Wesfarmers Limited · ASX:WES
Wesfarmers — H1 FY2020 Earnings Presentation
55 slides from Wesfarmers's earnings presentation, Feb 19, 2020
Slide 1: 2020 Half-year Results Briefing Presentation
2020 Half-year Results Briefing Presentation To be held on Wednesday 19 February 2020
Slide 2: Presentation outline
Presentation outline Item Presenter Page Group Performance Overview Rob Scott 3 Group Balance Sheet and Cash Flow Anthony Gianotti 12 Bunnings Australia and New Zealand Michael Schneider 21 Kmart Group Ian Bailey 26 Industrials David Baxby 31 Officeworks Michael Howard 38 Group Outlook Rob Scott 44
Slide 3: Group Performance Overview
Group Performance Overview Rob Scott Managing Director, Wesfarmers Limited
Slide 4: Continued focus on sustainable value creation over the long term
Continued focus on sustainable value creation over the long term Wesfarmers’ primary objective is to provide a satisfactory return to shareholders We believe it is only possible to achieve this over the long term by: Anticipating the needs of our Looking after our team Engaging fairly with our custo
Slide 5: Response to Australian bushfires
Response to Australian bushfires • Across the Group, our businesses were able to respond directly to assist their local communities – Donation of critical products and in-kind support at time of need – Immediate action to source extra supplies of urgently needed products – Tireless effort from team
Slide 6: Financial overview
Financial overview 2019 2019 2018 Variance Half-year ended 31 December ($m)1 Post AASB 16 Pre AASB 16 Reported %2 Revenue 15,249 15,249 14,388 6.0 EBIT 1,734 1,637 1,645 (0.5) EBIT (after interest on lease liabilities) 1,615 1,637 1,645 (0.5) NPAT 1,127 1,142 1,080 5.7 Basic earnings per share (cps)
Slide 7: Divisional sales performance
Divisional sales performance Sales performance ($m) 2018 Half-year ended 31 December1 2019 Retail sales (excludes Catch) Revenue +5.3% +7.6% (4.3%) +11.5% +1.7% (2.1%) 7,275 6,907 3,176 3,417 1,559 1,492 1,100 1,226 874 889 876 858 Bunnings Kmart Target Officeworks WesCEF Industrial and Safety • Ple
Slide 8: Divisional earnings performance
Divisional earnings performance Earnings Before Tax (EBT) ($m) 2019 2019 2018 Var % of divisional Half-year ended 31 December1 Post AASB 16 Pre AASB 16 Reported %2 EBT Bunnings 938 961 932 3.1 Kmart Group3 343 345 383 (9.9) Officeworks 82 79 76 3.9 WesCEF 173 174 185 (5.9) Industrial and Safety4 7 6
Slide 9: Divisional return on capital
Divisional return on capital Rolling 12 months to 31 December1 2019 2018 EBT Cap Emp2 RoC EBT Cap Emp2 RoC Var3 ($m) ($m) (%) ($m) ($m) (%) (ppt) Bunnings 1,655 3,171 52.2 1,572 3,133 50.2 2.0 Kmart Group4 502 1,990 25.2 612 1,806 33.9 (8.7) Officeworks 170 1,004 16.9 164 951 17.2 (0.3) WesCEF 422 1
Slide 10: Managing businesses for long-term value creation
Managing businesses for long-term value creation Our divisions remain focused on long-term value creation 1 2 3 Building on unique A relentless focus Investing for the capabilities and on customers long term platforms • Maintaining price leadership • Constant product innovation • Leading market posi
Slide 11: Group performance summary
Group performance summary 2019 2019 2018 Var Half-year ended 31 December ($m) Post AASB 16 Pre AASB 16 Reported %1 Results from continuing operations EBIT 1,734 1,637 1,645 (0.5) EBIT (after interest on lease liabilities) 1,615 1,637 1,645 (0.5) NPAT 1,127 1,142 1,080 5.7 Basic earnings per share (c
Slide 12: Group Balance Sheet and Cash Flow
Group Balance Sheet and Cash Flow Anthony Gianotti Chief Financial Officer, Wesfarmers Limited
Slide 13: Other business performance summary
Other business performance summary Holding 2019 2019 2018 Var Half-year ended 31 December ($m) % Post AASB 16 Pre AASB 16 Reported %1 Share of profit of associates and joint ventures Coles 15 73 73 23 n.m. BWP Trust 25 34 34 20 70.0 Other associates and joint ventures2,3 Various 27 27 22 22.7 Sub-to
