Coles Group Ltd. · ASX:COL
Coles — Coles Myer — H1 2006 Earnings Presentation
70 slides from Coles's earnings presentation, Mar 20, 2006
Slide 1: 2006 Interim Results
2006 Interim Results 20 March 2006
Slide 2: John Fletcher, Chief Executive Officer
John Fletcher Chief Executive Officer
Slide 3: Delivering on strategy
Delivering on strategy Australia’s number one retailer Our Our Vision Vision in all our brands Our Our Goals Goals Grow Restore Leverage Our Our Strategic Strategic Food, non-food scale of Priorities Priorities Liquor & operational CML Fuel excellence
Slide 4: Delivering on strategy
Delivering on strategy • NPAT S 10.5% to $484.5m comparable NPAT S 16.6% • Group ROI S 390 bps to 28.6% • EPS growth up 15.4% to 39.0 cents per share • Interim dividend up 20% to 19.5 cents per share • EBIT growth 15.1% • Transforming for the future Note: Financials stated under A-IFRS
Slide 5: Growing shareholder value
Growing shareholder value SHAREHOLDER SCORECARD 9Earnings per share growth underlying EPS doubled since 2001 9Capital growth ASX share price S64.9% between close FY01 & Interim 06 9Income growth ordinary dividends per share S20.0% in FY06 and S 44.4% since FY01
Slide 6: Growing shareholder value
Growing shareholder value 2006 2005 2005 Chg ($m) A-IFRS A-IFRS A-GAAP A-IFRS Sales 19,013 18,224 18,345 4.3% Underlying retail 780.6 691.7 672.5 12.9% EBIT EBIT 735.6 639.2 596.1 15.1% NPAT 484.5 438.5 403.8 10.5% Comparable NPAT 484.5 415.7 16.6% EPS 39.0 33.8 31.0 15.4% DPS (cents) 19.50 16.25 16
Slide 7: Growing shareholder value: Net profit after tax
Growing shareholder value NET PROFIT AFTER TAX $m Headline NPAT •Up 10.5% on 2005 500 Underlying NPAT •Doubled since 2001 485 400 439 404 300 350 272 200 196 213 100 0 2001 2002 2003 2004 2005 2005 2006 AGAAP AIFRS AIFRS Note: 2003 excludes accounting policy change
Slide 8: Growing shareholder value: Underlying Group ROI
Growing shareholder value UNDERLYING GROUP ROI 30 28.6 24.7 25 22.8 19.9 20 16.0 14.4 15 12.8 10 5 0 2001 2002 2003 2004 2005 2005 2006 AGAAP AIFRS AIFRS
Slide 9: Growing shareholder value: Cost of doing business
Growing shareholder value COST OF DOING BUSINESS CODB % 26.0 25.0 25.3 24.0 24.4 24.2 23.0 23.1 22.0 21.6 21.6 21.6 21.0 2001 2002 2003 2004 2005 2005 2006 AGAAP AIFRS AIFRS
Slide 10: Delighting our customers
Delighting our customers CUSTOMER SCORECARD 9Quality merchandise 9Competitive prices 9Convenient locations 9Investment in stores 9Direct sourcing 9Loyalty program unique to Coles Myer Fly Buys, Fuel discounts, MYER One, Coles Myer Source MasterCard
Slide 11: Being the best team
Being the best team TEAM SCORECARD 9Safety levels continued to improve 9Largest private sector employer 9Engendering cultural change and diversity 9Committed to recruiting, developing and retaining the best retail team embedding values and behaviours over 75,300 completed courses through Coles M
Slide 12: Growing Food & Liquor
Growing Food & Liquor 2006 2005 2005 Chg A-IFRS A-IFRS A-GAAP A-IFRS Sales ($m) 9,807 9,452 9,490 3.8% Retail EBIT ($m) ex transformation 397.3 365.31 351.7 8.8% costs Retail margin (%) 4.05 3.86 3.71 19 bps ROI (% MAT) 37.7 33.4 32.3 430 bps Note 1: ex F&L restructure costs
Slide 13: Food & Liquor: EBIT margin expansion
Food & Liquor EBIT MARGIN EXPANSION $m % 450 4.2 425 4.0 4.0 400 3.9 375 3.7 397 3.8 350 3.5 3.6 365 325 352 3.6 300 3.3 321 3.4 275 3.2 250 288 3.2 225 235 256 200 3.0 2001 2002 2003 2004 2005 2005 2006 AGAAP AIFRS AIFRS
Slide 14: Food & Liquor: Value & convenience
