Wesfarmers Limited · ASX:WES
Wesfarmers — H1 FY2014 Earnings Presentation
69 slides from Wesfarmers's earnings presentation, Feb 19, 2014
Slide 1: 2014 Half-Year Results Briefing
2014 Half-Year Results Briefing 19 February 2014 2014 Half-Year Results | 1
Slide 2: Presentation outline
Presentation outline Item Presenter Page Group Performance Highlights Richard Goyder 3 Coles Ian McLeod 11 Home Improvement & Office Supplies John Gillam 21 Kmart Guy Russo 33 Target Stuart Machin 37 Insurance Anthony Gianotti 41 Resources Stewart Butel 45 Chemicals, Energy & Fertilisers Tom O’Leary
Slide 3: Group Performance Highlights
Group Performance Highlights Richard Goyder Managing Director, Wesfarmers Limited 2014 Half-Year Results | 3
Slide 4: Group performance highlights
Group performance highlights • Operating revenue of $31.9 billion, up 4.0% • Earnings before interest & tax of $2,154 million, up 5.4% • Net profit after tax (NPAT) of $1,429 million, up 11.2% • Earnings per share of $1.24, up 11.5% • Return on shareholders’ funds (R12) of 9.4%, up 6.8% • Strong liq
Slide 5: Group performance highlights (continued)
Group performance highlights (continued) Retail • Coles: strong earnings growth & increased return on capital highlighted successful transition to next phase of growth • Bunnings: very good result with growth in all regions & customer segments; continued to execute strategic agenda to plan • Officew
Slide 6: Group performance highlights (continued)
Group performance highlights (continued) Insurance • Strong increase in underlying underwriting earnings; reported earnings affected by $45 million Christchurch Earthquake (EQ2) reserve increase; solid broking earnings growth driven by good performance of NZ business Industrial • Resources: lower ex
Slide 7: Group performance highlights (continued)
Group performance highlights (continued) Group • Managed the portfolio to deliver satisfactory returns to shareholders – Agreement to sell the Insurance division’s underwriting operations to Insurance Australia Group for $1,845 million (remains subject to regulatory approvals) – Disposal of 40% inte
Slide 8: Group performance summary
Group performance summary Half-Year ended 31 December ($m) 2013 2012 % Operating revenue 31,853 30,614 4.0 EBITDA 2,710 2,574 5.3 EBIT 2,154 2,043 5.4 Finance costs (179) (229) 21.8 Tax expense (546) (529) (3.2) Net profit after tax 1,429 1,285 11.2 Operating cash flow 1,757 2,207 (20.4) Earnings pe
Slide 9: Strength through diversified earnings
Strength through diversified earnings Divisional EBIT $m Percentage of Half-Year ended 31 Divisional EBIT: December ($m) 2013 2012 % Insurance Insurance 4% Coles 836 755 10.7 (1H13: 5%) WIS Home Improvement 562 518 8.5 2,000 WES CEF Industrial 15% (1H13: 14%) Office Supplies 42 38 10.5 Resources Tar
Slide 10: Return on Capital
Return on Capital • Focus on return on capital to deliver satisfactory shareholder returns 2013 2012 Rolling 12 months to 31 EBIT Cap Emp ROC ROC December ($m) ($m) (%) (%) Coles 1,614 16,204 10.0 9.2 Home Improvement 948 3,430 27.6 25.5 Office Supplies 97 1,118 8.7 7.5 Target 58 2,985 1.9 7.1 Kmart
Slide 11: Coles
Coles Ian McLeod Managing Director 2014 Half-Year Results | 11
Slide 12: Coles performance summary
Coles performance summary Half-Year ended 31 December ($m) 2013 2012 % Coles Division Revenue 18,946 18,047 5.0 EBIT 836 755 10.7 ROC (R12 %) 10.0 9.2 Safety (LTIFR YTD) 6.8 10.2 Food & Liquor Revenue1 14,770 14,104 4.7 Total store sales growth %2,3 4.7 5.0 Comp store sales growth %2,3 3.6 3.8 EBIT4
Slide 13: Coles performance summary
Coles performance summary • Market leading performance Market leading performance % – Strong underlying volume growth 10 – Continued increase in basket size 8 – Record Christmas transaction numbers 6 4 • Significantly improved financial performance 2 – More than doubled EBIT in five years 0 – Food &
Slide 14: Value, quality & innovation
