Wesfarmers Limited · ASX:WES
Wesfarmers — Investor Day (October 2008)
146 slides from Wesfarmers's investor day presentation, Oct 14, 2008
Slide 1: Investor Briefing
Investor Briefing 14 October 2008 Westin Hotel, Sydney
Slide 2: Richard Goyder
Richard Goyder Managing Director, Wesfarmers Limited 2
Slide 3: Agenda
Agenda 8:45 Business Overview 9:15 Coles 10:30 Morning Tea 11:15 Home Improvement & Office Supplies 12:00 Target 12:30 Resources 1:00 Lunch 2:00 Insurance 2:30 Industrial Businesses 3:00 Capital Management 3:10 Q&A 3
Slide 4: Management Team
Management Team Managing Director & CEO Richard Goyder Finance Director Gene Tilbrook Divisional Managing Directors Home Improvement & Office Supplies John Gillam Coles Ian McLeod Target Launa Inman Kmart Guy Russo ` Insurance Rob Scott Director Industrial Divisions Keith Gordon Resources Stewart Bu
Slide 5: Group Overview
Group Overview • An uncertain global environment • Strong businesses • Focus on running businesses well – Return on capital – Effect turnarounds • Balance sheet management • Long term approach, consistent strategies 5
Slide 6: Renewal of Coles
Renewal of Coles lan McLeod Wesfarmers
Slide 7: Encouraging underlying performance
Encouraging underlying performance • Improving food and liquor customer numbers – Availability improving – Reduction in central costs – Stronger promotional focus (non-repeat of value destroying activity) • Food & Liquor Qtr 1 total sales growth 2.6%, comparable sales growth 1.3% • Solid growth in C
Slide 8: Starting point … A cost cutting strategy
Starting point … A cost cutting strategy • Previously, Coles managed to a short-term EBIT target Boom / • Bureaucratic, top heavy management bust sales structure & margin tactics • Lack of cohesive strategy Customer Cutback confusion on cost • Inward facing, not customer focused • Store focus on cos
Slide 9: Building to a Virtuous Circle
Building to a Virtuous Circle 9
Slide 10: Meaningful and sustainable improvement will take time
Meaningful and sustainable improvement will take time • Many complex issues to fix Fresh Value Range • Multi-faceted recovery plan required • Reversal of sustained under investment Efficiency Service Culture • Creation of a dynamic forward thinking business culture • Recovery will take 5 years, with
Slide 11: 5 years – 3 phases of recovery
5 years – 3 phases of recovery Building a Solid Delivering Driving the Coles Foundation Consistently Well Difference Performance • Culture of continuous • Embed the new culture improvement • Create a strong top team • Team member development • Strong customer trust and • Cultural change • Improved c
Slide 12: Creating a strong top team
Phase 1 - Building the Foundation Creating a strong top team Ian McLeod Managing Director Asda, Halfords Terry Bowen Finance Director Jetstar, Wesfarmers John Durkan Merchandise Director Safeway (UK), Carphone Warehouse (UK) Joe Blundell Marketing Director Kelloggs, Asda, Shell Stuart Machin Operati
Slide 13: Creating a strong top team
Phase 1 - Building the foundation Creating a strong top team • 100% of leadership team new to Coles / role • 37% of top 30 managers new* • 45% of top 200 managers new to Coles / role • 92% of top 200 are Australian • Launch of Coles graduate program – 3,500 applications for 100 positions *Joined Col
Slide 14: Cultural change
Phase 1 - Building the foundation Cultural change • Tooronga transition! • 1,000+ non-store positions removed • Open plan environment • Stronger store focus • Leadership visibility & access • Communication strengthened 14
Slide 15: Store focus – Inverting the pyramid
Phase 1 - Building the foundation Store focus – Inverting the pyramid • Local freedom to act • Store feedback actively encouraged • “Back to basics” shopkeeping drive • Recruitment processes simplified • Performance based incentives improved 15
Slide 16: Improving availability and store standards
Phase 1 - Building the foundation Improving availability and store standards On Shelf Availability • Focus on improving availability Gaps on (Supermarkets) shelf – Consistent measurement 50% reduction in gaps – Management attention on shelf – Customer focus • Store standards beginning to improve – S
Slide 17: Improving value and customer trust
