Wesfarmers Limited · ASX:WES
Wesfarmers — Merger or Acquisition (October 2018)
53 slides from Wesfarmers's merger presentation, Oct 5, 2018
Slide 1: Demerger of Coles – Briefing presentation
Demerger of Coles – Briefing presentation Friday, 5 October 2018
Slide 2: Demerger overview
Demerger overview Creation of a new top 30 ASX company with leading positions in grocery, liquor & convenience Overview Post-demerger • Coles to be demerged into a separate ASX-listed company Wesfarmers shareholders • Shareholders will receive 1 Coles share for every share held in Wesfarmers – Expec
Slide 3: Demerger rationale
Demerger rationale Repositioning Wesfarmers & Coles for the next decade Divisional capital employed contribution • Enhancing Wesfarmers’ returns by shifting (R12 Jun 18) investment weighting & focus towards businesses Rest of portfolio Coles with higher future earnings growth prospects 36% 35% 64% 6
Slide 4: Demerger impact
Demerger impact Wesfarmers’ balance sheet will remain strong, preserving the ability to act opportunistically & to invest in organic growth opportunities Pro forma for demerger1 Current Wesfarmers Wesfarmers Coles FY18 Revenue2 ($b) 66.9 27.5 39.3 FY18 EBIT3 ($b) 4.4 3.0 1.4 FY18 Operating cash flow
Slide 5: Wesfarmers platforms for future growth
Wesfarmers platforms for future growth Proven operating model underpinned by disciplined capital allocation & divisional autonomy 1 2 Portfolio of strong businesses with leading Adjacent opportunities positions in their respective markets Framework & incentives to encourage entrepreneurial initiativ
Slide 6: Summary & next steps
Summary & next steps Positioning Wesfarmers & Coles for the next decade • Demerger is the optimal structure to deliver Wesfarmers shareholders investments in two listed companies with different investment attributes • Wesfarmers is committed to ensuring Coles is set up with a strong foundation for s
Slide 7: Wesfarmers post-demerger
Wesfarmers post-demerger
Slide 8: Wesfarmers post-demerger
Wesfarmers post-demerger Wesfarmers’ objective of providing a satisfactory return to shareholders will remain unchanged • Following repositioning of the portfolio, Total shareholder return1 Wesfarmers is well placed to deliver sustainable TSR Index growth in earnings & improved shareholder (Sept 200
Slide 9: Wesfarmers portfolio post-demerger
Wesfarmers portfolio post-demerger Four divisions with leading market positions, strong growth prospects & high returns on capital Department Bunnings Industrials Officeworks Other Stores • Leading retailer of • Kmart: a leading • Diversified portfolio • Leading retailer & • 15% ownership home impro
Slide 10: Wesfarmers pro forma financials
Wesfarmers pro forma financials A top 20 ASX company focused on earnings growth, disciplined capital allocation & strong cash generation to support returns to shareholders Revenue EBIT1 $m $m 28,000 3,500 3,000 26,000 2,500 24,000 2,000 22,000 1,500 20,000 1,000 FY16 FY17 FY18 FY16 FY17 FY18 Operati
Slide 11: Wesfarmers
0s Wesfarmers
Slide 12: Coles Group Limited
Coles Group Limited 5 October 2018
Slide 13: Disclaimer
Disclaimer SUMMARY INFORMATION This presentation contains summary information about Coles Group Limited (Coles) and its activities current as at 3 October 2018. The information in this presentation is of a general background nature and does not purport to be complete. It should be read in conjunctio
Slide 14: Presenting today
Presenting today Steven Cain Leah Weckert Managing Director and CEO Chief Financial Officer Over 20 years of Australian and international retail experience Over 16 years of finance, commercial and strategy experience Recently re-joined Coles. Prior roles include: 7 years at Coles in various
Slide 15: Contents
Contents 01 Coles Divideroverview title goes here 3 4 02 Investment Divider title highlights goes here 8 7 03 Financial overview 24 A Supporting material 31 B Risk factors 37 3
Slide 16: Coles overview
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Slide 17: Coles overview
Coles overview Coles is an iconic Australian business which has been operating for more than 100 years and has been autonomously run within the Wesfarmers portfolio for the last decade Est. 1914 ~2,500 112,000 first supermarket opened in stores team members 1960 $39bn FY18PF revenue 43 >21 million $
Slide 18: Portfolio of market leading businesses
Portfolio of market leading businesses Coles maintains a diverse portfolio of brands across four divisions Supermarkets Liquor Convenience Other Divisional A leading Australian Three major national National fuel supply 50% interest in flybuys, summary full-service supermarket brands, each wi
Slide 19: Investment highlights
02 Investment highlights 7
Slide 20: Investment highlights
Investment highlights #1 Coles operates in resilient and growing markets #2 Demonstrated ability to maintain a leading market position in an evolving competitive landscape #3 Established, non-replicable national store network #4 Customer-led strategy will drive customer experience and shareholder re
Slide 21: Coles operates in resilient and growing markets
