Slide 1: 2012 Full-Year Results Teleconference
2012 Full-Year Results Teleconference 16 August 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 22 4 Target Dene Rogers 30 5 Kmart Guy Russo 34 6 Insurance Rob Scott 38 7 Resources Stewart Butel 44 8 Chemicals, Energy & Fertilisers To
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 $58.1 billion, up 5.8% • Earnings before interest & tax of $3,549 million, up 9.8% • Net profit after tax (NPAT) of $2,126 million, up 10.6% • Earnings per share of $1.84, up 10.5% • Operating cash flows of $3,641 million, up 24.8% • Free cash fl
Slide 5: Group performance highlights (cont)
5 Group performance highlights (cont) • Strong growth in retail earnings – Continued price reinvestment supported by operating efficiencies – Improvements in value, offer & service driving strong transaction growth – Store network improvements, in particular by Coles & Bunnings – Improvements in ran
Slide 6: Group performance summary
6 Group performance summary Year ended 30 June ($m) 2012 2011 % Revenue 58,080 54,875 5.8 EBITDA 4,544 4,155 9.4 EBIT 3,549 3,232 9.8 Finance costs (505) (526) 4.0 Tax expense (918) (784) (17.1) Net profit after tax 2,126 1,922 10.6 Operating cash flows 3,641 2,917 24.8 Earnings per share (ex. emplo
Slide 7: Strength through diversified earnings
7 Strength through diversified earnings Divisional EBIT Percentage of Year ended 30 June (FY12, $m) Divisional EBIT 2012 2011 % Insurance 0%; EBIT ($m) Insurance WIS (FY11: 1%) Coles 1,356 1,166 16.3 3,500 WES CEF Industrial 24%; Home Improvement 841 802 4.9 (FY11: 24%) Resources Office Supplies 85
Slide 8: Return on Capital
8 Return on Capital • Focus on return on capital to deliver satisfactory shareholder returns 2012 2011 R12 Capital Year ended 30 June EBIT ROC ROC Employed $m $m % % Coles 1,356 15,544 8.7 7.8 Home Improvement 841 3,250 25.9 28.0 Office Supplies 85 1,208 7.0 6.7 Target1,2 244 2,911 8.4 9.7 Kmart1 26
Slide 9: Strategic growth initiatives
9 Strategic growth initiatives Retail • Coles: drive further efficiencies to reinvest in value; category expansion; continue to invest in store network & multi-channel • HIOS: continue to invest in value, service, new categories & network expansion • Kmart: continue to source at lowest cost to provi
Slide 10: Strategic growth initiatives (cont)
10 Strategic growth initiatives (cont) Industrials • Resources: deliver increased production from recently completed expansions; strong management of costs • WES CEF: progress the $550 million ammonium nitrate expansion; drive continuous improvement across all businesses • WIS: continue to diversify
Slide 11: Coles
Coles Ian McLeod Managing Director
Slide 12: Coles performance summary
Coles 12 Coles performance summary Year ended 30 June ($m) 2012 2011 % Revenue 34,117 32,073 6.4 EBIT 1,356 1,166 16.3 ROC % 8.7 7.8 Safety (R12 LTIFR) 13.0 15.9 Food & Liquor Revenue1 26,561 25,282 5.1 Total store sales growth %2,3 4.6 6.3 Comp store sales growth %2,3 3.7 6.3 Trading EBIT1 1,232 1,
Slide 13: Sustained turnaround momentum
Coles 13 Sustained turnaround momentum • Outperformed the Food & Liquor Index F&L R12 sales density market for last three years 120 115 – 16 consecutive quarters of sales 110 density improvement 105 100 – Strong underlying transaction & 95 volume growth 90 Q109 Q309 Q110 Q310 Q111 Q311 Q112 Q312 • S
Slide 14: Platforms for growth established
Coles 14 Platforms for growth established Driving the Coles Second wave of transformation Difference Performance • Renewed investment in value • New categories • Culture of continuous • Integrated CRM & loyalty • Support centre efficiency improvement platform • Leveraging supply chain • Strong custo
Slide 15: Investing further in quality & value