Phase 1 - Building the foundation Improving value and customer trust • Top 60 suppliers engaged (representing 73% of sales) • Range reduction trials, focused on choice, not proliferation • Full private label review • Increased focus on fresh produce quality – ‘Would you buy it? If not, don’t try to
Slide 18: Improving value and customer trust
Phase 1 - Building the foundation Improving value and customer trust • Delivery of promotion change • Value trading focus with fewer, more compelling promotions • Non-repeat of value destroying promotions • Clearer customer communication – In Store & in Catalogue • Adjusted to mid-week promotion cyc
Slide 19: Improving value and customer trust
Phase 1 - Building the foundation Improving value and customer trust • Addressing past store infrastructure neglect • $100m upgrade investment in FY09 • “Spring clean” basic investment in stores – 600 stores completed by end October 2008 • New registers and scales in FY09 • Refrigeration replaced in
Slide 20: Renewal store development
Phase 1 - Building the foundation Renewal store development • Trialing of new formats – Enhanced fresh food offer – Rationalised ambient offer – Improved demographic ranging – Smarter working, better service • Renewal store pilots planned • Reduced refurbishment plan whilst trial stores progressed •
Slide 21: Upgrading Supply Chain and IT Infrastructure
Phase 1 - Building the Foundation Upgrading Supply Chain and IT Infrastructure • IT plan aligned to business priorities • Multi-saver promotion capability • Automated replenishment pilots in place • Leveraging supply chain network – Reduced from 33 sites to 26, with further consolidation to 23 end F
Slide 22: Liquor renewal
Phase 1 - Building the foundation Liquor renewal • Brand development review – Reinvigorate Liquorland's convenience offer – Reinforce Vintage Cellars’ specialist credentials – Price and range architecture • Network optimisation and expansion • Increasing efficiency and lowering costs – Improve IT pl
Slide 23: Drive efficient use of capital
Phase 1 - Building the foundation Drive efficient use of capital Coles – Grocery Overstocks* • Focus on installing discipline and 140 reducing high levels of aged 120 100 overstocks 80 $M 60 40 • High level of inherited aged overstocks 20 already reduced 50% 0 Jan '08 Sep '08 • Improved inventory mi
Slide 24: Increased pace of change
Increased pace of change • Chronic under-investment & infrastructural decay will take 5 years to remedy • Building the foundation has started at pace • Strong, experienced top team in place • Team members committed and engaged • New format pilots this financial year • Change to promotion cycle actio
Slide 25: Outlook
Outlook
Slide 26: Outlook
Outlook • Toughening economic conditions • Consumer confidence dropping • Customers focus on value will increase • Lower levels of inflation expected to continue • Key strategic programmes will be driven at pace • Increasingly strong focus on cost and capital management • Store network improvement 2
Slide 27: Questions
Questions
Slide 28: Appendix
Appendix
Slide 29: Food and liquor store network
Food and liquor store network at 30 September 2008 Selling Area 7 8 11 Supermarkets (sqm) 1,560,566 Liquor (sqm) 268,875 153 231 77 79 92 5 116 67 66 31 6 43 242 247 5 208 161 193 158 754 Supermarkets 14 16 767 Liquor stores 93 Hotels 622 Convenience 29
Slide 30: Store network movements
Store network movements Open at Open at Opened Closed 30 June 2008 30 Sept 2008 Supermarkets Coles 685 7 3 689 Bi-Lo 65 - - 65 Total Supermarkets 750 7 3 754 Liquor 1st Choice 52 1 - 53 Vintage Cellars 85 - 1 84 Liquorland 630 5 5 630 Hotels 95 - 2 93 Total Liquor 862 6 8 860 Convenience 619 4 1 622
Slide 31: Home Improvement & Office Supplies
Home Improvement & Office Supplies John Gillam
Slide 32: Agenda Bunnings & Officeworks
Agenda Bunnings & Officeworks • Background • Trading Update • Strategies • Outlook 32
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Slide 34: Background
Background WIDEST RANGE LOWEST PRICES BEST SERVICE 34
Slide 35: Background
Background www.bunnings.com.au 35
Slide 36: Store & Trade Centre Network
Store & Trade Centre Network at September 2008 2 167 Warehouse stores 61 Small format stores 16 Trade Centres 29 5 4 19 10 1 8 2 1 50 17 6 12 25 41 1 4 4 2 1 36
Slide 37: Store Network Movements
Store Network Movements Under June 2008 Opened Closed Sept 2008 construction Bunnings Stores Warehouse format 165 2 0 167 10 Smaller format 61 2 2 61 0 Bunnings Trade Operations Trade centres 14 2 0 16 4 Frame & Truss plants 8 0 0 8 0 37
