Wesfarmers Limited · ASX:WES
Wesfarmers — H1 FY2010 Earnings Presentation
64 slides from Wesfarmers's earnings presentation, Feb 18, 2010
Slide 1: 2010 Half Year Results Teleconference
2010 Half Year Results Teleconference 18 February 2010
Slide 2: Presentation Outline
Presentation Outline Group Performance Highlights Richard Goyder Food Liquor and Fuel Retailing Food, Coles Ian McLeod Big Box Retailing Home Improvement & Office Supplies John Gillam Department Store Retailing Target Launa Inman Kmart Guy Russo Insurance ` Insurance Rob Scott Industrial Businesses
Slide 3: Group Performance Highlights
Group Performance Highlights Richard Goyder y Managing Director, Wesfarmers Limited
Slide 4: Group Performance Highlights
Group Performance Highlights • Group profit after tax of $879 million, up 1% despite the foreshadowed fall in Resources earnings • Operating p g revenue of $26.5 billion • Group EBIT of $1.5 billion, down 11% – Excl. Excl Resources, Resources Group EBIT up 44% with EBIT from Retail businesses up 23%
Slide 5: Group Performance Highlights (cont.)
Group Performance Highlights (cont.) • Results reflect the strength g of having g diversity y of earnings g • Coles turnaround on track with EBIT increasing 13% – Focus F on quality, lit service i and d value l d driving i i positive iti volume l growth th • Resources affected by lower export coal p
Slide 6: Group Performance Summary
Group Performance Summary Half Year ended 31 December ($m) 2009 2008 % Operating revenue 26,533 26,363 0.6 EBITDA* EBITDA 1 996 1,996 2 160 2,160 (7 6) (7.6) EBIT* 1,547 1,737 (10.9) Net profit after tax* tax 879 871 0.9 Operating cash flow 2,083 1,770 17.7 Earnings per share (excl. employee res. sh
Slide 7: Divisional EBIT
Divisional EBIT Half Year ended 31 December ($m) 2009 2008 % Coles 486 431 12.8 Home Improvement 422 370 14.1 pp Office Supplies 27 25 9.0 Target 279 215 29.8 Kmart 154 75 105.3 Resources* Resources 2 664 (99 7) (99.7) Insurance 58 67 (13.4) Industrial & Safety 51 68 (25.0) Ch i l & F Chemicals Fert
Slide 8: Earnings Per Share
Earnings Per Share (6 months to 31 December) • 2009 equity raising impacting EPS performance in FY10 cps WANOS (m) 140 1,400 120 1,200 100 1,000 80 800 60 125.1 600 112.4 . 98.1 103 6 103.6 40 76.3 400 20 200 0 0 2005 2006 2007 2008 2009 EPS WANOS [RHS] Excludes sale of ARG (2006). EPS adjusted for
Slide 9: Cash Flow
Cash Flow (6 months to 31 December) • Strong operating cash flow performance across most businesses • Focus remains on improving working capital • C ti Continued d prudent d t fi financial i l managementt $m 2,500 2,000 1,500 1,000 500 0 2005 2006 2007 2008 2009 O Operating ti C Cash h Fl Flow F Fre
Slide 10: Divisional Performance
Divisional Performance • Turnaround businesses focused on improving g earnings g • Industrial businesses and Insurance affected by Varanus and a slowing economy in 2009 2009 2008 Rolling 12 months to 31 December EBIT Cap Emp ROC ROC $m $m % % Coles 886 14 916 14,916 59 5.9 51 5.1 Home Improvement 71
Slide 11: Creating Value from the Coles Acquisition
Creating Value from the Coles Acquisition Achievements to Date 9 Centralised structure replaced with autonomous divisions 9 New,, strengthened g management g teams at Coles,, Kmart and Business Officeworks restructure 9 Leaner and more efficient divisional head offices 9 Decision to keep Kmart 9 Pos
Slide 12: Coles
Coles Ian McLeod Managing Director 12 12
Slide 13: Coles Performance Summary