Slide 14: Operating cash flows
Operating cash flows • Divisional cash generation1 from continuing Divisional cash generation1 % operations up 11 ppt to 126% excluding discontinued operations2 160 – 1H20 operating cash flows before tax from 140 1H16 – 1H20 average = 125% divisions increased 4% to $2,179m 120 100 • Reported operati
Slide 15: Working capital and free cash flow
Working capital and free cash flow • Positive working capital result from continuing Half-year ended 31 December ($m) 2019 2018 operations, albeit lower than 1H19 Working capital movements (continuing operations) – Unfavourable timing of shipments and Cash movement inflow/(outflow) exchange rate mov
Slide 16: Capital expenditure
Capital expenditure Half-year ended 31 • Gross capital expenditure from continuing December ($m)1 2019 2018 Var % operations of $455m in line with prior period Bunnings 269 240 12.1 – Higher capital expenditure in Bunnings from development of digital offer Kmart Group 80 119 (32.8) – Higher capital
Slide 17: Impact of adopting new leasing standard (AASB 16)
Impact of adopting new leasing standard (AASB 16) • Wesfarmers has applied AASB 16 from 1 July 2019 • Adopted the ‘modified retrospective approach’ – Comparative periods will not be restated • Recognised lease liabilities of $7.3b and right-of-use assets of $6.4b on application of the standard – Net
Slide 18: Balance sheet and debt management
Balance sheet and debt management • Net financial debt1 of $2.3b as at Debt maturity profile2 31 December 2019, up from $2.1b at $m 1,200 30 June 2019 900 • Finance costs decreased to $69m in 1H20 600 (1H19: $97m) due to lower average debt 300 balances and a decrease in all-in effective 0 borrowing
Slide 19: Management of lease portfolio
Management of lease portfolio • Undiscounted lease commitments Weighted average lease terms (%)1 totalled $8.7b and represent 77% of 3.1% 1.7% 0.5% 2.2% 0.6% Group fixed financial obligations as at 12.3% 12.1% 6.8% 6.2% 12.9% 31 December 2019 32.9% 32.6% 31.4% 32.3% 32.3% • Shorter average remaining
Slide 20: Dividends and capital management
Dividends and capital management • Dividend distributions subject to franking $/share Shareholder distributions (declared) credit availability, earnings, credit metrics 3.50 and cash flow 3.00 2.78 – Maximising value of franking credits for 2.50 2.00 1.86 2.23 2.23 1.00 2.00 shareholders 1.20 1.20 1
Slide 21: Bunnings Australia and New Zealand
Bunnings Australia and New Zealand Michael Schneider Managing Director, Bunnings Group
Slide 22: Bunnings performance summary
Bunnings performance summary 2019 2019 2018 Var Half-year ended 31 December ($m) Post AASB 16 Pre AASB 16 Reported %1 Revenue 7,276 7,276 6,909 5.3 EBITDA 1,316 1,059 1,027 3.1 Depreciation and amortisation (321) (98) (95) (3.2) EBIT 995 961 932 3.1 Interest on lease liabilities (57) - - n.m. EBT 93
Slide 23: Bunnings performance summary
Bunnings performance summary • Revenue growth of 5.3% to $7,276m – Total store sales growth of 5.8% – Store-on-store growth of 4.7% – Growth across all major trading regions • Earnings increased 3.1% to $961m – Lower net property contribution • Earnings excluding property contribution increased 4.3%
Slide 24: Bunnings progress on strategic agenda
Bunnings progress on strategic agenda • Even Stronger Offer – 8 new trading locations opened – 8 store upgrades and expansions – Continued range expansion and innovation – Ongoing investment in customer value – Assembly and installation offer expanded to 35 services – Product training delivered to m
Slide 25: Bunnings outlook
Bunnings outlook • Moderated trading conditions expected to continue – Customers remain cautious while significant weather events and bushfires continue to impact communities around Australia • Further investment in data and digital capabilities – Focus on building click and collect offer in New Zea
Slide 26: Kmart Group
Kmart Group Ian Bailey Managing Director, Kmart Group
