Woolworths Group Announces Fresh Development Plan
In a time where companies make a conscious effort to scale back on capital expenditure, Woolworths Group is clearly doing the opposite. The Group has today, 23rd June 2020, released its latest trading update alongside fresh plans it intends to implement. More notably, Woolworths Group has announced the development of an automated regional distribution facility alongside a semi-automated national distribution centre located at Moorebank Logistics Park in Sydney, New South Wales.
The $700-$800 million investment in technology and construction of both centres, is due for completion before 2023 and will yield benefits in the 2025 financial year. Additionally, the project will be developed by Qube Holdings, who has exchanged four agreements with the Woolworths Group. Specifically, two out of four agreements are related to Lease with the remainder surrounding Development Management Agreements.
Woolworths Group Chairman, Mr Gordon Cairns, believes that pending government approval, the new development will substantially boost its capacity for growth. Additionally, employees stand to benefit through a safer and more conducive working environment. The considerable scale of the upcoming project will, in turn, replace current operations across several distribution centres.
These include the Woolworths’ Sydney Regional Distribution Centre (Minchinbury), Sydney National Distribution Centre (Yennora) as well as its Melbourne National Distribution Centre (Mulgrave). Meanwhile, Wooworths’ temperature-controlled fresh food distribution will continue to operate out of its Sydney Regional Distribution Centre at Minchinbury.
More broadly speaking, the funding for this initiative will come from the Group’s existing capital expenditure and will not affect the Group’s financial health over the construction and installation period. Instead, this long-term investment will, bring down expenses related to the Group’s supply chain over time and generate considerable returns above the cost of capital. Nevertheless, the decision to proceed with the project will result in a one-off pre-tax cost of $176 million and itemised as a significant item in FY20.
Meanwhile, aside to Hotels whose venues remain shut until the end of May, operations across the Group remains strong. Specifically, Australian Food, New Zealand Food and BIG W have all recorded 8.6 per cent, 15.1 per cent and 27.8 per cent increase in Q4 sales respectively. Similarly, Endeavour Drinks posted a 21.4 per cent surge in the same period. Despite a softer April, sales growth for both Australian Food and Endeavour Drinks made a gradual turnaround in the months of May and June.
Likewise, sales in New Zealand Food remained stable throughout the quarter have as restrictions ease, these have trended towards high-single-digit growth. Leading the gains is Big W, who reported exceptionally robust growth during the quarter across all major categories. While inventory levels are running low, the Group is adopting swift measures to address the issue. With the above considerations in mind, Woolworths Group is, therefore, anticipating Earnings before Interest & Tax to fall between $3,200 - $3,250 million.
By Caroline Wong
Click here for a 7 days access to our Lotus Blue Portal.