Coles Performance Summary Half Year ended 31 December ($m) 2009 2008 % Revenue 15,161 14,626 3.7 EBIT 1 486 431 12.8 Food & Liquor Revenue 3 12,028 11,191 7.5 Total store sales growth % 7.1 3.9 3.2pt Comp store sales growth % 60 6.0 26 2.6 3 4pt 3.4pt Trading EBIT 1,3 429 382 12.3 EBIT Margin g 3.6
Slide 14: Coles Q2 Sales Numbers
Coles Q2 Sales Numbers… Numbers • Food & liquor q Q2 comp. p sales of 5.9% F&L Comp Volume Growth 8% – Good transaction growth 7% – Strong supermarket sales 6% 5% – Solid liquor sales 4% – Food F d & liquor li d deflation fl ti off 0 0.9% 9% iin fifirstt h halflf 3% 2% – Strong underlying volume gro
Slide 15: Transforming Our Product Offer
Transforming Our Product Offer • Improved p q quality y – Fresh produce focus – Expanded Christmas range • Stronger value – Effective g grocery yppromotions • Better private label range – Range review – Rebranding & repacking 15
Slide 16: Comprehensive Renewal
Comprehensive Renewal • Driving g Coles supply pp y chain & IT harder – Reduced lead times from DC to stores – Easy ordering on track for approx. 200 stores by end FY10 – Self scan check-out in nearly 70 stores • Investing in better Coles stores – Continued investment in store standards – More than
Slide 17: Driving Coles Liquor Turnaround
Driving Coles Liquor Turnaround • Distinctive multi-brand strategy gy – 1st Choice - big box discount offer – Liquorland - convenience and value – Vintage Cellars - quality range and specialist advice • More effective marketing – Better price position – Multi-buy purchase incentives – Improved catal
Slide 18: Revitalising Coles Express
Revitalising Coles Express • Working g with Shell to extend our fuel offer – V-Power – E10 ethanol blend • Improving our convenience store offer – Continued success with p private label p products – Good customer response to Christmas campaign • Focusing g on service standards – Convenience Store Re
Slide 19: Outlook
Outlook • Turnaround on track • Signs of improving economic climate • Customers remain value focused – Rising interest rates • Changing business environment – Rising costs • Increasing competition • Transition to next phase of turnaround strategy 19
Slide 20: Home Improvement & Office Supplies
Home Improvement & Office Supplies John Gillam Managing g g Director
Slide 21: Home Improvement & Office Supplies Performance Summary
Home Improvement & Office Supplies Performance Summary Half Year ended 31 December ($m) 2009 2008 % Revenue Home Improvement p 3,402 , 3,009 , 13.1 Office Supplies 662 602 10.0 4,064 3,611 12.5 EBIT Home Improvement 422 370 14.1 Office Supplies 27 25 9.0 449 395 13.7 21
Slide 22: Home Improvement
Home Improvement BUNNINGS 0s
Slide 23: Home Improvement Performance Summary
Home Improvement Performance Summary Half Year ended 31 December ($m) 2009 2008 % Revenue , 3,402 3,009 , 13.1 EBIT 422 370 14.1 ROC (R12 %) 31 2 31.2 31 1 31.1 0 1pt 0.1pt Safety (R12 All Injury Freq. Rate) 38.7 44.3 12.5 Trading Re Revenue* en e* 3 400 3,400 3 007 3,007 13 1 13.1 Net property cont
Slide 24: Home Improvement Highlights
Home Improvement Highlights • 14.1% cash sales growth g – Store-on-store growth of 11.2% (2nd qtr : 7.9%) – Growth from merchandising, merchandising service & expansion activities • 7.2% lift in trade sales – Positive impacts of trade strategy in both stores & trade centres • Opened 8 new warehouse
Slide 25: Home Improvement Outlook