Value, quality & innovation • Value leadership driving sales density % Lowering prices for 5 years 8 – Down Down, Unreal Deals, Super Specials 6 – Personalised offers & instant offer activation 4 with flybuys 2 0 (2) • Better quality building fresh credentials (4) (6) – Co-investing with local suppl
Slide 15: Efficiencies & productivity
Efficiencies & productivity • Building & investing in smarter stores – Improving store productivity through “Right Team, Right Time” – Investing in new customer facing technology to drive sales & efficiencies – Trialling “Easy & Assisted Ordering” for meat, bakery & fresh produce with roll-out to Fr
Slide 16: Shaping the future store network
Shaping the future store network • Strong store pipeline for future growth Sales density continues to grow Indexed – 2.3% net selling area growth since 1H13 130 +25% 125 – Targeting “bigger, better” stores 120 – Underpins strong sales density 115 improvement 110 105 100 • Accelerated renewal program
Slide 17: New businesses initiatives
New businesses initiatives • Multi-channel innovation New Coles Online website – Exclusive taste.com.au sponsorship – Leveraging customer analytics to deliver personalised offers – Enhanced Coles Online website with improved functionality to grow customer traffic • Strong growth in financial service
Slide 18: Building for future growth
Building for future growth • Reshaping our liquor network # stores A better liquor store network – Strong net selling area growth of 3.8% since 60 1H13 40 10 8 8 10 12 11 20 – Six new big box format First Choice stores 36 20 17 33 27 35 6 14 0 (5) – 14 new Liquorland stores – almost 60% of (19) (24)
Slide 19: Driving our convenience offer
Driving our convenience offer • Market leading fuel offer – V Power, No.1 premium fuel in Australia – Growing volumes of diesel & premium fuels • A better convenience store offer – Improved range & better value – New ‘Expresso To Go’ & frozen beverages offerings • Optimising the network Quality netw
Slide 20: Next wave of transformation
Next wave of transformation • Established platform for sustained growth • Extending value leadership • Delivering consistent quality • Building longer term strategic partnerships with suppliers • Enhancing the customer experience through innovation • Building best in class multi-channel capabilities
Slide 21: Home Improvement & Office Supplies
Home Improvement & Office Supplies John Gillam Managing Director 2014 Half-Year Results | 21
Slide 22: HIOS performance summary
HIOS performance summary Half-Year ended 31 December ($m) 2013 2012 % Revenue Home Improvement 4,434 4,017 10.4 Office Supplies 745 712 4.6 Total 5,179 4,729 9.5 EBIT Home Improvement 562 518 8.5 Office Supplies 42 38 10.5 Total 604 556 8.6 2014 Half-Year Results | 22
Slide 23: Home Improvement performance summary
Home Improvement performance summary Half-Year ended 31 December ($m) 2013 2012 % Revenue 4,434 4,017 10.4 EBIT 562 518 8.5 Trading EBIT margin (%) 12.6 12.8 ROC (R12 %) 27.6 25.5 Safety (R12 AIFR) 28.5 36.7 2014 Half-Year Results | 23
Slide 24: Home Improvement highlights
Home Improvement highlights • Revenue growth of 10.4% – 10.6% total store sales growth – 7.2% store-on-store growth – Positive performances in all regions & all categories – Good commercial growth • EBIT growth of 8.5% – Strong underlying trading results – New store costs in line with expectations –
Slide 25: Home Improvement highlights
Home Improvement highlights • Pleasing outcomes across all growth drivers – More customer value » Strong productivity loop traction – Better customer experiences » Good service metric trends » Deeper customer engagement – Greater brand reach » More stores, more digital, more in-home – Expanding comm
Slide 26: Home Improvement highlights
Home Improvement highlights • Brand reach accelerating – Opened 14 trading locations » 11 Bunnings Warehouse stores » Two smaller format Bunnings stores » One trade centre » 15 sites under construction at 31 December – Targeted store reinvestment » Faster take-up of best opportunities » Reinvigorati
Slide 27: Home Improvement highlights
