths Group plc
Annual report and accounts 2008
75.
NOTES TO THE GROUP ACCOUNTS (cont’d)
26. Ordinary Shares (cont’d)
Share Awards
Share Awards have been made under six different Incentive Plans, with further details of these Plans given in the Directors’ Remuneration Report:
— the Performance Share Plan, under which awards are made every six months to Directors of operating companies in the Group. The awards
will vest dependent on the achievement of Earnings per Share (EPS) targets and Total Shareholder Return (TSR) targets;
— the Annual Incentive Plan, under which awards are made to Directors and Senior Executives following the announcement of the annual
results. Awards vest after three years with no further performance targets;
— the Share Award Plan, under which awards were made in September 2007 to over 1,000 managers in the Group. Awards vest on 31 March
2010 with no performance targets;
— the Long Term Incentive Plan for Trevor Bish-Jones, under which awards were made in September 2005. In June 2008 one-third of the
award will vest with no performance target and the remaining two-thirds will vest if TSR targets are met;
— the Share Investment Plan for Senior Executives, under which awards were made in July 2007; and
— The Long Term Incentive Plan for Tony Page, under which an award was made in October 2006. The award will vest in August 2009 with
no performance target.
The fair value for all Share Awards has been determined as the share price at the award date less the expected dividends to be paid over the
life of the award. For awards where there is a TSR performance condition the Group have adjusted the fair value used to reflect the likelihood
of this condition being achieved for awards made in the current year. The assumptions used in the calculation are as follows:
2008
2007
Performance
Share Plans
Date of award
Share price at award date
Shares subject to the award
Vesting period (years)
Award life (years)
Expected life (years)
Expected dividends expressed
as a dividend yield
Fair value per award
Expectations of meeting
performance criteria
Performance
Share Plans
12/04/07
30.5p
1,930,049
3
3
3
12/04/07
30.5p
1,930,049
3
3
3
24/09/07
20.0p
3,183,925
3
3
3
24/09/07
20.0p
3,183,295
3
3
3
27/04/06
34.0p
2,335,382
3
3
3
20/10/06
36.0p
1,691,014
3
3
3
20/10/06
36.0p
1,691,014
3
3
3
5.74%
25.7p
5.74%
25.7p
8.85%
15.3p
8.85%
15.3p
5.26%
29.0p
4.95%
31.0p
4.95%
31.0p
22.50%
11.25%
22.50%
11.25%
22.50%
22.50%
11.25%
2007
Annual Incentive Plan
Date of award
Share price at award date
Shares subject to the award
Vesting period (years)
Award life (years)
Expected life (years)
Expected dividends expressed as a dividend yield
Fair value per award
Expectations of meeting performance criteria
06/04/06
27/04/06
34.5p
992,525
3
3
3
4.93%
34.0p
271,907
3
3
3
5.26%
29.8p
N/A
29.0p
N/A
Woolworths Group plc
Annual report and accounts 2008
76.
NOTES TO THE GROUP ACCOUNTS (cont’d)
26. Ordinary Shares (cont’d)
Share Awards (cont’d)
2008
Date of award
Share price at award date
Shares subject to the award
Vesting period (years)
Award life (years)
Expected life (years)
Expected dividends expressed as a dividend yield
2007
Share
Investment
Plan
2007
Share
Award
Share
Investment
Plan
T Page
LTIP Award
02/07/07
24/09/07
30/06/06
31/08/06
26.5p
800,831
2
2
2
6.60%
20.0p
5,360,000
2.5
2.5
2.5
8.85%
31.0p
602,353
2
2
2
5.56%
32.5p
923,076
3
3
3
4.95%
23.2p
N/A
16.0p
100%
27.7p
N/A
28.0p
100%
Fair value per award
Expectations of meeting performance criteria
27. Share Premium
£m
At 28 January 2006
Premium on shares issued during the year under the share option schemes
9.3
0.4
At 3 February 2007
Premium on shares issued during the year under the share option schemes
9.7
–
At 2 February 2008
9.7
28. Other Reserves
Other
reserves
£m
Merger
reserves
£m
Total
£m
–
24.1
24.1
(6.2)
4.1
–
–
(6.2)
4.1
At 3 February 2007
Cash flow hedges:
— fair value losses net of tax
— transfer to stock net of tax
(2.1)
24.1
22.0
(0.7)
4.7
–
–
(0.7)
4.7
At 2 February 2008
1.9
24.1
26.0
At 28 January 2006
Cash flow hedges:
— fair value losses net of tax
— transfer to stock net of tax
Other reserves are non-distributable and consist of cash flow hedges.
The merger reserve consists of balances arising as a result of the demerger from Kingfisher.
Woolworths Group plc
Annual report and accounts 2008
77.
