Wesfarmers Limited · ASX:WES
Wesfarmers — Investor Presentation (October 2008)
147 slides from Wesfarmers's investor presentation, Oct 14, 2008
Slide 1: Presentation to be given at Investor Briefing, Sydney
For personal use only 14 October 2008 The Manager Company Announcements Office Australian Securities Exchange Dear Sir, PRESENTATION TO BE GIVEN AT INVESTOR BRIEFING, SYDNEY Following is a presentation that is to be given at an investor briefing in Sydney on 14 October 2008. Yours faithfully, L J KE
Slide 2: Investor Briefing
For personal use only Investor Briefing 14 October 2008 Westin Hotel, Sydney
Slide 3: Richard Goyder, Managing Director
For personal use only Richard Goyder Managing Director, Wesfarmers Limited 2
Slide 4: Agenda
Agenda For personal use only 8:45 Business Overview 9:15 Coles 10:30 Morning Tea 11:15 Home Improvement & Office Supplies 12:00 Target 12:30 Resources 1:00 Lunch 2:00 Insurance 2:30 Industrial Businesses 3:00 Capital Management 3:10 Q&A 3
Slide 5: Management Team
Management Team For personal use only Managing Director & CEO Richard Goyder Finance Director Gene Tilbrook Divisional Managing Directors Home Improvement & Office Supplies John Gillam Coles Ian McLeod Target Launa Inman Kmart Guy Russo ` Insurance Rob Scott Director Industrial Divisions Keith Gordo
Slide 6: Group Overview
Group Overview For personal use only • An uncertain global environment • Strong businesses • Focus on running businesses well – Return on capital – Effect turnarounds • Balance sheet management • Long term approach, consistent strategies 5
Slide 7: Renewal of Coles
For personal use only Renewal of Coles Ian McLeod 6
Slide 8: Encouraging underlying performance
Encouraging underlying performance For personal use only • Improving food and liquor customer numbers – Availability improving – Reduction in central costs – Stronger promotional focus (non-repeat of value destroying activity) • Food & Liquor Qtr 1 total sales growth 2.6%, comparable sales growth 1.
Slide 9: Starting point … A cost cutting strategy
Starting point … A cost cutting strategy For personal use only • Previously, Coles managed to a short-term EBIT target Boom / • Bureaucratic, top heavy management bust sales structure & margin tactics • Lack of cohesive strategy Customer Cutback confusion on cost • Inward facing, not customer focuse
Slide 10: Building to a Virtuous Circle
Building to a Virtuous Circle For personal use only 9
Slide 11: Meaningful and sustainable improvement will take time
Meaningful and sustainable improvement will take time For personal use only • Many complex issues to fix Fresh Value Range • Multi-faceted recovery plan required • Reversal of sustained under investment Efficiency Service Culture • Creation of a dynamic forward thinking business culture • Recovery w
Slide 12: Years – phases of recovery
5 years – 3 phases of recovery For personal use only Building a Solid Delivering Driving the Coles Foundation Consistently Well Difference Performance • Culture of continuous • Embed the new culture improvement • Create a strong top team • Team member development • Strong customer trust and • Cultur
Slide 13: Creating a strong top team
Phase 1 - Building the Foundation Creating a strong top team For personal use only Ian McLeod Managing Director Asda, Halfords Terry Bowen Finance Director Jetstar, Wesfarmers John Durkan Merchandise Director Safeway (UK), Carphone Warehouse (UK) Joe Blundell Marketing Director Kelloggs, Asda, Shell
Slide 14: Creating a strong top team
Phase 1 - Building the foundation Creating a strong top team For personal use only • 100% of leadership team new to Coles / role • 37% of top 30 managers new* • 45% of top 200 managers new to Coles / role • 92% of top 200 are Australian • Launch of Coles graduate program – 3,500 applications for 100
Slide 15: Cultural change
Phase 1 - Building the foundation Cultural change For personal use only • Tooronga transition! • 1,000+ non-store positions removed • Open plan environment • Stronger store focus • Leadership visibility & access • Communication strengthened 14
Slide 16: Store focus – Inverting the pyramid
Phase 1 - Building the foundation Store focus – Inverting the pyramid For personal use only • Local freedom to act • Store feedback actively encouraged • “Back to basics” shopkeeping drive • Recruitment processes simplified • Performance based incentives improved 15
Slide 17: Improving availability and store standards
Phase 1 - Building the foundation Improving availability and store standards For personal use only On Shelf Availability • Focus on improving availability Gaps on (Supermarkets) shelf – Consistent measurement 50% reduction in gaps – Management attention on shelf – Customer focus • Store standards be
Slide 18: Improving value and customer trust
Phase 1 - Building the foundation Improving value and customer trust For personal use only • Top 60 suppliers engaged (representing 73% of sales) • Range reduction trials, focused on choice, not proliferation • Full private label review • Increased focus on fresh produce quality – ‘Would you buy it?