Slide 38: Home Improvement Performance Summary
Home Improvement Performance Summary Year ended 30 June ($m) 2008 2007 % Revenue 5,359 4,939 8.5 EBIT 589 528 11.6 ROC (R12 %) 31.2 28.1 3.1 pt Trading Revenue* ($m) 5,265 4,677 12.6 Net property contribution^ ($m) 26 54 (51.9) Trading EBIT* ($m) 569 487 16.8 Trading EBIT / Trading Revenue (%) 10.8
Slide 39: Trading Update
Trading Update 1 July to 30 September 2008 • Cash sales growth 7.3% – Tighter conditions: cash store-on-store growth 4.9% – Growth strongest within existing store network – Positive responses from merchandising & operational initiatives • Trade sales growth continues – Pleasing growth in tough housi
Slide 40: Strategies
Strategies 1. Profitable sales growth 2. Building a stronger team 3. Lifting effectiveness & efficiency 4. Sustainability focus 40
Slide 41: Strategies 1. Profitable Sales Growth
Strategies 1. Profitable Sales Growth • Improving service – Prioritised as largest improvement & growth opportunity – Work focused on 3 key areas – team member coverage, product knowledge & stock availability • Continued offer improvement – Driving new product ranges – Strong merchandising disciplin
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Slide 43: Strategies 1. Profitable Sales Growth
Strategies 1. Profitable Sales Growth • Dual store network investment – existing & expansion • Continued investment in existing stores • Ongoing rollout of new stores • 10 to 14 new warehouse stores opening annually • Opportunistic openings of small format stores • Growing the trade business • Expan
Slide 44: Strategies 2. Building a stronger team
Strategies 2. Building a stronger team • Significant activity supporting ‘service’ aspirations • Increasing the quality & quantity of training • Improving rostering skills • Effective actions to lift team retention • Diversity & employment branding work ongoing • Continued strong safety programme 44
Slide 45: Strategies 3. Lifting effectiveness & efficiency
Strategies 3. Lifting effectiveness & efficiency • New programmes driving down the cost of doing business • supports core pricing objective for customers • Supply chain enhancements • in-bound & in-store actions • Customer facing business process improvements • Better business disciplines • Shrinkag
Slide 46: Strategies 4. Sustainability focus
Strategies 4. Sustainability focus • Strong foundation of credible actions • Sustainable timber procurement commenced in 2001 • zero tolerance for illegally logged rainforest timber • Initiatives in waste reduction (2003) & energy saving (2004) • Stepped up energy reduction & water saving actions in
Slide 47: Home Improvement Outlook
Home Improvement Outlook • Continued cash sales growth – Driven by service, merchandising and network initiatives – Challenging retail conditions will impact overall growth • Continued positive trends in trade business performance • Trading earnings growth expected – lower property development earni
Slide 48: Office Supplies
Office Supplies 48
Slide 49: Background
¢ ¢ € lowest ~— widest yoat ny VANGE VA G ai y a Background
Slide 50: Background
Background "VIKING 2005 2007 FOffceweis ee BusinessDirect Wesfarmers Officeworks online business & Viking Wesfarmers one of Australin’s ln rgest become Officeworks Business Direct public companies acquired Officeworks
Slide 51: Background
Background Officeworks & Harris Technology Network at September 2008 Store Network 116 Officeworks 9 Harris Technology Business Direct 22 2 1 4 Fulfilment Centres 10 2 1 8 4 Service Centres 37 4 1 2 37 1 1 2 2 51
Slide 52: Store Network Movements
Store Network Movements Under June 2008 Opened Closed Sept 2008 construction Officeworks 115 1 - 116 4 Harris Technology 11 - 2 9 0 52
Slide 53: Office Supplies Performance Summary
Office Supplies Performance Summary 23 November to 30 June ($m) 2008 Revenue 802 EBIT 36 Total Sales Growth (%) 1.6% Trading Revenue* 802 Net property contribution - Trading EBIT* 36 Trading EBIT / Trading Revenue (%) 4.5% * Excludes non-trading items 53
Slide 54: Trading Update
Trading Update 1July to 30 September 2008 • Officeworks retail sales growth 2.2% – Tight trading conditions across core customer base • Adverse sales trends in OW Business Direct & HT • Re-establishing range authority • Transitioning to EDLP • Eliminating past channel conflict 54