Coles 15 Investing further in quality & value • Investment in lower prices to continue – Down Down generating further savings for consumers – Volume benefits for Coles & suppliers – Further initiatives in FY13 to extend consumer value • Category innovation – Supplier programs supporting quality impr
Slide 16: Ongoing efficiency gains
Coles 16 Ongoing efficiency gains • Sustainable efficiencies in store Index Reduction in wastage : sales operations 100 90 – $400 million reduction in waste 80 over last four years with more 70 progress expected 60 50 – Automated ordering and receiving 40 of deliveries Q109 Q309 Q110 Q310 Q111 Q311
Slide 17: Our customers come first, always
Coles 17 Our customers come first, always • Expanding & renewing the store • Improving customer service network – Customer service training for – 2% additional net selling area in FY12 almost 30,000 Team Members – Strong pipeline to secure >2% net – Craft skills training programs for selling area gr
Slide 18: Liquor
Coles 18 Liquor • Disappointing performance in FY12 – Large scale systems change caused significant first half disruption – Structural shift to ‘big-box’ continues • Performance improvement over second half of FY12 – Strong focus on improving promotional structure # stores Restructuring property est
Slide 19: Convenience
Coles 19 Convenience • Continued strength in volume Fuel volume (MAT) Index 110 growth – All stores refreshed in FY12 to 105 help drive volume 100 – Progressive shift in preference towards V-Power & diesel fuel 95 Q110 Q310 Q111 Q311 Q112 Q312 • Strong site network – Co-located fuel / supermarket si
Slide 20: Range of multi-channel platforms
Coles 20 Range of multi-channel platforms • Pillars of multi-channel growth being Multi-channel priorities established Core basics • flybuys reinvigoration Ordering & fulfilment integration – More than 7m flybuys cardholders Digital customer dialogue & community – >150m personalised emails in FY13 B
Slide 21: Building on our growth platform
Coles 21 Building on our growth platform • Continued transformation of Coles – Generating further savings through Right Stores, Renewed, Clean, Easy to Right Place efficiency to invest in lower prices Shop Stores – Further improvements in quality & Deliver Great Service with Value value Great People
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) 2012 2011 % Revenue Home Improvement 7,162 6,780 5.6 Office Supplies 1,482 1,471 0.7 8,644 8,251 4.8 EBIT Home Improvement 841 802 4.9 Office Supplies 85 80 6.3 926 882 5.0
Slide 24: Home Improvement performance summary
Home Improvement Home Improvement & Office Supplies 24 Performance summary Year ended 30 June ($m) 2012 2011 % Revenue 7,162 6,780 5.6 Trading Revenue 7,152 6,773 5.6 (excl. property rental income) EBIT 841 802 4.9 Trading EBIT / Trading Revenue (%) 11.6 11.8 Net property contribution 9.0 6.0 ROC (R
Slide 25: Home Improvement highlights
Home Improvement & 25 Office Supplies Home Improvement highlights • Trading revenue growth of 5.6% – 5.3% consumer sales growth, store-on-store growth of 3.9% – 6.9% lift in commercial sales • Strong focus on the customer offer, our team & the network • Performance driven by merchandising, operation
Slide 26: Home Improvement outlook
Home Improvement & 26 Office Supplies Home Improvement outlook • Growth through multiple drivers – Service – Network expansion & store reinvestment – New categories & merchandising – Commercial – Value • Committed, engaged & energised team • Strong cost disciplines & productivity improvements
Slide 27: Office Supplies performance summary
Office Supplies Home Improvement & Office Supplies 27 Performance summary Year ended 30 June ($m) 2012 2011 % Revenue 1,482 1,471 0.7 EBIT 85 80 6.3 EBIT / Revenue (%) 5.7 5.4 ROC (R12 %) 7.0 6.7 Safety (R12 AIFR) 10.8 12.2