#1 Coles operates in resilient and growing markets Coles’ core markets have highly defensive attributes Australian grocery and liquor retail sales1 Australian macroeconomic conditions over time 140 Grocery sales 6% Population growth 12% Liquor retail sales GDP growth (QoQ) GDP / population growth (%
Slide 22: Demonstrated ability to maintain a leading market position
Demonstrated ability to maintain a leading market position in an #2 evolving competitive landscape Coles has demonstrated its ability to maintain and modestly grow its market share Grocery market share trend 40% Woolworths Over time, combined market share of (38%) Coles and Woolworths has remained
Slide 23: Established, non-replicable national store network
#3 Established, non-replicable national store network Coles’ extensive store network provides a key competitive advantage Extensive store portfolio — Approximately 2,500 sites nationally — Significant scale and market position in all states and territories NT Non-replicable access to the Austral
Slide 24: Customer-led strategy: Supermarkets
Customer-led strategy will drive customer experience and #4 shareholder returns: Supermarkets Coles recently unveiled its ‘Fresh Tomorrow’ strategy, which builds on its prior customer-led strategy and aims to deliver strong returns for shareholders How we will measure success: Customer satisfaction
Slide 25: Transform food offer
Transform food offer Coles will continue to improve the product offer in fresh departments, drive innovation in Own Brand and develop strong supplier relationships Destination for Fresh Own Brand powerhouse Partnering with our suppliers Drive Fresh sales and market share Deliver brands and produ
Slide 26: Move towards Everyday Low Prices
Move towards Everyday Low Prices Coles will maintain its unwavering commitment to providing trusted value to customers on products that matter most Products on EDLP (% SKUs) Coles will continue to invest in price, having delivered nine 18% consecutive years of price deflation 17% 16% 15% 16% Mor
Slide 27: Offer anytime, anywhere shopping
Offer anytime, anywhere shopping Ongoing investment in technological innovation to execute an omni-channel strategy and meet changing customer needs Coles Online sales and growth Coles Online shopping experience Changing customer preferences Coles is committed to offering customers a suite of conven
Slide 28: Land the right offer in every location
Land the right offer in every location Coles is reinventing the in-store customer and brand experience, and tailoring stores to the shopping missions of local customers by continuing to reinvest in its store network Coles store numbers and sales density Store tailoring 1,200 26% increase in Superm
Slide 29: Reduce costs
Reduce costs Coles’ partnership with Witron is expected to transform its supply chain and deliver significant productivity benefits • Coles has entered into a Heads of Agreement with Witron Australia, a subsidiary of Witron Logistik + Informatik GmbH (Witron), to develop two new automated ambient di
Slide 30: Win together
Win together Coles will continue to engage with team members, customers and communities Coles’ sustainability commitments for the future Safety part of our DNA 90% of all waste Halve food waste in — Target zero diverted from landfill Coles supermarkets — Mind your health by 2022 by 2020 Building
Slide 31: Customer-led strategy: Liquor
Customer-led strategy will drive customer experience and #4 shareholder returns: Liquor The liquor transformation continues to progress, with continuing positive sales momentum and significant opportunities to drive growth FY16-18 pro forma revenue ($m) Business update FY16-18 CAGR: 2.3% 3,314 Pos
Slide 32: Customer-led strategy: Convenience
Customer-led strategy will drive customer experience and #4 shareholder returns: Convenience Convenience is delivering strong growth in store sales, helping to offset lower fuel volumes FY16-18 Convenience store sales growth (%) Business update 15.0 % Improved comparable store sales momentum — Dou
Slide 33: Customer-led strategy: flybuys
Customer-led strategy will drive customer experience and #4 shareholder returns: flybuys Coles will continue to work in partnership with flybuys to deliver value, build relationships and drive loyalty with its customers Australia’s most popular loyalty program flybuys aims to deliver better value
Slide 34: Highly experienced management team in place to execute Coles' strategy
Highly experienced management team in place to execute #5 Coles’ strategy Leadership team supporting Steven combines broad global experience across the retail sector with deep Coles expertise Steven Cain Managing Director and CEO 20+ years in retail Leah Weckert David Brewster Daniella Pereira Matth
Slide 35: Strong cash generation, attractive dividend payout ratio and robust balance sheet
Strong cash generation, attractive dividend payout ratio and robust #6 balance sheet Coles’ strong cash generation underpins its 80-90% target dividend payout ratio, with a balance sheet set up to support a strong investment grade credit profile Cash generation ($m) Capital structure and facilities
