Wesfarmers Limited · ASX:WES
Wesfarmers — FY2013 Earnings Presentation
74 slides from Wesfarmers's earnings presentation, Aug 15, 2013
Slide 1: 2013 Full-Year Results Teleconference
2013 Full-Year Results Teleconference 15 August 2013
Slide 2: Presentation outline
2 Presentation outline Item Presenter Page 1 Group Performance Highlights Richard Goyder 3 2 Coles Ian McLeod 13 3 Home Improvement & Office Supplies John Gillam 22 4 Target Stuart Machin 31 5 Kmart Guy Russo 37 6 Insurance Anthony Gianotti 41 7 Resources Stewart Butel 46 8 Chemicals, Energy & Ferti
Slide 3: Group Performance Highlights
Group Performance Highlights Richard Goyder Managing Director, Wesfarmers Limited
Slide 4: Group performance highlights
4 Group performance highlights • Operating revenue of $59.8 billion, up 3.0% • Earnings before interest & tax of $3,658 million, up 3.1% • Net profit after tax (NPAT) of $2,261 million, up 6.3% • Earnings per share of $1.96, up 6.4% • Operating cash flows of $3,931 million, up 8.0% • Free cash flows
Slide 5: Group performance highlights (cont)
5 Group performance highlights (cont) • Strong earnings growth at Coles, Bunnings, Officeworks & Kmart – Improvements in value, offer & service driving strong transaction growth – Improved product sourcing, in store execution & stock management enhancing earnings growth • Target’s earnings were disa
Slide 6: Group performance summary
6 Group performance summary Year ended 30 June ($m) 2013 2012 % Revenue 59,832 58,080 3.0 EBITDA 4,729 4,544 4.1 EBIT 3,658 3,549 3.1 Finance costs (432) (505) 14.5 Tax expense (965) (918) (5.1) Net profit after tax 2,261 2,126 6.3 Operating cash flows 3,931 3,641 8.0 Earnings per share (ex. employe
Slide 7: Long term performance
7 Long term performance TSR WES: 12.0% (CAGR) ASX 200: 9.3% (CAGR) 1 Assumes 100% dividend reinvestment on the ex-dividend date, & full participation in capital management initiatives e.g. rights issues, share buybacks. Source: Bloomberg
Slide 8: Strength through diversified earnings
8 Strength through diversified earnings Divisional Percentage of EBIT Divisional EBIT Year ended 30 June 4,000 2013 2012 % EBIT ($m) Insurance Insurance 5%; (FY12: 0%) Coles 1,533 1,356 13.1 3,500 WIS Industrial 15%; Home Improvement 904 841 7.5 WES CEF Resources (FY12: 24%) Office Supplies 93 85 9.
Slide 9: Return on Capital
9 Return on Capital • Focus on return on capital to deliver satisfactory shareholder returns 2013 2012 R12 Capital Year ended 30 June EBIT ROC ROC Employed $m $m % % Coles 1,533 16,114 9.5 8.7 Home Improvement 904 3,492 25.9 25.9 Office Supplies 93 1,147 8.1 7.1 Target 136 2,930 4.6 8.4 Kmart 344 1,
Slide 10: Strategic growth initiatives
10 Strategic growth initiatives Retail • Coles: continue category & network development, realise supply chain & operational efficiencies, improve multi-channel integration & targeted loyalty offers; leverage the improvements achieved at Liquor; optimise Convenience network • HIOS: continue to invest
Slide 11: Strategic growth initiatives (cont)
11 Strategic growth initiatives (cont) Industrials • Resources: continue strong mine cash cost focus • WES CEF: complete the $550 million ammonium nitrate expansion; debottleneck Sodium Cyanide (SC) plant • WIS: leverage strong contract base & further develop product range & services; continue indus
Slide 12: Strategic growth initiatives (cont)
12 Strategic growth initiatives (cont) Group • Manage the portfolio to deliver satisfactory returns to shareholders • Continue to improve capital efficiency • Maintain strong balance sheet & access to capital • Continue to leverage & build human resource capability
Slide 13: Coles
Coles Ian McLeod Managing Director
Slide 14: Coles performance summary
Coles 14 Coles performance summary Year ended 30 June ($m) 2013 2012 % Revenue 35,780 34,117 4.9 EBIT 1,533 1,356 13.1 ROC % 9.5 8.7 Safety (R12 LTIFR) 9.5 13.0 Food & Liquor Revenue1 27,933 26,561 5.2 Headline sales growth %2,3 5.5 4.6 Comparative sales growth %2,3 4.3 3.7 Trading EBIT4 1,368 1,232
Slide 15: Leading financial performance
