Wesfarmers Limited · ASX:WES
Wesfarmers — H1 2009 Earnings Presentation
61 slides from Wesfarmers's earnings presentation, Feb 16, 2009
Slide 1: 2009 Half Year Results Teleconference
2009 Half Year Results Teleconference 16 February 2009
Slide 2: Presentation Outline
Presentation Outline Group Performance Highlights Richard Goyder Home Improvement & Office Supplies John Gillam Coles Ian McLeod Target Launa Inman Kmart Guy Russo Resources Stewart Butel Insurance Rob Scott Industrial & Safety, Chemicals & Fertilisers, Energy Keith Gordon Capital Management Gene Ti
Slide 3: Group Performance Highlights
Group Performance Highlights Richard Goyder Managing Director, Wesfarmers Limited
Slide 4: Group Performance Highlights
Group Performance Highlights • Significant increases in revenue and earnings – Inclusion of full period of Coles, Target, Kmart and Officeworks • Operating revenue of $26.4 billion • Group profit after tax of $879 million, up 46.3% – After inclusion of $125 million of writedowns and provisions • Ope
Slide 5: Group Performance Summary
Group Performance Summary Half Year ended 31 December ($m) 2008 2007* ^ % Operating revenue 26,363 9,808 168.8 EBITDA 2,236 1,266 76.6 EBIT 1,759 1,046 68.2 Net profit after tax 879 601 46.3 Operating cash flow 1,770 1,241 42.6 Earnings per share (excl. employee res. shares) 106.4 127.3 (16.4) Earni
Slide 6: Divisional EBIT
Divisional EBIT Half Year ended 31 December ($m) 2008 2007* % Home Improvement & Office Supplies 395 332 19.0 Coles 431 130 n.m. Target 215 118 n.m. Kmart 75 101 n.m. Resources 686 112 512.5 Insurance 67 64 4.7 Industrial & Safety 68 61 11.5 Chemicals & Fertilisers 4 48 (91.7) Energy 30 48 (37.5) Ot
Slide 7: Provisions and write-downs
Provisions and write-downs Period ended 31 December ($m) 2008 Comment Coles (65) Coles Property writedown DC Closure and Kmart (14) restructure costs Non-trading items (79) Self Insurance (48) Increase in provisions Investments (21) Mark-to-market of investments One-off trading items (69) Total Sign
Slide 8: Divisional Performance
Divisional Performance 2008 2007 Period ended 31 December EBIT R12 ROC R12 ROC $m % % Home Improvement & Office Supplies 395 21.0 31.4^ Coles 431 5.1 n.m. Target 215 9.3 n.m. Kmart 75 8.3 n.m. Resources 686 95.1 30.3 Insurance 67 10.8 11.2 Industrial & Safety 68 17.1 16.9 Chemicals & Fertilisers 4 7
Slide 9: Return on Shareholders’ Funds
Return on Shareholders’ Funds (rolling 12 months to 31 December) % 35 30 25 20 30.2 15 27.7 21.4 10 18.4 5 7.4 0 2004 2005 2006# 2007 2008 # Excludes sale of ARG (2006) 9
Slide 10: Cash Flow & Dividend (Half Year to 31 Dec)
Cash Flow & Dividend (Half Year to 31 Dec) (per share) cents 280 240 200 160 120 80 40 0 2004 2005 2006 2007 2008 EPS^ Operating Cashflow* Dividend *WANOS includes employee reserved shares ^AIFRS excl. employee reserved shares. 2008 and 2007 adjusted for rights issues. 10
Slide 11: Home Improvement & Office Supplies
Home Improvement & Office Supplies John Gillam Managing Director
Slide 12: Home Improvement & Office Supplies Performance Summary
Home Improvement & Office Supplies Performance Summary Half Year ended 31 December ($m) 2008 2007 % Revenue Home Improvement 3,009 2,795 7.7 Office Supplies 602 115* n.m. 3,611 2,910 n.m. EBIT Home Improvement 370 325 13.8 Office Supplies 25 7* n.m. 395 332 n.m. *Officeworks ownership period of 23 N
Slide 13: Home Improvement
Home Improvement AUNNINGS Ty) a2
Slide 14: Home Improvement Performance Summary
Home Improvement Performance Summary Half Year ended 31 December ($m) 2008 2007 % Revenue 3,009 2,795 7.7 EBIT 370 325 13.8 ROC (R12 %) 31.1 31.4 (0.3)pt Safety (R12 LTIFR) 13.3 14.5 Trading Revenue* 3,007 2,760 8.9 Net property contribution 7 12 (41.7) Trading EBIT* 363 318 14.0 Trading EBIT / Trad
Slide 15: Home Improvement Highlights
Home Improvement Highlights • 10.3% cash sales growth – Store-on-store growth of 7.7% • 1.6% lift in trade sales – Ongoing re-alignment of trade business from a customer perspective • Opened 6 warehouses, 2 smaller formats & 6 trade centres • Continued investment in the existing network • Ongoing st
