Woolworths books $591m hit, to build new automated centres

Hundreds of jobs will go as Woolworths builds automatic distribution centres, while unpaid wages helped take gloss off rising sales.

Woolworths sales were lifted by pandemic panic buying.

Woolworths will spend as much as $780 million on new automated distribution centres but has also warned it will book significant items of $591m due to supply chain investment, costs at its liquor arm and the discovery of new unpaid wages.

The two new distribution centres will also mean job losses, with 1350 workers to be made redundant as old centres in Sydney and Melbourne are closed, and only 600 positions at the new facilities.

The supermarket group’s full year profit for 2020 is expected to fall by as much as 2.7 per cent, thanks to costs and despite a sharp lift in sales at its food arm, according to a trading update.The update included strong sales for the fourth quarter and a new EBIT forecast of $3.2 billion to $3.25 billion for the full year.

However the shutdown of its hotels and pubs businesses because of the coronavirus pandemic will shave almost $200m from pre-tax profits.

Woolworths also said it had repaid $80m in staff wages in the first half, but this would blow out to another $105m in the second half as new cases of unpaid wages were discovered.

Woolworths said as part of the wages review that payment shortfalls have been identified for salaried staff in ALH Hotels, employed under the Hospitality Industry General Award (HIGA).

The review found salaried staff were not paid in full compliance with the award, based on an analysis of 2018 and 2019 time and attendance data.

“The group continues to review the estimated payment shortfall liability, which is based on calculations involving a high degree of complexity, and which remains subject to further analysis of historical years and the completion of the review of all awards applicable across the group,’’ Woolworths said.

The total cost of remediation is expected to be approximately $390m - excluding interest and other costs. Woolworths discovered last year it had underpaid wages to around 5700 staff and announced an initial estimate of $300m.

In the trading update, Woolworths said the first half 2020 result would include significant items of $591m. This comprised $131m linked to the transformation costs at its liquor business, Endeavour Group, taking it to $230m in total for the full year, $176m in costs for its new planned two automated distribution centres in NSW and $185m for paying back salaries to staff.

On the positive side, panic buying caused by the coronavirus pandemic put a rocket under food sales, with Woolworths’ Australian supermarket sales up 6.4 per cent in the first half, up 11.3 per cent in the third quarter and, in the fourth quarter to date, up 8.6 per cent.

New Zealand supermarket sales were up 13.7 per cent in the third quarter and 15.1 per cent for the fourth quarter. Big W sales were up 27.8 per cent in the fourth quarter to date, up against sales growth of 9.5 per cent in the third quarter. Endeavour saw sales growth of 21.4 per cent in the fourth quarter to date, growing from a sales rise of 9.5 per cent in the third quarter.

“Trading has remained strong in the fourth quarter to date, with the exception of hotels, where venues were closed until the end of May and have just begun to enter different stages of reopening,’’ said Woolworths chief executive Brad Banducci.

“In Australian food and Endeavour Drinks, sales growth improved in May and June following a more subdued April impacted by unusual trading patterns around Easter and Anzac Day.

“Big W reported very strong growth during the quarter across all major categories. Inventory levels are now running below where we would like but the team is responding quickly to address shortages.”

Woolworths CEO Brad Banducci. Picture: AAP

Woolworths said for the financial year 2020, the group currently expects to report EBIT of $3.2bn to $3.25bn. For comparison, fiscal 2019 EBIT from continuing operations before significant items was $3.29bn on a 53-week basis. Hotels EBIT is expected to be $160m - $170m, down from $355m in 2019, as hotels were closed due to the health crisis.

Woolworths also announced it would build two automated distribution centres, following a recent decision by Coles to also build large futuristic supply chains using robots and other technologies to ramp up efficiencies.

Woolworths plans to develop an automated regional distribution centre and a semi-automated national distribution centre at Moorebank Logistics Park in Sydney. Construction is expected to be completed by the end of calendar 2023 with initial benefits expected to be realised in financial year 2025.

Once established, the facilities at Moorebank will replace Woolworths’ current ambient grocery operations at Minchinbury and Yennora in Sydney and at Mulgrave in Melbourne. Temperature-controlled fresh food distribution will continue from Minchinbury.

Woolworths said 1350 jobs would go by 2025 as the two new distribution centres in NSW replace the three existing facilities. Woolworths will put on 600 jobs at the two new facilities.

Woolworths is expected to invest $700m - $780m in technology and fit-out of the two distribution centres over the next four years and has signed an initial lease term of 20 years with Qube Holdings Limited.

“Moorebank will transform the way we serve our NSW grocery customers. The new facilities will advance our localised ranging efforts, with the ability to hold over 30 per cent more products than existing facilities. Automation will allow the creation of aisle-specific pallets by store, and in doing so, reduce the time to restock shelves and result in better on-shelf availability for customers.”