Coles 15 Leading financial performance • Strong ROC improvement over last 5 years − $750m of EBIT growth − 190bps EBIT margin expansion − 440bps ROC expansion • Motivated to do more − Continue to grow EBIT faster 9.5% than revenue − Cost reduction focus − Maintain return focused capital 5.1% managem
Slide 16: Value, quality & innovation
Coles 16 Value, quality & innovation • Investing in better value − 100s more big brands & Coles brands added to Down Down − flybuys enlarged & enabling targeted delivery of value • Investing in better quality − Locally sourced for freshness − Supply chain velocity for longer life at home • Investing
Slide 17: Efficiencies in & above stores
Coles 17 Efficiencies in & above stores • More efficient DC operations − Leveraging best practice across locations − Optimising product flows for fast & slow moving lines • Optimising transport network − In-house load planning trials commenced − Route optimisation • Simpler in-store replenishment &
Slide 18: Compelling & engaging
Coles 18 Compelling & engaging • Investing in a better experience − Concept stores performing well − Redesigned Coles Online site in final customer trial phase • Investing in future growth − New store activity increased in FY13 with 1.6% net space growth − Pipeline remains strong at ~2% net space gr
Slide 19: Repositioning for growth
Coles 19 Repositioning for growth • Network restructure well progressed − Better mix of co-located & retail associated stores − Some closures of stores still required • Stronger focus on sales mix profitability − Shift towards higher margin categories & exclusive labels − Better range architecture f
Slide 20: Winning with customers
Coles 20 Winning with customers • Better fuel offer − Positive change in fuel mix towards diesel & premium fuels − Volume growth • Improved shop offer − Down Down campaign extension performing well − Stronger mix of grocery sales • Quality sites to drive growth − Enterprise approach to network plann
Slide 21: Delivering sustainable transformation
Coles 21 Delivering sustainable transformation • Turnaround successful so far; regearing for growth transformation • Cost of living pressures remain a key concern • Value to remain at the heart of what we do • Strong supplier relationships critical for quality & value plans • Strength & depth in bui
Slide 22: Home Improvement & Office Supplies
Home Improvement & Office Supplies John Gillam Managing Director
Slide 23: HIOS performance summary
Home Improvement & 23 Office Supplies HIOS performance summary Year ended 30 June ($m) 2013 2012 % Revenue Home Improvement 7,661 7,162 7.0 Office Supplies 1,506 1,482 1.6 9,167 8,644 6.1 EBIT Home Improvement 904 841 7.5 Office Supplies 93 85 9.4 997 926 7.7
Slide 24: Home Improvement
Home Improvement Home Improvement & Office Supplies 24 Performance summary Year ended 30 June ($m) 2013 2012 % Revenue 7,661 7,162 7.0 EBIT1 904 841 7.5 Trading EBIT Margin (%) 11.7 11.6 ROC (R12 %) 25.9 25.9 Safety (R12 AIFR) 31.7 39.7 1 Includes net property contribution 2013 $8 million, 2012 $9 m
Slide 25: Home Improvement highlights
Home Improvement & 25 Office Supplies Home Improvement highlights • Trading revenue growth of 7.0% – Consumer sales growth of 6.4%; commercial sales growth of 9.6% – Store-on-store growth of 4.4% • Pleasing improvements to core business – Better customer outcomes & stronger offer – Deeper brand reac
Slide 26: Home Improvement highlights
Home Improvement & 26 Office Supplies Home Improvement highlights • Opened 23 trading locations – 10 new warehouse stores – 10 smaller format stores & three trade centres • Industry leading ROC with growth-focused investment – Targeted investment Accelerated new store pipeline with efficient prope
Slide 27: Home Improvement outlook
Home Improvement & 27 Office Supplies Home Improvement outlook • Continued growth expected to be driven through: – More customer value – Better customer experiences – Greater brand reach – Expanding commercial – More merchandise innovation • Continued investment in strengthening the core business –
Slide 28: Office Supplies
Office Supplies Home Improvement & Office Supplies 28 Performance summary Year ended 30 June ($m) 2013 2012 % Revenue 1,506 1,482 1.6 EBIT 93 85 9.4 EBIT margin (%) 6.2 5.7 ROC (R12 %) 8.1 7.1 Safety (R12 AIFR) 33.9 35.9