Food & Liquor VALUE & CONVENIENCE • Strengthening the customer proposition roll-out of liquor strategy housebrand roll-out improving fresh offer • Implementing transformation • Investing in store network
Slide 15: Food & Liquor: Supermarkets
Food & Liquor SUPERMARKETS • Improved focus on customer service • Enhanced marketing • Housebrand - over 400 products now on shelf - a further 1,000 in second half • Returnable plastic crates – rolling out to 60 stores each month • Roll cages - implementation almost complete
Slide 16: Food & Liquor: Liquor
Food & Liquor LIQUOR • Positive trends from key initiatives 1st Choice Liquor Superstore • 5 opened during 1H06 investment in Liquorland format • 16 stores refurbished during half • Acquisition of Hedley Group further strengthens liquor in QLD market
Slide 17: Food & Liquor outlook
Food & Liquor outlook • Store investment continues in H2 new supermarkets – 7 new, 3 replacement refurb 31 supermarkets and 25 Liquorland stores 10 additional 1st Choice Liquor Superstores • Implementation of growth initiatives transformation liquor housebrands fresh
Slide 18: Coles Express
Coles Express 2006 2005 2005 Chg A-IFRS A-IFRS A-GAAP A-IFRS Sales ($m) 3,032 2,614 2,647 15.9% Retail EBIT ($m) 20.3 13.7 20.1 48.2% ROI (% MAT) 23.0 17.2 23.3 580 bps
Slide 19: Coles Express - outstanding result
Coles Express - outstanding result • EBIT growth S 48% • Fuel offer enhanced loyalty offer + promotions Optimax Extreme launched oil price volatility managed • C-store sales and margin growth seasonal business • Network expansion on track • Sales to reflect oil price fluctuations
Slide 20: Non-food delivering on strategy
Non-food delivering on strategy EBIT $m EBIT margin % 7.0 400 5.9 6.0 4.8 5.1 363 5.0 300 4.1 301 313 4.0 3.1 3.5 200 243 3.0 2.3 194 2.0 100 154 120 1.0 0 0.0 2001 2002 2003 2004 2005 2005 2006 AGAAP AIFRS AIFRS
Slide 21: Non-food ROI
Non-food ROI ROI % 25.0 26.5 20.0 22.8 20.3 15.0 13.4 10.0 9.5 5.0 7.8 2.6 0.0 2001 2002 2003 2004 2005 2005 2006 AGAAP AIFRS AIFRS
Slide 22: Kmart
Kmart 2006 2005 2005 Chg A-IFRS A-IFRS A-GAAP A-IFRS Sales ($m) 2,186 2,228 2,193 (1.9)% Retail EBIT ($m) 92.9 90.7 89.1 2.4% Retail margin (%) 4.25 4.07 4.06 18 bps ROI (% MAT) 14.7 14.9 14.3 (20) bps
Slide 23: Kmart
Kmart • Product margin improvement • Improved EBIT margin • Continued investment in brand six new stores opened improved store presentation, ambience, execution stronger focus on customer service investment in buyer training and development • Inventory below last year • Acquisition of 90 new
Slide 24: Kmart – outlook
Kmart – outlook • Intense focus on picking wanted merchandise better product sourcing buying teams training and development • Efficient management of promotional program reduce reliance on category and store-wide promotions • Faster inventory flow critical • Sales trend improving
Slide 25: Myer
Myer 2006 2005 2005 Chg A-IFRS A-IFRS A-GAAP A-IFRS Sales ($m) 1,592 1,555 1,667 2.4% Retail EBIT ($m) 67.9 64.0 60.7 6.1% Retail margin (%) 4.27 4.12 3.64 15 bps ROI (% MAT) 10.1 15.6 12.1 (550) bps
Slide 26: Myer
Myer • Continued to deliver on strategy by profitably growing sales regaining market share delivering improvements across stores • Myer Brisbane relaunched • Myer Melbourne Basement • MYER One continued to grow in popularity • Continued focus on cost reduction
Slide 27: Target – record profit
Target – record profit 2006 2005 2005 Chg A-IFRS A-IFRS A-GAAP A-IFRS Sales ($m) 1,735 1,666 1,634 4.2% Retail EBIT ($m) 188.8 148.1 141.2 27.5% Retail margin (%) 10.88 8.89 8.64 199 bps ROI (% MAT) 64.7 48.4 44.2 1630 bps
Slide 28: Target – operational excellence
