Wesfarmers Limited · ASX:WES
Wesfarmers — H1 FY2012 Earnings Presentation
68 slides from Wesfarmers's earnings presentation, Feb 16, 2012
Slide 1: 2012 Half-Year Results Teleconference
2012 Half-Year Results Teleconference 16 February 2012
Slide 2: Presentation outline
2 Presentation outline Item Presenter Page 1 Group Performance Highlights Richard Goyder 3 2 Coles Ian McLeod 11 3 Home Improvement & Office Supplies John Gillam 20 4 Target Dene Rogers 28 5 Kmart Guy Russo 32 6 Insurance Rob Scott 36 7 Resources Stewart Butel 40 8 Chemicals, Energy & Fertilisers To
Slide 3: Group Performance Highlights
Group Performance Highlights Richard Goyder Managing Director, Wesfarmers Limited
Slide 4: Group financial highlights
4 Group financial highlights • Operating revenue of $29,674 million, up 5.7% • Net profit after tax of $1,176 million, up 0.3% – Excluding the impact of NTIs NPAT increased 5.2%1 – Strong retail EBIT growth of 7.8% • Strong operating cash flows, up 10.8% to $2,172 million • Net capital expenditure u
Slide 5: Group performance highlights
5 Group performance highlights • Strong retail contribution in a tough trading environment – Coles sustained turnaround momentum underpinned by a strong customer response to improvements in value, quality & service – Continued solid performance by Bunnings – Transaction growth & operating efficienci
Slide 6: Group performance summary
6 Group performance summary Half Year ended 31 December ($m) 2011 2010 % Operating revenue 29,674 28,074 5.7 EBITDA 2,433 2,378 2.3 EBIT 1,937 1,917 1.0 Finance costs (264) (272) (2.9) Tax expense (497) (472) 5.3 Net profit after tax (excl. non-trading items 1) 1,203 1,144 5.2 Net profit after tax 1
Slide 7: Strength of diversified earnings
7 Strength of diversified earnings Divisional EBIT Percentage of Half-Year ended (1H FY12, $m) Divisional EBIT 2011 2010 % 31 December ($m) Insurance Insurance 1%; 2,000 WIS (1H11: 3%) Coles 656 575 14.1 WES CEF Home Improvement 485 457 6.1 Industrial 22%; Resources Office Supplies 34 32 9.1 (1H11:
Slide 8: Return on Capital
8 Return on Capital • Continued focus on capital efficiency & earnings growth • Long term investment view to drive shareholder value 2011 2010 Rolling 12 months to 31 December EBIT Cap Emp ROC ROC $m $m % % Coles 1,247 15,197 8.2 7.1 Home Improvement 830 3,075 27.0 29.2 Office Supplies 83 1,199 6.9
Slide 9: Strategic agenda to underpin growth
9 Strategic agenda to underpin growth Retail • Coles: Sustain turnaround momentum through better merchandising & category development, supply chain overhaul, network transformation & store renewal, & efficiency savings • HIOS: Support growth through improved service, category expansion, network inve
Slide 10: Strategic agenda to underpin growth
10 Strategic agenda to underpin growth Industrial • Resources: Export market focus with major expansions at Curragh & Bengalla, & continued cost control focus • WES CEF: Further improvements in plant performance & progress the $550 million ammonium nitrate expansion • WIS: Continue to diversify cust
Slide 11: Coles
Coles Ian McLeod Managing Director
Slide 12: Coles performance summary
Coles 12 Coles performance summary Half-Year ended 31 December ($m) 2011 2010 % Coles Division Revenue 17,218 16,059 7.2 EBIT 656 575 14.1 ROC (R12 %) 8.2 7.1 Safety (LTIFR YTD) 11.8 12.0 Food & Liquor Revenue1 13,423 12,804 4.8 Total store sales growth %2,3 4.9 6.3 Comp store sales growth %2,3 4.4
Slide 13: Sustained turnaround momentum
Coles 13 Sustained turnaround momentum • More customers visiting Coles than Sales/m2 F&L Sales Density ever before Index 112 – Strong volume & transaction growth 108 – Continued investment in quality & 104 value 100 96 – Improved customer service & 92 in-store experience Q110 Q210 Q310 Q410 Q111 Q21