Slide 19: Improving value and customer trust: promotions
Phase 1 - Building the foundation Improving value and customer trust For personal use only • Delivery of promotion change • Value trading focus with fewer, more compelling promotions • Non-repeat of value destroying promotions • Clearer customer communication – In Store & in Catalogue • Adjusted to
Slide 20: Addressing past store infrastructure neglect
Phase 1 - Building the foundation Improving value and customer trust For personal use only • Addressing past store infrastructure neglect • $100m upgrade investment in FY09 • “Spring clean” basic investment in stores – 600 stores completed by end October 2008 • New registers and scales in FY09 • Ref
Slide 21: Renewal store development
Phase 1 - Building the foundation Renewal store development For personal use only • Trialing of new formats – Enhanced fresh food offer – Rationalised ambient offer – Improved demographic ranging – Smarter working, better service • Renewal store pilots planned • Reduced refurbishment plan whilst tri
Slide 22: Upgrading Supply Chain and IT Infrastructure
Phase 1 - Building the Foundation Upgrading Supply Chain and IT Infrastructure For personal use only • IT plan aligned to business priorities • Multi-saver promotion capability • Automated replenishment pilots in place • Leveraging supply chain network – Reduced from 33 sites to 26, with further con
Slide 23: Liquor renewal
Phase 1 - Building the foundation Liquor renewal For personal use only • Brand development review – Reinvigorate Liquorland's convenience offer – Reinforce Vintage Cellars’ specialist credentials – Price and range architecture • Network optimisation and expansion • Increasing efficiency and lowering
Slide 24: Drive efficient use of capital
Phase 1 - Building the foundation Drive efficient use of capital For personal use only Coles – Grocery Overstocks* • Focus on installing discipline and 140 reducing high levels of aged 120 100 overstocks 80 $M 60 40 • High level of inherited aged overstocks 20 already reduced 50% 0 Jan '08 Sep '08 •
Slide 25: Increased pace of change
Increased pace of change For personal use only • Chronic under-investment & infrastructural decay will take 5 years to remedy • Building the foundation has started at pace • Strong, experienced top team in place • Team members committed and engaged • New format pilots this financial year • Change to
Slide 26: Outlook
For personal use only Outlook
Slide 27: Outlook
Outlook For personal use only • Toughening economic conditions • Consumer confidence dropping • Customers focus on value will increase • Lower levels of inflation expected to continue • Key strategic programmes will be driven at pace • Increasingly strong focus on cost and capital management • Store
Slide 28: Questions
For personal use only Questions
Slide 29: Appendix
For personal use only Appendix
Slide 30: Food and liquor store network
Food and liquor store network at 30 September 2008 For personal use only Selling Area 7 8 11 Supermarkets (sqm) 1,560,566 Liquor (sqm) 268,875 153 231 77 79 92 5 116 67 66 31 6 43 242 247 5 208 161 193 158 754 Supermarkets 14 16 767 Liquor stores 93 Hotels 622 Convenience 29
Slide 31: Store network movements
Store network movements For personal use only Open at Open at Opened Closed 30 June 2008 30 Sept 2008 Supermarkets Coles 685 7 3 689 Bi-Lo 65 - - 65 Total Supermarkets 750 7 3 754 Liquor 1st Choice 52 1 - 53 Vintage Cellars 85 - 1 84 Liquorland 630 5 5 630 Hotels 95 - 2 93 Total Liquor 862 6 8 860 C
Slide 32: Home Improvement & Office Supplies
For personal use only Home Improvement & Office Supplies John Gillam
Slide 33: Agenda: Bunnings & Officeworks
Agenda For personal use only Bunnings & Officeworks • Background • Trading Update • Strategies • Outlook 32
Slide 34: For personal use only
For personal use only 33
Slide 35: Background
Background For personal use only WIDEST RANGE LOWEST PRICES BEST SERVICE 34
Slide 36: Background
Background For personal use only www.bunnings.com.au 35
Slide 37: Store & Trade Centre Network
Store & Trade Centre Network at September 2008 For personal use only 2 167 Warehouse stores 61 Small format stores 16 Trade Centres 29 5 4 19 10 1 8 2 1 50 17 6 12 25 41 1 4 4 2 1 36
Slide 38: Store Network Movements
Store Network Movements For personal use only Under June 2008 Opened Closed Sept 2008 construction Bunnings Stores Warehouse format 165 2 0 167 10 Smaller format 61 2 2 61 0 Bunnings Trade Operations Trade centres 14 2 0 16 4 Frame & Truss plants 8 0 0 8 0 37