Slide 27: Kmart Group performance summary
Kmart Group performance summary 2019 2019 2018 Var Half-year ended 31 December ($m)1 Post AASB 16 Pre AASB 16 Reported %2 Revenue 4,990 4,990 4,639 7.6 EBITDA 687 453 480 (5.6) Depreciation and amortisation (292) (108) (97) (11.3) EBIT 395 345 383 (9.9) Interest on lease liabilities (52) - - n.m. EB
Slide 28: Kmart Group sales overview
Kmart Group sales overview • Revenue increased by 7.6% to $4,990m – Kmart sales increased $241m, more than offsetting a $67m decline in Target • Kmart total sales growth of 7.6% reflected a continued focus on lowest price positioning, stronger operational execution and enhancements to the product ra
Slide 29: Kmart Group earnings overview
Kmart Group earnings overview • Earnings decreased by 9.9% to $345m – Excluding a one-off provision for payroll remediation in Target, earnings decreased 7.6% • Kmart earnings growth driven by strong sales growth and improved execution – Despite unfavourable foreign exchange rate impacts and higher
Slide 30: Kmart Group outlook
Kmart Group outlook • Kmart remains well-positioned in the market – Expected to continue to offset the cost impacts from lower exchange rates and higher team member wages • Target performance is unlikely to improve materially in the near term – Continue to focus on reducing costs by further leveragi
Slide 31: Industrials
Industrials David Baxby Managing Director, Industrials
Slide 32: Chemicals, Energy and Fertilisers performance summary
Chemicals, Energy and Fertilisers performance summary 2019 2019 2018 Var Half-year ended 31 December ($m)1 Post AASB 16 Pre AASB 16 Reported %2 Revenue3 Chemicals 510 510 502 1.6 Energy 219 219 233 (6.0) Fertilisers 160 160 139 15.1 Total 889 889 874 1.7 EBITDA 214 212 221 (4.1) Depreciation and amo
Slide 33: Chemicals, Energy and Fertilisers overview
Chemicals, Energy and Fertilisers overview • Revenue of $889m up 1.7% on pcp, reflecting volume growth in Chemicals and Fertilisers, offset by lower energy prices (including Saudi CP1) and flat LPG volumes • Earnings of $174m, down 5.9% on prior period impacted by competitive pressures in Energy • C
Slide 34: Chemicals, Energy and Fertilisers outlook
Chemicals, Energy and Fertilisers outlook • Product demand and plant production volumes are expected to remain stable, with iron ore and gold market demand remaining robust • Earnings are expected to moderate – Lower EGAN sales volumes as competing Burrup plant comes online in second half – Continue
Slide 35: Industrial and Safety performance summary
Industrial and Safety performance summary 2019 2019 2018 Var Half-year ended 31 December ($m) Post AASB 16 Pre AASB 16 Reported %1 Revenue 858 858 876 (2.1) EBITDA 46 25 61 (59.0) Depreciation and amortisation (36) (19) (19) - EBIT 10 6 42 (85.7) Interest on lease liabilities (3) - - n.m. EBT 7 6 42
Slide 36: Industrial and Safety overview
Industrial and Safety overview • The performance of Industrial and Safety business was disappointing, principally due to continued underperformance of Blackwoods • Revenue of $858m, down 2.1% on prior period – Blackwoods revenue declined as sales growth from strategic customers and the Western Austr
Slide 37: Industrial and Safety outlook
Industrial and Safety outlook • Blackwoods is implementing a number of turnaround initiatives to improve the operating model – Implementation of new regional sales structure – Continued investments in ERP and other digital capabilities • Some positive customer feedback and improvement in service met
Slide 38: Officeworks
Officeworks Michael Howard Acting Managing Director, Officeworks
Slide 39: Officeworks performance summary
Officeworks performance summary 2019 2019 2018 Var Half-year ended 31 December ($m) Post AASB 16 Pre AASB 16 Reported %1 Revenue 1,231 1,231 1,100 11.9 EBITDA 137 94 90 4.4 Depreciation and amortisation (48) (15) (14) (7.1) EBIT 89 79 76 3.9 Interest on lease liabilities (7) - - n.m. EBT 82 79 76 3.