Slide 14: Still Down & Staying Down
Coles 14 Still Down & Staying Down • „Down Down‟ driving sales growth – Double digit volume growth – Increased transaction growth – Higher shopping frequency • Multi-faceted approach to build & reinforce customer trust – „Down Down‟ investment in lower grocery & fresh food prices to lift customer tr
Slide 15: Quality products, only available at Coles
Quality products, only available at Coles 15 Coles • Fresh food quality improvement program being rolled out – Developing partnerships with Australian growers to improve quality – Fresh food supply chain being re- engineered to maximise home shelf-life • Coles product range offering value & quality
Slide 16: Sustainable efficiency gains
Coles 16 Sustainable efficiency gains • Critical supply chain efficiency platforms now in place – IT systems for Easy Ordering & Easy Warehousing in place – Fast/slow network being developed – 2 day reduction in net inventory in last 12 months • Reduction in cost of store operations – Significant re
Slide 17: Improving customer experience
Coles 17 Improving customer experience • Network transformation continues – 193 renewal format stores – 77 stores opened & 77 stores closed, since acquisition – 5% increase in supermarkets space • Focus on bigger stores with wider offer – 2 superstores opened in 1H FY12 – Average store opening size
Slide 18: Liquor & Convenience
Coles 18 Liquor & Convenience Liquor • Challenging market environment • Value campaigns driving turnover & market share • Enterprise wide system replacement • Network challenges being confronted Convenience • Compelling offers driving customer transactions – Highest fuel volume growth on record • Ne
Slide 19: Coles outlook
Coles 19 Coles outlook • Further growth expected despite short Right Stores, Right Place Renewed, Clean, Easy to Shop Stores term challenges: Deliver Great – Strong fresh produce price deflation, Service with Value Great People from investment & abundant supply • Roll-out of strategic initiatives Ma
Slide 20: Home Improvement & Office Supplies
Home Improvement & Office Supplies John Gillam Managing Director
Slide 21: HIOS performance summary
Home Improvement & 21 Office Supplies HIOS performance summary Half-Year ended 31 December ($m) 2011 2010 % Revenue Home Improvement 3,797 3,572 6.3 Office Supplies 710 706 0.6 4,507 4,278 5.4 EBIT Home Improvement 485 457 6.1 Office Supplies 34 32 9.11 519 489 6.1 1 Office Supplies EBIT growth show
Slide 22: Home Improvement performance summary
Home Improvement Home Improvement & Office Supplies 22 Performance summary Half-Year ended 31 December ($m) 2011 2010 % Revenue 3,797 3,572 6.3 Trading Revenue 3,792 3,549 6.8 (excl. property & non-trading items) EBIT 485 457 6.1 Trading EBIT margin (%) 12.7 12.8 Net property contribution 3 1 ROC (R
Slide 23: Home Improvement highlights
Home Improvement & 23 Office Supplies Home Improvement highlights • Trading revenue growth of 6.8% – 7.0% total store sales growth (Store-on-store growth of 4.6%) – 6.7% lift in commercial sales • EBIT growth 6.1% • Opened 7 trading locations – 5 Bunnings warehouse stores – 2 trade centres – 16 stor
Slide 24: Home Improvement outlook
Home Improvement & 24 Office Supplies Home Improvement outlook • Continued sales growth in consumer & commercial segments • Ongoing focus on five growth drivers – Service – Category expansion & enhanced merchandising – Network expansion & reinvestment – Commercial market presence – Investing product
Slide 25: Office Supplies performance summary
Office Supplies Home Improvement & Office Supplies 25 Performance summary Half-Year ended 31 December ($m) 2011 2010 % Revenue 710 706 0.6 EBIT 34 32 9.11 EBIT margin (%) 4.8 4.5 ROC (R12 %) 6.9 6.6 Safety (R12 AIFR) 39.3 37.7 1 Office Supplies EBIT growth shown on an un-rounded basis.
