As part of new operating model.
Woolworths will incur restructuring costs of $959 million as it implements a new operating model to drive improved accountability and performance. It will cut 500 roles from its support office and supply chain while 1,000 team members will be moved from the group office into businesses.
Big W
Big W has been separated from EziBuy as the company explores options for a possible sale of EziBuy. The expected synergies between the two businesses have not been realised, and in many cases, have resulted in dis-synergies for both businesses.
Functions across sourcing, online, quality, procurement, logistics and other functions, that were previously group led will be integrated into Big W. Five of the 186 Big W stores have been identified as stores that are likely to close in the next three years based on current trading performance at or before their lease expiry.
There are 18 additional stores where the company is recognising an impairment of store assets and onerous lease obligations where necessary given a reassessment of the likely trading performance of the stores.
Woolworths CEO Brad Banducci
Woolworths supermarkets
Woolworths has also slowed its rollout of supermarkets and provision has been taken to close underperforming or unprofitable stores. The company will cancel or defer pipeline stores to allocate more capital to renewing its existing store network with 82 renewals planned for FY’17.
Woolworths exited three stores in Q4’16 and intends to exit another 30 stores across the group (excluding Big W) prior to the end of the lease-term.
New supermarket opening have been slowed from approximately 90 planned over the next three years to approximately 45 stores.
Woolworths will close its Hume Distribution Centre in Victoria in FY’19 and in addition to the above redundancies, has impaired its assets and provided for an onerous lease charge for the lease period beyond the planned closure of the site.
CEO aims to “rebuild business”
Woolworths CEO, Brad Banducci said the operating model review and turnaround measures implemented since he was appointed to head the Woolworths Group in February this year were showing real momentum.
In a statement to the Australian Securities Exchange (ASX) he said: “Five months ago I said we would work hard to get customers to put us first, to improve our culture and rebuild momentum.
“Today’s announcement demonstrates both the progress we are making and our absolute commitment to act quickly to rebuild the business by doing the right thing by our customers, shareholders, team and suppliers.
“While we have a long way to go, in supermarkets our strategy to get customers to put us first through our investment in price, quality, service and customer experience is translating into improving Voice of the Customer Scores (75 at the end of June), transaction and item growth, and strong early results from our trial store renewal program.
“The transformation of Big W is progressing well under Sally Macdonald’s leadership and the impairments and other restructuring costs of $151 million announced today help us set this business up for improved performance.
“The actions announced today result in Woolworths recognising a significant item of $959 million or $766 million after tax in our financial year 2016 results. $571 million of the pre-tax number will be non-cash.
“While we have had to make some tough decisions and this has ramifications for many of our team, we are confident we are putting in place solid foundations for the future and early results give us confidence we are on the right track. This will be a three to five year journey and we are determined to drive sustainable improvements.
Restructure costs breakdown
Costs associated with the implementation of the new operating model and other strategic changes of $155 million.
Costs associated with the review of general merchandise including strategy changes, store footprint, asset impairment and the write-down of EziBuy goodwill and other intangible assets of $460 million.
Costs associated with the closure of loss-making or underperforming stores or the cancellation or deferment of pipeline stores of $344 million.