Wesfarmers Limited · ASX:WES
Wesfarmers — Merger or Acquisition (January 2016)
49 slides from Wesfarmers's merger presentation, Jan 18, 2016
Slide 1: Agreement to acquire UK home improvement & garden retailer Homebase
For personal use only Agreement to acquire UK home improvement & garden retailer Homebase 18 January 2016
Slide 2: Acquisition overview & rationale
Acquisition overview & rationale Acquisition overview For personal use only • Acquisition of 100 per cent of Home Retail Group plc’s holding in Homebase for £340 million (A$705 million)¹ • Unanimously supported by Home Retail Group Board; Offer provides execution certainty & an attractive cash consi
Slide 3: Attractive market entry opportunity: UK home improvement & garden market
Attractive market entry opportunity UK home improvement & garden market Market size For personal use only Market overview • Market size estimated to be £38 billion1 (consumer & trade) £38b¹ 1.6x • Highly fragmented with top two players having < 15% market share £38b1 £23b² £23b¹ competing across a v
Slide 4: Established store network with opportunity to expand
Attractive market entry opportunity Established store network with opportunity to expand • Established network with strong representation in high population density areas For personal use only – Provides scalable platform for future growth – Currently with 265 stores: similar store numbers to Bunnin
Slide 5: Acquiring right sized stores with proven capability
Attractive market entry opportunity Acquiring right sized stores with proven capability to operate similar sized stores For personal use only • Average store size of 4,500m2 (including • Format flexibility a core strength (inner 1,000m2 of nursery & landscape) urban, small & large, multi level) • We
Slide 6: Performance improvement opportunity
Attractive market entry opportunity Performance improvement opportunity For personal use only • Recent earnings improvement: EBIT of £26 million (A$52 million)¹ for 12 months to 29 August 2015, up 35% • Sites capable of significantly higher volumes • Ability to leverage platform & fixed cost base –
Slide 7: Earnings performance improvement opportunity
Attractive market entry opportunity Earnings performance improvement opportunity For personal use only Premium pricing LOWEST PRICES Everyday Lowest Prices High-low promotional activity Limited range authority Widest range Home brand focus World leading brands WIDEST RANGE Home furnishing & consumer
Slide 8: Post acquisition implementation: improvement plans & investment
Post acquisition implementation Improvement plans & investment For personal use only Phase 1 Phase 2 Phase 3 • Combine essential local • Retail basics focus elements with best of Bunnings • Invest in team to build new business • Invest in core business • Warehouse format activities • Lowest prices,
Slide 9: Improvement plans & investment: Phase 1
Post acquisition implementation Improvement plans & investment For personal use only Phase 1 • Retail basics focus • Invest in team • Invest in core business activities • Develop pilots for Bunnings Warehouse First 12 months 9
Slide 10: Improvement plans & investment: Phase 2
Post acquisition implementation Improvement plans & investment For personal use only Phase 2 • Combine essential local elements with best of Bunnings to build new business • Warehouse format • Lowest prices, wider choice with trusted brands, great service • Easy to get to with hours to suit all cust
Slide 11: Improvement plans & investment: Phase 3
Post acquisition implementation Improvement plans & investment For personal use only Phase 3 5 years plus 11
Slide 12: Execution capability
Execution capability Long-term growth through investment & new market entry For personal use only 12
Slide 13: Bunnings has demonstrated performance over the long-term
Execution capability Bunnings has demonstrated performance over the long-term For personal use only • Strong track record of investment, returns & growth over the long-term - Compound sales growth of 16.1% per annum (20 years to FY15) - Compound EBIT growth of 20.3% per annum (20 years to FY15) • Bu
Slide 14: Bunnings has achieved long-term growth & sustainable returns
Execution capability Bunnings has achieved long-term growth & sustainable returns For personal use only • Strong track record of investment, returns & growth over the long-term - A$3.3b capital expenditure investment over five years to 30 June 2015 - Return on capital of 33% (R12) at 30 June 2015 14
Slide 15: Management structure & governance
