Wesfarmers Limited · ASX:WES
Wesfarmers — H1 FY2013 Earnings Presentation
64 slides from Wesfarmers's earnings presentation, Feb 14, 2013
Slide 1: 2013 Half-Year Results Teleconference
2013 Half‐Year Results Teleconference 14 February 2013
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 21 4 Target Dene Rogers 29 5 Kmart Guy Russo 33 6 Insurance Rob Scott 37 7 Resources Stewart Butel 41 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 $30.6 billion, up 3.2% • Earnings before interest & tax of $2,043 million, up 5.5% • Finance costs of $229 million, down 13.3% • Net profit after tax (NPAT) of $1,285 million, up 9.3% • Earnings per share of $1.11, up 9.2% • Net capital expenditu
Slide 5: Group performance highlights (cont)
5 Group performance highlights (cont) • Solid retail earnings growth – Turnaround of Coles & Kmart driving strong transaction & earnings growth – Bunnings’ & Officeworks’ performance solid despite challenging housing market & deflation in technology – Positive customer response to Target’s transform
Slide 6: Group performance summary
6 Group performance summary Half Year ended 31 December ($m) 2012 2011 % Operating revenue 30,614 29,674 3.2 EBITDA 2,574 2,433 5.8 EBIT 2,043 1,937 5.5 Finance costs (229) (264) (13.3) Tax expense (529) (497) (6.4) Net profit after tax (pre-NTIs)1 1,285 1,203 6.8 Net profit after tax 1,285 1,176 9.
Slide 7: Strength through diversified earnings
7 Strength through diversified earnings Divisional EBIT (1H FY13, $m) Percentage of Half Year ended 2012 2011 % Divisional EBIT 31 December ($m) Insurance Insurance 5%; Coles 755 656 15.1 2,000 (1H12: 1%) WIS Home Improvement 518 485 6.8 WES CEF Industrial 14%; (1H12: 22%) Resources Office Supplies
Slide 8: Return on Capital
8 Return on Capital • Focus on return on capital to deliver satisfactory shareholder returns 2012 2011 Rolling 12 months to 31 December EBIT Cap Emp ROC ROC A$m A$m % % Coles 1,455 15,886 9.2 8.2 Home Improvement 875 3,431 25.5 27.0 Office Supplies 89 1,182 7.5 6.9 Target 206 2,914 7.1 8.9 Kmart 317
Slide 9: Strategic growth initiatives
9 Strategic growth initiatives Retail • Coles: invest in value, quality, & innovation; drive further productivity gains; invest in store network & multi-channel; improve the performance of Liquor; reinvigorate the Coles Express store offer • HIOS: invest in value, service, new categories & network e
Slide 10: Strategic growth initiatives (cont)
10 Strategic growth initiatives (cont) Industrials • Resources: continue to focus on sustainable cost reduction initiatives & resource optimisation • WES CEF: progress $550 million ammonium nitrate expansion & sodium cyanide debottlenecking; drive continuous improvement across businesses • WIS: furt
Slide 11: Coles
Coles Ian McLeod Managing Director
Slide 12: Coles performance summary
Coles 12 Coles performance summary Half-Year ended 31 December ($m) 2012 2011 % % Coles Division Revenue 18,047 17,218 4.8 EBIT 755 656 15.1 ROC (R12 %) 9.2 8.2 Safety (LTIFR YTD) 10.2 11.8 Food & Liquor Revenue1 14,104 13,435 5.0 Total store sales growth %2,3 5.0 4.9 Comp store sales growth %2,3 3.