NOTES TO THE GROUP ACCOUNTS (cont’d)
29. Retained Earnings
Retained
earnings
£m
At 28 January 2006
Profit for the year
Dividends
Actuarial gain on defined benefit pension scheme
Share-based payments
Sale of own shares held by Trust*
At 3 February 2007
Profit for the year
Dividends
Actuarial gain on defined benefit pension scheme
Deferred tax adjustment to 28% on defined benefit scheme
Share-based payments
Net movement of shares held by Trust*
At 2 February 2008
Shares held Total retained
by Trust
earnings
£m
£m
90.1
13.5
(25.6)
27.7
1.0
–
(3.1)
–
–
–
–
(0.1)
87.0
13.5
(25.6)
27.7
1.0
(0.1)
106.7
(3.2)
103.5
7.5
(25.7)
12.3
(1.8)
1.2
–
–
–
–
–
–
0.5
7.5
(25.7)
12.3
(1.8)
1.2
0.5
100.2
(2.7)
97.5
*Shares held by Trust
Interests in own shares held by Trust represents the cost of 7,270,586 (2007: 8,838,926) of the Company’s ordinary shares. The nominal value
is £0.9 million (2007: £1.1 million). These shares were acquired by a Trust in the open market using funds provided by Woolworths Group plc
to meet obligations under the Employee Share Schemes and they are accounted for as treasury shares. The costs of funding and administering
the scheme are charged to the income statement of the Company in the period to which they relate. The market value of the shares at
2 February 2008 was £0.9 million (2007: £3.0 million). The Trust has waived its rights to dividends.
Woolworths Group plc
Annual report and accounts 2008
78.
NOTES TO THE GROUP ACCOUNTS (cont’d)
30. Statement of Changes in Shareholders’ Equity
Attributable to equity holders of the Company
Share
capital
£m
Share
premium
£m
Other
reserves
£m
Shares held
by Trust
£m
Retained
earnings
£m
Total
£m
Minority
interest
£m
Total
equity
£m
At 28 January 2006
Profit for the year
Dividends
Issue of shares
Cash flow hedges:
— fair value of losses net of tax
— transfer to stock net of tax
Actuarial gain arising on defined
benefit scheme
Share-based payments
Purchase of minority interest
Sale of own shares
held by Trust
182.1
–
–
0.3
9.3
–
–
0.4
24.1
–
–
–
(3.1)
–
–
–
90.1
13.5
(25.6)
–
302.5
13.5
(25.6)
0.7
0.1
0.1
–
–
302.6
13.6
(25.6)
0.7
–
–
–
–
(6.2)
4.1
–
–
–
–
(6.2)
4.1
–
–
(6.2)
4.1
–
–
–
–
–
–
–
–
–
–
–
–
27.7
1.0
–
27.7
1.0
–
–
–
(0.2)
27.7
1.0
(0.2)
–
–
–
(0.1)
–
(0.1)
–
(0.1)
At 3 February 2007
Profit for the year
Dividends
Cash flow hedges:
— fair value of losses
net of tax
— transfer to stock net of tax
Actuarial gain arising on defined
benefit scheme
Deferred tax adjustment to
28% on defined benefit scheme
Share-based payments
Net movement of shares
held by Trust
182.4
–
–
9.7
–
–
22.0
–
–
(3.2)
–
–
106.7
7.5
(25.7)
317.6
7.5
(25.7)
–
–
–
317.6
7.5
(25.7)
–
–
–
–
(0.7)
4.7
–
–
–
–
(0.7)
4.7
–
–
(0.7)
4.7
–
–
–
–
12.3
12.3
–
12.3
–
–
–
–
–
–
–
–
(1.8)
1.2
(1.8)
1.2
–
–
(1.8)
1.2
–
–
–
0.5
–
0.5
–
0.5
At 2 February 2008
182.4
9.7
26.0
(2.7)
100.2
315.6
–
315.6
During the prior year, as part of the joint venture with BBC Worldwide Ltd, the Group funded a £2.8 million acquisition of the minority interest
in Banana Split Productions Limited by 2 entertain Limited.
Woolworths Group plc
Annual report and accounts 2008
79.
NOTES TO THE GROUP ACCOUNTS (cont’d)
31. Cash Generated from Operations
Reconciliation of operating profit to net cash inflow/(outflow) from operating activities:
Profit for the year
Adjustments for:
— Taxation
— Depreciation, amortisation and impairments
— Share-based payments
— Loss on sale of property, plant and equipment
— Interest income
— Interest expense
— ‘A-day’ pension credit
— Other non-cash items
Changes in working capital (excluding the effect of acquisition):
— Inventories
— Trade and other receivables
— Trade and other payables and provisions
Cash generated from/(utilised in) operations
52 weeks to
2 February
2008
£m
53 weeks to
3 February
2007
£m
7.5
13.6
4.2
45.0
1.3
1.9
(4.0)
25.7
–
2.7
2.4
53.2
1.2
1.7
(3.8)
14.5
(8.7)
–
(16.4)
(140.8)
134.6
7.4
(37.9)
(83.2)
61.7
(39.6)
Other non-cash items comprises financial instruments arising from forward foreign exchange contracts, the non-cash element of IAS 19, nonredemption of gift vouchers redeemable outside the Group and the cost of funding and administering ESOP.