Bunnings post acquisition Management structure & governance For personal use only • Bunnings run by John Gillam as Chief Executive Officer • Locally focused management & operations tailored to market – Bunnings Australia & New Zealand – Mike Schneider: Managing Director – Clive Duncan: Chief Operati
Slide 16: Transaction benefits, economics & timing
Transaction benefits, economics & timing For personal use only • Due to early transformation activity, initial immaterial effect on Wesfarmers’ EPS & ROE; EPS & ROE progressively accretive (third year post acquisition) reflecting long-term growth prospects • Transaction & subsequent Bunnings UK & Ir
Slide 17: For personal use only
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Slide 18: Supplementary Information
Supplementary Information For personal use only
Slide 19: Contents
Contents For personal use only 1. Background on Wesfarmers 2. Overview of Australian & New Zealand Home Improvement & Outdoor Living market 3. Background on Bunnings 19
Slide 20: Background on Wesfarmers
Background on Wesfarmers For personal use only
Slide 21: The Wesfarmers Way
The Wesfarmers Way For personal use only Satisfactory return to Value creating Growth Core shareholders strategies enablers values Our Value creating Growth Core objective strategies enablers values To provide a satisfactory return Strengthen existing Outstanding people Integrity to shareholders bus
Slide 22: Wesfarmers operating model
Wesfarmers operating model For personal use only OUTPUTS Superior long-term financial performance Above market TSR over the medium-to-long term A most-admired company Superior reputation among customers, employees, suppliers and the community Portfolio of Value-adding quality businesses transactions
Slide 23: Strong corporate infrastructure
Strong corporate infrastructure For personal use only Strong corporate infrastructure Wesfarmers’ core values underpin key corporate systems, processes & initiatives: • Lean corporate office • Divisional Boards • Group-wide planning, budgeting & monitoring processes • Executive talent development &
Slide 24: Disciplined approach to delivering long-term shareholder returns
Disciplined approach to delivering long-term shareholder returns For personal use only Cash flow generation Balance sheet strength • Risk management of maturities • Drive long-term earnings growth • Diversify funding sources • Manage working capital effectively • Optimise funding costs • Strong capi
Slide 25: Value creating business model
Value creating business model Opportunity identification & investment approach For personal use only Opportunity identification Investment approach • Capacity to act through strong balance sheet & focus on cash flow • Flexibility through alternate ownership models (e.g. minority interest, full contr
Slide 26: Earnings supported by organic investment & acquisition activity
Earnings supported by organic investment & acquisition activity For personal use only Investment for growth Acquisition activity $m EBIT ($m) Gross Capex 5,000 3,000 Divestments Depreciation & Amortisation Acquisitions Pre-2001 businesses 2,500 4,000 2,000 3,000 1,500 2,000 1,000 1,000 500 0 0 FY09
Slide 27: History of value adding transactions
History of value adding transactions For personal use only Group transaction activity (inflation adjusted transaction size) Coles Group Acquisitions Howard Smith Quadrant IAMA Energy Bengalla Aust Lumley Coregas Bunnings Finance Workwear deposit Railroad Aust & OAMPS Group Group Western NZ Australia
Slide 28: Superior long-term financial performance
Superior long-term financial performance For personal use only Key statistics¹ Total Shareholder Return³ Share price A$/share 39.32 TSR Index TSR since November 1984: 35,000 Wesfarmers: 20.1% (CAGR) All Ordinaries Accumulation Index: 10.9% (CAGR) Market capitalisation A$m 44,279 30,000 Net debt² A$m
Slide 29: Strength through diversified earnings
Strength through diversified earnings Percentage of divisional For personal use only EBIT ($m) EBIT growth 2015 2014 % EBIT FY15 Year ended 30 June Food, liquor & petrol retailing 1,783 1,672 6.6 +$111m Coles 1,783 1,672 6.6 46% FY14 FY15 Home Improvement & Office 1,206 1,082 11.5 +$124m Supplies Ho
Slide 30: Overview of Australian & New Zealand Home Improvement & Outdoor Living Market
Overview of Australian & New Zealand For personal use only Home Improvement & Outdoor Living Market
Slide 31: Market evolution
Market evolution For personal use only Addressable market expanded by evolution & innovation Bunnings’ focus: • Grow the market • Grow our share Home Improvement & Outdoor Living Home Aust market Improvement Today ~$46b Bunnings 18% ‘Traditional’ Hardware 31
Slide 32: Market evolution
Market evolution For personal use only Addressable market expanded by evolution & innovation 32