Slide 26: Office Supplies highlights
Home Improvement & 26 Office Supplies Office Supplies highlights • Modest sales growth in a challenging environment – Retail sales up 0.2% – Strong transaction growth, offsetting continuing price deflation • Momentum continues to build in B2B channel – Online platform delivering strong growth • Robu
Slide 27: Office Supplies outlook
Home Improvement & 27 Office Supplies Office Supplies outlook • Sales growth to remain challenging – Deflationary headwinds, competitive pressure on sales & margin • Focus on execution of strategic agenda – Drive sales across all channels – Improve customer offer & service – Expand & upgrade store n
Slide 28: Target
Target Dene Rogers Managing Director
Slide 29: Target performance summary
Target 29 Target performance summary Half-Year ended 31 December ($m) 2011 2010 % Revenue 2,060 2,120 (2.8) EBIT 186 206 (9.7) EBIT margin (%) 9.0 9.7 ROC (R12 %)1 8.9 11.0 Safety (R12 LTIFR) 7.9 8.2 Total sales growth2 (%) (2.5) (3.1) Comparative store sales growth2(%) (3.5) (3.3) 1 2010 ROC restat
Slide 30: Target highlights
Target 30 Target highlights • Sales affected by challenging & competitive conditions – Customer numbers lower than the previous period – Frequent promotions & clearance sales across the sector resulted in a lower proportion of regular sales – Positive customer response to improvements in homewares,
Slide 31: Target outlook
Target 31 Target outlook • A challenging & competitive trading environment expected to continue in the second half of FY12 – Customers are expected to remain price conscious – Retail environment is likely to remain highly promotional • A priority focus will be developing a greater understanding of t
Slide 32: Kmart
Kmart Guy Russo Managing Director
Slide 33: Kmart performance summary
Kmart 33 Kmart performance summary Half-Year ended 31 December ($m) 2011 2010 % Revenue 2,236 2,271 (1.5) EBIT1 193 174 10.9 EBIT margin (%) 8.6 7.7 ROC (R12 %)2 15.5 16.1 Safety (R12 LTIFR) 8.2 8.3 Total sales growth3 (%) (1.3) 1.9 Comparative store sales growth3 (%) (1.4) 1.7 1 Excludes $4 million
Slide 34: Kmart highlights
Kmart 34 Kmart highlights • Strong increase in earnings through improved operating model – Better sourcing – Improved pricing disciplines – Increased focus on stock management • Customers responding favourably to irresistibly low prices on everything every day – 8th consecutive quarter of growth in
Slide 35: Kmart outlook
Kmart 35 Kmart outlook • Connect more customers with Kmart – Continued focus on product offer to deliver irresistibly low prices on every product every day • Drive more volume by improving what we do today – Improved in-store execution – Better product flow efficiency • Continued investment in exist
Slide 36: Insurance
Insurance Rob Scott Managing Director
Slide 37: Insurance performance summary
Insurance 37 Insurance performance summary Half-Year ended 31 December ($m) 2011 2010 % Total Revenue 945 872 8.4 EBITA Underwriting (10) 42 n.m. EBITA Broking 35 28 25.0 EBITA Other (2) - n.m. EBITA Insurance Division 23 70 (67.1) EBIT Insurance Division 17 65 (73.8) EBIT Margin (Insurance Division
Slide 38: Insurance highlights
Insurance 38 Insurance highlights • Results reflect record level of catastrophe claims in the industry for CY11 – Net event claims $28 million above budgeted allowances – $26 million increase in reserves in relation to the February 2011 Christchurch earthquake • Underwriting margins affected by high
Slide 39: Insurance outlook
Insurance 39 Insurance outlook • Underlying underwriting performance expected to benefit from: – Premium rate increases initiated over the past 9 months – Improved risk selection & exposure management in high risk areas – Systems improvements & claims optimisation program • Further growth expected i
Slide 40: Resources
Resources Stewart Butel Managing Director
Slide 41: Resources performance summary