32. Net Debt Reconciliation
Group net (debt)/funds comprise the following:
2 February
2008
£m
3 February
2007
£m
Cash and cash equivalents
Bank overdrafts
39.2
–
28.4
(1.3)
Total cash, cash equivalents and bank overdrafts
39.2
27.1
Finance leases
Bank borrowings
Collateralised borrowing
(2.9)
(33.9)
(126.1)
(3.0)
(115.4)
(12.0)
Net debt at end of the year
(123.7)
(103.3)
33. Acquisitions
Total Home Entertainment Distribution Limited (THE)
On 5 September 2006 the Group acquired the entire share capital of AMP Enterprises Limited, the holding company of THE for £20.3 million
from 3i.
A fair value review was carried out on the assets and liabilities of the business, resulting in identification of intangible assets and a deferred tax
liability. The provisional fair values reported in the financial statements for the year ended 3 February 2007 have been revised to take account
of a reduction in purchase consideration of £0.3 million and an increase in provision of £0.3 million.
Bertram Group Limited (Bertrams)
On 17 January 2007 the Group entered into an irrevocable offer for Bertrams with completion taking place on 1 February 2007.
A fair value review was carried out on the assets and liabilities of the business, resulting in identification of intangible assets and a deferred tax
liability. The provisional fair values reported in the financial statements for the year ended 3 February 2007 have been revised to take account of
an increase in purchase consideration of £0.2 million and an increase in goodwill of £0.2 million.
Woolworths Group plc
Annual report and accounts 2008
80.
NOTES TO THE GROUP ACCOUNTS (cont’d)
34. Operating Lease Commitments
The Group leases various retail outlets, offices, warehouses and equipment under non-cancellable operating lease agreements. The leases
have varying terms, escalation clauses and renewal rights.
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
2 February 2008
Total commitments under operating leases
Within one year
Later than one year and not later than five years
After five years
3 February 2007
Land and
buildings
£m
Plant and
equipment
£m
Land and
buildings
£m
Plant and
equipment
£m
161.9
633.2
1,481.8
3.4
7.3
0.3
149.2
599.7
1,812.7
4.4
9.0
0.8
35. Contingent Liabilities
There are no contingent liabilities at the year-end. During the year, a contingent liability reported in the prior year, in connection with 2 entertain,
was fully paid (note 23).
36. Capital and Other Financial Commitments
Capital commitments
Capital commitments contracted but not provided for by the Group amounted to £nil (2007: £nil).
37. Related Party Transactions
The following transactions were carried out with related parties:
Provision of management services to joint venture
2 entertain Limited
Purchases of goods and services from joint ventures
2 entertain Limited
Year-end balances arising from sales/purchases of goods
Payable to joint ventures:
2 entertain Limited
Dividend received from joint ventures
2 entertain Limited
Capital contribution paid to joint ventures
2 entertain Limited
Management fee payable to key management
Willis Management Guernsey Limited
52 weeks to
2 February
2008
£m
53 weeks to
3 February
2007
£m
–
0.1
–
0.1
51.8
39.0
51.8
39.0
12.4
2.0
12.4
2.0
18.5
11.6
18.5
11.6
14.4
–
14.4
–
(0.1)
(0.1)
(0.1)
(0.1)
Woolworths Group plc
Annual report and accounts 2008
81.
NOTES TO THE GROUP ACCOUNTS (cont’d)
38. Financial Instruments
The accounting policies for financial instruments have been applied to the line items below:
Loans and
receivables
£m
Derivatives
used for
hedging
£m
Total
£m
2 February 2008
Assets as per balance sheet
Derivative financial instruments
Trade and other receivables
Current asset investments
Cash and cash equivalents
–
363.5
4.5
39.2
2.8
–
–
–
2.8
363.5
4.5
39.2
Total
407.2
2.8
410.0
Derivatives
used for
hedging
£m
Other
financial
liabilities
£m
Total
£m
2 February 2008
Liabilities as per balance sheet
Borrowings
Derivative financial instruments
Trade and other payables
–
–
–
162.9
18.2
711.3
162.9
18.2
711.3
Total
–
892.4
892.4
Loans and
receivables
£m
Derivatives
used for
hedging
£m
Total
£m
3 February 2007
Assets as per balance sheet
Derivative financial instruments
Trade and other receivables
Cash and cash equivalents
–
249.4
28.4
–
–
–
–
249.4
28.4
Total
277.8
–
277.8
Derivatives
used for
hedging
£m
Other
financial
liabilities
£m
Total
£m
3 February 2007
Liabilities as per balance sheet
Borrowings
Derivative financial instruments
Trade and other payables
–
4.0
–
131.7
23.5
562.8
131.7
27.5
562.8
Total
4.0
718.0
722.0
Woolworths Group plc
Annual report and accounts 2008
82.