Home Improvement highlights • “Stronger business” strategies underpin growth – Team, stock flow, productivity & community – Significant outcomes being achieved » Material gains for customers, team, suppliers, CODB & brand trust – Further benefits expected • Investment for growth continues – Capex of
Slide 28: Home Improvement outlook
Home Improvement outlook • Continued growth driven through: – More customer value – Better customer experiences – Greater brand reach – Expanding commercial – More merchandise innovation • More investment strengthening the core business – Team, stock flow, productivity & community • Faster network e
Slide 29: Office Supplies performance summary
Office Supplies performance summary Half-Year ended 31 December ($m) 2013 2012 % Revenue 745 712 4.6 EBIT 42 38 10.5 EBIT margin (%) 5.6 5.3 ROC (R12 %) 8.7 7.5 Safety (R12 AIFR) 25.8 34.6 2014 Half-Year Results | 29
Slide 30: Office Supplies highlights
Office Supplies highlights Strong earnings & ROC growth • Continued strong earnings growth & ROC expansion, up % 14 10.5% & 16.0% respectively 12 8.7 10 – Five year 1H EBIT CAGR of 10.9% 8 6.9 6 11.8 10.5 – New categories delivering sales & margin growth 4 7.8 6.3 6.3 2 – ‘Every channel’ investment
Slide 31: Office Supplies highlights
Office Supplies highlights • In-store merchandising investment – New layouts & ranges for store network » Approximately 60% of stores completed – Delivering sales & margin uplift & improved customer offer • Rapid & continuous growth in B2B market – Multi-dimensional service investment » Stores, onli
Slide 32: Office Supplies outlook
Office Supplies outlook • Continued growth driven by focus on execution of strategic initiatives – Drive “Every Channel” agenda – Improve customer offer & service – Grow revenue in B2B market – Reduce complexity & CODB – Develop & engage team 2014 Half-Year Results | 32
Slide 33: Kmart
Kmart Guy Russo Managing Director 2014 Half-Year Results | 33
Slide 34: Kmart performance summary
Kmart performance summary Half-Year ended 31 December ($m) 2013 2012 % Revenue 2,321 2,299 1.0 EBIT 260 246 5.7 EBIT margin (%) 11.2 10.7 ROC (R12 %) 26.8 22.8 Safety (R12 LTIFR) 8.0 8.6 Total sales growth1 (%) 1.7 3.5 Comparative store sales growth1 (%) 0.3 3.0 1 2013 growth reflects the 27 week pe
Slide 35: Kmart highlights
Kmart highlights • Customers continue to respond well to Kmart’s strategy of providing the lowest prices on everyday items for families – 16 consecutive quarters of growth in transactions & units sold – Ongoing benefit from the development of product ranges & pricing architecture • Growth in revenue
Slide 36: Kmart outlook
Kmart outlook • Ongoing focus on growth – Volume retailer – Operational excellence – Adaptable stores – High performance culture • Continuing investment in the store network including store refurbishment activity • Exchange rate impacts to be managed closely • Safety remains a high priority • Furthe
Slide 37: Target
Target Stuart Machin Managing Director 2014 Half-Year Results | 37
Slide 38: Target performance summary
Target performance summary Half-Year ended 31 December ($m) 2013 2012 % Revenue 1,965 2,070 (5.1) EBIT 70 148 (52.7) EBIT margin (%) 3.6 7.1 ROC (R12 %) 1.9 7.1 Safety (R12 LTIFR) 7.3 8.0 Total sales growth1 (%) (4.4) 1.2 Comparative store sales growth1 (%) (4.2) (1.8) 1 2013 growth reflects the 27
Slide 39: Target highlights
Target highlights • Challenging trading conditions ‒ High levels of winter clearance, delaying the launch of spring/summer ‒ Transition away from historical reliance on high inventory & heavy promotions • Inventory position improved • Costs of doing business tightly managed • Improvements in store s
Slide 40: Target outlook
Target outlook • Continuing transition as the business is re-engineered • Strategic priorities for the year ahead ‒ Improve store standards, service & queues ‒ Ensure availability of everyday items ‒ Reduce SKUs by one-third ‒ Strong inventory management ‒ Transition to great fashion, style & qualit
