2008 Woolworths Group plc - AnnualReports.com

2008 Woolworths Group plc - AnnualReports.com

                                                   Woolworths Group plc
242 Marylebone Road                                                                  Woolworths Group plc

+44 (0)20 7262 1222

+44 (0)20 7706 5416

                                                   2008 ANNUAL REPORT AND ACCOUNTS
                                                                                                        2008ANNUAL REPORT
                                                                                                            AND ACCOUNTS
2008 Woolworths Group plc - AnnualReports.com
>       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.


                                            >       Entertainment Wholesale
                                                    and Publishing
                                                                                        2 | Entertain
     Contents                                                                           The Group holds a 40 per cent share in this joint venture,
02   Financial and Operational Highlights                                               combining the former VCI audio and video business with
03   Chairman’s Statement                                                               BBC Worldwide’s video publishing arm. Recent video titles

     Directors’ Report
     Business Review
                                                        2 Entertain
                                                                                        include “Clarkson – Supercar Showdown” and “Top Gear –
                                                                                        Interactive DVD” and on audio, the “100 Hits” range.

04      Our Resources
10      Chief Executive’s Report
16      Finance Director’s Report
20      Risk Factors                                                                    Entertainment UK Limited (‘EUK’)
21      Corporate Social Responsibility                                                 EUK is the UK’s leading distributor of entertainment products,
22      Board of Directors                                                              generating an annual turnover in excess of £1.1 billion.

                                                                                        EUK’s product portfolio covers all of the major
24   Corporate Governance
                                                                                        entertainment formats – music, DVD, games and books –
28   Other Information                                                                  as well as mobile phones. In turn, these products are
31   Directors’ Remuneration Report                                                     supplied to some of the country’s best known store groups
40   Statement of Directors’ Responsibilities                                           and online retailers.
41   Independent Auditors’ Report
42   Group Income Statement                                                             www.entuk.co.uk
     Group Statement of Recognised Income and Expense
43   Group Balance Sheet
44   Group Cash Flow Statement                                                          Bertram Group Limited
45   Notes to the Group Accounts
                                                                                        Bertram Group consists of the following three divisions:
82   Five Year Record
83   Independent Auditors’ Report                                                       Bertrams | THE, the UK’s leading book wholesaler with a
84   Company Balance Sheet                                                              growing number of international customers.
85   Notes to the Company Accounts
                                                                                        Bertram Publisher Services provides distribution services
91   Shareholder Information
                                                                                        to a wide range of client publishers.

                                                             TOTAL HOME ENTERTAINMENT
                                                                                        Bertram Library Services, an industry leading supplier of
                                                                                        books, tapes, CDs, games and many other audio-visual
                                                             THE                        products to public libraries, schools, universities and
                                                                                        educational institutions in the UK and around the world.

2008 Woolworths Group plc - AnnualReports.com
Woolworths Group plc                       01.
Annual report and accounts 2008

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.
2008 Woolworths Group plc - AnnualReports.com
02.                 Woolworths Group plc
                    Annual report and accounts 2008

      Financial     >        Group revenue increased by 8.5 per cent
                             to £2,969.6 million

      Highlights    >        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

      Operational                  >        Entertainment Wholesale business enhanced
                                            by supply to new customers including Asda and
                                            Zavvi (formerly Virgin Megastores) and the planned
      Highlights                            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.
2008 Woolworths Group plc - AnnualReports.com
Woolworths Group plc                                                                                        03.
             Annual report and accounts 2008

             Against a difficult trading             For the Entertainment Wholesale      The Board has taken the
             environment, we have managed            business, it was a year of major     decision to cut the dividend.
             substantial change across               change. Over a period of 18          Taking into account the
             the Group as a whole. Profit            months we have gone from a           Group’s plans, the Board is
             before tax and exceptional              business with one dominant           recommending a final dividend
             items increased to £14.9m               third party customer, the main       of 0.17 pence per share. At this
             from £7.3m in the prior year.           contract with whom terminated        lower level the full year dividend
             Adjusted profit (which is               in May 2007, to one with six         of 0.6 pence per share is
             before tax, exceptional items,          significant third party customers.   covered 2.4 times by adjusted
             adjustment for fixed rental             At the same time we have             earnings and provides a base
             uplifts and amortisation of             become far less dependent on         from which to grow it as
             certain intangible assets)              the CD market and more               performance improves. The
             increased from £21.8 million            exposed to the growing books         Board believes that payment
             to £28.3 million for the 52             and computer games markets.          of a dividend at this level
             weeks to 2 February 2008.               Sales increased by 36.6 per          represents an appropriate
                                                     cent to £1,176.6 million and         balance between providing a
             We are pleased to report that
                                                     adjusted profit was broadly          return to shareholders and
             the retail business returned to
                                                     unchanged.                           preserving the financial flexibility
             profitability this year. Whilst like-
                                                                                          necessary to support the plans
             for-like sales were down 3.2 per        2 entertain, our joint venture
                                                                                          and ongoing development of
             cent, gross margin improved by          with BBC Worldwide had an
                                                                                          the business over both the short
             101 basis points and costs              outstanding year. Adjusted
                                                                                          and longer term.
             were contained below the rate           attributable profit increased by
             of retail cost inflation. The           £6.7 million due to a number         On behalf of the Board I would
             business did benefit by £10.9           of successful releases, most         like to thank our colleagues in
             million (2007: £5.8 million) from       notably “Planet Earth” in            the business for their sheer
             the full year effect of relifing        America.                             enthusiasm, hard work and
             certain fixed assets; and from                                               dedication. It is evident that they
                                                     In January 2008 we announced
             property profits, some                                                       are committed to the future
                                                     that we had completed a
             £5.0 million higher than last                                                success of the business.
                                                     refinancing of the Group. The
             year. Nonetheless, adjusted
                                                     new £350 million asset based
             profit improved by £16.3 million
                                                     lending facility and the £35
             to £3.4 million.
                                                     million 2nd lien loan provide us
                                                     with long term finance, the level
                                                     of which flexes with our working
                                                     capital requirements.                Richard North
                                                                                          2 April 2008
2008 Woolworths Group plc - AnnualReports.com
04.                                Woolworths Group plc
                                   Annual report and accounts 2008

      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.