FIVE YEAR RECORD (UNAUDITED)
IFRS
2007
£m
IFRS
2006
£m
IFRS
2005
£m
UK GAAP
2004
£m
2,969.6
(2,245.5)
2,737.0
(2,045.8)
2,630.7
(1,934.7)
2,742.4
(2,015.5)
2,774.7
(1,995.9)
Gross profit
724.1
691.2
696.0
726.9
778.8
Selling and marketing costs
Administrative expenses
Other operating income
(585.3)
(134.2)
28.8
(567.7)
(120.3)
23.5
(534.1)
(112.9)
21.9
(560.2)
(177.5)
19.0
(578.8)
(138.4)
14.1
Operating profit
Share of operating profit in joint venture
33.4
–
26.7
–
70.9
–
8.2
–
75.7
1.2
Operating profit including joint ventures
Non-operating exceptional items
33.4
–
26.7
–
70.9
–
8.2
–
76.9
–
Profit before interest
Net finance costs
33.4
(21.7)
26.7
(10.7)
70.9
(9.4)
8.2
(11.1)
76.9
(10.2)
Profit/(loss) before income tax
Income tax expense
11.7
(4.2)
16.0
(2.4)
61.5
(20.2)
(2.9)
(4.6)
66.7
(20.6)
Profit/(loss) for the year from continuing operations
Discontinued operations
7.5
–
13.6
–
41.3
(31.1)
(7.5)
(0.6)
46.1
–
Profit/(loss) for the year
7.5
13.6
10.2
(8.1)
46.1
Attributable to:
Equity holders of the Company
Minority interests
7.5
–
13.5
0.1
10.1
0.1
(8.3)
0.2
46.1
–
Earnings/(loss) per share (pence)
Basic
Diluted
Adjusted basic
0.5
0.5
1.4
0.9
0.9
1.2
0.7
0.7
2.8
(0.6)
(0.6)
3.3
3.3
3.3
3.5
Balance sheet
Goodwill
Other intangible assets
Property, plant and equipment
Fixed asset investments
Deferred income tax assets
60.9
79.1
298.4
0.2
–
60.7
84.0
311.7
0.2
1.0
31.9
63.8
274.2
0.2
22.8
31.8
68.5
287.2
0.2
9.4
45.9
12.8
323.7
0.2
–
Total fixed assets
438.6
457.6
392.9
397.1
382.6
Net current assets
Non-current liabilities
Non-current borrowings
81.4
(168.3)
(36.1)
51.4
(191.4)
–
133.2
(222.5)
(1.0)
202.4
(167.5)
(99.6)
201.0
(27.8)
(98.5)
Net assets
315.6
317.6
302.6
332.4
457.3
Total shareholders’ equity
Minority interest in equity
315.6
–
317.6
–
302.5
0.1
332.4
–
457.1
0.2
Total equity
315.6
317.6
302.6
332.4
457.3
IFRS
2008
£m
Income statement
Continuing operations
Revenue
Cost of goods sold
Notes:
1. 2004 has been restated for the reclassification of advertising contributions from suppliers between cost of sales and selling expenses and the
impact of UITF 38 ‘Accounting for ESOP Trusts’.
2. 2004 earnings per share has been restated to reflect the effect of dilutive shares.
3. 2005 has been restated for the effect of the disposal of MVC.
4. 2005 has been restated for the effect of IFRS, primarily the adjustments arising on the application of IAS 19 on pensions,
SIC 15 on leases and the IFRIC fixed rentals uplift pronouncement.
Woolworths Group plc
Annual report and accounts 2008
INDEPENDENT AUDITORS’ REPORT
to the Members of Woolworths Group plc (the ‘Company’)
We have audited the parent company financial statements of Woolworths Group plc for the period ended 2 February 2008 which comprise the Company
Balance Sheet and the related Notes to the Company Accounts. These parent company financial statements have been prepared under the accounting
policies set out therein. We have also audited the information in the Directors’ Remuneration Report that is described as having been audited.
We have reported separately on the group financial statements of Woolworths Group plc for the period ended 2 February 2008.
Respective responsibilities of directors and auditors
The directors’ responsibilities for preparing the Annual Report, the Directors’ Remuneration Report and the parent company financial statements in
accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in
the Statement of Directors’ Responsibilities.
Our responsibility is to audit the parent company financial statements and the part of the Directors’ Remuneration Report to be audited in
accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). This report, including the
opinion, has been prepared for and only for the company’s members as a body in accordance with Section 235 of the Companies Act 1985 and for
no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this
report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
We report to you our opinion as to whether the parent company financial statements give a true and fair view and whether the parent company
financial statements and the part of the Directors’ Remuneration Report to be audited have been properly prepared in accordance with the
Companies Act 1985. We also report to you whether in our opinion the information given in the Directors' Report is consistent with the parent
company financial statements.
In addition we report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the information and
explanations we require for our audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed.
We read other information contained in the Annual Report and consider whether it is consistent with the audited parent company financial
statements. The other information comprises the Directors’ Report, the Chairman’s Statement, the Corporate Governance Statement and the
unaudited part of the Directors’ Remuneration Report. We consider the implications for our report if we become aware of any apparent
misstatements or material inconsistencies with the parent company financial statements. Our responsibilities do not extend to any other information.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit
includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the parent company financial statements and the part
of the Directors’ Remuneration Report to be audited. It also includes an assessment of the significant estimates and judgments made by the
directors in the preparation of the parent company financial statements, and of whether the accounting policies are appropriate to the company’s
circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the parent company financial statements and the part of the Directors’ Remuneration Report to
be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the
overall adequacy of the presentation of information in the parent company financial statements and the part of the Directors’ Remuneration Report
to be audited.
Opinion
In our opinion:
•
the parent company financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice,
of the state of the company’s affairs as at 2 February 2008;
•
the parent company financial statements and the part of the Directors’ Remuneration Report to be audited have been properly prepared in
accordance with the Companies Act 1985; and
•
the information given in the Directors' Report is consistent with the parent company financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
London
2 April 2008
83.