Slide 16: Home Improvement Outlook
Home Improvement Outlook • Cash sales growth – Possible lower rate given volatile economic conditions • Trade sales sensitive to any further slowing in housing construction • Strong customer and business improvement focus. 16
Slide 17: Office Supplies
Office Supplies
Slide 18: Office Supplies - Performance Summary
Office Supplies - Performance Summary Half Year ended 31 December ($m) 2008 2007* Revenue 602 115 EBIT 25 7 Trading Revenue 602 115 Trading EBIT 25 7 Trading EBIT/Trading revenue (%) 4.1 6.1 *Ownership period of 23 November to 31 December 18
Slide 19: Office Supplies Highlights
Office Supplies Highlights • Officeworks retail store sales growth 3.9% – Underpinned by strong transaction growth – Transitioning to EDLP – Pressures on margin • Range authority being re-established • Customer-facing channel conflict eliminated • Adverse sales trends for OW Business and HT • Small
Slide 20: Office Supplies Outlook
Office Supplies Outlook • Focused on gaining traction with reset strategic agenda • Difficult trading conditions for remainder of year – Pressure on sales and margin, particularly in small business sector – Moderate sales growth expected 20
Slide 21: Coles
Coles Ian McLeod Managing Director 21
Slide 22: Coles Performance Summary
Coles Performance Summary Half Year ended 31 December ($m) 2008 2007* Revenue 14,626 2,919 EBITDA 628 175 Depreciation & Amortisation (197) (45) EBIT 1 431 130 Food & Liquor Revenue 3 11,191 2,271 Total store sales growth % 3.9 3.4 Comp store sales growth % 2.6 2.0 Trading EBIT 1,3 382 118 Convenien
Slide 23: Coles Transformation
Coles Transformation • Intensive period of change led by new management team • Change programme will be transformational – Retail disciplines – Fresh offer – Service – Store format – Culture • Encouraging signs in early phase of recovery programme • Meaningful and sustainable change will take time 2
Slide 24: Coles Highlights
Coles Highlights • Food & Liquor Sales – Q2 comparative stores sales growth of 3.8% – Improving growth trend driven by rising customer numbers – Positive results from promotional programme overhaul – Strong Christmas trading, particularly in Fresh – Seasonal sell through well managed 24
Slide 25: Coles Highlights
Coles Highlights • Food – Improving Fresh with largest trading uplifts in Produce and Bakery – Markedly better on-shelf availability – Begun transforming store service standards – Store ‘spring clean’ programme completed – “Renewal” store pilots encouraging – Distribution network transformation near
Slide 26: Coles Highlights
Coles Highlights • Liquor – Liquor ‘renewal’ intensified – Strong Christmas trading period – Value significantly strengthened in all Brands – Improving ranges to meet local demand • Convenience – New store format and value on key staples driving results – Lower petrol prices in Q2 – Q2 comparative s
Slide 27: Coles Outlook
Coles Outlook • Tougher economic conditions and lower consumer confidence • Growing customer focus on value • Strategic programmes being driven at pace • Store Renewal development expected in new financial year • Scale of change significant but confidence in its delivery over time 27
Slide 28: Target
Target Launa Inman Managing Director 28
Slide 29: Target Performance Summary
Target Performance Summary Half Year ended 31 December ($m) 2008 2007* Revenue 2,094 605 EBITDA 245 123 Depreciation & Amortisation (30) (5) EBIT 215 118 Total revenue growth (%) 8.0 6.4 Comp. store sales growth (%) 4.0 3.1 EBIT margin (%) 10.3 19.5 Store numbers 283 274 *Ownership period 23 Novembe
Slide 30: Target Highlights
Target Highlights • EBIT margin strength maintained at 10.3% – Overall margins maintained • Comp Store sales growth for the half 4.0% (Q2 growth 4.8%) – All departments increased sales over last year – Women’s Youth Apparel, Electrical and Toys all had excellent growth • Outstanding Christmas tradin
Slide 31: Target Outlook
