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Woolworths returns to JSE with big plans
The retailer's listing tomorrow will not influence its expansion drive, writes MARCIA KLEIN
The company, which breaks away from parent Wooltru to list separately on the JSE tomorrow, is in the process of a takeover bid for Australian retail chain Country Road, in which it already holds a 19.9% stake. This week it made a bid for the company at A$6.85 a share, equating to an offer of R396-million. The bid has elicited a mixed reaction. The bid is one of a long list of ambitious yet achievable plans which will be that much easier to realise after tomorrow's listing. The listing is aimed at establishing a separate identity for Woolworths and raising its profile locally and internationally, enabling it to be financially independent to take up expansion opportunities on its own. The listing will give staff incentives and provide investors with a choice of Woolworths or Wooltru. Woolworths, with 92 stores in SA, is one of the few retailers in the world which operates on a single brand philosophy and the only store of its kind in SA selling goods under its own brand name. The company, which has a long-term association with Marks & Spencer, recently made its first major investment offshore, the stake in Country Road, which reported R911-million turnover and taxed profits of R414 800 in the year to end-July. Tomorrow Woolworths will list 753.8-million shares in the stores sector under the abbreviation Woolies. Wooltru currently owns 98.3%, with staff holding the balance. It will distribute 43.2% of the issued capital of Woolworths via a dividend in specie to existing shareholders. It requires no additional capital at this stage. This is Woolworths' second visit to the JSE. It was originally listed in 1936, but that listing terminated when it merged with Truworths to form Wooltru in 1981. In the year to June, Woolworths reported turnover of R4.3-billion, 59% of which was textiles (clothing, cosmetics, toiletries, footwear and homeware) and the balance foods. About 70% of its sales are cash, with the balance on its new private label credit card. Attributable income was 17% higher at R229.8-million, translating into earnings of 32.5c a share. The company has produced annual compound growth of 19.1% in pre-tax profits over the past 10 years, and intends to improve its track record. Executive chairman Syd Muller says expansion plans fall into two categories. The first is organic. "We have in the pipeline a number of exciting developments which include a stronger focus on the formalwear market and we will be looking at expanding in the home furnishings business. We have already made a successful entry into kitchenware, crockery and glassware, which we will now roll out more aggressively." In the course of next year Woolworths will enter the fine jewellery and watch market, which produces high profits per square metre. "We can also make further inroads into the toiletries and cosmetics market. We believe we have the capacity, we do not have a big market share and we can grow. With regard to food, Woolworths is introducing "friendlier activities", including an Italian deli, speciality butcheries and loose produce, "to bring the customer closer to our product", says Muller. It is also looking at fish shops and will experiment with in-store bakeries. The second category is new stores, where it has an aggressive programme for the coming financial year. In the year to June, it added three full line stores, five stand alone food stores and six franchises stores. In the coming year, textiles are expected to grow by 23 00mē or 13% and foods by 11 500mē or 28%. "Right now and through the winter trading period textiles have been growing faster than food. We don't put a limit to the market growth of any part of the business, but make an effort with both parts." In its pre-listing statement, Woolworths said the outlook for the consumer market created uncertainty when forecasting earnings. "Free availability of credit has resulted in many consumers being financially over-committed. High interest rates are eroding consumers' disposable income." But the effect of these factors would be minimised by the fact that Woolies' private credit card label sales were only 30% of sales as compared with competitors, whose credit sales were 80% to 90%. The company expects to grow market share in textiles and food as its products are becoming increasingly attractive to a broader customer base and because of opportunities to expand usage of its credit card. Muller says there are a number of other exciting developments. "On systems, we have made exceptional progress especially in the supply chain for textiles. In food, we expect to spend R45-million over the next few years to upgrade the food replenishment systems. We will introduce more food halls and will expand our presence in many more shopping centres. "I hesitate to make earnings projections, but Woolworths has an established management team, we have a great depth of management and we have the ability to grow earnings well. There is an excellent spirit in the organisation, and the listing itself will be a great motivator for people in the business. "The balance sheet is strong notwithstanding taking over the R870-million debtors book (from Standard Bank), acquiring 33 properties from Wooltru for R340-million, buying Country Road and incurred the normal capex (it invested R244.2-million in the business)," says Muller. Gearing is at 34% and the company has significant cash generating ability. "This shows that although we have ambitious plans, we have the wherewithal to do it. We are 60 years old yet are amazingly vibrant after so long," Muller says. Wooltru also plans to list its 394-store fashion retail group Truworths International early next year.
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