Woolworths Group plc
Annual report and accounts 2008
84.
COMPANY BALANCE SHEET
at 2 February 2008 and 3 February 2007
Note
2 February
2008
£m
3 February
2007
£m
Fixed assets
Tangible fixed assets
Investment in subsidiary
3
4
–
205.8
–
205.0
Current assets
Debtors
Cash at bank and in hand
5
6
396.9
46.0
443.8
2.7
442.9
446.5
(358.2)
(3.1)
(331.2)
(3.2)
(361.3)
(334.4)
81.6
112.1
287.4
317.1
182.4
9.7
24.1
71.2
182.4
9.7
24.1
100.9
287.4
317.1
Current liabilities
Creditors due within one year
Financial instruments
7
9
Net current assets
Net assets
Capital and reserves
Called up share capital
Share premium
Merger reserve
Profit and loss account
10
11
11
11
Equity shareholders’ funds
The financial statements on pages 84 to 90 were approved by the Board of Directors on 2 April 2008 and were signed on its behalf by:
Stephen East
Finance Director
Richard North
Chairman
Woolworths Group plc
Annual report and accounts 2008
NOTES TO THE COMPANY ACCOUNTS
Accounting Policies for the Year Ended 2 February 2008
The financial statements of the Company are prepared under the historical cost convention and are prepared in accordance with applicable
accounting standards in the United Kingdom and the Companies Act 1985. The principal accounting policies adopted in the presentation of these
financial statements are set out below, together with an explanation of where changes have been made to previous policies on the adoption of new
accounting standards in the year. These policies have been consistently applied to all years presented, unless otherwise stated.
Basis of Preparation
The financial statements of the Company are made up to the nearest Saturday to 31 January each year. The financial year for 2008 represents the
52 weeks ended 2 February 2008. The comparative financial year for 2007 was the 53 weeks ended 3 February 2007.
A separate Company Profit and Loss Account, dealing with the results of Woolworths Group plc (the Company) have not been presented,
as permitted by Section 230 of the Companies Act 1985.
Dividends
Dividend income is recognised when the right to receive payment is established.
Investment in Subsidiaries
Investment in subsidiaries includes the cost of share-based payments in respect of the ordinary shares of Woolworths Group plc that have been
granted to employees of companies of which Woolworths Group plc is the ultimate parent undertaking and controlling party.
Subsidiaries are all entities over which the Company has the power to govern the financial and operating policies, generally accompanying
a shareholding of more than one half of the voting rights.
The investments are stated at cost less provision for impairment. An impairment review is performed if and when required by Directors.
Fixtures, Fittings and Equipment
Tangible fixed assets are stated at cost less accumulated depreciation. Depreciation of tangible fixed assets is provided where it is necessary
to reflect a reduction from book value to the estimated residual value over the estimated useful life of the asset to the Company.
Depreciation of tangible fixed assets is calculated by the straight-line method and the annual rates applicable to the principal categories are
between 10 per cent and 50 per cent.
Current Taxation
The taxation charge for the current year is based on the results for the year as adjusted for items which are non-assessable or disallowed.
It is calculated using the rates that have been enacted by the balance sheet date.
Deferred Taxation
Deferred taxation is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and
their carrying amounts in the consolidated financial statements. The deferred tax is determined using tax rates that have been enacted by the
balance sheet date and are expected to apply when the deferred tax asset is realised or the deferred tax liability is settled.
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences
can be utilised.
Pensions
The Company is a member of the Woolworths Group Pension Scheme (‘WGPS’) and the defined contribution scheme of Woolworths Group plc,
the Woolworths Group Retirement Trust (‘WGRT’).
All employees are entitled to join the WGPS after completion of one year’s service. The WGPS is a defined benefit pension scheme. The Company
also facilitates a Stakeholder pension arrangement for employees and makes contributions to a defined contribution pension scheme, the WGRT,
which was closed to new entrants in June 2003 and currently has no active members (2007: 63 active members).
As the Company is unable to identify its share of the underlying assets and liabilities of WGPS on a measurable and consistent basis, the exemption
allowed under FRS 17 has been taken so that the pension costs charged to the income statement of the Company is the contribution payable to
WGPS. Recognition of all the Scheme assets and obligations under FRS 17 has been included in the financial statements of Woolworths plc, the
company in the Group that employs the majority of active members of the scheme. Detailed disclosures in respect of the WGPS are also included
in the financial statements of Woolworths plc.
85.
Woolworths Group plc
Annual report and accounts 2008
86.
NOTES TO THE COMPANY ACCOUNTS (cont’d)
Share-based Payments
The Company no longer grants share options under its Executive Share Option Schemes. Instead, Share Awards are made to senior management
which vest dependent in part on performance targets being met. A Savings Related Share Option Scheme, which is open to all UK employees,
continues to operate. The fair value of all share-based payments is recognised as an employee expense, with a corresponding increase in the profit
and loss account reserve over the vesting period. The proceeds received on the exercise of share options, net of any directly attributable transaction
costs, are credited to the share capital and share premium accounts. Costs incurred in respect of share-based payments to employees of subsidiary
undertakings are recognised as a cost of investment in subsidiaries in the Company financial statements. Disclosures in respect of Share Options
are given within the notes to the Group accounts.