Slide 40: Officeworks sales overview
Officeworks sales overview • Strong headline sales results % Sales growth momentum 14 – Sales growth of 11.5% 12 11.5 9.7 o Strong sales growth in stores and online 10 9.1 8.5 8.2 8 7.0 7.1 6.3 o Robust transaction growth as offer continues to 6 5.9 resonate with customers 4 2 • Continued focus on i
Slide 41: Officeworks earnings overview
Officeworks earnings overview Strong earnings and RoC growth • Earnings growth of 3.9% to $79m $m 16.9 % 180 18 – Continued investment in price to maintain customer trust 160 16 140 14 o Competitive environment remains intense 120 12 – Change in sales mix impacting gross margin 100 10 80 5.7 8 – COD
Slide 42: Officeworks progress on strategic agenda
Officeworks progress on strategic agenda • Our team – New Enterprise Agreement for store teams implemented • Customer experience – Improvement in customer satisfaction levels • Connecting with our communities – $800k contributed to the Australian Literacy and Numeracy Foundation – 84% operational wa
Slide 43: Officeworks outlook
Officeworks outlook • Continued focus on strategic agenda to drive long-term growth – Our team – Customer experience – Connecting with our communities – Operational excellence – Growing our business • Earnings growth to be moderated by ongoing investment in price, team and technology 2020 Half-year
Slide 44: Group Outlook
Group Outlook Rob Scott Managing Director, Wesfarmers Limited
Slide 45: Outlook
Outlook • The Group’s portfolio of cash-generative businesses with leading market positions is well-placed to deliver satisfactory shareholder returns • Given Wesfarmers’ commitment to a strong balance sheet and the diversity and resilience of the portfolio, the Group remains well-positioned for a r
Slide 46: Questions
Questions
Slide 47: Appendix: Supplementary Information
Appendix: Supplementary Information
Slide 48: AASB 16 Leases – Balance sheet impact
AASB 16 Leases – Balance sheet impact Balance sheet impact at 1 July 2019 $m • Wesfarmers has applied AASB 16 from 1 July 2019 Right-of-use assets 6,352 Deferred tax asset 222 • Adopted the ‘modified retrospective approach’ – Comparative periods will not be restated Lease liabilities (7,275) Provisi
Slide 49: AASB 16 Leases – P&L impact
AASB 16 Leases – P&L impact • Occupancy expenses reduce by $580m, offset by: Half-year ended 31 2019 2019 Var December ($m) Post AASB 16 Pre AASB 16 ($m) – Increase in depreciation on right-of-use asset of $464m Revenue 15,249 15,249 - – Increase in interest on leases of $119m Other income and assoc
Slide 50: AASB 16 Leases – Cash flow impact
AASB 16 Leases – Cash flow impact Half-year ended 31 2019 2019 Var • AASB 16 results in a reclassification of December ($m) Post AASB 16 Pre AASB 16 ($m) some cash flows from ‘operating’ cash Receipts from customers, 17,098 17,098 - flows to ‘financing’ cash flows dividends and interest income Payme
Slide 51: Significant items and discontinued operations summary
Significant items and discontinued operations summary Significant items1 Estimated Half-year ended 31 December 2018 ($m) Pre-tax tax impact2 Post-tax Gain on demerger of Coles 2,312 (60) 2,252 Gain on sale of Bengalla 679 (96) 583 Gain on sale of KTAS 267 (48) 219 Gain on sale of Quadrant Energy 138
Slide 52: Group management balance sheet – overview
Group management balance sheet – overview ($m)1 1H20 FY19 1H19 Commentary (versus 1H19) Inventories 4,578 4,246 4,374 • Increase reflects acquisition of Catch and store network expansion Receivables and prepayments 1,124 1,203 1,152 Trade and other payables (4,130) (3,620) (4,108) • Decrease in cash
Slide 53: Retail store networks
Retail store networks As at 31 December 2019 More than 1,000 locations across Australia and New Zealand Brand NSW/ACT VIC QLD SA WA TAS NT NZ Total Bunnings Warehouse 77 60 49 17 32 7 3 28 273 Smaller format 18 15 13 3 8 - - 17 74 Trade 7 3 7 2 3 1 - 8 31 Total Bunnings 102 78 69 22 43 8 3 53 378 Km
Slide 54: Revenue reconciliation – Kmart Group
Revenue reconciliation – Kmart Group Half-year ended 31 December ($m) 2019 20181 Segment revenue (Gregorian) 4,990 4,639 Less: Non sales revenue (33) (6) Headline sales (Gregorian) 4,957 4,633 Add: Gregorian adjustment2 102 102 Headline sales revenue (Retail)3 5,059 4,735 1. 2018 excludes KTAS. 2. A
Slide 55: Retail calendars
Retail calendars Business Retail sales period Bunnings, Officeworks and Catch 1H20 1 Jul 2019 to 31 Dec 2019 (6 months) 1H19 1 Jul 2018 to 31 Dec 2018 (6 months) 1H18 1 Jul 2018 to 31 Dec 2018 (6 months) Kmart 1H20 1 Jul 2019 to 5 Jan 2020 (27 weeks) 1H19 25 Jun 2018 to 30 Dec 2018 (27 weeks) 1H18 2