Slide 55: Strategies
Strategies 1. Improving the customer offer 2. Lifting service 3. Team development & engagement 4. Reducing complexity & cost of doing business 5. Growing sales & profitability 55
Slide 56: Strategies 1. Improving Customer Offer
Strategies 1. Improving Customer Offer • New concept store trial – sharper, simpler ‘warehouse’ shopping environment – 4 more older larger stores being like-transformed • Re-establishing range authority – Range reviews well advanced in all categories – Dell performing well • New services being devel
Slide 57: New concept store
New concept store • Officeworks Highett –Victoria 57
Slide 58: New look & feel
New look & feel Cutting As Trimming ! Paperclips Rubber Bands Staplers
Slide 59: New look & feel (cont)
New look & feel (cont) 59
Slide 60: New branding
New branding — as 0s
Slide 61: Strategies 2. Lifting Customer Service
Strategies 2. Lifting Customer Service • Investment in additional in-store wages • Non-sell task reviews generating face-to-face service hours • New labour scheduling system under development • New point of sale system • 30-day account usage opened across all channels • Single product pricing across
Slide 62: Strategies 3 and 4: Team and Cost
Strategies 3. Team Development & Engagement • Significant lift in training investment • Introduction of recognition & reward programmes • Stronger focus on labour retention 4. Reducing Complexity & Cost of Doing Business • Eliminating channel conflict • Simplifying processes & procedures; improve sp
Slide 63: Strategies 5. Growing Sales & Profitability
Strategies 5. Growing Sales & Profitability • Open 8 – 10 new Officeworks stores in 2008/09 – Develop pipeline for network expansion for 2009/10 and beyond • Upgrade 8 – 10 existing stores to new concept – Establish network refurbishment programme • New marketing programmes across all channels • Shi
Slide 64: Other News
Other News Officeworks Business Direct • Strategy revised to align retail and direct businesses – Single buying team in place; Single price across all channels • Revised marketing programme - getting closer to the customer • 30-day accounts now operable in stores Harris Technology • Strategy revised
Slide 65: Outlook
Outlook • Difficult trading conditions – Pressure on sales & margin, particularly in small business sector – Moderate sales growth expected • Good traction from strategy expected 65
Slide 66: Questions
Questions
Slide 67: Target
Target Launa Inman Wesfarmers
Slide 68: Trading Update
Trading Update 3 months to September • Sales for comparable period up 6.5% • Underlying same store sales up 3.0% – July strong with successful Toy Sale – Trading since July has been challenging • Weaker consumer sentiment – Credit crisis/sharemarket impacts – Continued high petrol prices – High inte
Slide 69: Managing the Business Current Challenges
Managing the Business Current Challenges • Customer behaviour – Evidence of customers downgrading – Importance of entry price points • Rising product costs; FX and inflation – Broaden sourcing base • Volatile trading – Inventory tightly managed – Preventative action already taken – Expense control –
Slide 70: Target strategies
Target strategies Strategic initiatives Comments Focus on fundamentals 3 Meeting customer needs on Range, Price and Service 3 Evolution of “100% Happy” Brand relaunch Ongoing Unique philosophy and positioning Ongoing Leveraging an emotional connection Ongoing Bringing the best of what’s new in the w
Slide 71: Target Store Network
Target Store Network end September 2008 2 1 31 23 14 11 19 12 49 45 43 24 162 Target stores 4 1 117 Target Country stores 71
Slide 72: Store Network Development
Store Network Development • Planned new stores - FY09 – 11 new Target stores – 3 Target Country conversions to Target - new stores – 3 Target Country replacements - bigger store footprints • Investment in existing stores – Around 40 stores in FY09 – Upgrades range from full refits to a light touch –
Slide 73: Store Entry Statement and Signage
Store Entry Statement and Signage Cleaner, simpler and more pure statement of Brand. Larger entry portal allowing better vision into store. Relocated service counter. 73
Slide 74: Entry and Orientation Zone
Entry and Orientation Zone. Larger “foyer" into store with reduced clutter. More contemporary apparel display "Catwalk" to create a more fashionable first impression. 74