ESOP
The Employee Share Ownership Plan (‘ESOP’) is a separately administered trust. Liabilities of the ESOP are guaranteed by the Company and the
assets of the ESOP mainly comprise shares in the Company. The purchase of shares for the trust is shown as a movement in retained earnings.
Financial Risk Management
Disclosure of financial risk management factors and practices are included within the accounting policies outlined in the Group financial statements.
Financial Instruments
The fair values of short-term deposits, loans, and overdrafts with a maturity of less than one year are assumed to approximate to their book values.
The fair value of credit vouchers in issue is the face value of the instruments that remain unredeemed and unextinguished at the balance sheet date.
Going Concern
The Directors confirm that, after making enquiries, they have a reasonable expectation that the Group has adequate resources to continue in
operational existence for the forseeable future. For this reason they continue to adopt the going concern basis in preparing these accounts.
1.
Profit/Loss on Ordinary Activities Before Taxation
Loss/profit on ordinary activities before taxation is stated after charging:
Fee payable to Company auditors for the audit of parent company and consolidated accounts
52 weeks to
2 February
2008
£m
53 weeks to
3 February
2007
£m
0.2
0.1
52 weeks to
2 February
2008
£m
53 weeks to
3 February
2007
£m
2.8
0.3
–
0.4
2.7
0.3
0.3
0.3
3.5
3.6
Retained loss for the year was £5.8m (2007: profit of £43.7m), including dividend income of £nil (2007: £50.0m).
2.
Employee Benefit Expense
Wages and salaries
Social security costs
Pension costs
Share-based payments
As noted in the accounting policies, the Company has taken the exemption allowed under FRS 17 to account for the pension cost in respect
of the defined benefit scheme in accordance with the contributions payable. Detailed disclosures in respect of this scheme are included in the
financial statements of Woolworths plc. The present value of the defined benefit obligation of the scheme at 2 February 2008 was £383.7 million
(2007: £400.0 million) and the total market value of assets at 2 February 2008 was £316.8 million (2007: £316.0 million).
The employee benefit expense given above includes Directors.
Woolworths Group plc
Annual report and accounts 2008
87.
NOTES TO THE COMPANY ACCOUNTS (cont’d)
2.
Employee Benefit Expense (cont’d)
Directors
52 weeks to
2 February
2008
£m
53 weeks to
3 February
2007
£m
Aggregate emoluments
Company contributions to money purchase pension schemes
1.6
–
1.6
0.1
Total
1.6
1.7
Full disclosure of Directors’ remuneration is given on page 36 of the Directors’ Remuneration Report, which forms part of these financial
statements.
2 February
2008
Number
3 February
2007
Number
24
22
Headcount
Average monthly headcount
3.
Tangible Fixed Assets
Fixtures,
fittings and
equipment
£m
4.
Cost
At 3 February 2007 and 2 February 2008
0.1
Depreciation
At 3 February 2007 and 2 February 2008
(0.1)
Net book amount
At 3 February 2007 and 2 February 2008
–
Investment in Subsidiary
In accordance with Financial Reporting Standard 20 ‘Share-based Payment’ the Company has recognised as an expense, the fair value of any
share-based payments made to its employees.
The fair value attributable to share-based payments made to the employees of its subsidiary undertaking has been capitalised as an investment
in subsidiary. The Directors believe the net book value of the subsidiary is not less than the value of the underlying assets.
2 February
2008
£m
3 February
2007
£m
At start of the year
Addition in the year
205.0
0.8
204.0
1.0
At end of the year
205.8
205.0
Company
Country of
incorporation
and operation
Description
%
owned and
voting rights
of share
and classes
owned
Main activity
Sandelcroft Limited
Great Britain
100
Ordinary
Holding company
A more comprehensive list of companies of which Woolworths Group plc is the ultimate parent undertaking and controlling party is included
in the consolidated financial statements (note 14).
Woolworths Group plc
Annual report and accounts 2008
88.
NOTES TO THE COMPANY ACCOUNTS (cont’d)
5.
Debtors
Amounts falling due within one year:
Owed by subsidiary undertakings
Corporation tax
Other debtors
Prepayments and accrued income
Deferred tax
2 February
2008
£m
3 February
2007
£m
396.0
–
0.3
0.1
0.5
442.5
0.2
0.4
–
0.7
396.9
443.8
The Directors consider that it is more likely than not that there will be sufficient taxable profits in future such as to realise the deferred tax asset.
Within amounts owed by subsidiary undertakings, £212.4 million (2007: £211.0 million) carries an interest rate of base rate plus 1.65 per cent.
6.
Cash at Bank and in Hand
Cash at bank and in hand
7.
2 February
2008
£m
3 February
2007
£m
46.0
2.7
2 February
2008
£m
3 February
2007
£m
237.9
0.1
2.1
3.0
–
115.1
259.4
1.5
–
0.6
69.7
–
358.2
331.2
Creditors Due Within One Year
Owed to subsidiary undertakings
Other creditors
Corporation tax
Accruals
Term Loan (see note 8)
Collateralised borrowing (see note 8)
Amounts owed to subsidiary undertakings carries an interest rate of base rate less 0.5 per cent.