Home Improvement Outlook • Continued cash sales growth – Cycling against govt stimulus impact in prior comparative period • Positive trade contribution as housing construction market recovers • Maintain focus on: – Strengthening the customer offer – Driving g operational p effectiveness & efficiency
Slide 26: Office Supplies
Office Supplies
Slide 27: Office Supplies - Performance Summary
Office Supplies - Performance Summary Half Year ended 31 December ($m) 2009 2008 % R Revenue 662 602 10 0 10.0 EBIT 27 25 9.0 ROC (R12 %) 5.8 4.9 0.9pt Safety (R12 All Injury Freq. Rate) 56.9 62.4 8.8 EBIT/revenue (%) 4.1 4.1 - 27
Slide 28: Office Supplies Highlights
Office Supplies Highlights • Officeworks retail store sales growth 12.7% (2nd qtr : 13.1%) – Underpinned by strong transaction growth – Pressures on margin g and costs • OW Business sales gaining momentum • Ongoing Officeworks store network expansion & re re-investment investment – Opened 4 stores a
Slide 29: Office Supplies Outlook
Office Supplies Outlook • Focus on delivering strategic agenda – Drive sales – Improve p customer offer – Expand & upgrade network – Reduce CODB & complexity p y • Continued sales growth, but competitive pressures on margin 29
Slide 30: Target
Target Launa Inman Managing Director 30
Slide 31: Target Performance Summary
Target Performance Summary H lf Y Half Year ended d d 31 D December b ($($m)) 2009 2008 % Revenue 2,182 2,094 4.2 EBITDA 311 245 26.9 p Depreciation & Amortisation (32) (30) (6.7) EBIT 279 215 29.8 T t l revenue growth Total th (%) 4.2 8.0 (3.8)pt Comp. store sales growth (%) 1.7 4.0 (2.3)pt EBIT ma
Slide 32: Target Highlights
Target Highlights • EBIT margin strengthened to 12.8% – Margins maintained across product ranges – Higher mix of apparel sales – Improvements in CODB and Supply Chain processes • Sales Growth 4.2% for the half • Comp store sales growth of 1.7%* (Q2 growth 1.6%^) – Inventory management tight in antic
Slide 33: Target Outlook
Target Outlook • Cautious due to further stimulus payments to cycle up to June • Inventory controlled at every level • Careful management of margin and costs • Continued focus on the customer – Differentiated product – First price right price – Entry price point product • One new store opening, two
Slide 34: Kmart
Kmart Guy Russo Managing Director 34
Slide 35: Kmart Performance Summary
Kmart Performance Summary H lf Y Half Year ended d d 31 D December b ($($m)) 2009 2008 % Revenue 2,226 2,249 (1.0) EBITDA 182 100 82.0 Depreciation p & Amortisation (28) (25) (12 0) (12.0) EBIT^ 154 75 105.3 T t l revenue growth Total th (%) (1.0) 0.8 (1.8)pt Comp. store sales growth (%) (1.6) 0.4 (
Slide 36: Kmart Highlights
Kmart Highlights • Improved underlying profitability – EBIT more than double last year (+$79 million) – Improved margins from exit of unprofitable product and promotions – Reduction in supply chain and non-store costs • Comparative sales decline of 1 1.6 6 per cent (27 weeks ending 3 Jan 2010) – Q2
Slide 37: Kmart Outlook
Kmart Outlook • Continue to reset the foundations – Renewal remains active – Ongoing g g investment in fixing g the core metrics of the business model • Next phase of Growth commenced – Inviting customers to reconsider Kmart – “Expect Expect Change Change” – Low prices – Everyday products for famili
Slide 38: Resources
Resources Stewart Butel Managing Director
Slide 39: Resources Performance summary