Slide 75: Checkouts
Checkouts Single queue, "first up, first served" system similar to airport queuing A simpler and fairer system. 75
Slide 76: Differentiation the key
Differentiation the key • New exciting and differentiated offers • Bring the best of what’s new in the world to Target • Promote, protect, and expand our quality reputation • Excitement through Designer for Target program 76
Slide 77: The allure of bright colours
The allure of bright colours GRAPHIC Vulla feum cionseg qui wr EXCLU Lae ty SIVE TO TARGET ON SALE FI
Slide 78: Jenny Kee
J enny Kee DESIGNERS FOR TARGET style by design IN STORE OCTOBER 23 VIEW ROOM SETTINGS VIEWRANGES MALIOZ QPALOZ JENNY KEE PROFILE MEDIA RELEASE FIND MY NEAREST STORE LAYBY CONDITIONS SIGN UP FOR DESIGNER NEWS CONTACT = SENDTOAFRIEND CJ @ Previous | Next © ARCHIVE * ie Pig SE Sug wT ts od Ao
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Slide 81: Beauty Bank
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Slide 82: Target Outlook
Target Outlook • Economic slowdown with signs of customers downgrading • Entry and mid-price points well stocked • Broaden sourcing base to mitigate cost increases from China • Controlled stock levels • Managing expenses • Increased and enhanced store network • Investment in the future • Profit impa
Slide 83: Questions
Questions Wesfarmers
Slide 84: Resources
Resources Stewart Butel
Slide 85: Wesfarmers Resources
Wesfarmers Resources Export metallurgical and domestic steaming coal QLD Domestic steaming coal WA Export and domestic NSW steaming coal (40% ownership) 85 85
Slide 86: Coal production
Coal production • Curragh - 10 day planned CHPP shutdown in July 2008 YTD ended Mine ('000 tonnes) Beneficial Interest Coal Type Sep 2008 Sep 2007 Curragh, QLD 100% Metallurgical 1,809 1,558 Steaming 774 722 Premier, WA 100% Steaming 938 763 Bengalla*, NSW 40% Steaming 519 558 Total 4,040 3,601 * We
Slide 87: Business environment
Business environment • Curragh now achieving consistent production • Historically high coal prices • Established, long-term committed customers • Constrained export coal chain • Cost increases ongoing (opex and capex) • Positioned to capitalise as infrastructure constraints lift • Volatile Australia
Slide 88: Resources strategies
Resources strategies Strategic initiatives Comments 3 Long-term contracts in place Maximise export sales and 3 Price relativity optimise sales mix 3 Maximise higher value products 3 Improve operational performance Cost reduction WIP People, process and systems programmes WIP Evaluate improved mining
Slide 89: Australian hard coking coal prices
Australian hard coking coal prices • No available spot pricing for September / October US$/Tonne (Nominal) FOB Australia 400 350 300 250 200 150 100 50 0 2003 2004 2005 2006 2007 2008 2009 Spot Price Annual Reference Price 89 Source: Barlow Jonker, Tex Report, Macquarie Research, CRU 89
Slide 90: Australian steaming coal prices
Australian steaming coal prices US$/Tonne (Nominal) FOB Australia 200 160 120 80 40 0 2003 2004 2005 2006 2007 2008 2009 Spot Price JPU Reference 90 Source: Barlow Jonker, ANZ 90
Slide 91: Curragh 2008/09 projected metallurgical sales
Curragh 2008/09 projected metallurgical sales Sales mix and volume Hard Semi Hard 45 - 48% 20% PCI 32 - 35% Hard or PCI 6.5 - 6.9 million tonnes 91 91
Slide 92: Curragh 2008/09 projected metallurgical sales
Curragh 2008/09 projected metallurgical sales Contract term split AFY Contract Term July to June 25% JFY Contract Term April to March 75% 484kt of Carryover tonnes in Q1 2008/09 92 92
Slide 93: Stanwell payment
Stanwell payment • Part of consideration tendered to Stanwell in 2002 competitive process for the right to develop the Curragh North deposit – Has enabled doubling of Curragh export production from 2002 level – Extends Curragh mine life to 2025 • Key terms: – Calculated from a rolling 12 month actua
Slide 94: Wesfarmers Curragh hedging profile
Wesfarmers Curragh hedging profile as at 6 October 2008 Current US$ Average 12 months The Australian Dollar - (AUD/USD) sold forward A$ / US$ to 30 Sep 1.00 (US$m) hedge rate 0.95 2009 947 0.84 0.90 0.85 2010 469 0.79 0.80 2011 189 0.79 0.75 0.70 2012 58 0.79 0.65 0.60 2013 10 0.78 Sep-07 Nov-07 Jan
Slide 95: Coal delivery systems