Target – operational excellence • On trend, affordable, high quality ranges strong customer response • Speed to market, unique merchandise increased direct sourcing better buying • Exceptional in-store execution successful events and seasonal launches • Customer destination for childrens and
Slide 29: Target outlook
Target outlook • Building on core competencies strong focus on core strategy reinvestment in business opportunities in non-apparel continued focus on direct sourcing accelerating network expansion • 8 new stores in next 12 months • 7 Target expansions
Slide 30: Officeworks
Officeworks 2006 2005 2005 Chg A-IFRS A-IFRS A-GAAP A-IFRS Sales ($m) 594 573 575 3.7% Retail EBIT ($m) 29.5 28.9 28.2 2.1% Retail margin (%) 4.96 5.04 4.91 (8) bps ROI (% MAT) 42.9 31.1 29.9 1180 bps
Slide 31: Officeworks
Officeworks • Built on position as No.1 for home office, students and SME unique promotional calendar stationery, consumables, print, technology, furniture as core platforms range and convenience – click, call or visit • Harris Tech impact on margin restructured Harris Tech business progress
Slide 32: Officeworks – outlook
Officeworks – outlook • Continued solid sales growth (excluding Harris Technology impact) • Develop merchandise offer expand house brand range continued growth of Technology • Network expansion 9 new stores per year enhance on-line presence • Consolidate improvement in Harris Technology
Slide 33: Fraser MacKenzie, Chief Financial Officer
Fraser MacKenzie Chief Financial Officer
Slide 34: Inventory quality
Inventory quality 2006 2005 2005 2001 $m A-IFRS A-IFRS A-GAAP Food & 1,366 1,333 1,333 1,090 liquor Coles 103 80 80 - Express Kmart 747 769 747 770 Myer 514 519 513 620 Target 508 443 427 574 Officeworks 177 167 167 129 Total Inventory 3,415 3,353 3,309 3,204 (incl Megamart) Inventory up 1.85% Total
Slide 35: Stock turns
Stock turns 2006 2005 2005 2001 $m A-IFRS A-IFRS A-GAAP Food & liquor 11.3 11.1 11.1 11.0 Coles Express 62.2 65.8 66.2 - Kmart 3.6 3.7 3.7 3.0 Myer 2.9 3.2 3.3 3.1 Target 3.9 4.0 4.2 2.8 Officeworks 4.9 4.8 4.8 4.1 Total Retail 6.6 6.6 6.7 5.6 (ex Fuel)
Slide 36: Negative working capital
Negative working capital $m 650 550 612 450 350 250 150 240 223 221 50 114 -50 -80 -57 -150 -250 2001 2002 2003 2004 2005 2005 2006 AGAAP AIFRS AIFRS
Slide 37: Cashflow
Cashflow 2006 2005 ($m) A-IFRS A-IFRS Operating cashflow 871 503 Capex (578) (375) Other (17) 16 Free cashflow 276 144 Dividends paid (210) (205) Other movements in equity 79 90 Net cashflow 145 28
Slide 38: Capex – investment in growth
Capex – investment in growth $m 2006 2005 2004 2003 2002 2001 New stores/ 131 96 105 99 92 99 Replacements Refits 129 98 94 90 82 73 Acquisitions 32 6 121 103 51 33 Technology 135 87 60 77 28 31 Property / other 124 83 84 56 54 58 Total outflow 551 370 464 425 307 294
Slide 39: Net debt / net debt & equity
Net debt / net debt & equity 25.0 % 24.3 20.0 20.4 15.0 14.2 14.2 14.3 10.0 5.0 0.0 -1.2 -3.2 -5.0 2001 2002 2003 2004 2005 2005 2006 AGAAP AIFRS AIFRS
Slide 40: Fixed charges cover
Fixed charges cover Multiple 2.5 2.3 2.4 2.3 2.3 2.3 2.1 2.2 2.2 1.9 2.0 1.7 2001 2002 2003 2004 2005 2005 2006 AGAAP AIFRS AIFRS
Slide 41: Brand ROI
Brand ROI 2006 2005 2005 2001 $m A-IFRS A-IFRS A-GAAP Food & liquor 37.7 33.4 32.3 27.9 Coles Express 23.0 17.2 23.3 n/a Kmart 14.7 14.9 14.3 9.4 Myer 10.1 15.6 12.1 11.2 Target 64.7 48.4 44.2 5.0 Officeworks 42.9 31.1 29.9 24.2 Total Group 28.6 24.7 22.8 14.4
Slide 42: Comparable NPAT
Comparable NPAT RECONCILIATION 1 $m FY05 Fy06 NPAT headline 438.5 484.5 10.5% Recaps dividend reclassified as interest 22.8 - Comparable NPAT 415.7 484.5 16.6% 11H2005 restated for A-IFRS