Slide 13: Profit growth faster than sales
Coles 13 Profit growth faster than sales • Four years of market 30% Division Revenue & EBIT growth outperformance 25% 20% EBIT – Strong underlying volume growth 15% – Record transaction numbers of 10% 21 million in Christmas week 5% Revenue 0% • Strong ROC improvement over 1H09 2H09 1H10 2H10 1H11 2
Slide 14: Strategy driving strong half year results
Coles 14 Strategy driving strong half year results Driving the Coles • Strength in depth – senior & middle management Difference • Growing talent pipeline – retail leaders & graduate programs • Category management – driving end-to-end ways of working • State-based pricing & Down Down investment impr
Slide 15: Value, quality & innovation
Coles 15 Value, quality & innovation • Increasing customer trust in Coles 8.0% Food price inflation value driving volume growth 6.0% 4.0% – State-based pricing in place for three 2.0% years 0.0% -2.0% – Two years of Down Down supporting ABS Food -4.0% price deflation Coles F&L -6.0% Q1 Q3 Q1 Q3 Q1 Q
Slide 16: Productivity savings to reinvest
Coles 16 Productivity savings to reinvest R12 Overall DC work rate • Optimising our supply chain Index (cartons processed per hour) 120 – Consolidated chilled & fresh 115 produce DCs 110 – Process optimisation in our DCs 105 100 – Greater control & visibility over our 95 transportation network Q1 10
Slide 17: Growth across all channels
Coles 17 Growth across all channels • Store development initiatives m2 (000) Optimising network space (16) progressing well 19 1,640 1,650 227 1,550 (140) 1,550 – 1.8% increase in selling area in last 12 months 1,450 – Three new superstores in H1 FY13 1,350 1,250 – New fresh format in Southland, 30
Slide 18: Strong Liquor half-year performance
Coles 18 Strong Liquor half-year performance • Accelerated network restructure # stores Restructuring store network 60 – Strong space growth of 3.5% 40 10 8 36 8 12 33 6 20 11 – Trialling small & large format stores 20 17 27 20 - (19) (13) (21) • More profitable sales mix (24) (28) (20) (34) (6) (40
Slide 19: Reinvigorating the offer
Coles 19 Reinvigorating the offer • Encouraging growth in fuel volume – Quality fuels & discount offers building loyalty – Investment in high flow diesel pumps • Reinvigorating shop sales – Extension of Down Down to milk & bread – Stronger shop offers • Successful IT platform replacement – Enhanced
Slide 20: Second phase of transformation
Coles 20 Second phase of transformation Driving the Coles Second phase 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 custom
Slide 21: Home Improvement & Office Supplies
Home Improvement & Office Supplies John Gillam Managing Director
Slide 22: HIOS performance summary
Home Improvement & 22 Office Supplies HIOS performance summary Half-Year ended 31 December ($m) 2012 2011 % Revenue Home Improvement 4,017 3,797 5.8 Office Supplies 712 710 0.3 4,729 4,507 4.9 EBIT Home Improvement 518 485 6.8 Office Supplies 38 34 11.8 556 519 7.1
Slide 23: Home Improvement performance summary
Home Improvement Home Improvement & Office Supplies 23 Performance summary Half-Year ended 31 December ($m) 2012 2011 % Revenue 4,017 3,797 5.8 Trading Revenue 4,012 3,792 5.8 (excl. property & non-trading items) EBIT 518 485 6.8 Trading EBIT margin (%) 12.8 12.7 Net property contribution 5 3 ROC (R
Slide 24: Home Improvement highlights
Home Improvement & 24 Office Supplies Home Improvement highlights • Revenue growth of 5.8% – 6.0% total store sales growth (store-on-store growth of 3.4%) – 8.1% lift in commercial sales • EBIT growth of 6.8% • Good outcomes in key growth drivers – service, merchandising, commercial, value & product
Slide 25: Home Improvement outlook
Home Improvement & 25 Office Supplies Home Improvement outlook • Further growth in consumer & commercial driven by: − Value − More enhancements to service & services − New categories & merchandising − Productivity improvements − Strong network investment – Pipeline of over 90 sites – Exceeding wareh
Slide 26: Office Supplies performance summary
Office Supplies Home Improvement & Office Supplies 26 Performance summary Half-Year ended 31 December ($m) 2012 2011 % Revenue 712 710 0.3 EBIT 38 34 11.8 EBIT margin (%) 5.3 4.8 ROC (R12 %) 7.5 6.9 Safety (R12 AIFR) 34.6 39.3
Slide 27: Office Supplies highlights
Home Improvement & 27 Office Supplies Office Supplies highlights • Modest sales growth in a challenging environment – Sales up 0.3% – Store sales flat; strong online sales growth • Strong earnings growth with improved margin performance • Good merchandising & productivity work • Continuing to build
Slide 28: Office Supplies outlook