                                   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.
                          Stores   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-of-
                                   town 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’

                                                                     Mainchain   Out-of-town      Total

                                   Number of stores:                     801           17        818
                                   Average sq ft:                      8,359       50,763      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.
2008 Woolworths Group plc - AnnualReports.com
Woolworths Group plc                                                                           05.
Annual report and accounts 2008

                                                     > 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

                                  > 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.
2008 Woolworths Group plc - AnnualReports.com
06.                                    Woolworths Group plc
                                       Annual report and accounts 2008

          Directors’ Report
          Business Review

          Our Resources –              Retail               (cont’d)

                        Colleagues     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

                              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
                                       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.
                                       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     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
Bedford                                with manufacturers. Woolworths’ distribution network principally
                                       consists of three core distribution centres through which
                                       merchandise is distributed to the individual stores.
2008 Woolworths Group plc - AnnualReports.com
Woolworths Group plc                                     07.
                        Annual report and accounts 2008

    Directors’ Report
    Business Review

    Our Resources

    Wholesale and
 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.
2008 Woolworths Group plc - AnnualReports.com
08.                              Woolworths Group plc
                                 Annual report and accounts 2008

      Directors’ Report
      Business Review

      Our Resources –            Entertainment
                                 Wholesale and
                                 Publishing (cont’d)

        Customer and Supplier    We value our long-standing and trusted relationships with the
                Relationships    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     2 entertain is a music and video publishing joint venture between
             Partner of Choice   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   2 entertain specialises in acquiring DVD publishing rights to core
              Packaged Media     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                                                           09.
                            Annual report and accounts 2008

                                                              > 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
   a dynamic player in
   the UK market.

> Woolworths Group has
   leading positions in
   UK Entertainment
   wholesale distribution
   and publishing.
10.                                 Woolworths Group plc
                                    Annual report and accounts 2008

      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.”

                          In the 52 weeks ended                       Adjusted profit (which is before      Firstly, and most materially, just
                          2 February 2008, total Group                tax, exceptional items,               over half of the decline in like-for-
                          revenue from continuing                     adjustment for fixed rental uplifts   like sales was due to the decision
                          operations was £2,969.6 million.            and amortisation of certain           not to chase unprofitable sales,
                          This represents an 8.5 per cent             intangible assets) was £28.3          particularly of electrical and
                          increase over the prior year.               million, an increase of 29.8 per      computing products. These
                          Each of our businesses made                 cent over the prior year. This        markets are highly competitive,
                          significant progress during the             increase was delivered despite        with the internet allowing easy
                          year and overall the strategic              a challenging external                price comparisons. As a
                          positioning of the Group has                environment and in the midst          consequence, gross margins
                          been strengthened. At a sales               of extensive internal change          are low. Add to this the high
                          level, this was particularly                in our businesses.                    servicing costs of delivery,
                          evident in our Entertainment                                                      technical support and customer
                          Wholesale distribution business,                                                  returns, and the overall net
                                                                      The key focus of the year at
                          where third party sales increased                                                 profitability can be negligible
                                                                      Woolworths was to return the
                          by 36.6 per cent over the prior                                                   or often negative.
                                                                      business to profitability and
                          year, as new customers and
                                                                      establish a profit base on which      Secondly, Woolworths has
                          acquisitions were integrated into
                                                                      to build. The adjusted profit was     historically been a leading
                          the business. 2 entertain, our
                                                                      £3.4 million compared with a          beneficiary of shopping voucher
                          music and video publishing joint
                                                                      loss of £12.9 million in the prior    redemptions bought via savings
                          venture with BBC Worldwide,
                                                                      year. This turnaround came            clubs. Following the bad
                          increased its third party sales by
                                                                      thanks to further enhancement         publicity attached to the failure
                          21.2 per cent, particularly helped
                                                                      of gross margins, rigorous            of Farepak in 2006, sales of
                          by developing international
                                                                      control of costs, the full year       vouchers fell dramatically. We
                          sales. Sales at Woolworths fell
                                                                      benefit of asset relifing,            believe that this reduced like-
                          3.2 per cent like-for-like,
                                                                      continued exploitation of the         for-like sales by 1.1 per cent.
                          reflecting our key focus of not
                                                                      property portfolio and active
                          chasing unprofitable sales and                                                    Thirdly, the decision was taken
                                                                      management away from loss-
                          returning the Retail business to                                                  not to advertise on TV during
                                                                      making sales.
                          profit. This goal was achieved                                                    the Christmas trading period to
                          and was a key driver in                     Total like-for-like sales declined    the same extent as prior years.
                          delivering improved year-on-year            by 3.2 per cent largely for the       While this may well have held
                          Group profits.                              following reasons:                    back sales, the overall impact
                                                                                                            on Woolworths’ profit and loss
                                                                                                            account was positive.
Woolworths Group plc                                                                                            11.
                                    Annual report and accounts 2008

                                                                                                                                      2008        2007

                                                                           Vehicle kilometres              (millions)                25.9         27.2
                                                                           Fuel consumption                (million litres)            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
                                                                                                                                      2008        2007