Slide 43: A-IFRS – key impacts
A-IFRS – key impacts • Asset impairment • Leases – fixed rent Coles Express • Property revaluation within property segment skewed to first half • Lay bys benefit derived mostly from Kmart and Target skewed to first half, net zero for the year • Goodwill amortisation no longer amortised u
Slide 44: 1H05 underlying NPAT A-IFRS adjustments
1H05 underlying NPAT A-IFRS adjustments $2m $4m $10m $1m $3m $4m $24m $438m $6m $5m $404m AGAAP Goodwill Asset Property reval'n Lay bys Employee Lease - fixed Lease incentive Share based Sales returns AIFRS amort'n impairment benefits rent payments
Slide 45: 1H05 restated net assets A-IFRS adjustments
1H05 restated net assets A-IFRS adjustments $79m $18m $83m $4,394m $30m $23m $35m $6m $21m $4,111m AGAAP Asset Employee Leases - fixed Revenue Lease incentives Property Goodwill Tax AIFRS impairment benefits rent recognition revaluation amortisation
Slide 46: A-IFRS – volatility
A-IFRS – volatility • Property revaluations ie Cairns Central • 1H HY05 - S $28m • 1H HY06 - S $11m • Asset impairment
Slide 47: Guidance under A-IFRS
Guidance under A-IFRS • Guidance restated under A-IFRS is $785 million $800 million (aspirational target) $769 million (post capital management) $785 million (A-IFRS) • Sales results will continue to be reported under A-GAAP for FY06
Slide 48: John Fletcher, Chief Executive Officer
John Fletcher Chief Executive Officer
Slide 49: Unlocking CML’s potential
Unlocking CML’s potential 2006 Transformation Update
Slide 50: Unlocking CML’s Potential
Unlocking CML’s Potential Group Non Food Food & Liquor Leverage Transformation Transformation Improved Quality Simpler for stores Better for Speed to customers market Improved Cheaper Freshness network Improved One Team Improved Improved overseas flow growth safety DELIVERING GROWTH
Slide 51: Leveraging scale of Group
Leveraging scale of Group 2001 2006 Silo approach One Group strategy plan Multiple teams Centralised functions Complex systems Simplified systems Duplication of training ColesMyer Institute No internal communication Team communications & team climate survey Poor safety culture Groupwide safety progr
Slide 52: Key Non-Food Initiatives
Key Non-Food Initiatives Direct Sourcing • LOWER Product Cost for customers and CML • differentiated and innovative product offer I-Trade • 5 systems to 1 • Australia’s largest importer of containers- improved ability to manage scale Reverse Logistics • common use of RLO services • improve process e
Slide 53: Integrated Food & Liquor Network
Integrated Food & Liquor Network We Move We Buy • New DC Network • Retek Merchandising System • Manhattan WMS • Retek Store Replenishment • TMS/YMS (Manhattan) • B2B (Manhattan) • Roll Cages We Sell • Produce Crates • Shelf Friendly Packaging • POS • Retek Discounting
Slide 54: How we BUY – F&L
How we BUY – F&L Merchandise and Forecasting systems • systems have been implemented • building Blocks for Store Replenishment Store Replenishment system • roll-out through FY07 and FY08 • improved on-shelf availability B2B electronic trading • enables electronic trading with our food and liquor sup
Slide 55: How we MOVE – F&L
How we MOVE – F&L DC Networks • first new DC opens Nov 06 at Somerton (VIC) • 11 new DCs to be built • located in metro areas/ major highways DC Management • new Warehouse Management system Faster and more accurate picking • new Yard Management system Improved management of truck and container m
Slide 56: How we MOVE – F&L