Coal delivery systems • Gladstone – Rail capacity forecast at 90% of contract – Adequate port capacity in place – Short-term rail capacity improved – Wiggins Island Coal Terminal feasibility study continues into CY2009 • Newcastle – Decreased vessel queues and demurrage – Existing Capacity Balancing
Slide 96: Coal port congestion
Coal port congestion East Coast Australia as at 7 October 2008 No. of ships at anchor 180 160 140 120 100 80 60 40 20 0 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Gladstone Newcastle Other Ports 96 Source: McCloskey Fax 96
Slide 97: Curragh expansion study
Curragh expansion study • Major feasibility study underway • Export expansion to 8.0 to 8.5mtpa • Expansion involves: – Upgrade CHPP – Overburden removal capacity • Targeted expansion decision Q2 CY2009 • Additional export volume in late CY2010 97 97
Slide 98: Bengalla expansion study
Bengalla expansion study • Potential expansion from 8.7 to 10.7mtpa ROM • Development Consent approved • Expansion to involve – Dragline upgrade – CHPP upgrade – Additional mining equipment • Expansion timing dependent on infrastructure constraints 98 98
Slide 99: Resources outlook
Resources outlook • Strong prices for current contract year • Volatile Australian dollar • Monitoring global economy impact on steel production • Shipping remains consistent with annual contracts • Ongoing constrained export coal chains • Availability of key inputs and industry cost pressures to con
Slide 100: Questions
Questions 100
Slide 101: Insurance
Insurance Rob Scott 101
Slide 102: Broking Underwriting
Broking Underwriting UK Australia Australia New Zealand FY08 $209m Revenue / $1,328m GWP Market Number 3 Position1 Number 5 1 by Revenue (Broking) and GWP (Underwriting) for corporate groups Australia and New Zealand 102
Slide 103: WFI are good people to know…
WFI are good people to know… Provides insurance cover for rural, business and private requirements 85 locations across rural and BUSINESS regional Australia FARM HOME & CAR STRATA 103
Slide 104: Wholesale distribution of tailored insurance solutions
Wholesale distribution of tailored insurance solutions to individuals, businesses, large corporates and government FLEET MOTOR MARINE PROPERTY & LIABILITY ENGINEERING 21 locations in Australia & CONSTRUCTION New Zealand BUILDERS WARRANTY 104 104
Slide 105: Provides advice and solutions to financially survive any insurable event
Provides advice and solutions to allow clients to financially survive any insurable event BUSINESS INSURANCE PERSONAL LINES FINANCIAL SERVICES LIFE, DISABILITY & HEALTH SCHEMES CLAIMS MANAGEMENT PREMIUM FINANCING 17 locations across New Zealand 105
Slide 106: Provides specialist product advice and tailored services
Provides specialist product advice and tailored services to businesses by accessing local and global insurance markets BUSINESS INSURANCE PERSONAL LINES SUPERANNUATION LIFE & INCOME PROTECTION SCHEMES FINANCIAL MANAGEMENT ENVIRONMENTALCONSULTING 36 locations in Australia & the UK 106
Slide 107: Trading Update - Underwriting
Trading Update - Underwriting Business Unit Details WFI Expansion of distribution network Improved conversion rates from referrals Lumley Australia Tighter underwriting controls Rate increases in underperforming classes Lumley New Zealand Restructuring program delivering positive outcomes Rate incre
Slide 108: Trading Update - Broking
Trading Update - Broking Business Unit Details Crombie Lockwood Maintaining retention rates and new business growth New products and affinity schemes Acquisition of Uni-Care and Needham Heatley OAMPS Australia Profit margin improving Improved terms with key underwriters Process and efficiency improv
Slide 109: Industry Underwriting Margin
Market Conditions (Australia) - Economic Cycle and Underwriting Performance 20% 5% 4% Industry Underwriting Margin 15% GDP Growth 3% 10% 2% 5% 1% 0% 0% Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Industry Underwriting Margin GDP Growth Source: APRA, Australian Bureau of Statistics 109
Slide 110: Market Conditions
Market Conditions - Industry COR Performance AUSTRALIA NEW ZEALAND 105% 105% 100% 100% 95% 95% COR COR 90% 90% 85% 85% 80% 80% Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Source: APRA Industry Quarterly Statistics Source: ICNZ 110
Slide 111: Market Conditions
Market Conditions • Financial market conditions impacting insurer investment returns • Enhanced focus on underwriting profitability • Rate increases gaining momentum particularly in New Zealand • Single large losses above long term average • Economic slowdown and credit tightening constraining insur