Slide 28: Office Supplies highlights
Home Improvement & 28 Office Supplies Office Supplies highlights • Sales growth in challenging conditions – Strong transaction & unit growth – Deflationary headwinds – Strong Online & Business sales growth • Improved margin performance with strong cost control • Strong earnings growth • Network expa
Slide 29: Office Supplies outlook
Home Improvement & 29 Office Supplies Office Supplies outlook • Sales growth to remain challenging – Competitive pressure on sales & margin remains strong • Focus on good execution of strategic agenda – Drive sales – Improve customer offer & service – Expand & upgrade store network – Reduce complexi
Slide 30: Target
Target Dene Rogers Managing Director
Slide 31: Target performance summary
Target 31 Target performance summary Year ended 30 June ($m) 2012 2011 % Revenue 3,738 3,782 (1.2) EBIT 244 280 (12.9) EBIT (excluding restructuring provision)1 284 280 1.4 EBIT2 margin (%) 6.5 7.4 ROC2,3 (R12 %) 8.4 9.7 Safety (R12 LTIFR) 8.0 8.1 Total sales growth4 (%) (1.8) (1.2) Comparative stor
Slide 32: Target highlights
Target 32 Target highlights • Earnings affected by $40 million provision for future supply chain restructuring • Improvements in underlying performance – Focus on profitability of promotions & clearance activity – Introduction of ‘Target Essentials’ range – Promotions which focus on quality, style &
Slide 33: Target outlook
Target 33 Target outlook • The customer remains the first priority in all decision making – Refocus on value delivered through quality, style, experience & not just price – Continued expansion of online range & functionality – Improving customer insights through data leverage • Continuing improvemen
Slide 34: Kmart
Kmart Guy Russo Managing Director
Slide 35: Kmart performance summary
Kmart 35 Kmart performance summary Year ended 30 June ($m) 2012 2011 % Revenue 4,055 4,036 0.5 EBIT1 266 201 32.3 EBIT margin (%) 6.6 5.0 ROC (R12 %)1,2 18.7 15.0 Safety (R12 LTIFR) 9.3 6.8 Total sales growth3 (%) 0.0 0.4 Comparative store sales growth3 (%) 0.0 0.3 1 2012 excludes $2 million earning
Slide 36: Kmart highlights
Kmart 36 Kmart highlights • Strong EBIT growth & margin improvement – Improved product sourcing – Better stock management – Everyday core range performing well • Connecting more Australian & New Zealand families with the new Kmart – 10 consecutive quarters of growth in customer transactions & units
Slide 37: Kmart outlook
Kmart 37 Kmart outlook • Continue to lead on price & value • Continue to source at lowest cost • Improve stock flow & availability • Network expansion & reinvestment • Continue to focus on team member safety
Slide 38: Insurance
Insurance Rob Scott Managing Director
Slide 39: Insurance performance summary
Insurance 39 Insurance performance summary Year ended 30 June ($m) 2012 2011 % Total Revenue 1,915 1,739 10.1 EBITA Underwriting (58) (29) (100.0) EBITA Broking 79 62 27.4 EBITA Other (4) (3) (33.3) EBITA Insurance Division 17 30 (43.3) EBITA Insurance Division (excluding EQ2)1 125 30 316.7 EBIT Ins
Slide 40: Insurance highlights
Insurance 40 Insurance highlights • Underwriting earnings significantly affected by $108 million increase in reserves associated with 22 February 2011 Christchurch earthquake (EQ2) • Strong increase in earnings from Broking, reflecting the successful integration of acquired businesses & solid sales
Slide 41: Underlying Combined Operating Ratio Year ended 30 June 2012
Underlying Combined Operating Ratio Insurance 41 Year ended 30 June 2012
Slide 42: EQ2 reserves
