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2 0 1 7 A N N U A L R E P O R T Everyone EVERY DAY Woolworths Limited ABN 88 000 014 675 Woolworths Limited ABN 88 000 014 675 CONTENTS SECTION 1 PERFORMANCE HIGHLIGHTS 2017 at a glance 2 Progress against our five key priorities 4 Woolworths 2020 commitments 8 Chairman & CEO Report 10 Group financial performance 12 SECTION 2 BUSINESS REVIEW Australian Food 14 Endeavour Drinks 16 New Zealand Food 17 Portfolio Business — BIG W 18 Portfolio Business — Hotels 19 Discontinued operations 20 Overheads, balance sheet & cash flow 21 Capital management 22 Outlook 23 New store rollout plans 23 Non-IFRS financial information 24 Material business risks 25 SECTION 3 DIRECTORS’ REPORT Governance 26 Board skills and experience 27 Board of Directors 28 Group Executive Committee 30 Directors’ Statutory Report 32 Remuneration Report 34 SECTION 4 FINANCIAL REPORT Auditor's Independence Declaration 52 Financial Report 53 Directors’ Declaration 115 Independent Auditor’s Report 116 SECTION 5 OTHER INFORMATION Five year summary 122 Shareholder information and Corporate Governance Statement 126 Company directory 128 We care deeply about our customers, our team and our communities. Our team members reflect our communities. Their diversity brings rich culture, personality and a vibrant energy to our business. Our report this year features a snapshot of the people who exemplify us. Our team helps us to understand what our customers truly need. We listen and learn, so we can create better experiences together for everyone every day. NUMBER OF "RESOURCING THE FUTURE" PROGRAMS COMPLETED SINCE LAUNCH 150 1 + EMPLOYEES 202,000+ TOTAL RECORDABLE INJURY FREQUENCY RATE (TRIFR) SCORE FOR FY17 12.97 INCREASE IN CUSTOMER TRANSACTIONS – AUSTRALIAN FOOD 5.2% OVERALL CUSTOMER SATISFACTION AS AT JUNE 2017 78% u 3 pts from June 2016 STORE-CONTROLLABLE VOICE OF CUSTOMER % AS AT JUNE 2017 81% u 4 pts from June 2016 NUMBER OF PRODUC TS IN THE LOW PRICE ALWAYS AND PRICES DROPPED PROGRAM S IN AUSTRALIAN FOO D 3,500+ 2017 at a glance Community Our Team Our Customers Our 1 Figures stated relate to the period 11 December 2015 to 7 July 2017. YOUNG EMPLOYEES 77,000+ WOOLWORTHS OWN BRAND PRODUCTS WITH THE HEALTH STAR RATING 2,000+ OWN BRAND PRODUCTS UNDERGONE A NUTRITION RENOVATION 120+ SOLAR POWER GENERATION 1,512Mwh FOOD SAVED FOR MEALS (MILLION MEALS ) 8M STORES WITH UPGRADED HYBRID OR HFC FREE REFRIGERANT SYSTEMS 269WOOLWORTHS RENEWALS COMPLETED IN FY17 91 (including 19 new stores) NUMBER OF INDIGENOUS EMPLOYEES HIRED THROUGH THE PARITY PROGRAM SINCE LAUNCH 952 1 2 HOTELS $1,553M BIG W $3,598M NEW ZEALAND FOOD NZ$6,232M Our Sales FinancialsOur Shareholders Our For endnotes refer to page 24. EARNINGS PER SHARE FROM CONTINUING OPERATIONS BEFORE SIGNIFICANT ITEMS 110.8¢ t 5.1% from 2016 FULL YEAR FULLY FRANKED DIVIDEND PER SHARE 84¢ u 9.1% from 2016 TOTAL DIVIDEND PAYOUT IN RELATION TO FY17 $1.1B u 10.6% from 2016 EARNINGS BEFORE INTER EST AND TAX FROM CONTINU ING OPERATIONS BEFORE SIGNIFICANT ITEMS $2,326M t 4.9% from 2016 TOTAL GROUP PROFIT ATTRIBUTABLE TO SHAREHOLDERS OF WOOLWORTHS $1,534M u from 2016 not meaningful FY17 AUSTRALIAN FOOD COMPARABLE SALES GROWTH 3.6% NET CASH PROVIDED BY OPERATING ACTIVITIES $3.1B u 32.4% from 2016 SALES FROM CONTINUIN G OPERATIONS $55B u 3.7% from 2016 ENDEAVOUR DRINKS $7,913M AUSTRALIAN FOOD $36,371M 1 2 3 4 5 PERFO RM A N CE H IG H LIG H TS BU SIN ESS REV IEW D IRECTO RS' REPO RT FIN A N CIA L REPO RT O TH ER IN FO RM ATIO N 3 W O O LW O RTH S G RO U P A N N U A L REPO RT 20 17 FIVE KEY PRIORITIES 1 Customer and store-led culture and team Progress against our A major focus for the year was to embed a customer and store-led culture within our team and establish ways of working that deliver on the goal to have customers put us first. SAFETY PERFORMANCE Our commitment to improving physical safety and mental health has been a key focus throughout the year. We have continued to invest in new programs and systems to improve safety governance, address our critical risks and develop a culture of care across the Woolworths Group. We have seen significant improvements in this safety performance over the year. FY17 saw customer claims reduce by 19%, a Lost Time Injury Frequency Rate (LTIFR) score of 6.76 and a Total Recordable Injury Frequency Rate (TRIFR) of 12.97. TEAM ENGAGEMENT Driving culture change across the Woolworths Group has been assisted BY the establishment of short and long‑term incentive plans that are aligned to our customer first focus. Team engagement has also improved across the year, with an increase of five points on last year to 82%, measured by our Voice of Team survey. We have seen an uplift in morale across the team, especially in regard to recommending Woolworths as a place to work. As morale and team engagement increases, we have seen team turnover reduce. KEY APPOINTMENTS An important part of driving the culture change was to also align our senior leadership and operating model so as to leverage the specialised skills and experience from within the team. New appointments in 2017 included