Slide 112: Underwriting Strategies
Underwriting Strategies Key Strategies Move to a single licensed entity for Australian businesses - Capital efficiency - Shared services and leveraging combined capabilities LGNZ margin improvement Continue to build technical capabilities IT systems alignment and upgrade Portfolio management – focus
Slide 113: Insurance Broking Strategies
Insurance Broking Strategies Key Strategies Leverage combined broking capabilities Build the best team Upgrade broker sales performance systems Launch of SME insurance offer in New Zealand Promote ancillary business - Life, income protection, premium funding Continue broker bolt-on acquisitions 113
Slide 114: Outlook 2008/09
Outlook 2008/09 • Australian licence consolidation on track for completion in FY09 • Lumley New Zealand delivering on turnaround • Global financial markets turmoil likely to benefit well capitalised insurers • Rate increases gaining momentum • Economic slowdown constraining business investment and c
Slide 115: Questions
Questions 115
Slide 116: Industrial Businesses
Industrial Businesses Keith Gordon 116
Slide 117: Industrial & Safety
Industrial & Safety Wesfarmers
Slide 118: Industrial & Safety Distribution Network
Industrial & Safety Distribution Network: 241 branch locations Australia No. 72 MRO, “All your workplace 2 needs” 1 1 17 6 Electrical 15 6 12 6 9 5 9 4 44 Safety 1 1 55 Materials handling, lifting, 5 1 17 19 rigging 1 7 3 16 Fasteners 5 1 8 Engineering 11 5 7 2 3 1 New Zealand No. 1 1 20 MRO, hose,
Slide 119: Industrial & Safety Highlights
Industrial & Safety Highlights • Good sales growth over the first quarter despite mixed trading conditions − Good growth from resources and infrastructure − Limited impact from energy disruptions in Western Australia − Manufacturing remains subdued, especially in NSW, Victoria and New Zealand • Grow
Slide 120: Growth strategies
Growth strategies Strategic Progress Achievements Initiatives Increase sales 9 • DIFOT performance continued to improve to existing (ongoing) • Investment in sales force underway (CRM, coaching and customers training, tools) • New positions created to reinforce management of National accounts • Furt
Slide 121: Growth strategies (cont.)
Growth strategies (cont.) Strategic Progress Achievements Initiatives Target higher 9 • Grew penetration of services (training, embroidery, testing, growth sectors on-site) (ongoing) • Further reinforced exposure to mining, infrastructure and services • Acquisition of Bay Lifting and Testing (VIC) I
Slide 122: Industrial & Safety Outlook
Industrial & Safety Outlook • Strong competitive foundations to address market conditions – Continued demand from resources and infrastructure – Optimising positions in traditional markets – Ongoing improvements to the customer value proposition – Attracting, developing and rewarding key people • Ea
Slide 123: Energy
Energy Wesfarmers
Slide 124: Overview
Overview Business Geography Products Key customers Gas production & NSW, Vic, Qld, distribution SA Metals, manufacturing, utilities, water, healthcare, metals, food & Oxygen, nitrogen, acetylene, hospitality, pharmaceuticals, argon, carbon dioxide, etc research, education, Gas production & manufactu
Slide 125: Operational Update
Operational Update • Varanus island gas supply disruptions • LNG project commissioning • LPG content in DBP uncertain Hiteshkumar Raval at the LNG • Stabilising NSW market activity for industrial gases plant in Kwinana, WA August 08 • Continuing high international energy prices – ‘double edged sword
Slide 126: Strategies
Strategies Strategies Segment Status Industrial gas growth in: • eastern states sales; & Refocus • oil and gas sector Ongoing Improve – Existing Maximise LPG production Exploring options Businesses LPG distribution: Ongoing • customer focus; & • controllable costs Pursue new power generation project
Slide 127: Outlook
Outlook • LNG project – LNG plant commissioning near complete – Darlot and Sunrise Dam to commence full operation – positive HDV uptake • Industrial, medical and specialty gases – improved efficiency in logistics and cylinder utilisation – stabilise CO2 supply – complete upgrade of ASU • LPG distrib
Slide 128: Chemicals & Fertilisers