Resources 41 Resources performance summary Half-Year ended 31 December ($m) 2011 2010 % Revenue1 1,087 957 13.6 Royalties2 (162) (124) 30.6 Mining & other costs3 (602) (528) 14.0 EBITDA 323 305 5.9 Depreciation & amortisation (73) (55) 32.7 EBIT4 250 250 0.0 ROC (R12%) 25.4 34.3 Coal production („00
Slide 42: Resources highlights
Resources 42 Resources highlights • Solid revenue growth driven by comparatively higher export coal pricing – Increase in royalty expenses & additional one-off costs • Constrained production – Commissioning of new CHPP – Final phase of operational recovery following 2011 flood impacts • Continued ex
Slide 43: Curragh - focus on cost control
Resources 43 Curragh - focus on cost control • Tight labour market conditions & broader industry cost pressures – Australian HCC FOB cash costs have increased c. 70% since 20071 • Additional cash costs of $55 million incurred in 1H FY12 – Final flood recovery costs – Overburden removal, coal exposur
Slide 44: Resources outlook
Resources 44 Resources outlook • Export market – Softening metallurgical coal prices with weaker global steel demand – Longer-term export market fundamentals remain sound • Financial Year 2012 – Curragh metallurgical coal sales guidance remains at 6.8mt - 7.2mt – Stanwell royalty $205 - $215 million
Slide 45: Chemicals, Energy & Fertilisers
Chemicals, Energy & Fertilisers Tom O’Leary Managing Director
Slide 46: Chemicals, Energy & Fertilisers Performance summary
Chemicals, Energy & Fertilisers Chemicals, Energy & Fertilisers 46 Performance summary Half-Year ended 31 December ($m) 2011 2010 % Revenue Chemicals 358 315 13.7 Energy1 295 286 3.1 Fertilisers 122 121 0.8 775 722 7.3 EBITDA2,3 144 199 (27.6) Depreciation & amortisation (45) (48) (6.3) EBIT2,3 99 1
Slide 47: Chemicals, Energy & Fertilisers Highlights
Chemicals, Energy & Fertilisers Chemicals, Energy & Fertilisers 47 Highlights • Board approval for $550 million ammonium nitrate expansion (AN3) • Strong plant performances throughout the period • Improved ammonia & ammonium nitrate (AN) earnings, despite planned ammonia shut down, due to higher sal
Slide 48: Chemicals, Energy & Fertilisers Outlook
Chemicals, Energy & Fertilisers Chemicals, Energy & Fertilisers 48 Outlook • Commencement of onsite construction for AN3 – Expected construction completion Q2 FY14 – Expected production to commence Q4 FY14 • Ammonia, AN & sodium cyanide expected to benefit from continued strong demand & production o
Slide 49: Industrial & Safety
Industrial & Safety Olivier Chretien Managing Director
Slide 50: Industrial & Safety Performance summary
Industrial & Safety Industrial & Safety 50 Performance summary Half-Year ended 31 December ($m) 2011 2010 % Revenue 843 774 8.9 EBITDA 111 92 20.7 Depreciation & amortisation (14) (13) 7.7 EBIT 97 79 22.8 EBIT margin (%) 11.5 10.2 ROC (R12 %) 14.5 11.8 Safety (R12 LTIFR) 1.9 2.7
Slide 51: Industrial & Safety highlights
Industrial & Safety 51 Industrial & Safety highlights • Growth reflecting positive market conditions & strong competitive position – Sustained resource sector activity – Expansion & diversification of customer base – Strong service levels, development of key account & eBusiness capabilities – Networ
Slide 52: Industrial & Safety outlook
Industrial & Safety 52 Industrial & Safety outlook • The division is well placed to seize multiple opportunities – Greater share of customers‟ spend – Major project activity & export sales growth – Further diversification of industry & customer base – Continued investment in organisational effective
Slide 53: Other Businesses & Capital Management
Other Businesses & Capital Management Terry Bowen Finance Director, Wesfarmers Limited
Slide 54: Other businesses performance summary
54 Other businesses performance summary Holding Half-Year ended 31 December ($m) 2011 2010 % % Associates share of profit/(loss): Gresham Private Equity Funds Various (46) (28) (64.3) Gresham Partners 50 3 (1) n.m. Wespine 50 5 5 0.0 BWP Trust 23 7 12 (41.7) Associates sub-total (31) (12) (158.3) In
