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Woolworths profit up despite downturn -

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Woolworths profit up despite downturn

Sue Lannin reported this story on Thursday, August 27, 2009 12:18:00

ELEANOR HALL: If any company is recession proof, it may be supermarket giant Woolworths.

The country's biggest retailer announced today that its net profit for this year rose nearly 13 per
cent to just over $1.8 billion.

Food and alcohol sales drove the result and the Federal Government's cash handouts also helped.

Finance reporter Sue Lannin has more.

SUE LANNIN: Woolworths spins its narrative in epic terms and for chief executive Michael Luscombe
it's all about the journey.

MICHAEL LUSCOMBE: We finished the year in a very strong position for future growth. I think this
result is a great story about the robustness of the Australian economy and the ability for soundly
run Australian businesses to perform well even in adverse circumstances.

SUE LANNIN: After tax profit jumped 13 per cent to just over $1.8 billion. Earnings from
supermarkets and pubs rose but consumer electronics was hit by the downturn.

Customer loyalty programs and linkups with other companies for petrol discounts and frequent flyer
points boosted the result.

Michael Luscombe says the company has kept reinventing itself.

MICHAEL LUSCOMBE: We are very, very confident but we are very, very careful in the things we do. So
these initiatives that we have announced in the last 12 months or so have been three years in the
gestation and thinking about what are things that Woolworths could add value to in the market

And we can only be successful if we actually add value because in the end, customer is king and
whether it is the telecom offer that we had, unless we actually offer something different to what
is out there in the market place, it won't be successful.

SUE LANNIN: Earnings were also helped by government stimulus payments but Michael Luscombe is
cautious about the future.

MICHAEL LUSCOMBE: There is no doubt our country has fared much better than just about every other
country in the world in the global financial crisis and no doubt it has been assisted by government
strategy, in particular the significant spending stimulus that happened in the past 12 months.

There is no doubt that there were no plans that I am aware of that the Government intends to
replicate that direct stimulus payment whilst the medium and long term stimulus programs will

Discretionary spending will continue to be influenced by both positively and negatively by
macroeconomic factors such as interest rates, petrol prices though as a result consumer confidence
levels and therefore spending are going to be difficult to predict for everybody in FY10 (financial
year 2010).

SUE LANNIN: The company does have a strong balance sheet. Unlike others it did not need to raise
new capital because of the global financial crisis. It hired staff while others were laying off

But Michael Luscombe admits there are pressures to raise prices.

MICHAEL LUSCOMBE: That is in the light of some significant price reinvestment by all of our
businesses during the year and I mean all of our businesses including petrol, including Dick Smith,
including Big W and more importantly including our supermarket and liquor business.

So there have been significant price reinvestment. One of the key numbers that really reinforces
that is of course that our cost inflation for last year was higher than our sell inflation so we
haven't in fact passed on all the cost increases that were necessary in the industry over the last
12 months.

SUE LANNIN: He says the new financial year has started well and he doesn't think unemployment will
climb as high as predicted.

MICHAEL LUSCOMBE: We are off to a flyer. We are very happy with that. I wouldn't say that everybody
in the industry that is our direct competitor might be as happy with their July/August.

There is no doubt that unemployment or the fear of unemployment cuts back on spending and
discretionary spend of course is the one that first goes down.

I would hope that we don't see a big tick up in employment. Certainly I don't believe it is going
to be anywhere near where some pundits said it may have gone a couple of months ago. I think the
signs are there to say that that won't happen which is great news for Australians.

SUE LANNIN: The major challenge facing Woolworths is its move into hardware but Michael Luscombe
says the company has done its homework.

Some analysts say it will take at least five years for the company to take on market leader
Bunnings, owned by rival Wesfarmers.

But others are predicting earnings of more than half a billion dollars.

ELEANOR HALL: Finance reporter Sue Lannin.