Chemicals & Fertiliser Wesfarmers
Slide 129: Chemicals & Fertilisers Overview
Chemicals & Fertilisers Overview Business Geography Sector Key Customers Ammonia WA Nickel BHP, Minara Orica, Dyno Ammonium Nitrate WA Iron Ore Nobel, Rio Tinto BMA, AngloCoal, (50%) Ammonium Nitrate Qld Coal Rio Tinto Newmont, Barrick, (75%) Sodium Cyanide WA/Global Gold AngloGold PVC Resin / Vic/A
Slide 130: Strategy Update
Strategy Update Strategic initiatives Comment Growth 3 • Kwinana duplication (+235,000 tpa) WIP • Upgrade of QNP (+30,000 tpa) underway WIP • Sodium cyanide expansion Optimise cost and capital 3 • Inventory and expense management Sustainability WIP • Sustainability framework and legacy issues WIP •
Slide 131: Operational Update
Operational Update • Ammonium nitrate solution name plate capacity has increased from 235,000 tonnes to 470,000 tonnes • Expansion of sodium cyanide solution plant underway to meet Boddington Gold Project demand; expansion commissioning expected early 2009 • Expansion of QNP ammonium nitrate plant u
Slide 132: Chemicals & Fertilisers Outlook
Chemicals & Fertilisers Outlook Chemicals • Ammonia production and sales in 2008/09 curtailed due to gas disruption and plant shutdown • AN production and sales will benefit from a full year’s operation of expanded capacity • AV will make a full year contribution Fertiliser • 2008 WA grain harvest u
Slide 133: Questions
Questions 133
Slide 134: Kmart
Kmart Richard Goyder Wesfarmers
Slide 135: Trading Update
Trading Update 3 months to September • Total sales decline of 0.2% – Comparative store sales decline of 0.5% • Tightening discretionary expenditure – Customers shifting to value items – Selective purchasing from promotions • 4 refurbishments completed 135
Slide 136: Outlook
Outlook • Guy Russo appointed as Managing Director • Build team capability • Continuing impact of weak consumer sentiment • Impact of FX and inflation – Inventory tightly managed and controlled – Broaden sourcing base • Extend and enhance network – Improve customer engagement and in store experience
Slide 137: Capital Management
Capital Management Gene Tilbrook 137
Slide 138: Capital Structure
Capital Structure Net Debt:Equity (as at 30 June 2008) Total Equity 19,590 • Net Debt:Equity ~ 50% Cash at bank and on deposit 241 • Cash interest cover at 4.9 times, Syndicated Bank Loans 5,900 Other Debt (Bank, Bonds, CP & MTNs) 3,617 interest expense cover 4.3 times Net Debt 9,276 Net Debt to Equ
Slide 139: Debt Funding
Debt Funding • S&P and Moody’s ratings of BBB+ (negative watch) and Baa1 (stable) respectively • Ongoing review of financing requirements and opportunities • Well within all debt covenants Debt Profile ($m) Facilities Used Facility Due at 30 June 2008 $m Bank Loans, CP, Bank Bills, Bonds 1,260 <1 ye
Slide 140: Capital Expenditure
Capital Expenditure • Capital expenditure budget for FY09 $m of ~$2bn 2,500 • Expected capital expenditure for FY09 2,000 <$1.8bn 1,500 • Capital expenditure programme within 1,000 operating cash flows 500 0 • Return on capital focus ensures 2004 2005 2007 2008* 2009E Non-retail Retail Total budget
Slide 141: Working Capital
Working Capital • Strong historical cash realisation ratio • Strong financial disciplines as a result of return on capital focus • FY08 shortfall relates to creditor payment timing ($m) Cash Realisation Ratio 2,000 150% 1,600 100% 1,200 800 50% 400 0 0% 2004* 2005 2007 2008 NPATDA (after Stanwell) O
Slide 142: Working Capital - Inventory
Working Capital - Inventory • Net inflow from reduced inventory levels – Acquired high inventory levels due to timing of Coles Acquisition – Growth in inventory in heritage businesses due to sales growth, commodity prices and timing of shipments; offset by increase in creditors • Inventory is highly
Slide 143: Working Capital - Creditors
Working Capital - Creditors • Acquired high creditor levels due to timing of Coles acquisition • Large working capital outflow within first week of Coles ownership and on 30 June 2008 due to creditor run cycle in Coles Group • Seeking opportunities for improvement • Ongoing fluctuations in end of ca
Slide 144: Questions
Questions 144
Slide 145: Q & A
Q&A Richard Goyder Managing Director, Wesfarmers Limited Gene Tilbrook Finance Director, Wesfarmers Limited
Slide 146: For all the latest news visit www.wesfarmers.com.au
For all the latest news visit www.wesfarmers.com.au 146