Slide 33: Wider market opportunities
Wider market opportunities For personal use only Addressable market expanded by evolution & innovation opportunities to sell into every other market where HIOL products are used 33
Slide 34: Market evolution
Market evolution Addressable market wider than just home improvement & outdoor living… For personal use only … most products used in & around homes & gardens have much wider toilets in every building light fittings everywhere everyday use in every building, structure & grounds … used for repairs, re
Slide 35: HIOL market structure & drivers
HIOL market structure & drivers For personal use only 35
Slide 36: Background on Bunnings
Background on Bunnings For personal use only
Slide 37: Long-term value creation
Long-term value creation For personal use only 1. A winning offer to customers 2. An engaged, focused & committed team 3. Business behaviour that builds trust 4. Sustainable satisfactory shareholder returns 37
Slide 38: Strategic agenda & drivers of growth
Strategic agenda & drivers of growth For personal use only • A consistent strategic agenda - Focus on customers, team & community - Grow the market - Grow share of the market - Create long-term shareholder value • Focused on long-term value creation - A winning offer to customers - An engaged, focus
Slide 39: Positioned for continued growth
Positioned for continued growth For personal use only • Lots of runway in +$46b Australian market • Strong momentum - growing participation levels - all categories & all regions - consumer & commercial • Investing for long-term growth … - “winning offer” from all growth drivers: value, service, bran
Slide 40: Greater brand reach
Greater brand reach For personal use only Three elements to brand reach 1. Widening our digital eco-system 2. Expanding our physical network 3. More in-home services We are accelerating all activities 40
Slide 41: Greater brand reach
Greater brand reach For personal use only • Deeper customer engagement & involvement - pre & post-shop + services - online + in home + on site + in store - across multiple dimensions • Expanded capability - more consumer - more commercial • Pathway to complementary adjacencies “Research online, purc
Slide 42: Greater brand reach – physical & digital
Greater brand reach – physical & digital For personal use only • Customers living their lives more & more virtually - Digital brand reach everywhere & anywhere • The more customers live virtually, the more they value “touch & feel” • Physical & digital fully leverages Home Improvement capabilities -
Slide 43: Greater brand reach – digital
Greater brand reach – digital For personal use only Market leading customer engagement & involvement Leveraging eco-system capability Accelerating all digital activities Accelerating digital engagement - visits per capita per month Source: Experian Hitwise, Aust, UK, US 43
Slide 44: Greater brand reach – digital eco-system
Greater brand reach – digital eco-system Digital brand reach everywhere & anywhere… For personal use only …Customers living their lives more & more virtually…the more customers live virtually, the more they value “touch & feel”…physical & digital fully leverages Home Improvement capabilities…24/7 pr
Slide 45: Greater brand reach – digital
Greater brand reach – digital For personal use only Product & project knowledge, Supplier partnerships… Media partnerships… how to, inspiration, product & project knowledge, inspiration, engagement engagement how to, inspiration, engagement 45
Slide 46: Greater brand reach – physical
Greater brand reach – physical For personal use only Expanding our physical network • Leverage total market capability • Excellence in every channel • Highly flexible & innovative • Constant format evolution • Commercially disciplined; driving return on space • Linking seamlessly with digital 46
Slide 47: Greater brand reach – physical: Bunnings Warehouse
Greater brand reach – physical For personal use only Bunnings Warehouse • large format; highly flexible • cornerstone brand • ~5,000m2 to ~20,000m2 • retail & commercial customers • 240 in network • format adaptability supports growth • open 15 to 18 in FY16 & FY17 • open 10 to 14 p.a. long term • c
Slide 48: Greater brand reach – physical: Bunnings smaller format
Greater brand reach – physical For personal use only Bunnings: smaller format • heritage format “home centres” • ~2,000m2 to ~5,000m2 • regional & metro markets • retail & commercial customers • 67 in network • opening 2 to 4 p.a. long term • greenfield & acquisition 48
Slide 49: For personal use only
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