Target Outlook • Five new stores in next six months; 15 refurbishments • Well positioned for slow down in retail spending – Close attention to costs and inventory in difficult trading conditions • Well positioned to benefit from stimulus package • Margins on direct imports supported by hedging in th
Slide 32: Kmart
Kmart Guy Russo Managing Director 32
Slide 33: Kmart Performance Summary
Kmart Performance Summary Half Year ended 31 December ($m) 2008 2007* Revenue 2,249 692 EBITDA 100 106 Depreciation & Amortisation (25) (5) EBIT^ 75 101 Total revenue growth (%) 0.8 4.6 Comp. store sales growth (%) 0.4 5.0 EBIT margin (%) 3.3 14.6 Store numbers (incl. Kmart Tyre & Auto) 446 450 *Own
Slide 34: Kmart Highlights
Kmart Highlights • Average trading performance – Christmas trading helped deliver 2Q09 comp growth of 1.0% – Apparel and toys were the strongest performers – In-store execution and offer requires improvement • Inventory levels significantly below last year – Reduce complexity in operations • Senior
Slide 35: Kmart Outlook
Kmart Outlook • Anticipate trading performance to remain soft in 2H09 • The renewal of Kmart – Fix the customer experience – Significantly reduce cost base – Rebuild customer trust – Make every site a success – Right people and accountability • Two new stores to open in 2H09 and complete 3 refits 35
Slide 36: Resources
Resources Stewart Butel Managing Director
Slide 37: Resources Performance summary
Resources Performance summary Half Year ended 31 December ($m) 2008 2007 % Revenue 1,427 530 169.2 EBITDA 791 179 341.9 Depreciation & Amortisation* (105) (67) 56.7 EBIT# 686 112 512.5 ROC (R12 %) 95.1 30.3 64.8pt Coal Production (‘000 tonnes) 7,938 6,963 14.0 Safety (R12 LTIFR)^ 5.0 4.4 *Includes S
Slide 38: Resources Highlights
Resources Highlights • Record half year production and sales levels – Curragh achieving consistent production – Reduced impact of rail and port constraints – Strong coal shipping in 1H09 • Record prices for metallurgical and steaming coal • Significant increase in earnings • Blackwater Creek Diversi
Slide 39: Resources Outlook
Resources Outlook • Global steel production uncertain • 2009/10 price negotiation underway • Signs mining input cost pressures are easing • Forecast Curragh metallurgical sales of 6.5 – 6.9mt in 2008/09 • Timing of expansion projects subject to market conditions • Significant increase in Stanwell re
Slide 40: Insurance
Insurance Rob Scott Managing Director 40
Slide 41: Insurance Performance Summary
Insurance Performance Summary Half Year ended 31 December ($m) 2008 2007 % Gross Written Premium Underwritten 679 618 9.9 EBITA Underwriting 44 38 15.8 EBITA Broking* 27 28 (3.6) EBITA Other 4 5 (20.0) EBITA Insurance Division 75 71 5.6 EBIT Insurance Division 67 64 4.7 Net Earned Loss Ratio (%) 68.
Slide 42: Insurance Highlights
Insurance Highlights • Turnaround of Lumley New Zealand • Rate increases achieved in motor portfolios • Higher than expected crop claims in WFI (worst since 1992) • Underwriting losses in Lumley Australia marine and retail agencies • Consolidation of Australian underwriting licenses on track – One-o
Slide 43: Insurance Outlook
Insurance Outlook • Rate increases being achieved in most classes • Lower investment returns resulting from lower interest rates • Retained losses from Victorian bushfires estimated at $13 million • Conditions support underwriting margin improvement • Strengthening of management across Lumley Aust &
Slide 44: Industrial Businesses
Industrial Businesses Keith Gordon Director Industrial Divisions 44
Slide 45: Industrial & Safety Performance Summary
Industrial & Safety Performance Summary Half Year ended 31 December ($m) 2008 2007 % Revenue 687 642 7.0 EBITDA 75 66 13.6 Depreciation & Amortisation of PPE (7) (5) (40.0) EBIT 68 61 11.5 EBIT margin (%) 9.9 9.5 0.4pt ROC (R12 %) 17.1 16.9 0.2pt Safety (R12 LTIFR) 4.4 5.2 45
Slide 46: Industrial & Safety Highlights and Outlook