Resources Performance summary Half Year ended 31 December ($m) 2009 2008 % Revenue 624 1,427 , ((56.3)) EBITDA 61 715 (91.5) Depreciation & Amortisation* Amortisation (59) (51) (15 7) (15.7) EBIT# * 2 664 (99.7) ROC (R12 %)* 20.6 92.6 (72.0)pt Coal Production (‘000 tonnes) 7,278 7,938 (8.3) Safety (
Slide 40: Resources Highlights
Resources Highlights • Continued improvement in safety performance • Curragh won Minerals and Energy category at the 47th Australian Export Awards • $286m Curragh expansion to 8.0 - 8.5 mtpa export capacity approved – additional reserves secured – works commenced – completion expected late CY2011 •
Slide 41: Resources Outlook
Resources Outlook • Strong signs of recovery from global financial crisis – global steel production recovery and increased metallurgical coal demand – cost pressures likely to re-emerge • Forecast Curragh metallurgical sales increased to 6.3 – 6.8mt in FY10 – estimated sales mix (Hard 47%; Semi-Hard
Slide 42: Insurance
Insurance Rob Scott Managing Director 42
Slide 43: Insurance Performance Summary
Insurance Performance Summary Half Year ended 31 December ($m) 2009 2008^ % Revenue 868 864 0.5 EBITA Underwriting 38 47 (19.1) EBITA Broking 25 28 (10.7) EBITA Other* O * - - - EBITA Insurance Division 63 75 (16.0) EBIT Insurance I Division Di i i 58 67 (13 4) (13.4) Net Earned Loss Ratio (%) 64.2
Slide 44: Insurance Highlights
Insurance Highlights • Underlying earnings improvement after adjusting for: – Impact of lower interest rates on investment income ($19m) – Losses associated with builders warranty run-off ($6m) • Strong improvements in Lumley Australia and New Zealand – Improved risk selection selection, premium rat
Slide 45: Insurance Outlook
Insurance Outlook • Further benefits expected from Lumley business improvement initiatives • Move from La Nina to El Nino cycle potentially beneficial to claims – but storm and bushfire risk historically higher in second half • Commercial premium rate environment likely to remain competitive • Any i
Slide 46: Industrial Businesses
Industrial Businesses Terryy Bowen Finance Director, Wesfarmers Limited 46
Slide 47: Chemicals & Fertilisers Performance Summary
Chemicals & Fertilisers Performance Summary Half Year ended 31 December ($m) 2009 2008 % Revenue Chemicals 292 291 0.3 F tili Fertilisers 141 167 (15 6) (15.6) 433 458 (5.5) EBITDA 57 34 67 6 67.6 Depreciation & Amortisation (30) (30) - EBIT 27 4 575 0 575.0 Sales Volume (‘000t): Chemicals 385.3 334
Slide 48: Chemicals & Fertilisers Highlights & Outlook
Chemicals & Fertilisers Highlights & Outlook Highlights • Ammonia production returned to historical levels following full gas supply from 1 July 2009 • Strong demand for ammonium nitrate and sodium cyanide • Fertiliser volumes up 17 per cent indicating return to traditional levels of nutrient applic
Slide 49: Industrial & Safety Performance Summary
Industrial & Safety Performance Summary Half Year ended 31 December ($m) 2009 2008 % Revenue 637 687 ((7.3)) EBITDA 58 75 (22.7) p Depreciation & Amortisation ((7)) ((7)) - EBIT 51 68 (25.0) g ((%)) EBIT margin 8.0 9.9 ((1.9)) pt p ROC (R12 %) 12.1 17.1 (5.0) pt Safety (R12 LTIFR) 1.3 4.4 49
Slide 50: Industrial & Safety Highlights and Outlook
Industrial & Safety Highlights and Outlook Highlights • Results affected by business activity slowdown and margin pressures – Improvement in second quarter sales • Cost of doing business improved (with benefits into future periods) • Distribution Centre renewal continued (opened in Perth and Aucklan
Slide 51: Energy Performance Summary