How we MOVE – F&L TRANSPORT MANAGEMENT Factory Gate Pricing • Transport Management System implemented • 20% improvement in on-time deliveries Roll Cages • national roll-out completed by end FY06 • more efficient way of transporting stock to stores Less Direct to Store Deliveries • to date 340,000 fe
Slide 57: How we SELL – F&L
How we SELL – F&L Produce Crates • FRESHER produce for customer • direct from grower- One Touch • national roll-out complete in the coming year Shelf Friendly Packaging • 5,500 SKUs • faster way of moving stock from back of store to store fixture
Slide 58: How we SELL – F&L
How we SELL – F&L Upgraded our Point of Sale Systems • common platform across Food and Liquor • enables flexibility in pricing & Store Replenishment Discounting Program • greater flexibility in pricing and special offers for customers • national roll-out through FY07
Slide 59: High-level Milestones at 2006
High-level Milestones at 2006 F03 F04 F05 F06 F07 F08 F09 Group Leverage 3 3 Centralisation Systems & SafetyÎ simplificationÎ Non- Food 3 3 3 Scale in Direct I-trade servicesÎ SourcingÎ Food & Liquor 3 3 3 Shelf Rollcages Discounting friendlyÎ Crates DC networkÎ Direct to POS Store storeÎ FGPÎ Reple
Slide 60: CML Annual Benefits
CML Annual Benefits $425m in FY08 GROUP LEVERAGE FOOD & LIQUOR NON-FOOD Benefits extend beyond FY08
Slide 61: Transformation on track
Transformation on track • Achievable • Established foundations • Experienced Team - more than 1,200 team members on transformation across the group • Investment in Change leadership • Strong Governance principles
Slide 62: Strategy Development
Strategy Development
Slide 63: Strategy development: 2001–2006 turning around the business
Strategy development 2001 – 2006: TURNING AROUND THE BUSINESS • Fix non food brands Kmart Myer Target • Grow food and Liquor build fuel offer • Leverage scale of the group transformation – key to growth
Slide 64: Strategy development: 2003–2010 transforming the business
Strategy development 2003 – 2010: TRANSFORMING THE BUSINESS • Transformation – bridge to growth one team culture modernise stores and DCs • better service and value for customers • creating value for shareholders
Slide 65: Strategy development: growing the business 2006 and beyond
Strategy development GROWING THE BUSINESS 2006 AND BEYOND • Value & Volume focus capacity and capability on core • Customer Intimacy take core business much closer to customers • Simplify business model build capacity in merchandising and marketing integrate transformation with Operations
Slide 66: Strategy development: Growing the Business 2006 and beyond
Strategy development Growing the Business 2006 and beyond Simplify Lower business cost model Customer intimacy Volume & value focus Transformation Delivering Delivering sustainable sustainable growth growth
Slide 67: Strategy development: Myer sale
Strategy development MYER SALE • Strategic decision additional shareholder value created by separation of core value and volume businesses and full-line department store will enable sharper financial and management focus on core business • Superb price reflects strength of brand
Slide 68: Strategy development: Structural change
Strategy development STRUCTURAL CHANGE CEO GGM Marketing MD Merchandise MD Operations MD CMLG & Supermarkets Supermarkets CEXP GGM Supply Kmart Chain Retail Support Target Functions Officeworks
Slide 69: Summary
Summary • On track for aspirational earning goal • Transformation bridging turnaround strategy to to growth strategy $425m benefits in FY08 • Sharper focus on core volume and value business post Myer sale new flatter structure for supermarkets • enhancing merchandising and marketing
Slide 70: 2006 Interim Results
2006 Interim Results 20 March 2006