                                                                           Calls received          (000’s)                            826         846
                                                                           Service level                                             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            Our Confectionery business
strongest area of the business      also experienced price                Self-audit
was computer games. Demand          deflationary pressure. This was       Compliance points score (out of 100)
                                                                                                                                      2008        2007
for new formats such as             particularly so in the gift market,
Nintendo Wii, Nintendo DS and       where products tend to be used         Compliance score                                          77.1         77.4
Sony PS3 continued to outstrip      by the supermarkets to drive
supply. We anticipate that this     value price perception. Against       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
growth will continue and will       this backdrop, we continued
                                                                          and health and safety issues. Store standards are broadly consistent year-
more than counter the decline in    to seek to differentiate the          on-year, with a slight decline in average store score of 0.4 per cent.
the traditional music market as     Woolworths offer and were
was the case in 2007/8. DVD’s       selective with our price
and Books both held up well         investment. In everyday               Mystery shopper
in the year and we anticipate       Confectionery ranges, the             Service standards (out of 100)
that this will continue in the      launch of a full range of                                                                         2008        2007
medium term.                        Woolworths Worthit! sweets has         Mystery shopper score (Xmas cycle)                        76.6         76.4
                                    provided a point of difference
In our Toy business, sales were
                                    from the competition and              All stores receive regular visits from “mystery shoppers”. This allows us to
held back as spend was
                                    enhanced our value positioning,       gain a true reflection of how our stores are performing and to benchmark
diverted to computer games,                                               our service standards. The Christmas cycle is a key review to ensure that
                                    driving incremental volumes.
particularly when there was                                               stores are ready for the busy Christmas trading period. This shows a slight
availability of Nintendo Wii and    Across the entire business, the       improvement year-on-year, demonstrating continued advancement of
                                                                          customer service.
DS, which appeal to the core        introduction of the entry price
Toy market age group. Younger       Worthit! range has been very
age toy categories such as          well received by customers.
pre-school were less                Indeed, to an extent we have
susceptible and were our most       been victims of our own success.
buoyant Toy categories.             Rates of sale have been higher
                                    than anticipated and maintaining
Another area of product
                                    availability in what is typically
success was the continued
                                    long lead time product has
progress of our Ladybird
                                    sometimes been a challenge.
clothing ranges, where total unit
                                    In its peak week, Worthit!
sales surpassed the prior year
                                    products accounted for 7.9 per
and market share continued
                                    cent of total sales and 11.6 per
to grow, albeit in a market
                                    cent of total transactions.
experiencing price deflation.
                                    Following Christmas trading,
12.                                 Woolworths Group plc
                                    Annual report and accounts 2008

      Directors’ Report
      Business Review
                          it now is clear that Worthit!               Evolving the supply chain           is targetting a further 40 basis
                          products are relevant in seasonal           We continued to make progress       point improvement in margin
                          as well as everyday ranges. The             in enhancing our supply chain       and a reduction of £8 million in
                          Worthit! Christmas products                 capability, in terms of both the    costs in the coming year.
                          such as trees, decorations and              warehouse and transportation
                                                                                                          Capital Expenditure and Store
                          cards all sold out early in the             network, as well as increasing
                                                                                                          Portfolio Management
                          season. During the year 1,417               the sophistication of the IT
                                                                                                          During the year some £33.3
                          Worthit! lines were launched                systems that drive replenishment.
                                                                                                          million of capital expenditure
                          and we continue to refine and               Over the Christmas trading
                                                                                                          was invested including the
                          develop the product and its                 period, inventory levels were
                                                                                                          acquisition of four store
Chief                     sourcing. In 2008, a new range
                          of approximately 2,200 products
                                                                      kept very tight to ensure sell
                                                                      through of seasonal ranges and
                                                                                                          freeholds, repairs, renewals and
                                                                                                          enhancements to the physical
Executive’s               branded “Woolworths” will be
                          launched to provide the logical
                                                                      thereby reduce exposure to
                                                                      unplanned mark down. As at
                                                                                                          estate, opening five new stores
                                                                                                          and refurbishing 10 older stores.
                          “sell up” alternative to Worthit!           the end of the first week of the
Report (cont’d)           This is designed to increase
                          sales, drive up basket spend
                                                                      January sales, inventory in
                                                                      Woolworths was some £61
                                                                                                          Trading from the newly opened
                                                                                                          stores has been encouraging.
                                                                                                          A programme of low cost
                          and improve overall margins.                million lower than the prior year
                                                                                                          refurbishments in 77 stores has
                                                                      and was of a superior quality.
                          Multichannel                                                                    provided good levels of return.
                          Following initial rapid growth              Improving stock control was a
                                                                                                          Given the size and nature
                          and the establishment of a                  contributory factor in enhancing
                                                                                                          of the property portfolio, it is
                          multichannel sales base in                  margin, alongside increased
                                                                                                          appropriate that it is actively
                          2007/8 we chose to move away                direct supply of product from
                                                                                                          managed and we have achieved
                          from electricals restricting                the Far East, where shipments
                                                                                                          property profits from a number
                          headline sales growth to 5.2 per            grew by 12 per cent. The lower
                                                                                                          of transactions including
                          cent. We traded toward higher               cost prices achieved from
                                                                                                          disposals, sublets, store cut
                          margin categories and reduced               greater use of direct supply
                                                                                                          downs or store swaps with
                          unit despatch costs by utilising            allowed us to improve our price
                                                                                                          other retailers.
                          the Woolworths distribution                 competitiveness.
                          network instead of couriers.                                                    Retail Summary
                                                                      Overall margin increased by 101     The prime objective for the year
                          Feedback on the Big Red Book
                                                                      basis points.                       was to enhance profitability. This
                          catalogues continues to be very
                          positive with customers enjoying            We believe that significant         was achieved as we continued
                          its manageable and focused                  opportunity remains to enhance      to improve cost performance,
                          Kids based offer. This channel              the profitability of the business   worked hard to deliver profitable
                          of business provides significant            through a combination of            sales and continued to focus on
                          opportunity for the future, both            increased direct sourcing,          enhancing both the service and
                          in terms of sales growth and a              greater efficiency in the           product offer for our customers.
                          step change in profitability as             distribution network and still      We now have a base on which
                          fulfilment is further integrated            further sophistication of the       to build for the coming years.
                          into the Woolworths network                 IT systems that handle
                          over the next two to three years.           replenishment. The business
Woolworths Group plc                                                                                     13.
                                     Annual report and accounts 2008

Entertainment Wholesale and          party sales to £1,176.6 million.    Retail stock
Publishing                           An important part of our            (£m)

