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Woolworths posts strong profit rise

By Geoff Hiscock
CNN Asia Business Editor

Woolworths gets 85 percent of its revenue from supermarket operations
Woolworths gets 85 percent of its revenue from supermarket operations

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SYDNEY, Australia (CNN) -- Australia's biggest grocer Woolworths Ltd has lifted first-half net profit 18.3 percent to Aust. $349.6 million ($209 million) on aggressive cost cutting and strong sales growth.

Shares in Woolworths jumped more than 5.3 percent Monday to close at A$11.27, outstripping a 1.27 percent rise in the broad market index, the S&P/ASX200.

Woolworths, a close second to Coles Myer in the total Australian retail market, said Monday it also would buy back between A$500 million and A$600 million of its shares, representing up to 6 percent of its issued capital.

Chairman James Strong said the company's healthy balance sheet and significant cash flows meant the off-market buyback would not stop Woolworths from making acquisitions or investments.

Woolworths, which gets 85 percent of its revenue from its supermarkets group, said sales in this sector rose almost 13 percent to A$12.05 billion for the 28 weeks to January 12.

Aggressive cost-cutting

CEO Corbett says Woolworths is on track to achieve its five-year cost target
CEO Corbett says Woolworths is on track to achieve its five-year cost target

Total revenue of A$14.138 billion includes contributions from its consumer electronics, Big W general merchandise and property operations.

CEO Roger Corbett said cost savings had been "aggressively pursued", with the result that costs had been cut a further 0.31 percent as a percentage of sales in the half-year.

"We remain on track to achieve our five-year target of reducing the cost of doing business a further 1 percent of sales," Corbett said.

Corbett said sales were likely to grow by between 10.5 and 11.5 percent for the full year, and earnings would likely grow faster than sales in the second half.

His forecast of 56 cents to 57.5 cents in earnings per share after goodwill is 12 to 15 percent above the previous year, and equates to a full-year net profit of A$631 million to A$647 million. That compares with A$563 million last year.

Woolworths' strong first-half result, which bettered analysts' estimates, and the stock buyback comes in the face of increased competition from arch rival Coles Myer and discount retailers such as Germany's Aldi.

Coles result

"It's a very strong response to the buyback after a very solid result," Bruce Budd, head of equities trading at fund manager Perpetual Trustees, told Reuters news agency.

Investors in the retail sector have turned to Woolworths shares rather than Coles Myer, which was hurt by missed profit forecasts in 2002 and a long-running boardroom battle involving dissident director Solomon Lew. (Full story)

That dispute was finally resolved in November when Lew was voted off the board.

On February 14, Coles Myer reported it had lifted sales 5.5 percent to A$13.8 billion in its first half, and said it was on track to meet its 2002-03 full-year earnings target.

At its annual general meeting last November, the retailer said it would likely achieve a full-year net profit of A$425-$435 million, or 22-23 percent above the 2001-02 figure.

Reuters contributed to this report.

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