Insurance 42 EQ2 reserves • EQ2 reported as the largest ever insured loss in the southern hemisphere & rated a 1 in 2,500 year event by GNS Science, New Zealand • Significant scale of disaster has raised complex & challenging issues in respect to future claims reserve estimations • Reserve increase
Slide 43: Insurance outlook
Insurance 43 Insurance outlook • Underwriting performance expected to benefit from: – Strong momentum from premium rate increases – Reduction in exposures from high hazard areas – Realisation of cost reductions from claims & operational cost initiatives • Modest increase in catastrophe reinsurance c
Slide 44: Resources
Resources Stewart Butel Managing Director
Slide 45: Resources performance summary
Resources 45 Resources performance summary Year ended 30 June ($m) 2012 2011 % Revenue1 2,132 1,778 19.9 Royalties2 (368) (229) (60.7) Mining & other costs3 (1,175) (1,061) (10.7) EBITDA 589 488 20.7 Depreciation & amortisation (150) (119) (26.1) EBIT4 439 369 19.0 ROC (R12%) 29.5 28.5 Coal producti
Slide 46: Resources highlights
Resources 46 Resources highlights • Ongoing focus on safety performance – 42% reduction in Total Reportable Injury Frequency Rate (TRIFR) at Curragh • Increased production volumes driven by mine expansions – Curragh expansion to 8.0 – 8.5mtpa metallurgical coal exports completed within budget – Curr
Slide 47: Resources outlook
Resources 47 Resources outlook • Export market – Uncertain economic conditions in Eurozone & slowing growth in China – Global steel demand affected – A$/US$ exchange rate uncertainty – Long-term export market fundamentals remain sound • Financial Year 2013 – Forecast Curragh metallurgical coal sales
Slide 48: Chemicals, Energy & Fertilisers
Chemicals, Energy & Fertilisers Tom O’Leary Managing Director
Slide 49: Chemicals, Energy & Fertilisers performance summary
Chemicals, Energy & Fertilisers Chemicals, Energy & Fertilisers 49 Performance summary Year ended 30 June ($m) 2012 2011 % Revenue Chemicals 698 647 7.9 Energy1 561 541 3.7 Fertilisers 527 453 16.3 1,786 1,641 8.8 EBITDA2,3,4 348 379 (8.2) Depreciation & amortisation (90) (96) 6.3 EBIT2,3,4 258 283
Slide 50: Chemicals, Energy & Fertilisers highlights
Chemicals, Energy & Fertilisers Chemicals, Energy & Fertilisers 50 Highlights • Construction underway to expand ammonium nitrate (AN) production capacity from 520 thousand tonnes per annum (ktpa) to 780 ktpa – Board approval received in December 2011 for $550 million expansion • Chemicals earnings a
Slide 51: Chemicals, Energy & Fertilisers outlook
Chemicals, Energy & Fertilisers Chemicals, Energy & Fertilisers 51 Outlook • AN expansion on track to be operational during 1H CY14 • Approval to be sought in 1H FY13 for SCN debottlenecking (~$15 million), following completion of detailed engineering review • Ammonia earnings increasingly dependent
Slide 52: Industrial & Safety
Industrial & Safety Olivier Chretien Managing Director
Slide 53: Industrial & Safety performance summary
Industrial & Safety Industrial & Safety 53 Performance summary Year ended 30 June ($m) 2012 2011 % Revenue 1,690 1,557 8.5 EBITDA 217 192 13.0 Depreciation & amortisation (27) (26) (3.8) EBIT 190 166 14.5 EBIT margin (%) 11.2 10.7 ROC (R12 %) 16.0 13.1 Safety (R12 LTIFR) 2.4 2.3
Slide 54: Industrial & Safety highlights
Industrial & Safety 54 Industrial & Safety highlights • Strong results supported by market conditions & improved competitiveness – Sustained resource sector & engineering construction activity – High service levels, increased market share with key customers – Sales growth achieved by most businesses
Slide 55: Industrial & Safety outlook
Industrial & Safety 55 Industrial & Safety outlook • Well placed to seize multiple opportunities – Increased customer centric focus to broaden service offering to customers – Continued diversification of industry & customer base – Major projects activity & offshore sales growth – Continued productiv