Slide 55: Non-trading items
55 Non-trading items • $181 million non-cash writedown of Coregas carrying value • Gain on disposal of assets totalling $151 million – Available capital losses offset gains • Non-trading items: Half-Year ended 31 December 2011 ($m) Pre-tax Tax Impact Post-tax Gain on sale of Premier 92 - 92 Gain on
Slide 56: Portfolio of strong cash generating assets
56 Portfolio of strong cash generating assets • Strong first half operating cash flow of $2,172 million • Operating cash flows increased across most divisions • Cash realisation ratio increased to 127.8% from 120.0% in the pcp $m % 2,500 200 2,000 160 1,500 120 1,000 80 500 40 0 0 1H FY08 1H FY09 1H
Slide 57: Working capital management
57 Working capital management • Strong operating cash flows driven by working capital improvements Inflow/(Outflow)1 1H FY12 1H FY11 • Disciplined inventory management ($m) across the retail portfolio Receivables (183) (252) – Target & Kmart reduced inventory Inventory (374) (661) position; all inve
Slide 58: Significant investment in organic growth
58 Significant investment in organic growth Half Year ended • Strong investment in retail & 31 December ($m) 2011 2010 % industrial businesses Coles 625 334 87.1 HI & OS – Coles property & network renewal 342 343 (0.3) Target 44 37 18.9 – Bunnings network expansion Kmart 88 54 63.0 – Kmart refurbish
Slide 59: Balance sheet strength & dividend growth
59 Balance sheet strength & dividend growth • Strong cash generation supports investment in organic growth opportunities • Balance sheet strength maintained with improved liquidity metrics – Cash interest cover (R12) improved to 10.3 times (1H11: 7.7 times) – Fixed charges cover (R12) improved to 2.
Slide 60: Debt financing strategy
60 Debt financing strategy • Net debt1 of $4,484 million across diversified sources • Weighted average total cost of debt reduced to c. 8.0% (1H11: 8.8%) • Forecast weighted average cost of debt for FY12 c. 7.9% • Continued strategy to pre-fund upcoming maturities & extend maturity profile – Issued
Slide 61: Target & Kmart goodwill
61 Target & Kmart goodwill • Errors identified in relation to the allocations of goodwill for Kmart & Target Incorrect terminal value used for Kmart Failure to consistently reflect the impact of Kmart‟s & Target‟s business plans • Restatement required under AASB 108 Accounting Policies, Changes
Slide 62: Partially Protected Shares (WESN)
62 Partially Protected Shares (WESN) • Original lapse date extended for 12 months to 23 November 2012 – The average of the S&P/ASX 200 Industrials Index, at the close of trading for each trading day during the 2 months prior to 23 November 2011 was less than 6,500 • Extension of lapse date up to a f
Slide 63: Outlook
Outlook Richard Goyder Managing Director, Wesfarmers Limited
Slide 64: Creating value
64 Creating value • For our customers by providing greater value, quality & service, & investing in our stores • For our employees by requiring the highest standards of safety, investing in training & development, embracing diversity & providing more opportunities • For our suppliers by developing t
Slide 65: Outlook
65 Outlook Retail • Earnings growth expected, despite short term challenges – Strategic agendas to improve the customer offer, increase operational efficiency & strengthen the network – Continuing high levels of price deflation in 2H FY12, particularly fresh produce deflation in supermarkets – Custo
Slide 66: Outlook
66 Outlook Industrial & Safety, & Chemicals, Energy & Fertilisers • Well placed to leverage growth in the Australian resources sector • Growth in demand for chemical & industrial products • Continuing improvements in business performance Resources • Long term export coal market fundamentals remain s
Slide 67: Questions
Questions Wesfarmers OOO . ONISIONO
Slide 68: For all the latest news visit www.wesfarmers.com.au
For all the latest news visit www.wesfarmers.com.au