Woolworths Supermarkets Managing Director, Claire Peters, and Chief Information Officer, John Hunt. They also join the reinvigorated Woolworths Group Executive Committee that includes key internal appointments that provide an essential balance of representatives between business, service and group functions. WOOLIESX The Woolworths Group is focused on the importance of digital and what we need to do to better serve our increasingly “connected customers” to create shopping experiences that are personalised, seamless and convenient. In response to this, we have combined our Digital and Loyalty businesses under the new banner of WooliesX. Bringing these two agile and specialist teams together will allow us to focus on accelerating growth from digital and provide a compelling offer to our customers. VOICE OF TEAM ENGAGEMENT SCORE 82% TOTAL RECORDABLE INJURY FREQUENCY RATE (TRIFR) 12.97 TRIFR 4 A key highlight in FY17 was the meaningful improvement in customer scores in Australian Food, which has resulted in positive sales momentum throughout the year. FOOD SALES MOMENTUM Australian Food sales returned to growth in FY17. Momentum accelerated over the year, with a fourth quarter comparable sales growth of 6.4% (Easter adjusted). Our customers have responded positively to the investment across our business with growth driven primarily by a higher number of customer transactions, and more recently, an increase in the number of items our customers are putting in their baskets. We also saw improved New Zealand Food sales in the second half as we fully cycled the bulk sales of gift cards in the first half of the prior year, leading to a growth of 2.1%. Initiatives across the stores, including ranging and price, as well as the new Onecard partnership with AA Smartfuel, have resonated with customers. We are committed to continually improving our offer for our customers with further planned investments in price and service in FY18. VOICE OF CUSTOMER Voice of Customer (VOC) scores are a key indicator for our team to measure our performance from the people who matter the most. In FY17, customers have reacted positively to our initiatives in Australian Food with our store‑controllable VOC score improving significantly to finish the year at record levels of 81%. Team Attitude continues to be one of our highest scores with Time in Queue showing the biggest improvement as a result of our investment in team hours and service focus. Our New Zealand Countdown team also achieved new highs in their customer satisfaction scores throughout the year. STORE RENEWAL PROGRAM Our store Renewal program was a key focus for FY17 with a total of 72 Renewal stores (91 including new stores) launched in the year. June was an especially busy month for our team with 23 Renewal stores launched across the country, including three brand new stores in Wodonga VIC, Eatons Hill QLD and Keysborough South VIC. We also opened six Woolworths Metro stores during the year, with the store’s convenient offer delivering a comparable sales growth of 17%. WOOLWORTHS OWN BRAND FY17 also saw significant progress of our own brand strategy, including the continued transition to the Essentials and Woolworths range from Homebrand. Earlier this year we also launched our new online community ‘The Bunch’ which allows our customers to taste Woolworths own brand products for free and provide us, and the community, with unfiltered reviews. Since the pilot launch of the community late last year, we have seen over 7,000 customers provide their honest opinions across a range of own brand products. 2 Generating sustainable performance in Food AUSTRALIAN FOOD SALES $36.4B NEW ZEALAND FOOD SALES NZ$6.2B 1 Including new stores. TOTAL NUMBER OF RENEWAL STORES 91 1 1 2 3 4 5 PERFO RM A N CE H IG H LIG H TS BU SIN ESS REV IEW D IRECTO RS' REPO RT FIN A N CIA L REPO RT O TH ER IN FO RM ATIO N 5 W O O LW O RTH S G RO U P A N N U A L REPO RT 20 17 Endeavour Drinks delivered solid sales growth in FY17, retaining its leading position within a competitive market. The Drinks business had a number of highlights in FY17, including record Voice of Customer scores across both our retail brands reflecting the customer first focus. BWS CLICK & COLLECT A key highlight for BWS in FY17 was the launch of one‑hour Click & Collect which has since been rolled out to over 1,200 BWS stores across the network. To further improve the convenience offer to our customers, BWS is currently trialling fast delivery in 50 stores. DAN MURPHY’S ONLINE In FY17 Dan Murphy’s delivered strong double digit sales growth from its online business. The My Dan Murphy’s loyalty program has also reached a record 2.4 million members. BWS “STORE CEOs” BWS’ focus on team engagement in FY17 provided an opportunity to empower and engage store managers to drive the direction of their stores. To embed the culture of autonomy, job titles were amended from "store manager" to "store CEO". As an example, store CEOs have been encouraged to engage smaller craft brewers in each region in order to build on community‑centric relationships and local ranging preferences. STORE