Energy Performance Summary H lf Y Half Year ended d d 31 D December b ($($m)) 2009 2008 % Revenue 304 322 (5.6) EBITDA 79 52 51.9 Depreciation & Amortisation (23) (22) (4.5) EBIT 56 30 86.7 ROC (R12 %) 12.6 9.1 3.5pt WLPG production (kt) 105.0 84.4 24.4 Safety (R12 LTIFR) 2.6 5.9 51
Slide 52: Energy Highlights & Outlook
Energy Highlights & Outlook Highlights • Recovery of international LPG prices since second half of last year • Increased production and exports due to higher LPG content • Industrial gas performance broadly stable in a slow market O tl k Outlook • LPG earnings dependent on international LPG prices,
Slide 53: Other Business & Capital Management
Other Business & Capital Management Terry Bowen Finance Director, Wesfarmers Limited
Slide 54: Other Business Performance Summary
Other Business Performance Summary Holding Half Year ended 31 December (A$m) 2009 2008 % Associates share of profit/(loss): Gresham Private Equity Funds Various 29 (1) Gresham Partners 50 2 1 Wespine 50 4 4 Bunnings Warehouse Property Trust 23 10 (5) Sub-total 45 (2) I t Interest t revenue 29 22 Non
Slide 55: Capital Management
Capital Management • Balance sheet strengthened g further through g strong g cash g generation • Net Debt to Equity of 15.5% at 31 December 2009 • Cash Interest Cover Ratio of 6.6 times (R12 basis) • Net debt to R12 operating cash flow of 1.1 times at 31 December 2009 • Interim dividend increased to
Slide 56: Debt Finance
Debt Finance • Gross debt of $5.7bn, net debt of $3.8bn – Cash at bank & on deposit $1.8bn – Committed undrawn facilities of $1 $1.4bn 4bn • 1H10 all in cost of debt, including margins and fees, of ~8.7% after adjusting for one-off costs • 75% hedged for 2H10 • Ongoing review of financing opportunit
Slide 57: Maturity Profile Analysis
Maturity Profile Analysis (as at 31 December) ($m) 3,000 2,000 1,000 0 Current FY10 FY11 FY12 FY13 FY14 FY15 (1,000) Capital Markets Wholesale Syndicated Cash at bank and on deposit (2 000) (2,000) 57
Slide 58: Cash Flow
Cash Flow (6 months to 31 December) • I Improved d cash h fl flow d despite it significant i ifi t reduction d ti ffrom R Resources • Successful focus on improving cash flow generation across the Group to date $m % 2,500 200 2,000 160 1,500 120 1,000 80 500 40 0 0 2005 2006 2007 2008* 2009 NPATDA^ O
Slide 59: Working Capital Cash Flows
Working Capital Cash Flows • Retail strategies progressed, continue to deliver improvements – Significant working capital released since acquisition – Further u t e improvements p o e e ts in ope operating at g cyc cycle eeexpected pected – Inventory well controlled – Seasonally stronger working cap
Slide 60: Capital Expenditure
Capital Expenditure • Return on capital focus ensures effective Half Year ended 31 December (A$m) 2009 2008 use of capital Coles 442 204 • Continued investment in organic growth Home Improvement & Office Supplies 207 214 and development opportunities Target 47 51 – increase in property acquisitions
Slide 61: Outlook
Outlook Richard Goyder Managing Director, Wesfarmers Limited
Slide 62: Outlook
Outlook • Group is well-positioned to benefit from any further upturn in the economy • Outlook for export coal is positive – if realised realised, will result in an increase in Resource earnings from 4Q10 • Recovery in Insurance and Industrial businesses • Optimistic about the future performance of
Slide 63: Questions
Questions
Slide 64: For all the latest news visit www.wesfarmers.com.au
For all the latest news visit www.wesfarmers.com.au 64