As one of the largest and leading supermarket in Australia, the goals at Woolworths Limited is to maximise our shareholders return while sustaining and maintaining its corporate sustainability and ensuring the environment isn’t harmed in the process. In this analysis, given our key assumptions (2% annual volume growth and 3% inflation) and parameters, we evaluate two different projects which we could undertake which would impact us nationally. The required rate of return in this analysis will be 12%.
As our National Distribution Center (NDC) is operationally reaching its useful life, it now requires a significant injection of capital expenditure to refurbish the site. The capital expenditure will amount to $31.15M and will have a useful life of 10 years. $30M would be received once it has been disposed of in FY2026. The full breakdown is listed in the report. Additional factors to consider in the analysis were the volumes of SKUs, the transportation costs of these SKUs, its distribution costs and in store costs.
Comparatively, another initiative would be to close the NDC, effective in FY16. One main benefit of closing the NDC would be the CO2 emissions and electricity costs avoidable. Our analysis shows that we can reduce our emissions by 24 979 tonnes while Woolworths can save 29044.99 megawatt hours of electricity which amounts to $2 904 498.69. This is mainly due to the fact that 85% of our RDC variable costs are attributed to diesel fuel costs. As part of our corporate sustainability, these are significant figures. Any decisions made must take into the account the impact on our corporate sustainability.
From the analysis, the EBIT, NPV and IRR data pertained in the excel worksheet shows that it would be more profitable to actually refurbish the NDC. Using an incremental analysis, we are able to calculate the revenues, expenses and depreciation differences between the two scenarios. Our analysis shows that EBIT for refurbishment is gradually higher for each year. This has resulted in a positive NPV value of $13.09M. Subsequently, the IRR further supports this with a return of 17.7%. This is greater than our required rate of return of 12%. However, it must be stated that there would be an increase in CO2 emissions due the extra transportation required from transferring the items in the NDC to the RDC, as well as the electricity costs.
Furthermore, a sensitivity analysis was performed where our annual growth forecast of 2% would be reduced to 1.6%. The data from the sensitivity analysis further supports the more profitable scenario of refurbishing the site as it resulted in a dramatically higher NPV and IRR.
CMA Woolworths Financial reportTable of Contents
TOC \o "1-3" \h \u HYPERLINK \l _Toc6076 Introduction PAGEREF _Toc6076 3 HYPERLINK \l _Toc3558 EBIT (Earnings before Interest, Taxes) PAGEREF _Toc3558 4 HYPERLINK \l _Toc18603 NPV (Net Present Value) and IRR PAGEREF _Toc18603 5 HYPERLINK \l _Toc24639 Capex and key findings PAGEREF _Toc24639 6 HYPERLINK \l _Toc8906 Corporate Sustainability PAGEREF _Toc8906 7 HYPERLINK \l _Toc23689 Sensitivity analysis and conclusion PAGEREF _Toc23689 8 HYPERLINK \l _Toc18458 References PAGEREF _Toc18458 9
Jian Bin Liang 11892736
Jialiang Qiu 11621531
Jonathan Lam 11786629
Rongqian Li 11806609
IntroductionThe content of this financial report compares the financial results of pursuing a NDC closure against a NDC refurbishment. A recommendation is then provided based upon a comprehensive evaluation model (incremental analysis using the refurbishment model) whereby the two main initiatives are further explored through the use of graphs and tables which highlight key quantitative calculations (EBIT, NPV, IRR, CAPEX, distribution, transportation and in store costs). The second key criterion involves the qualitative evaluation of C02 emissions based upon the National Greenhouse and Energy Reporting Act 2007 (NSW) and…