Entertainment Wholesale              development strategy was to
(EUK / Bertrams / THE)               increase exposure to both the        2008                                                             288.7
This was a pivotal year for the      books and computer games             2007                                                             290.6
longer term development of the       markets. This is important in the
Entertainment Wholesale              longer term as both markets are
business. Having made two            inherently attractive in terms of
acquisitions in the prior year and   size and growth prospects.          EUK unit handling cost
won two new major accounts,          They also have less immediate       (pence per unit handling cost)
there was a significant              threat from digital formats when                                                                % change YOY
operational challenge for the        compared to the music and            2007/08                                        24.7               +9.4
business to integrate the            DVD markets which historically       2006/07                                        22.6               -9.3
acquisitions, cease supply of        have made up the bulk of EUK’s
CD’s, DVD’s and computer             sales.
games to Tesco and commence
trading with the new customers.      We have also sought to diversify
                                     the customer base in a              2 entertain DVD rankings
During the year, key activities      progressive manner. We are          (Source British Video Association)

undertaken by the                    now pleased to service a broad
Entertainment Wholesale              spectrum of customers who            TV Genre                                                   Ranked 1st
division include:                    supply the consumer through a        Interactive Genre                                          Ranked 1st
– The integration of Bertrams        variety of traditional and non       Sports and Fitness Genre                                   Ranked 3rd
  following its acquisition in       traditional channels.
                                                                          Special Interest Genre                                     Ranked 2nd
  January 2007                       As a consequence of this
– Securing clearance from the        considerable change
  Competition Commission             programme, EUK, THE and
  following its investigation into   Bertrams incurred additional        Retail margin
  the Bertrams acquisition           costs, some of which were           (basis points improvement)

                                     exceptional and others that
– The commencement of                resulted from the inefficiency       2007/08                             50   40   40      20   105    101
  supply to Zavvi (formerly          associated with change. These        2006/07                             50   40   40      20   105
  Virgin Megastores)                 costs held back profitability but
                                                                          2005/06                             50   40   40      20
– The commencement of                by their nature will not reoccur
                                     in the coming year and               2004/05                             50   40   40
  supply to Asda
                                     accordingly we expect to make        2003/04                             50   40
– The closure of one                 progress in 2008/9.
                                                                          2002/03                             50
  warehouse and physical
  relocation of supply to other      Having traded through its peak
  EUK sites                          season, the enlarged business
                                     is now well placed going
– Cessation of supply of CD’s,       forward. Without the distraction    Retail shrinkage
  DVD’s and computer games           of business integration, we will    (£m)

  to Tesco                           be able to focus on developing
                                     our customers’ businesses,           2007/08                                                           36.9
Against this dynamic
background, the business             enhancing and differentiating        2006/07                                                           36.5
delivered sales growth of            our service proposition and          2005/06                                                           36.3
36.6 per cent, taking total third    driving efficiency across our
                                     operations.                          2004/05                                                           42.2
                                                                          2003/04                                                           41.8
                                                                          2002/03                                                           47.7
                                                                          2001/02                                                           53.2

                                                                         Retail like-for-like sales

14.                                  Woolworths Group plc
                                     Annual report and accounts 2008

      Directors’ Report
      Business Review
                          EUK and Bertrams now have                    increased by 59.5 per cent to       declining traditional music
                          a wide spread of customers,                  £18.5 million. There were many      market. Demon’s core business
                          covering multiple and                        successful product releases         is in producing budget and mid-
                          independent specialists,                     during the year but undoubtedly     range compilations and it
                          general retailers, the growing               the most significant was the        continues to capitalise on its
                          supermarket channel and                      release of “Planet Earth” in the    strong relationships with key
                          increasingly a range of online               US which caught the imagination     retailers. New product ranges
                          retailers.                                   of the American consumer,           like “100 Hits”, “The Red Box”
                                                                       yielding excellent sales of both    and “Music Club Deluxe” sold
                          Another business stream that
                                                                       the high definition and normal      well and ensured that, despite
Chief                     has developed well during the
                          year is the supply to the public
                                                                       resolution product. In the
                                                                       relatively new high definition
                                                                                                           lower sales value than the
                                                                                                           previous year, strong volume
                          library network through Bertram
Executive’s               Library Services. Total sales
                          increased by 6.7 per cent
                                                                       market, “Planet Earth” is the
                                                                       highest grossing release to date.
                                                                                                           sales and product mix drove a
                                                                                                           favourable margin.

Report (cont’d)           during the year.
                          It is inevitable that over time
                                                                       In the UK, the best selling
                                                                       products were “Clarkson –
                                                                                                           Banana Split Productions, the
                                                                                                           in-house production arm of
                                                                       Supercar Showdown” and the          2 entertain, traded solidly across
                          some of the markets which
                                                                       “Top Gear Interactive DVD”.         the year and continues to occupy
                          our Entertainment Wholesale
                                                                       Total DVD sales in the UK were      a niche position as a low cost
                          businesses serve will move from
                                                                       marginally below the overall        producer of video based content.
                          physical to digital delivery. In
                                                                       market as there was no
                          readiness for this we continued                                                  Entertainment Wholesale and
                                                                       “runaway” success from the
                          to develop our digital capabilities.                                             Publishing Summary
                                                                       release schedule,                   Our Entertainment Wholesale
                          Having already established a
                                                                       notwithstanding a broad spread      business had a transformational
                          successful presence in digital
                                                                       of solidly performing titles.       year. We are now positioned as
                          music, supporting EUK’s retail
                          customers and a network of                   The success of “Planet Earth” has   a market leader in the supply
                          digital jukeboxes, the key activity          helped develop the international    of books and entertainment
                          during the year was to build the             component of the business.          product. A strong platform has
                          capability to offer new digital              International sales accounted for   been established which in the
                          markets such as movie and                    46 per cent of total sales. After   short term we shall exploit by
                          computer game downloads,                     North America, the next largest     returning efficiency to the
                          alongside mobile phone content.              sales region is Australia / Far     business, and longer term look
                          Trialling this new service offer             East, where programmes like         to move into adjacent markets
                          began in early 2008.                         “Dr Who” and “Little Britain”       as a route for growth.
                                                                       continue to grow their franchise.   2 entertain continued to develop
                          2 entertain
                          2 entertain had an exceptionally             Demon Music Group, the              during the year and whilst the
                          good year. Total sales grew by               recorded music publishing           success of “Planet Earth”
                          23.5 per cent, climbing to                   subsidiary of 2 entertain, had a    contributed significantly, the
                          £240.7 million. Dividends                    very successful year, especially    overall business continued to
                          received from the joint venture              when set against the rapidly        build underlying profitability.
Woolworths Group plc                  15.
                                      Annual report and accounts 2008