Home Improvement & 28 Office Supplies Office Supplies outlook • Modest sales growth – Continued competitive pressure on sales & margin • Focus on execution of strategic initiatives – Drive “Every Channel” agenda – Improve customer offer & service – Grow business market presence & capability – Reduce
Slide 29: Target
Target Dene Rogers Managing Director
Slide 30: Target performance summary
Target 30 Target performance summary Half-Year ended 31 December ($m) 2012 2011 % Revenue 2,070 2,060 0.5 EBIT 148 186 (20.4) EBIT margin (%) 7.1 9.0 ROC (R12 %) 7.1 8.9 Safety (R12 LTIFR) 8.3 7.9 Total sales growth1 (%) 1.2 (2.5) Comparative store sales growth1(%) (1.8) (3.5) 1 2012 for the 27 week
Slide 31: Target highlights
Target 31 Target highlights • Encouraging improvement in trading performance – Better sourcing & improved promotional effectiveness • Target’s mid-tier positioning strengthened – Positive customer response to Target Essentials – Successful pilots conducted in a number of key categories – Reinforced
Slide 32: Target outlook
Target 32 Target outlook • Customer remains first priority in all decision making – Utilising customer insights & delivering on customer value & trust – Continued focus on strengthening mid-tier position • Continuing improvement in business economics – Roll out of learnings from successful category
Slide 33: Kmart
Kmart Guy Russo Managing Director
Slide 34: Kmart performance summary
Kmart 34 Kmart performance summary Half-Year ended 31 December ($m) 2012 2011 % Revenue 2,299 2,236 2.8 EBIT1 246 197 24.9 EBIT margin (%) 10.7 8.8 ROC (R12 %) 22.5 15.9 Safety (R12 LTIFR) 8.6 8.2 Total sales growth2 (%) 3.5 (1.3) Comparative store sales growth2 (%) 3.0 (1.4) 1 Includes $1 million e
Slide 35: Kmart highlights
Kmart 35 Kmart highlights • Customers continue to respond well to Kmart’s strategy of providing the lowest prices on everyday items for families – 12 consecutive quarters of growth in transactions & units sold – Strong performance of seasonal & everyday core ranges • Solid return on capital & double
Slide 36: Kmart outlook
Kmart 36 Kmart outlook • Increasing focus on growth – Volume retailer – Operational excellence – Adaptable stores – High performance culture • Safety remains a high priority • Continued investment in the store network
Slide 37: Insurance
Insurance Rob Scott Managing Director
Slide 38: Insurance performance summary
Insurance 38 Insurance performance summary Half-Year ended 31 December ($m) 2012 2011 Total Revenue 1,035 945 9.5 EBITA Underwriting 72 (10) n.m. EBITA Broking 38 35 8.6 EBITA Other 0 (2) n.m. EBITA Insurance Division 110 23 378.3 EBIT Insurance Division 104 17 511.8 EBIT Margin (Insurance Division)
Slide 39: Insurance highlights
Insurance 39 Insurance highlights • Strong Underwriting performance – Good momentum in underwriting performance with improved loss ratios through better risk pricing, exposure management & claims efficiencies – Higher earned premiums resulting from changes to reinsurance arrangements & the flow thro
Slide 40: Insurance outlook
Insurance 40 Insurance outlook • Underwriting performance continues to improve, benefiting from strong underwriting discipline & a focus on operational efficiencies • Continued expansion in Australian personal lines – Partnerships with Coles Insurance & OAMPS • Modest growth in Broking earnings – Ch
Slide 41: Resources
Resources Stewart Butel Managing Director
Slide 42: Resources performance summary
Resources 42 Resources performance summary Half-Year ended 31 December ($m) 2012 20111 % Revenue 826 1,087 (24.0) Royalties2 (148) (162) 8.6 Mining & other costs (517) (602) 14.1 EBITDA 161 323 (50.2) Depreciation & amortisation (68) (73) 6.8 EBIT2 93 250 (62.8) ROC (R12%) 19.4 25.4 Coal production
Slide 43: Resources highlights
Resources 43 Resources highlights • Continued improvement in safety performance • Lower export prices & continued high US$:A$ exchange rate resulted in a significant decline in export revenue • Increased production volumes driven by recent mine expansions – Curragh production up 24.2% to 5,529kt – B
Slide 44: Resources outlook
Resources 44 Resources outlook • Export market – Global economic uncertainty resulting in variable metallurgical coal demand in the short term – Continued low export coal prices & high exchange rate expected in 2H FY13 • Financial Year 2013 – Forecast Curragh metallurgical coal sales of 7.5mt – 8.0m
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 ($m) 2012 2011 % Revenue Chemicals 357 358 (0.3) Energy1 300 295 1.7 Fertilisers 118 122 (3.3) 775 775 0.0 EBITDA2 154 144 6.9 Depreciation & amortisation (50) (45) (11.1) EBIT2 104 99
Slide 47: Chemicals, Energy & Fertilisers Highlights