Slide 41: Insurance
Insurance Anthony Gianotti Managing Director 2014 Half-Year Results | 41
Slide 42: Insurance performance summary
Insurance performance summary Half-Year ended 31 December ($m) 2013 2012 % Revenue 1,110 1,035 7.2 EBITA Underwriting 64 72 (11.1) EBITA Broking 41 38 7.9 EBITA Other 1 0 n.m. EBITA Insurance Division 106 110 (3.6) EBITA Insurance Division (excluding EQ2)1 151 110 37.3 EBIT Insurance Division 99 104
Slide 43: Insurance highlights
Insurance highlights • Strong underlying underwriting performance – Continued improvement in underwriting performance through disciplined risk pricing, exposure management & claims efficiencies – Earned premiums continuing to benefit from rate increases in FY13 – Favourable claims experience in most
Slide 44: Insurance outlook
Insurance outlook Underwriting • Sale of underwriting operations to Insurance Australia Group expected to complete in the second quarter of calendar year 2014, subject to regulatory approvals • Retain focus on strong underwriting discipline & on operational efficiencies • GWP growth constrained as p
Slide 45: Resources
Resources Stewart Butel Managing Director 2014 Half-Year Results | 45
Slide 46: Resources performance summary
Resources performance summary Half-Year ended 31 December ($m) 2013 2012 % Revenue1 764 826 (7.5) Royalties2 (121) (148) 18.2 Mining & other costs (508) (517) 1.7 EBITDA 135 161 (16.1) Depreciation & amortisation (76) (68) (11.8) EBIT 59 93 (36.6) ROC (R12%) 7.8 19.4 Coal production (‘000 tonnes) 7,
Slide 47: Resources highlights
Resources highlights • Continued improvement in safety performance – Significant reduction in Lost Time Injury Frequency Rate (LTIFR) & Total Recordable Injury Frequency Rate (TRIFR) • Production & sales of metallurgical coal during the six months to 31 December 2013 at an annualised rate exceeding
Slide 48: Resources outlook
Resources outlook • Export markets – Global economic uncertainty continuing to result in variable short-term metallurgical coal demand • Financial Year 2014 – Forecast Curragh metallurgical coal sales of 7.5mt – 8.5mt – Estimated full-year sales mix (Hard 41%; Semi 31%; PCI 28%) – Weighted average e
Slide 49: Chemicals, Energy & Fertilisers
Chemicals, Energy & Fertilisers Tom O’Leary Managing Director 2014 Half-Year Results | 49
Slide 50: Chemicals, Energy & Fertilisers Performance summary
Chemicals, Energy & Fertilisers Performance summary Half-Year ended 31 December ($m) 2013 2012 % Revenue Chemicals 377 357 5.6 Energy1 315 300 5.0 Fertilisers 80 118 (32.2) Total 772 775 (0.4) EBITDA2 157 154 1.9 Depreciation & amortisation (47) (50) 6.0 EBIT (excl. sale of ALWA)2 Total 110 104 5.8
Slide 51: Chemicals, Energy & Fertilisers highlights
Chemicals, Energy & Fertilisers highlights • $95 million gain on sale of 40% interest in ALWA • Construction of expanded ammonium nitrate (AN) production capacity to 780,000 tonnes per annum – Commissioning under way & full operation expected, as planned, in Q4 FY14 – On track to be delivered within
Slide 52: Chemicals, Energy & Fertilisers outlook
Chemicals, Energy & Fertilisers outlook • Focus on commissioning of AN expansion & delivery of additional production volumes • Continued demand for chemical inputs in Western Australia, supporting ammonia & AN sales, & an earnings contribution following commissioning of the NA/AN3 plant support a po
Slide 53: Industrial & Safety
Industrial & Safety Olivier Chretien Managing Director 2014 Half-Year Results | 53
Slide 54: Industrial & Safety performance summary
Industrial & Safety performance summary Half-Year ended 31 December ($m) 2013 2012 % Revenue 804 837 (3.9) EBITDA 88 101 (12.9) Depreciation & amortisation (15) (13) (15.4) EBIT 73 88 (17.0) EBIT margin (%) 9.0 10.5 ROC (R12 %) 13.5 16.2 Safety (R12 TRIFR) 12.8 18.9 2014 Half-Year Results | 54
Slide 55: Industrial & Safety highlights