Outlook                               For the Entertainment Wholesale
We are cautious about                 division, we anticipate overall a
consumer spending going               comparatively benign market
forward and are therefore not         across the core categories, with
planning for the Woolworths           growth in computer games
business to grow its sales            more than offsetting the decline
line. This is a sensibly              in music. The key opportunity
prudent approach to sales,            for EUK/Bertrams lies in
notwithstanding the clear             enhancing operational efficiency
opportunities which exist from        now that the integration of
increased exploitation of our         acquisitions and new customers
multichannel capability and           is complete. In this more stable
further development of our in-        position, many of the friction
house brands. A key focus of          costs experienced in this year
the retail business will be further   will not be present, which will
margin development set                enhance profitability.
alongside a significant rebasing
                                      Overall, across the Group we
of cost levels from business
                                      believe we enter 2008/9 with
simplification. The key enabler
                                      the businesses strengthened
for business simplification is a
                                      relative to the prior year and well
reduced exposure to larger,
                                      set up for the challenge ahead.
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.
                                      Trevor Bish-Jones
At 2 entertain the key driver of      Chief Executive
success will be the quality of the    2 April 2008
release schedule. Our unique
and extensive relationships with
key content providers puts
2 entertain in a good position
to develop the business further.
16.                                 Woolworths Group plc
                                    Annual report and accounts 2008

      Directors’ Report
      Business Review
                                                                                                “The results reflect a highly
                                                                                                challenging retail environment
                                                                                                and a year of change for our
                                                                                                Entertainment Wholesale

                          The results for the year are                share, compared with a total of       Adjusted Profits from
                          produced under International                1.77 pence per share in the           Entertainment Wholesale and
                          Financial Reporting Standards               prior year. This level of full year   Publishing amounted to £54.8
                          (IFRS) and to aid understanding             dividend is covered 2.4 times by      million compared to £53.1 million
                          we show in tables on page 17                Adjusted Profit after tax and at      in the previous year. This reflects
                          the reconciliation of profit under          this level forms a base from          a highly successful year from
                          IFRS to the Adjusted Profit                 which to grow with further            2 entertain, our joint venture
                          numbers used by management                  improvement in profitability.         with BBC Worldwide, offset by a
                          and most of the analyst                                                           substantial reduction in the level
                                                                      The results reflect a highly
                          community.                                                                        of releases of historic accruals
                                                                      challenging retail environment
                                                                                                            no longer required. The adjusted
                          Earnings per Share                          and a year of change for our
                                                                                                            profits of EUK together with
                          and Dividend                                Entertainment Wholesale
                          Basic earnings per share was                                                      THE and Bertram were down
                                                                      business. They include a
                          0.5 pence per share compared                                                      £0.4 million on the previous year
                                                                      number of one-off costs and
                          to 0.9 pence per share in the                                                     having benefitted by £3.8 million
                                                                      the full year benefit of a number
                          previous year. Adjusted basic                                                     from asset relifing. This reflects
                                                                      of accounting changes made
                          earnings per share (which                                                         a year of substantial change.
                                                                      during the prior year.
                          removes the effect of fixed                                                       Further details of the
                          rental uplifts, amortisation of             Profit before tax                     developments in the businesses
                                                                      Adjusted Retail Profit was            are again included in the Chief
                          certain intangible assets and
                                                                      £3.4 million, an improvement of       Executive’s Report.
                          exceptional items) was 1.4
                                                                      £16.3 million on the prior year
                          pence per share against 1.2                                                       Balance Sheet
                                                                      loss of £12.9 million. Whilst the
                          pence per share last year.                                                        Overall Group stock increased by
                                                                      retail environment remained
                                                                                                            £13.9 million to £391.0 million.
                          A final dividend of 0.17 pence              challenging, the business
                                                                                                            This reflects the growth of the
                          per share has been                          benefitted from the investment
                                                                                                            Entertainment Wholesale and
                          recommended by the Board.                   and accounting changes put in
                                                                                                            Publishing business, more than
                          This will be paid, subject to               place during the prior year and
                                                                                                            offsetting the £1.9 million
                          shareholders’ consent, on                   the absence of one-off costs.
                                                                                                            reduction in Woolworths retail
                          25 June 2008 to shareholders                The full year benefit of asset
                                                                                                            stock. The decrease in retail
                          on the register at close of                 relifing was £10.9 million,
                                                                                                            stock, achieved by tight control
                          business on 11 April 2008.                  compared to £5.8 million in the
                                                                                                            of purchasing, has been
                          This proposed dividend,                     prior year.
                                                                                                            somewhat masked at year-end
                          together with the interim
                                                                      Further details of the various        by setting the business up for
                          dividend of 0.43 pence per
                                                                      retail initiatives are included in    the much earlier Easter in 2008.
                          share paid on 12 December
                                                                      the Chief Executive’s Report on
                          2007, brings the total dividend                                                   During the year, four store
                                                                      pages 10 to 15.
                          for the year to 0.6 pence per                                                     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                                                                                                   17.
                                     Annual report and accounts 2008

                                                                            Reconciliation of Adjusted Profit
                                                                                                                                      52 weeks to    53 weeks to
                                                                                                                                       2 February     3 February
                                                                                                                                            2008           2007
                                                                                                                                              £m             £m

                                                                            Profit before tax and exceptional items                         14.9            7.3
                                                                            Add back:
                                                                            – amortisation of certain intangible assets*                    7.6            3.9
                                                                            – fixed rental uplifts                                          5.8           10.6
                                                                            Adjusted profit before tax                                     28.3           21.8

                                                                            Adjusted Segmental Analysis
                                                                            for the 52 weeks to 2 February 2008

                                                                                                        Wholesale and
                                                                                                 Retail    Publishing   Unallocated       Interest         Total
                                                                                                   £m             £m            £m             £m           £m