Slide 36: Financial overview
03 Financial overview 24
Slide 37: Coles financial performance
Coles financial performance Coles has recorded 43 quarters of consecutive like-for-like food and liquor sales growth, is experiencing increasing sales momentum and has returned to earnings growth in 2H18 Like-for-like food and liquor sales growth (%) Earnings performance 8.0% 2H17 versus 2H18 EBIT (
Slide 38: Coles divisional financial performance
Coles divisional financial performance Coles is comprised of its Supermarkets, Liquor and Convenience businesses Pro forma divisional revenue breakdown ($m) Key commentary 25 39,155 16 39,125 13 39,288 Supermarkets 6,678 6,133 5,761 Moderate revenue growth due to increased levels of competition 3,
Slide 39: Coles balance sheet and debt management
Coles balance sheet and debt management Post-separation, Coles will maintain its disciplined capital management Debt facility maturity profile ($m) Pro forma gross debt of $1,905 million as at 30-June-2018 2,540 — Bilateral bank facilities totalling $4 billion — Revolving multi option and term loa
Slide 40: Coles capital expenditure and network investment
Coles capital expenditure and network investment Coles has a history of disciplined capital allocation Capital expenditure³ ($m) History of disciplined capital allocation — Focused on ROC & sales density metrics 763 811 762 — Data-led approach to store ranging & layout (customer insights, flybuys
Slide 41: Investment highlights
Investment highlights #1 Coles operates in resilient and growing markets #2 Demonstrated ability to maintain a leading market position in an evolving competitive landscape #3 Established, non-replicable national store network #4 Customer-led strategy will drive customer experience and shareholder re
Slide 42: Q&A
Q&A
Slide 43: Appendix A: Supporting material
A APPENDIX Supporting material 31
Slide 44: Supermarket industry
Supermarket industry The Australian supermarket and grocery industry recorded sales of over $100bn in FY18 (CAGR of 6.2% from Jun-85 – Jun-18 through macroeconomic cycles) Approximately 1,900 distinct retailing businesses in Australia, with the two largest players (Coles and Woolworths) holding
Slide 45: Case study: W.A. economic downturn
Case study: W.A. economic downturn Western Australia grocery and liquor retail sales¹ Commentary The economy of Western Australia (WA) 16 Grocery and liquor retail sales 11.0% is highly leveraged to mineral resources CAGR of 4.0% since 1985 and oil and gas exploration and production sectors Foll
Slide 46: Coles pro forma historical balance sheet and cash flows
Coles pro forma historical balance sheet and cash flows Coles pro forma historical balance sheet Coles pro forma historical cash flows $m 30-Jun-18 $m 30-Jun-18 $m 30-Jun-16 30-Jun-17 30-Jun-18 Current assets Current liabilities Pro forma historical EBIT 1,779 1,522 1,414 Cash & cash equivalents 325
Slide 47: Coles Board (1/2)
Coles Board (1/2) James has extensive corporate and governance experience, including as a Non-Executive Director of Wesfarmers from 1998 to June 2018. James is Chairman of Gresham Partners Limited, having founded the Gresham Partners Group in 1985. From 2001 to 2009, he was a director of Rabobank Au
Slide 48: Coles Board (2/2)
Coles Board (2/2) Abi is currently a director of Computershare Limited (appointed 2018), Sydney Airport Corporation Ltd (appointed 2018) and Orora Ltd (appointed 2014). Abi is also a director of Swimming Australia and Chairman of Planwise Australia. Abi’s previous board appointments include Australi
Slide 49: Appendix B: Risk factors
B APPENDIX Risk factors 37
Slide 50: Risk factors associated with an investment in Coles Group
Risk factors associated with an investment in Coles Group EXISTING BUSINESS RISKS This section outlines a number of risks that may affect the Coles Group following the Demerger. The risks set out in this section may adversely affect the future operating or financial performance or prospects of the C
Slide 51: Risk factors associated with an investment in Coles Group (cont'd)
Risk factors associated with an investment in Coles Group (cont’d) (f) Supplier relationships risk Across its supermarket, liquor and convenience businesses, Coles has a number of key strategic supplier relationships. The relationships Coles has with these suppliers are subject to certain risks, whi
Slide 52: Risk factors associated with an investment in Coles Group (cont'd)
Risk factors associated with an investment in Coles Group (cont’d) Regulatory Coles is subject to a wide range of laws and regulations in key areas such as planning and environment regulation, packaging and labelling regulation, regulation of the transportation, handling, storage and distribution of
Slide 53: Risk factors associated with an investment in Coles Group (cont'd)
Risk factors associated with an investment in Coles Group (cont’d) GENERAL RISKS This section outlines a number of general risks, many of which are faced by most companies, which may adversely affect the future operating or financial performance of Coles or the investment returns or value of Coles S