Slide 29: Office Supplies highlights
Home Improvement & 29 Office Supplies Office Supplies highlights • Strong earnings growth • Higher sales with pleasing growth in transactions & units sold – Double-digit online sales growth – Good progress on actions to improve the customer offer – Website enhancements, range expansion & service inv
Slide 30: Office Supplies outlook
Home Improvement & 30 Office Supplies Office Supplies outlook • Modest sales growth expected – Competitive pressure on sales & margin remains strong • Focus on strategic agenda – Improve customer offer & service – Expand & upgrade store network – Extend reach to new customers – Reduce complexity & c
Slide 31: Target
Target Stuart Machin Managing Director
Slide 32: Target performance summary
Target 32 Target performance summary Year ended 30 June ($m) 2013 2012 % Revenue 3,658 3,738 (2.1) EBIT 136 244 (44.3) EBIT margin (%) 3.7 6.5 ROC (R12 %) 4.6 8.4 Safety (R12 LTIFR) 7.8 8.2 Total sales growth1 (%) (1.7) (1.8) Comparable store sales growth1(%) (3.3) (2.1) 1 2013 growth reflects the 5
Slide 33: Target – FY13 earnings impact
Target 33 Target – FY13 earnings impact • Earnings affected by: – Price deflation – Excess inventory requiring high levels of clearance activity – Higher than expected shrinkage – Restructuring costs & increased costs of doing business
Slide 34: Start of a transformation
Target 34 Start of a transformation • First 15 weeks: – Listened to customers & team members – Strategic review & direction reset – Met key suppliers & all store managers & store support teams – Commenced improvement of store presentation standards & service – Stock reduction action taken & continui
Slide 35: FY14 – Back to basics
Target 35 FY14 – Back to basics • Cleaner, de-cluttered stores with no queues • Strong leadership team in • Development of ‘store of the place future’ • Clear organisational • Increase alignment of online & structure & accountabilities in-store offers established • Launch of brand ‘personality’ • St
Slide 36: Target outlook
Target 36 Target outlook • Challenging trading conditions have continued into FY14 ‒ High levels of clearance activity in 1H FY14 ‒ Late launch of Spring/Summer ‒ Cycling high levels of promotional activity • Focus on getting ‘Back to Basics’ • Strengthened leadership team in place by Christmas to o
Slide 37: Kmart
Kmart Guy Russo Managing Director
Slide 38: Kmart performance summary
Kmart 38 Kmart performance summary Year ended 30 June ($m) 2013 2012 % Revenue 4,167 4,055 2.8 EBIT1 344 268 28.4 EBIT margin (%) 8.3 6.6 ROC (R12 %)1 25.9 18.9 Safety (R12 LTIFR) 9.2 9.3 Total sales growth2 (%) 2.7 0.0 Comparable store sales growth2 (%) 2.1 0.0 1 2013 includes $2 million earnings r
Slide 39: Kmart highlights
Kmart 39 Kmart highlights • Strong earnings result with double digit growth • Comparable sales growth of 2.1% for the year – Strong growth in customer transactions & units sold – Excluding the effect of removing Christmas lay-by from the Toy sale event, comparable sales growth of 3.0% • Improved ran
Slide 40: Kmart outlook
Kmart 40 Kmart outlook • Continued focus on growth – Volume retailer – Operational excellence – Adaptable stores – High performance culture • 1Q FY14 sales affected by the removal of Christmas lay-by for Toy Event • Exchange rate hedging in place for FY14 • Continuation of improvement initiatives in
Slide 41: Insurance
Insurance Anthony Gianotti Managing Director
Slide 42: Insurance performance summary
Insurance 42 Insurance performance summary Year ended 30 June ($m) 2013 2012 % Total Revenue 2,083 1,915 8.8 EBITA Underwriting 136 (58) n.m. EBITA Broking 86 79 8.9 EBITA Other (4) (4) - EBITA Insurance Division 218 17 n.c. EBIT Insurance Division1 205 5 n.c. EBIT Margin (Insurance Division) (%)1 9
Slide 43: Insurance highlights
Insurance 43 Insurance highlights • Strong Underwriting performance – Significantly improved loss ratio through disciplined underwriting practices with a focus on risk selection & exposure management – Higher earned premiums benefiting from rate increases in FY12 & FY13 – Favourable claims experienc