Guernsey and Jersey stores.          Exceptional Items                      Reported
The £8.6 million profit from the     As described above, the                before taxation       6.2          35.4           (8.2)        (21.7)         11.7
sale of the Channel Island           disposal of the Guernsey and           Adjust for:
freeholds is treated as an           Jersey store freeholds resulted        exceptional
exceptional item. Profits of         in an exceptional profit of £8.6       items                 (8.6)        11.8              –              –           3.2
£11.4 million were earned on         million. This was more than            (Loss)/profit
the assignment of store leases       offset by (i) exceptional costs in     exceptional
during the year against £6.4         the Entertainment Wholesale            items                 (2.4)        47.2           (8.2)        (21.7)         14.9
million in the prior year.           business of £8.4 million relating      Add back:
                                     to the operational integration of      – amortisation
Cash Flow and Net Debt                                                      of certain
                                     the EUK, THE and Bertram               intangible assets*       –           7.6             –              –           7.6
The Group’s average net debt
                                     businesses and the costs of the        – fixed rental
increased from £113.0 million
                                     Competition Commission inquiry         uplifts               5.8              –             –              –           5.8
to £246.3 million, reflecting the
                                     into the acquisition of Bertram        Adjusted
full year effect of the THE and                                             (loss)/profit
                                     and (ii) a provision of £3.4
Bertram acquisitions and the                                                before tax            3.4          54.8           (8.2)        (21.7)         28.3
                                     million in relation to payments
increased working capital
                                     made under the terms
requirements of the enlarged
                                     establishing the 2 entertain joint
Entertainment Wholesale
                                     venture which could not be
                                                                            Adjusted Segmental Analysis
business. Capital expenditure                                               for the 53 weeks to 3 February 2007
                                     ascertained at that time.
in the Retail business reduced                                                                          Entertainment
from £62.4 million to £33.3          Taxation                                                           Wholesale and
million, reflecting the completion   The effective tax rate was 36                               Retail    Publishing   Unallocated       Interest         Total
                                                                                                   £m             £m            £m             £m           £m
in the prior year of the 10/10       per cent compared to 15 per
store refit programme.               cent in the prior year. The prior      Reported
                                     year rate was lower than usual         (loss)/profit
The year-end net debt of                                                    before taxation      (14.8)        49.2           (7.7)        (10.7)         16.0
                                     due to the effect of a £5.6
£123.7 million was up from                                                  Adjust for:
                                     million prior year tax credit          exceptional
£103.3 million in the prior year.
                                     which primarily arose as a             items                 (8.7)            –             –              –          (8.7)
This reflects the substantial
                                     number of historic tax provisions      (Loss)/profit
increase in working capital                                                 before
                                     were identified as no longer
required by the growth in the                                               exceptional
                                     required following agreement of        items                (23.5)        49.2           (7.7)        (10.7)           7.3
Entertainment Wholesale
                                     a number of historic queries.          Add back:
business, more than offsetting
                                     Under existing tax legislation it is   – amortisation
cash generated in the other                                                 of certain
                                     anticipated that the effective
parts of the Group.                                                         intangible
                                     Group tax rate will be marginally      assets*                  –           3.9             –              –           3.9
                                     above the main UK Corporation          – fixed rental
                                     Tax rate.                              uplifts              10.6              –             –              –         10.6
                                                                            before tax           (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.
18.                                  Woolworths Group plc
                                     Annual report and accounts 2008

      Directors’ Report
      Business Review
                          Pensions                                     relevant. The full triennial        Funding
                          The Group retains a Final Salary             actuarial valuation at 31 March     The Treasury function arranges
                          Pension scheme open to all                   2005 showed that the Scheme         sufficient secure financial
                          employees who have been with                 was 89 per cent funded with a       resources to enable the Group
                          the Group for a minimum period               deficit of £28.9 million. The       to meet its medium-term
                          of 12 months.                                contribution rate paid by           business objectives whilst
                                                                       participating companies remains     arranging facility maturities
                          The Scheme was created at
                                                                       at 13.5 per cent of pensionable     appropriate to its projected
                          the time of demerger and only
                                                                       salaries. The next triennial        needs.
                          comprised active members at
                                                                       actuarial valuation is due to be
Finance                   that time. It is therefore a much
                          less mature scheme than most.
                                                                       carried out at 31 March 2008
                                                                       and has just commenced.
                                                                                                           During the year, the Group
                                                                                                           arranged various additional
                          It has 5,112 active members,                                                     facilities to finance its increased
Director’s                3,707 deferred members but
                          only 1,256 current pensioners
                                                                       In January 2008, when the
                                                                       Group moved its bank financing
                                                                                                           working capital whilst carrying
                                                                                                           out a full review of how best to

Report (cont’d)           and therefore the Scheme
                          receives more in contributions
                                                                       to a secured basis, the Trustee
                                                                       was granted a £63 million 3rd
                                                                                                           finance its ongoing
                                                                                                           requirements. In particular, this
                          from the Group and members                   lien security. It was also agreed   review incorporated the
                          than it pays out in pensions.                that the Scheme would receive       continued growth of the
                          This is likely to continue to be             the first £50 million of proceeds   Entertainment Wholesale
                          the case for approximately                   from any future disposal of the     division, with its associated
                          11 years.                                    Group’s investment in 2             additional working capital.
                                                                       entertain, at which point an
                          The assets of the Scheme are                                                     The review concluded that the
                                                                       equivalent amount of the 3rd
                          managed by external Fund                                                         most appropriate structure
                                                                       lien security would be released.
                          Managers and at 2 February                                                       would be to move to an asset
                          2008 were £316.8 million (2007               Treasury Policy                     based lending facility, secured
                          £316.0 million). The allocation              The Group’s Treasury Policy is      primarily against EUK’s debtors
                          of Scheme assets is kept under               structured to ensure that           and the Group’s stock. In
                          regular review by the Trustees               adequate financial resources are    January 2008, facilities
                          of the Scheme. The liabilities               available for the development of    comprising a £350 million asset
                          calculated at the current level              its business whilst managing its    based lending facility and a £35
                          of fixed rate bond yields were               currency, interest rate and         million 2nd lien loan, were put in
                          £383.7 million (2007: £400.0                 counterparty credit risks. The      place for a period of four years.
                          million), giving an IAS 19 deficit           Group’s Treasury strategy, policy   These, together with an existing
                          of £48.2 million (2007: £58.8                and controls are developed          £20 million invoice discounting
                          million) net of tax relief.                  centrally and approved by the       facility available to Bertram,
                          However, the proportion of                   Board. The Group does not           provide the Group with flexible
                          current active members and the               engage in speculative               facilities to meet its financing
                          timescales until pensions are                transactions.                       requirements as the businesses
                          due to be payable does not                                                       continue to develop.
                                                                       The main elements of Treasury
                          make the calculation particularly
                                                                       activity are outlined below:
Woolworths Group plc                   19.
                                     Annual report and accounts 2008