Industrial & Safety Highlights and Outlook Highlights • Continued focus on safety resulting in reduction in lost days and severity of injuries • Customer service and delivery performance initiatives delivering benefits • Further improved competitiveness of businesses • Successful growth initiatives
Slide 47: Chemicals & Fertilisers Performance Summary
Chemicals & Fertilisers Performance Summary Half Year ended 31 December ($m) 2009 2008 % Revenue Chemicals 291 218 33.5 Fertilisers 167 173 (0.3) 458 391 17.1 EBITDA 34 69 (50.7) Depreciation & Amortisation of PPE (30) (21) (42.9) EBIT 4 48 (91.7) Sales Volume (‘000t): Chemicals 334.4 281.4 18.8 Fer
Slide 48: Chemicals & Fertilisers Highlights & Outlook
Chemicals & Fertilisers Highlights & Outlook Highlights • Six months successful operation of AN Expansion • Debottlenecking of QNP complete. Commissioning underway (+30,000 tpa) • Improved plant performance from Australian Vinyls following major overhaul in second half of FY08 Issues • Varanus Islan
Slide 49: Energy Performance Summary
Energy Performance Summary Half Year ended 31 December ($m) 2008 2007 % Revenue 322 281 14.6 EBITDA 52 66 (21.2) Depreciation & Amortisation (22) (18) (22.2) EBIT 30 48 (37.5) ROC (R12 %) 9.1 12.0 (2.9pts) WLPG production (kt) 84.4 82.3 2.6 Safety (R12 LTIFR) 5.9 3.0 49
Slide 50: Energy Highlights & Outlook
Energy Highlights & Outlook Highlights • Western Australian LNG project operational • Growth in industrial gas sales • Maintained LPG supply through Varanus Island gas disruption Issues • Varanus Island gas disruption; ~$15m 1H09 EBIT impact • Lower world energy prices from Q2 • $9m inventory write-
Slide 51: Capital Management
Capital Management Gene Tilbrook Finance Director, Wesfarmers Limited
Slide 52: Equity Raising
Equity Raising • 3 for 7 entitlement offer plus $900m placement • Institutional Entitlement raised $2.0bn • Retail Entitlement closes 23 February 2009 • Strengthens balance sheet and provides increased flexibility • Extension and refinancing of maturing debt facilities – Proforma 31 Dec debt down fr
Slide 53: Maturity Profile Analysis
Maturity Profile Analysis $bn 3 2 1 0 FY09 FY10 FY11 FY12 FY13 Facility B - Syndicated Facilities Bilateral Facilities Working Capital and Bill Facilities Bonds Note: based on $2.9bn equity raised to date not including Retail Entitlement Offer closing 23 February 2009 53
Slide 54: Capital Management
Capital Management • Net Debt to Equity of 49% at 31 December 2008 (29% on a pro-forma basis*) • Cash Interest Cover Ratio of 5.2 times (rolling 12 months basis) • Well within all debt covenants at 31 December 2008 (pre equity raising) • S&P rating BBB+ (stable), Moody’s Baa1 (stable) • Weighted ave
Slide 55: Hedging Profile
Hedging Profile • At 31 Dec 08, ~50% of debt hedged for 5 years at average 7.2% (excluding margins) • Rebalancing of hedge positions underway • Post rebalancing, expect debt to be ~50% hedged for 5 years at average 7.2% (excluding margins) • Expect to realise ~$150m of hedge losses as a result of re
Slide 56: Cashflow
Cashflow (Half Year to 31 Dec) • Focus on working capital management • Strong free cash flows 2,000 200% 1,600 160% 1,200 120% 800 80% 400 40% 0 0% 2004 2005 2006 2007 2008 NPATDA Operating Cash Flow Free Cash Flow Cash Realisation Ratio *adjusted for Stanwell and significant non-cash asset writedow
Slide 57: Capital Expenditure
Capital Expenditure • Continued focus on prudent Half Year ended 31 December (A$m) 2008 2007 capital expenditure Home Improvement & Office Supplies 214 173 Coles 204 93 • Coles capital expenditure Target 51 - weighted towards 2H09 Kmart 41 - Resources 109 95 • Completion of Ammonia Insurance 6 6 Nit
Slide 58: Outlook
Outlook Richard Goyder Managing Director, Wesfarmers Limited
Slide 59: Outlook
Outlook • Challenging global economic environment • Expect turnaround in Coles to gather pace over next 12 months • Lower export coal prices from April 2009 • Lower borrowing costs from reduced debt levels 59
Slide 60: Questions
Questions
Slide 61: For all the latest news visit www.wesfarmers.com.au
For all the latest news visit www.wesfarmers.com.au 61