Slide 39: Home Improvement Performance Summary
Home Improvement Performance Summary For personal use only Year ended 30 June ($m) 2008 2007 % Revenue 5,359 4,939 8.5 EBIT 589 528 11.6 ROC (R12 %) 31.2 28.1 3.1 pt Trading Revenue* ($m) 5,265 4,677 12.6 Net property contribution^ ($m) 26 54 (51.9) Trading EBIT* ($m) 569 487 16.8 Trading EBIT / Tra
Slide 40: Trading Update July to September 2008
Trading Update 1 July to 30 September 2008 For personal use only • Cash sales growth 7.3% – Tighter conditions: cash store-on-store growth 4.9% – Growth strongest within existing store network – Positive responses from merchandising & operational initiatives • Trade sales growth continues – Pleasing
Slide 41: Strategies
Strategies For personal use only 1. Profitable sales growth 2. Building a stronger team 3. Lifting effectiveness & efficiency 4. Sustainability focus 40
Slide 42: Strategies: Profitable Sales Growth
Strategies 1. Profitable Sales Growth For personal use only • Improving service – Prioritised as largest improvement & growth opportunity – Work focused on 3 key areas – team member coverage, product knowledge & stock availability • Continued offer improvement – Driving new product ranges – Strong m
Slide 43: For personal use only
For personal use only 42
Slide 44: Dual store network investment
Strategies 1. Profitable Sales Growth For personal use only • Dual store network investment – existing & expansion • Continued investment in existing stores • Ongoing rollout of new stores • 10 to 14 new warehouse stores opening annually • Opportunistic openings of small format stores • Growing the
Slide 45: Building a stronger team
Strategies 2. Building a stronger team For personal use only • Significant activity supporting ‘service’ aspirations • Increasing the quality & quantity of training • Improving rostering skills • Effective actions to lift team retention • Diversity & employment branding work ongoing • Continued stro
Slide 46: Lifting effectiveness & efficiency
Strategies 3. Lifting effectiveness & efficiency For personal use only • New programmes driving down the cost of doing business • supports core pricing objective for customers • Supply chain enhancements • in-bound & in-store actions • Customer facing business process improvements • Better business
Slide 47: Sustainability focus
Strategies 4. Sustainability focus For personal use only • Strong foundation of credible actions • Sustainable timber procurement commenced in 2001 • zero tolerance for illegally logged rainforest timber • Initiatives in waste reduction (2003) & energy saving (2004) • Stepped up energy reduction & w
Slide 48: Home Improvement Outlook
Home Improvement Outlook For personal use only • Continued cash sales growth – Driven by service, merchandising and network initiatives – Challenging retail conditions will impact overall growth • Continued positive trends in trade business performance • Trading earnings growth expected – lower prop
Slide 49: Office Supplies
For personal use only Office Supplies 48
Slide 50: Background
For personal use only Background 49
Slide 51: Background
For personal use only Background 50
Slide 52: Officeworks & Harris Technology Network
Background For personal use only Officeworks & Harris Technology Network at September 2008 Store Network 116 Officeworks 9 Harris Technology Business Direct 22 2 1 4 Fulfilment Centres 10 2 1 8 4 Service Centres 37 4 1 2 37 1 1 2 2 51
Slide 53: Store Network Movements
Store Network Movements For personal use only Under June 2008 Opened Closed Sept 2008 construction Officeworks 115 1 - 116 4 Harris Technology 11 - 2 9 0 52
Slide 54: Office Supplies Performance Summary
Office Supplies Performance Summary For personal use only 23 November to 30 June ($m) 2008 Revenue 802 EBIT 36 Total Sales Growth (%) 1.6% Trading Revenue* 802 Net property contribution - Trading EBIT* 36 Trading EBIT / Trading Revenue (%) 4.5% * Excludes non-trading items 53
Slide 55: Trading Update July to September 2008
Trading Update 1July to 30 September 2008 For personal use only • Officeworks retail sales growth 2.2% – Tight trading conditions across core customer base • Adverse sales trends in OW Business Direct & HT • Re-establishing range authority • Transitioning to EDLP • Eliminating past channel conflict
Slide 56: Strategies
Strategies For personal use only 1. Improving the customer offer 2. Lifting service 3. Team development & engagement 4. Reducing complexity & cost of doing business 5. Growing sales & profitability 55