Currency                             To date, the interest payable on
The Group’s main currency            drawings from the Group’s
translation exposure is limited to   facilities has been at floating
movements in exchange rates          rates driven by the variation in
to the extent that they affect       amounts borrowed during the
balances held on its currency        period. Interest receivable on
bank accounts and certain            investments has also been at
foreign currency assets and          floating rates for short
liabilities in the books of its      maturities, given the seasonality
Hong Kong-based product              of the Group’s cash flows.
sourcing company, Woolworths
                                     Counterparty Credit Risk
Group Asia Limited. Foreign
                                     The Group actively manages its
currency bank balances are
                                     relationships with a panel of
controlled by the Treasury
                                     high quality financial institutions.
function and are actively
                                     Credit risk is controlled by the
managed to a level that
                                     Treasury function setting
minimises currency translation
                                     counterparty credit limits by
exposures. The Group’s main
                                     reference to published rating
currency exposure is its
                                     agency credit ratings. The
transaction exposure through
                                     Treasury Policy recognises that
movements in exchange rates
                                     an exposure to a counterparty
on its purchases overseas that
                                     arises in relation to investments,
are not denominated in Sterling.
                                     derivatives and financial
These are mainly imports from
Asia denominated in US dollars
and imports from Europe              Going Concern
denominated in Euros.                The Directors confirm that, after
                                     making enquiries, they have a
The Treasury Policy sets out a
                                     reasonable expectation that the
framework through which the
                                     Group has adequate resources
Group’s forecasted foreign
                                     to continue in operational
currency transactions are
                                     existence for the foreseeable
                                     future. For this reason they
Interest                             continue to adopt the going
The Treasury Policy requires that    concern basis in preparing
an interest hedging plan for         these accounts.
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       Stephen East
swaps, options, forward rate         Finance Director
agreements and futures.              2 April 2008
The Group will keep under
review the opportunity to hedge
its interest exposure following
the increase in its debt profile
during the year.
20.                                 Woolworths Group plc
                                    Annual report and accounts 2008

      Directors’ Report
      Business Review
                          Any business undertaking will                 margins and profitability,         trading period in terms of
                          involve risk. Many risk factors               which have had in the past         sales, profitability and cash
                          are common to any business,                   and could have in the future,      flow has been the Christmas
                          no matter what sector it                      an adverse effect on the           season. Lower than
                          operates in. The Group’s                      Group’s business and               expected performance in this
                          approach to Financial Risk                    financial condition.               period may have an adverse
                          Management is set out in the                                                     impact on results for the full-
                                                                      2. Growth of the Digital
                          Notes to the Group Accounts.                                                     year which may also result in
                                                                         Entertainment Market
                                                                        A key driver of footfall and       excess inventory, especially
                          The Directors consider that
                                                                        sales within Woolworths            in seasonal merchandise that
                          certain key risks and
                                                                        stores and the core stock-in-      is difficult to liquidate.
                          uncertainties however are more
                          germane to Woolworths Group                   trade for Entertainment UK,        To a lesser extent a lower
Risk                      and the markets in which its
                          various businesses operate.
                                                                        Bertrams | THE and 2
                                                                        entertain is physical
                                                                                                           than expected turnover over
                                                                                                           the Easter period may also
Factors                   As part of the Business Review,
                          an assessment of such factors
                                                                        entertainment media ie CD’s,
                                                                        DVD’s, Books and Games.
                                                                                                           have an adverse effect on the
                                                                                                           Group’s business and
                          is set out below:                             In recent years, technological     financial condition.
                          1. Competition                                advances and changing            4. Damage to Reputation
                            The Group operates in highly                consumer preferences have           or Brands
                            competitive markets. In                     given rise to new markets          The Woolworths name is a
                            particular, in recent years the             providing delivery of music,       key asset of the business
                            retail landscape has seen                   films, games and books to          and maintaining the reputation
                            significant changes and                     portable players and to the        of the brand is key to the
                            trends in retail and consumer               home via digital delivery,         success of the Group. The
                            behaviour and spending                      bypassing the purchase of          many separate product lines
                            which are challenging for                   traditional physical media         of general merchandise
                            Woolworths Retail. The                      platforms. This trend may          handled by the Group means
                            Group has faced and expects                 result in decreased demand         the supply chain is complex
                            to face increased competition               for such products in stores.       and is subject to increasingly
                            from existing UK general and                Decreased sales of home            stringent laws and regulations
                            specialist retailers, food                  entertainment products at          governing issues of health
                            retailers that have expanded                retail or wholesale level may      and safety, packaging and
                            and are further expanding                   have an adverse effect on the      labelling, pollution and other
                            into general merchandising,                 Group’s business and               environmental factors.
                            foreign retailers entering the              financial condition.
                                                                                                           The Group has a Quality
                            UK market and newly formed
                                                                        The Directors believe that         Assurance team and legal
                                                                        digital entertainment also         and regulatory control
                            Further, the growth of                      offers opportunities for the       processes both in-house and
                            internet retailing and out-of-              Group and it has developed         externally to advise and take
                            town shopping has required                  strategies to participate,         action on existing and
                            and will require the Group                  including in Woolworths, a         emerging risk management
                            to adopt and invest in                      multichannel retail offer and      issues. However, these
                            new strategies to remain                    investment in digital rights       systems cannot guarantee
                            competitive.                                and online delivery technology     compliance or fully protect
                                                                        within Entertainment               against quality, regulatory,
                            The Directors believe that
                                                                        Wholesale and Publishing.          safety and environmental risk
                            where Woolworths offers
                                                                                                           in the supply chain. The
                            customers product                           However, the growth of digital
                                                                                                           Group is therefore potentially
                            innovation, exclusivity and                 markets and the increasing
                                                                                                           vulnerable to an event or
                            value-for-money, it can                     uptake of Broadband access
                                                                                                           circumstances adversely
                            continue to combat these                    will continue to place
                                                                                                           affecting the supply chain or
                            pressures. However, actions                 pressure on the Group’s
                                                                                                           merchandise which gives rise
                            taken by competitors as well                participation in traditional
                                                                                                           to liability claims and/or
                            as action taken by the Group                entertainment retail and
                                                                                                           reputational damage.
                            to maintain its competitiveness             distribution channels.
                                                                                                           Substantial erosion in the
                            and its reputation for value,
                                                                      3. Seasonality                       value of the Woolworths
                            have placed and will continue               The Group’s business is            name could have an adverse
                            to place pressure on the                    highly seasonal. Historically,     effect on the Group’s business
                            Group’s merchandise pricing,                the Group’s most important         and financial condition.
Woolworths Group plc                                                                                           21.
                                       Annual report and accounts 2008