Woolworths Group plc
Annual report and accounts 2008
89.
NOTES TO THE COMPANY ACCOUNTS (cont’d)
8.
Borrowings
Bank borrowings
Collateralised borrowing
2 February
2008
£m
3 February
2007
£m
–
115.1
69.7
–
Bank borrowings include drawings from the Group’s asset based lending credit facility. The £350 million asset based lending facility was
established in January 2008 and matures in January 2012 with the option to extend by one year. The effective interest rate based on average
forecast borrowing is 8.55 per cent.
All of the Company’s borrowings are denominated in Sterling.
The fair value of borrowings due after more than one year at 2 February 2008 and at 3 February 2007 was £nil.
The Company, as borrower on behalf of the Group, has the following undrawn committed borrowing facilities at 2 February 2008 that incur
commitment fees at market rates in respect of which all conditions precedent had been met at that date.
Floating rates
— Expiring between one and two years
— Expiring in more than two years
9.
2 February
2008
£m
3 February
2007
£m
–
225.0
–
155.3
225.0
155.3
Financial Instruments
Numerical financial instruments disclosures are set out below. Additional disclosures are set out within the Financial Risk Management section
(page 52).
2 February 2008
Assets
£m
3 February 2007
Liabilities
£m
Assets
£m
Liabilities
£m
Credit vouchers
–
(3.1)
–
(3.2)
Current portion
–
(3.1)
–
(3.2)
The fair value of outstanding credit vouchers at 2 February 2008 and at 3 February 2007 is the unredeemed face value of all credit vouchers
issued that have not been extinguished, as these are all payable on demand if presented for redemption.
10. Share Capital
Number
of shares
£m
Ordinary
shares
£m
Authorised
Ordinary shares of 12.5 pence each at 2 February 2008 and 3 February 2007
1,600.0
200.0
Called up and fully paid
At 3 February 2007 and 2 February 2008
1,459.0
182.4
Woolworths Group plc
Annual report and accounts 2008
90.
NOTES TO THE COMPANY ACCOUNTS (cont’d)
11. Reconciliation of Movement in Shareholders’ Funds
Share
capital
£m
Share
premium
£m
Merger
reserve
£m
Profit and
loss
account
£m
At 28 January 2006
Retained profit for the year
Dividends
Share-based payments net of tax
Issue of shares
Sale of own shares held by Trust *
182.1
–
–
–
0.3
–
9.3
–
–
–
0.4
–
24.1
–
–
–
–
–
81.9
43.7
(25.6)
1.0
–
(0.1)
297.4
43.7
(25.6)
1.0
0.7
(0.1)
At 3 February 2007
182.4
9.7
24.1
100.9
317.1
–
–
–
–
–
–
–
–
–
–
–
–
(5.8)
(25.7)
1.3
0.5
(5.8)
(25.7)
1.3
0.5
182.4
9.7
24.1
71.2
287.4
Retained loss for the year
Dividends
Share-based payments
Net movement of shares held by Trust *
Balance at 2 February 2008
Total
£m
*Shares held by Trust
Interests in own shares held by Trust represents the cost of 7,270,586 (2007: 8,838,926) of the Company’s ordinary shares. The nominal value
is £0.9 million (2007: £1.1 million). These shares were acquired by the Trust in the open market using funds provided by Woolworths Group plc
to meet obligations under the Employee Share Schemes and they are accounted for as treasury shares. The costs of funding and administering
the Scheme are charged to the profit and loss account of the Company in the period to which they relate. The market value of the shares at
2 February 2008 was £0.9 million (2007: £3.0 million). The Trust has waived its rights to dividends.
12. Dividends
52 weeks to
2 February 2008
Dividends proposed
Interim
Final
Dividends paid
Interim
Final
53 weeks to
3 February 2007
Pence per
share
£m
Pence per
share
£m
0.43
0.17
6.2
2.5
0.43
1.34
6.2
19.4
0.60
8.7
1.77
25.6
0.43
1.34
6.3
19.4
0.43
1.34
6.2
19.4
1.77
25.7
1.77
25.6
The Directors are proposing a final dividend in respect of the financial year ending 2 February 2008 of 0.17 pence (2007: 1.34 pence) per share
which will absorb an estimated £2.5 million of shareholders’ funds. Subject to shareholder approval, it will be paid on 25 June 2008 to
members registered at the close of business on 11 April 2008. These financial statements do not reflect this recommended dividend.
13. Operating Lease Commitments
The Company had no operating lease commitments as at 2 February 2008 (2007: £nil).
14. Contingent Liabilities
The Company had no contingent liabilities as at 2 February 2008 (2007: £nil).
15. Capital and Other Financial Commitments
Capital commitments contracted but not provided for by the Company amounted to £nil (2007: £nil).
16. Related parties
Transactions with other Group companies have not been disclosed as permitted by FRS 8. No disclosure is necessary in the parent’s own
financial statements as these statements are presented together with the consolidated financial statements.