Slide 56: Other Business & Capital Management
Other Business & Capital Management Terry Bowen Finance Director, Wesfarmers Limited
Slide 57: Other business performance summary
57 Other business performance summary Holding Year ended 30 June ($m) 2012 2011 % % Share of profit/(loss) of associates: Gresham Private Equity Funds Various (55) (60) 8.3 Gresham Partners 50 - 1 (100.0) Wespine 50 5 7 (28.6) BWP Trust 24 16 19 (15.8) Sub-total (34) (33) (3.0) Interest revenue 22 3
Slide 58: Portfolio of strong cash generating assets
58 Portfolio of strong cash generating assets • 24.8% growth in operating cash flows through strong earnings growth & effective working capital management $m % 4,000 160 3,500 3,000 120 2,500 2,000 80 1,500 1,000 40 500 0 0 FY2009 FY2010 FY2011 FY2012 NPATDA (1) Operating Cash Flow Cash Realisation
Slide 59: Working capital management
59 Working capital management • Disciplined working capital Cash Movement ($m) Year ended 30 June 1 Inflow/(Outflow) 2012 2011 management supporting strong Inventory (16) (347) growth in operating cash flows Payables 274 396 Receivables (362) (312) • Reduction in retail working capital Net working c
Slide 60: Strong capital investment phase underway
60 Strong capital investment phase underway • Investment in retail portfolio Year ended 30 June 2012 2011 % – Improvement in the Bunnings store ($m)1 Coles 1,193 761 56.8 network HI & OS 587 613 (4.2) – Strong investment in improving Target 65 87 (25.3) Coles network and, in particular, Kmart 134 10
Slide 61: Dividend growth
61 Dividend growth • Final dividend $0.95 per share; full-year dividend $1.65 per share – Fully-franked dividend – Dividend investment plan; no underwrite; shares purchased on market $m 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 (500) FY2009 FY2010 FY2011 FY2012 Operating Cash Flow Investing Acti
Slide 62: Balance sheet strength
62 Balance sheet strength • Maintained strong credit ratings – Standard & Poor’s A- (stable); Moody’s Baa1 (positive) • Strong balance sheet – Fixed charges cover (R12) 2.8 times – Cash interest cover (R12) 10.8 times
Slide 63: Debt financing
63 Debt financing • Gross debt of $5.5 billion, net debt of $4.9 billion • Continued diversification & lengthening of Group’s debt profile – Strong market response to issuances despite market volatility – November 2011 issued $500 million 5 year domestic bond – March 2012 issued $500 million 7 year
Slide 64: Average debt tenor of 3.8 years across well diversified sources of debt
Average debt tenor of 3.8 years across 64 well diversified sources of debt $m 1.7% 1,500 5.9% 1,000 15.1% 26.7% 500 0 23.4% (500) 27.1% (1,000) FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 Cash at bank & on deposit Syndicated Facility Bank Bilaterals Syndicated facilities US Bonds Cap
Slide 65: Outlook
Outlook Richard Goyder Managing Director, Wesfarmers Limited
Slide 66: Outlook
66 Outlook Retail • Investments in value, merchandising, service, store networks & productivity initiatives expected to drive further earnings growth – Sustained turnaround momentum expected in Coles, Kmart & Officeworks – Bunnings’ solid performance expected to continue – New initiatives within tra
Slide 67: Outlook
67 Outlook Resources • Recently completed mine expansions will support higher sales volumes • Recent movements in export coal prices & the exchange rate are unfavourable, in the short term, for coal revenues • We believe long term metallurgical coal market fundamentals remain sound Industrial & Safe
Slide 68: Questions
Questions OXON RIO Wesfarmers
Slide 69: For all the latest news visit www.wesfarmers.com.au
For all the latest news visit www.wesfarmers.com.au