Directors’ Report
Business Review

                                                                                  The theme of Corporate Social         highly competitive price to
                                                                                  Responsibility (“CSR”) has once       encourage our customers to go
                                                                                  again kept us busy during the         for the energy-efficient option.
                                                                                  year as we endeavour to do
                                                                                                                        We very much welcomed the
                                                                                  business in a socially responsible
                                                                                                                        dialogue with Greenpeace on
                                                                                  way throughout our operations.
                                                                                                                        this issue, although the
                                                                                  More details are given in our
                                                                                                                        behaviour of some of their
                                                                                  sixth online CSR report. For
                                                                                                                        members towards our store
                                                                                  Woolworths Group plc, as for
Corporate Social                                                                  every major retailer, balancing
                                                                                  the needs of our business with
                                                                                                                        colleagues and executives was
                                                                                                                        unacceptable and not
                                                                                                                        conducive to a sensible debate.
Responsibility                                                                    our commitment to CSR can at
                                                                                  times be extremely challenging.       Woolworths is committed to
                                                                                  We are, however, determined to        working to combat the effects of
                                                                                  meet those challenges head-on.        climate change and was invited
                                                                                  Often we can plan in advance          to join over 1,000 other
Recycling                                                                         how to address new business
Tonnage of packaging recycled
                                                                                                                        business leaders at the Prince
                                                           2008          2007     issues. For instance, how best        of Wales’s May Day Summit on
 Woolworths                                            18,051        17,577       to meet forthcoming legal             Climate Change. We pledged to
                                                                                  obligations. But we also have to      take positive action within our
 EUK                                                     2,916        1,622       be prepared for the unexpected,       companies, and with our
 Total                                                 20,967        19,199       as was the case with the toy          suppliers, colleagues and
                                                                                  industry recall issues last           customers to tackle this threat
Wherever possible, card and plastic materials, the major packaging                Summer. We have well                  to our planet.
constituents in our business, are taken back to our Distribution Centres.
                                                                                  established procedures in place
The materials are then baled and passed to recycling businesses for                                                     The summit was organised by
reprocessing. During 2007/08, 20,967 tonnes were recycled by the                  to ensure that products sold by
                                                                                                                        Business in the Community, one
Group. This reflects a 9.2 per cent increase year-on-year, with a 2.7 per         us are safe and legal and we
cent improvement in Retail and significant progress in the Entertainment                                                of a number of organisations
                                                                                  have strengthened our product-
Wholesale business, however, this partly reflects the growth of this                                                    which promote CSR and to
element of the Group.                                                             testing regime still further,
                                                                                                                        which Woolworths belongs.
                                                                                  introducing extra tests for lead
                                                                                                                        Another is the British Retail
                                                                                  for all our toys in order to
                                                                                                                        Consortium, where I have a seat
                                                                                  prevent this sort of issue
Electricity usage                                                                                                       on the Board. Through the BRC,
Tonnes of CO2 emitted
                                                                                                                        Woolworths Group, along with
                                                           2008          2007
                                                                                  We believe it is important to give    other retailers, does a great deal
 Woolworths                                            77,593        84,971       our customers as wide a choice        to promote the highest
 EUK                                                     7,677        5,959       as possible in the products we        environmental and ethical
 Total                                                 85,270        90,930
                                                                                  offer. At the same time we are        standards in our business
                                                                                  continually mindful of the need       sector.
During the year, the Group’s electricity consumption decreased by 6.2             to reduce our energy
                                                                                                                        In the coming year, we will
per cent. This represents a decline of 8.7 per cent within Retail, driven         consumption and, what’s more,
particularly by specific initiatives within stores, however, the impact of this                                         continue to ensure that CSR is
                                                                                  to encourage our customers to
is negated by an increase in usage within the Entertainment Wholesale                                                   considered in every part of our
part of the Group, attributable to sales growth and acquisitions.
                                                                                  do the same.
                                                                                                                        business, to live up to the
                                                                                  During 2007, Greenpeace               standards we have set. For a
                                                                                  claimed that Woolworths was           full report on the Group’s CSR
Staff stability                                                                   not moving fast enough to             activities, please refer to the
                                                           2008          2007     remove incandescent light bulbs       Company’s website. Alternatively,
 Woolworths Offices                                       83%           86%       from sale in our stores. The          for a hard copy of the 2008
                                                                                  Government has set a voluntary        CSR report please contact the
 Woolworths Retail                                        71%           70%
                                                                                  target to end their sale by 2012      Company Secretary.
 Woolworths Distribution                                  97%           89%       and Woolworths will not be
                                                                                                                        Yours sincerely,
 EUK                                                      91%           81%       selling incandescent light bulbs
                                                                                  by the end of 2010, well before
Our business is built on a core team of dedicated staff. During                   the target date. We will also be
2007/08, staff stability increased most significantly within the                  phasing out the most energy
Woolworths Distribution and EUK workforce, however, there was a
slight decline in stability rates within Woolworths Offices.                      inefficient light bulbs in the run-
                                                                                  up to 2012 and we have already        Trevor Bish-Jones
                                                                                  removed 100W-plus bulbs from          Chief Executive
                                                                                  our shelves. Additionally, we         2 April 2008
                                                                                  have launched a new Worthit!
                                                                                  energy-saving light bulb at a
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