Slide 44: Insurance highlights (cont)
Insurance 44 Insurance highlights (cont) • Continued income & earnings growth in Broking – Strong revenue & earnings growth in NZ benefitting from full year contribution from ACM & strong performance in the underlying business – Challenging trading conditions in the Australian SME sector constrainin
Slide 45: Insurance outlook
Insurance 45 Insurance outlook Underwriting • Further improvement in performance, benefiting from a continued focus on underwriting disciplines & operational efficiencies • Premium rate increases expected to slow across most classes of business • Continued strong growth in personal lines offering th
Slide 46: Resources
Resources Stewart Butel Managing Director
Slide 47: Resources performance summary
Resources 47 Resources performance summary Year ended 30 June ($m) 2013 2012 % Revenue1 1,539 2,132 (27.8) Royalties2 (262) (368) 28.8 Mining & other costs3 (978) (1,175) 16.8 EBITDA 299 589 (49.2) Depreciation & amortisation (151) (150) (0.7) EBIT4 148 439 (66.3) ROC (R12%) 10.0 29.5 Coal productio
Slide 48: Resources highlights
Resources 48 Resources highlights • Ongoing focus on safety performance – Pleasing reduction in Total Recordable Injury Frequency Rate (TRIFR) • Lower export prices & continued high US$:A$ exchange rate resulted in a significant decline in export revenue • Significant reduction in Curragh mine cash
Slide 49: Resources outlook
Resources 49 Resources outlook • Export Markets – Global economic uncertainty resulting in variable short term metallurgical coal demand – Continued low export prices expected in 1H FY14 • Financial Year 2014 – Forecast Curragh metallurgical coal sales of 7.5 – 8.5mt – Estimated full year sales mix
Slide 50: Chemicals, Energy & Fertilisers
Chemicals, Energy & Fertilisers Tom O’Leary Managing Director
Slide 51: Chemicals, Energy & Fertilisers Performance summary
Chemicals, Energy & Fertilisers Chemicals, Energy & Fertilisers 51 Performance summary Year ended 30 June ($m) 2013 2012 % Revenue Chemicals 731 698 4.7 Energy1 577 561 2.9 Fertilisers 497 527 (5.7) 1,805 1,786 1.1 EBITDA2,3 348 348 - Depreciation & amortisation (99) (90) 10.0 EBIT2,3 249 258 (3.5)
Slide 52: Chemicals, Energy & Fertilisers Highlights
Chemicals, Energy & Fertilisers Chemicals, Energy & Fertilisers 52 Highlights • Construction progressing well to expand ammonium nitrate (AN) production capacity from 520ktpa to 780ktpa – On track to be operational during 1H CY14 & within budget • Higher Chemicals earnings driven by good plant perfo
Slide 53: Chemicals, Energy & Fertilisers Outlook
Chemicals, Energy & Fertilisers Chemicals, Energy & Fertilisers 53 Outlook • Continued focus on delivery of AN expansion & SC debottlenecking projects • Chemicals expected to continue to drive good earnings performance with strong demand & production – AN plant shutdown in early FY14 • Kleenheat Gas
Slide 54: Industrial & Safety
Industrial & Safety Olivier Chretien Managing Director
Slide 55: Industrial & Safety Performance summary
Industrial & Safety Industrial & Safety 55 Performance summary Year ended 30 June ($m) 2013 2012 % Revenue 1,647 1,690 (2.5) EBITDA 192 217 (11.5) Depreciation & amortisation (27) (27) - EBIT 165 190 (13.2) EBIT margin (%) 10.0 11.2 ROC (R12 %) 14.7 16.0 Safety (R12 LTIFR) 2.3 2.4
Slide 56: Industrial & Safety highlights
Industrial & Safety 56 Industrial & Safety highlights • Progressive slowdown in business activity – Resources led, with lower volumes & cost control affecting margins – Growth in industrial gas & services offers • Strengthened focus on realigning cost base – Business restructure (Blackwoods Protecto
Slide 57: Industrial & Safety outlook
Industrial & Safety 57 Industrial & Safety outlook • Subdued business activity & challenging market conditions expected to continue into FY14 – Division well placed to respond to market recovery • Opportunity to continue to grow market share – Leveraging strong contract base & service levels – Produ
Slide 58: Balance Sheet & Cash Flow
Balance Sheet & Cash Flow Terry Bowen Finance Director, Wesfarmers Limited
Slide 59: Other business performance summary