Industrial & Safety highlights • Customer & project activity significantly reduced across Australia – Most sectors affected, led by mining – Heightened competitive pricing pressures – New Zealand businesses & Coregas performed well • Focused business response – Operational & organisational realignme
Slide 56: Industrial & Safety outlook
Industrial & Safety outlook • Challenging business conditions expected for remainder of FY14 – Division well placed to respond to market recovery • Business streams focused on gaining market share – Aligning sales resources to support specific needs by industry – Product range & services development
Slide 57: Balance Sheet & Cash Flow
Balance Sheet & Cash Flow Terry Bowen Finance Director, Wesfarmers Limited 2014 Half-Year Results | 57
Slide 58: Other business performance summary
Other business performance summary Half-Year ended 31 December ($m) Holding % 2013 2012 % Share of profit/(loss) of associates: Gresham Private Equity Funds Various (1) (11) n.m. Gresham Partners 50 - - n.m. Wespine 50 3 3 - BWP Trust 24 16 12 33.3 Sub-total 18 4 n.m. Interest revenue 3 5 (40.0) Oth
Slide 59: Operating cash flow generation
Operating cash flow generation • NPATDA growth of 9.3% & cash $m Cash realisation % realisation of 88.5% 2,400 160 • Lower cash realisation in half driven by: 1,800 120 – January 2014 settlement of the sale of 1,200 80 the Group’s 40% interest in ALWA 600 40 – Lower working capital cash inflows from
Slide 60: Working capital management
Working capital management • Further reduction in net inventory days Half-Year ended 31 December ($m) 2013 2012 across retail portfolio supported by business Cash movement inflow/(outflow)1: growth Receivables & 91 221 • Continued working capital cash inflows from prepayments Inventory (715) (509) r
Slide 61: Disciplined capital investment
Disciplined capital investment • Continued investment in Coles & Half-Year ended 31 December ($m)1 2013 2012 % Coles 554 665 (16.7) Bunnings store networks & HI & OS 280 357 (21.6) accelerated Kmart store Target 46 51 (9.8) Kmart 89 49 81.6 refurbishment activity Insurance 15 12 25.0 • AN3 expansion
Slide 62: Property disposals increased
Property disposals increased • Recent transactions $m Property capital expenditure % 1,000 40% – Sale & leaseback of 10 Bunnings stores to BWP Trust in August 2013 realising 750 30% $176 million1 – Sale & leaseback of 15 Bunnings warehouse 500 20% properties via securitised lease transaction in Augu
Slide 63: Diversity of funding sources & risk management of debt maturities
Diversity of funding sources & risk management of debt maturities • Strategy to pre-fund maturities, diversify sourcing & extend maturity profile • $500 million medium term notes maturing in September 2014 Sources1 Other Capital Markets Bank 0% Bilaterals Domestic 18% Bonds 30% Syndicated Facilities
Slide 64: Balance sheet strength & dividend growth
Balance sheet strength & dividend growth • Continued improvement in liquidity metrics – Cash interest cover of 13.8 times (1H13: 11.8 times) – Fixed charges cover of 3.0 times (1H13: 2.9 times) • Strong credit ratings – Standard & Poor’s A- (stable) – Moody’s A3 (stable) • Interim dividend $0.85 per
Slide 65: Outlook
Outlook Richard Goyder Managing Director, Wesfarmers Limited 2014 Half-Year Results | 65
Slide 66: Outlook
Outlook Retail • Growth to be supported by continued improvements in customer proposition, range & category innovation, operational productivity & store network optimisation • Strengthened leadership team at Target focused on executing strategic plan with improvement expected over time; short-term c
Slide 67: Outlook (continued)
Outlook (continued) Industrial • Resources & Industrial & Safety: challenging near-term conditions to continue; ongoing cost reduction focus; well placed to respond to market recovery • WES CEF: short-term earnings affected by extended outage of NA/AN2 plant; positive outlook beyond this; focus on c
Slide 68: Questions
Questions 2014 Half-Year Results | 68
Slide 69: 2014 Half-Year Results | 69
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