Woolworths Group plc
Annual report and accounts 2008
91.
SHAREHOLDER INFORMATION (UNAUDITED)
Analysis of Shareholders
Number
of Shares
% of total
shares
United Kingdom
North America
Europe
Australia and New Zealand
Rest of World
1,451,839,434
93,987
6,764,376
101,722
189,922
99.51
0.01
0.46
0.01
0.01
Total
1,458,989,441
100.00
Issued capital
1,458,989,441
Geographical breakdown as at 2 February 2008
Range of Shares at 2 February 2008
a)
All origins
Number
of holders
% of total
holders
Number
of shares
% of total
shares
1 – 1000
1001 – 5,000
5,001 – 10,0000
10,001 – 100,000
1001,000 +
18,715
10,790
2,793
2,771
560
52.53
30.28
7.84
7.78
1.57
8,024,872
26,357,225
21,530,617
77,378,563
1,325,698,164
0.55
1.81
1.48
5.30
90.86
Subtotals
35,629
100.00
1,458,989,441
100.00
Register totals
35,629
Range
b)
Certified
Number
of holders
% of total
holders
Number
of shares
% of total
shares
1 – 1000
1001 – 5,000
5,001 – 10,0000
10,001 – 100,000
1001,000 +
18,172
10,091
2,421
1,889
115
55.59
30.87
7.41
5.78
0.35
7,765,822
24,362,163
18,565,945
48,741,967
33,603,763
5.84
18.31
13.95
36.64
25.26
Subtotals
32,688
100.00
133,039,660
100.00
Register totals
35,629
Range
c)
1,458,989,441
1,458,989,441
CREST
Range
1 – 1000
1001 – 5,000
5,001 – 10,0000
10,001 – 100,000
1001,000 +
Subtotals
Register totals
Number
of holders
% of total
holders
Number
of shares
% of total
shares
543
699
372
882
445
18.46
23.77
12.65
29.99
15.13
259,050
1,995,062
2,964,672
28,636,596
1,292,094,401
0.02
0.15
0.22
2.16
97.45
2,941
100.00
1,325,949,781
100.00
35,629
1,458,989,441
Woolworths Group plc
Annual report and accounts 2008
92.
SHAREHOLDER INFORMATION (UNAUDITED) (cont’d)
Payment of Dividends by BACS
Many shareholders have already arranged for dividends to be paid by mandate directly to their bank or building society account. The Company
mandates dividends through the BACS (Bankers’ Automated Clearing Services) system. The benefit to shareholders of the BACS payment method
is that the Registrar posts the tax vouchers directly to them, whilst the dividend is credited on the payment date to the shareholder’s bank or
building society account. Shareholders who have not yet arranged for dividends to be paid direct to their bank or building society account and wish
to benefit from this service should request the Company’s Registrar (address below) to send them a Dividend/Interest mandate form or alternatively
complete the mandate form attached to any future dividend tax voucher.
Dividend Reinvestment Plan
The Company provides a Dividend Reinvestment Plan enabling shareholders to apply their cash dividends to purchase additional ordinary shares
in the market at competitive dealing rates. Full details can be obtained from the Registrar. If you have previously completed a mandate form to join
the Plan, you need take no further action.
Shareholder Information on the Internet
The Company maintains an investor relations zone on its website (www.woolworthsgroupplc.com) which allows access to share price information,
management biographies, copies of Company reports and other useful investor information.
In addition, Computershare Investor Service PLC, the Company Registrar, has introduced a facility where shareholders are able to access details
of their shareholding in the Company over the internet subject to complying with an identity check. This service can be accessed on their website
www.computershare.com.
Woolworths Group plc is a company incorporated, domiciled and registered in England and Wales (Number 03855289).
Registrar
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol
BS99 6ZZ
Tel: 0870 889 3108
www.computershare.com
Registered and Head Office
242 Marylebone Road
London NW1 6JL
Tel: 020 7262 1222
www.woolworthsgroupplc.com
Auditors
PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
1 Embankment Place
London WC2 6RH
Joint Brokers
UBS
1 Finsbury Avenue
London EC2M 2PP
JP Morgan Cazenove
20 Moorgate
London EC2R 6DA
Joint Financial Advisors
UBS
1 Finsbury Avenue
London EC2M 2PP
Solicitors
Freshfields Bruckhaus Deringer
65 Fleet Street
London EC4Y 1HS
Credit Suisse First Boston
One Cabot Square
London E14 4QJ
The paper used in this Annual Report is produced using wood fibre from fully sustainable forests in
Finland, Sweden, Portugal, Spain and Brazil. The pulps used are Elemental Chlorine Free (ECF), and the
manufacturing mill is accredited with the ISO 14001 standard for environmental management and with
EMAS (The EU Environmental Management and Audit System).
Designed and produced by MAGEE
www.magee.co.uk
Printed by PUSH
Woolworths Group plc
Address
242 Marylebone Road
London
NW1 6JL
Telephone
+44 (0)20 7262 1222
Facsimile
+44 (0)20 7706 5416
Woolworths Group plc
2008 ANNUAL REPORT AND ACCOUNTS
www.woolworthsgroupplc.com
2008
ANNUAL REPORT
AND ACCOUNTS