59 Other business performance summary Holding Year ended 30 June ($m) 2013 2012 % % Share of profit/(loss) of associates: Gresham Private Equity Funds Various (11) (55) 80.0 Gresham Partners 50 1 - n.c. Wespine 50 5 5 - BWP Trust 24 27 16 68.8 Sub-total 22 (34) n.c. Interest revenue and FX adjustmen
Slide 60: Portfolio generating increased operating cash flows
Portfolio generating increased operating 60 cash flows • Strong cash realisation of 118%
Slide 61: Disciplined working capital management
61 Disciplined working capital management • Working capital release despite Cash Movement ($m) Inflow/(Outflow) 1 Year ended 30 June 2013 2012 continued business growth Inventory (17) (16) Payables 552 274 • Reduction in retail working capital Receivables 7 (362) – Higher retail sales & improved Net
Slide 62: Disciplined capital investment
62 Disciplined capital investment Year ended 30 2013 2012 % • Strong investment in future growth June ($m)1 Coles 1,187 1,193 (0.5) ‒ Improving & growing retail HI & OS 549 587 (6.5) Target 81 65 24.6 networks Kmart 95 134 (29.1) Insurance 25 34 (26.5) ‒ Industrial business expansion Resources 79 39
Slide 63: Property recycling increased
63 Property recycling increased • Innovative structures supporting traditional sale & leaseback – Flexibility – Retention of property development & management rights – Potential future pipeline funding • Recent transactions – ISPT joint venture (Coles) in April 2013 – Sale & leaseback to BWP Trust (
Slide 64: Funding costs declining
64 Funding costs declining • Effective cost of debt reduced in FY13 to 6.8%; FY14F c. 5.8%
Slide 65: Diversity of funding sources & risk management of debt maturities
Diversity of funding sources & risk 65 management of debt maturities Sources1 • Strategy to pre-fund maturities, diversify sourcing & extend maturity profile • FY13 activity: – €650 million 10-year bond issue (August 2012) – A$350 million seven-year medium term notes (March Maturity profile1 2013) 2
Slide 66: Maintaining strong credit metrics
66 Maintaining strong credit metrics Cash Interest Cover Fixed Charges Cover • Solid improvements in credit metrics – Cash interest cover (R12) improved to 12.2 times – Fixed charges cover (R12) 3.0 times • Strong credit ratings – Moody’s upgraded from Baa1 (positive) to A3 (stable) – Standard & Poo
Slide 67: Operating cash flows have supported strong investment phase & dividend growth
Operating cash flows have supported strong 67 investment phase & dividend growth Operating Cash Flow Use • Final dividend $1.03 per share; full year dividend $1.80 per share – Fully franked – Dividend investment plan; no underwrite; shares purchased on market
Slide 68: Capital management
68 Capital management • Capital management will exceed $1.6 billion over five years − Full neutralisation of Dividend Investment Plan – Shares purchased for Employee Share Plan • Capital return, if approved, to return an additional $579 million
Slide 69: Capital return
69 Capital return • Capital return of 50 cents per share ‒ Total amount of capital return to be approximately $579 million ‒ To return excess capital to shareholders & to maintain an efficient capital structure ‒ Proportionate share consolidation ‒ Floor price & conversion ratio adjustments to parti
Slide 70: Outlook
Outlook Richard Goyder Managing Director, Wesfarmers Limited
Slide 71: Outlook
71 Outlook Retail • Investments in the customer offer, store networks & productivity initiatives expected to drive further earnings growth within retail portfolio • Continued focus on working capital & timely recycling of property • Target’s performance expected to progressively improve over time; c
Slide 72: Outlook
72 Outlook Resources • Increased export sales volumes expected at Curragh; continued focus on cost control • Low export coal prices expected in the short term; long term metallurgical coal market fundamentals remain sound & leveraged to lower AUD Industrial & Safety • Challenging market conditions e
Slide 73: Questions
Questions Wesfarmers XO UOMO OO
Slide 74: For all the latest news visit www.wesfarmers.com.au
For all the latest news visit www.wesfarmers.com.au