Chemicals, Energy & Fertilisers Chemicals, Energy & Fertilisers 47 Highlights • Construction progressing well to expand ammonium nitrate (AN) production capacity from 520ktpa to 780ktpa – On track to be operational during 1H CY14 & within budget • Higher Chemicals earnings driven by good plant perfo
Slide 48: Chemicals, Energy & Fertilisers Outlook
Chemicals, Energy & Fertilisers Chemicals, Energy & Fertilisers 48 Outlook • Continued focus on delivery of AN expansion & SC debottlenecking projects • Chemicals expected to continue to drive good earnings performance with strong demand & production – AN plant shutdown now expected to occur in earl
Slide 49: Industrial & Safety
Industrial & Safety Olivier Chretien Managing Director
Slide 50: Industrial & Safety Performance summary
Industrial & Safety Industrial & Safety 50 Performance summary Half-Year ended 31 December ($m) 2012 2011 % Revenue 837 843 (0.7) EBITDA 101 111 (9.0) Depreciation & amortisation (13) (14) 7.1 EBIT 88 97 (9.3) EBIT margin (%) 10.5 11.5 ROC (R12 %) 16.1 14.5 Safety (R12 LTIFR) 2.1 1.9
Slide 51: Industrial & Safety highlights
Industrial & Safety 51 Industrial & Safety highlights • General slowdown in business activity – Resources & construction led with customer focus on cost control affecting margins – Strong customer retention across group with growth continuing in WA (natural gas projects), Bullivants, Coregas & NZ •
Slide 52: Industrial & Safety outlook
Industrial & Safety 52 Industrial & Safety outlook • Subdued business activity expected to continue for remainder of FY13 – Market will remain competitive – Division well placed to respond to earlier recovery • Business focus on market share growth & efficiency – Target greater share of customer spe
Slide 53: Other Business & Capital Management
Other Business & Capital Management Terry Bowen Finance Director, Wesfarmers Limited
Slide 54: Other business performance summary
54 Other business performance summary Holding Half-Year ended 31 December ($m) 2012 2011 % % Share of profit/(loss) of associates: Gresham Private Equity Funds Various (11) (46) 76.1 Gresham Partners 50 - 3 n.m. Wespine 50 3 5 (40.0) BWP Trust 24 12 7 71.4 Sub-total 4 (31) n.m. Interest revenue 5 11
Slide 55: Portfolio of strong cash generating assets
55 Portfolio of strong cash generating assets • Solid first half operating cash flow of $2,207 million • Strong cash realisation maintained through effective working capital management $m % 2,500 200 2,000 160 1,500 120 1,000 80 500 40 0 0 1H FY09 1H FY10 1H FY11 1H FY12 1H FY13 NPATDA (1) Operating
Slide 56: Working capital management
56 Working capital management • Operating cash flow growth supported Cash Movement ($m) Half-Year ended 31 Dec. 1 by working capital improvements Inflow/(Outflow) 2012 2011 Receivables 221 (183) • Working capital seasonality Inventory (509) (374) – Retail divisions’ inventory build offset by Payable
Slide 57: Strong investment in organic growth
57 Strong investment in organic growth • Continued strong investment in Half Year ended 31 2012 2011 % Coles & Bunnings store networks December ($m)1 Coles 665 625 6.4 HI & OS 342 • AN3 expansion well progressed & 357 4.4 Target 51 44 15.9 on track to be completed within Kmart 49 88 (44.3) budget In
Slide 58: Balance sheet strength & dividend growth
58 Balance sheet strength & dividend growth • Solid improvements in liquidity metrics – Fixed charges cover improved to 2.9 times (1H12: 2.7 times) – Cash interest cover improved to 11.8 times (1H12: 10.3 times) • Strong credit ratings – Moody’s upgraded from Baa1 (positive) to A3 (stable) – Standar
Slide 59: Average debt tenor of 3.4 years across diversified sources of debt
Average debt tenor of 3.4 years across 59 diversified sources of debt 2% $m 2,000 7% 1,000 25% 18% 0 (1,000) 22% 26% (2,000) FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 Bank Bilaterals Capital Markets Syndicated Facility Cash Bank Bilaterals Syndicated facilities US Bonds Euro Bond Aust B
Slide 60: Outlook
Outlook Richard Goyder Managing Director, Wesfarmers Limited
Slide 61: Outlook
61 Outlook Retail • Sustained earnings growth to be supported by continued investments in value, merchandising, service, store network, online channel & productivity initiatives Insurance • Strong underwriting disciplines & a focus on operational efficiencies expected to further improve underwriting
Slide 62: Outlook
62 Outlook Chemicals, Energy & Fertilisers • Solid demand for chemicals expected to continue, supported by good plant performances • Kleenheat Gas outlook remains challenging Industrial & Safety • Subdued demand & competitive market conditions expected to continue in the near term • Division well pl
Slide 63: Questions
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Slide 64: For all the latest news visit www.wesfarmers.com.au
For all the latest news visit www.wesfarmers.com.au