Slide 57: Improving Customer Offer
Strategies 1. Improving Customer Offer For personal use only • New concept store trial – sharper, simpler ‘warehouse’ shopping environment – 4 more older larger stores being like-transformed • Re-establishing range authority – Range reviews well advanced in all categories – Dell performing well • Ne
Slide 58: New concept store
New concept store For personal use only • Officeworks Highett –Victoria 57
Slide 59: New look & feel
For personal use only New look & feel 58
Slide 60: New look & feel (cont)
New look & feel (cont) For personal use only 59
Slide 61: New branding
For personal use only New branding 60
Slide 62: Lifting Customer Service
Strategies 2. Lifting Customer Service For personal use only • Investment in additional in-store wages • Non-sell task reviews generating face-to-face service hours • New labour scheduling system under development • New point of sale system • 30-day account usage opened across all channels • Single
Slide 63: Team Development & Reducing Complexity
Strategies 3. Team Development & Engagement For personal use only • Significant lift in training investment • Introduction of recognition & reward programmes • Stronger focus on labour retention 4. Reducing Complexity & Cost of Doing Business • Eliminating channel conflict • Simplifying processes &
Slide 64: Growing Sales & Profitability
Strategies 5. Growing Sales & Profitability For personal use only • Open 8 – 10 new Officeworks stores in 2008/09 – Develop pipeline for network expansion for 2009/10 and beyond • Upgrade 8 – 10 existing stores to new concept – Establish network refurbishment programme • New marketing programmes acr
Slide 65: Other News
Other News For personal use only Officeworks Business Direct • Strategy revised to align retail and direct businesses – Single buying team in place; Single price across all channels • Revised marketing programme - getting closer to the customer • 30-day accounts now operable in stores Harris Technol
Slide 66: Outlook
Outlook For personal use only • Difficult trading conditions – Pressure on sales & margin, particularly in small business sector – Moderate sales growth expected • Good traction from strategy expected 65
Slide 67: Questions
For personal use only Questions
Slide 68: Target
For personal use only Target Launa Inman 67
Slide 69: Trading Update months to September
Trading Update 3 months to September For personal use only • Sales for comparable period up 6.5% • Underlying same store sales up 3.0% – July strong with successful Toy Sale – Trading since July has been challenging • Weaker consumer sentiment – Credit crisis/sharemarket impacts – Continued high pet
Slide 70: Managing the Business: Current Challenges
Managing the Business Current Challenges For personal use only • Customer behaviour – Evidence of customers downgrading – Importance of entry price points • Rising product costs; FX and inflation – Broaden sourcing base • Volatile trading – Inventory tightly managed – Preventative action already tak
Slide 71: Target strategies
Target strategies For personal use only Strategic initiatives Comments Focus on fundamentals 3 Meeting customer needs on Range, Price and Service 3 Evolution of “100% Happy” Brand relaunch Ongoing Unique philosophy and positioning Ongoing Leveraging an emotional connection Ongoing Bringing the best
Slide 72: Target Store Network
Target Store Network end September 2008 For personal use only 2 1 31 23 14 11 19 12 49 45 43 24 162 Target stores 4 1 117 Target Country stores 71
Slide 73: Store Network Development
Store Network Development For personal use only • Planned new stores - FY09 – 11 new Target stores – 3 Target Country conversions to Target - new stores – 3 Target Country replacements - bigger store footprints • Investment in existing stores – Around 40 stores in FY09 – Upgrades range from full ref
Slide 74: Store Entry Statement and Signage
For personal use only Store Entry Statement and Signage Cleaner, simpler and more pure statement of Brand. Larger entry portal allowing better vision into store. Relocated service counter. 73
Slide 75: Entry and Orientation Zone
For personal use only Entry and Orientation Zone. Larger “foyer" into store with reduced clutter. More contemporary apparel display "Catwalk" to create a more fashionable first impression. 74
Slide 76: Checkouts
For personal use only Checkouts Single queue, "first up, first served" system similar to airport queuing A simpler and fairer system. 75
Slide 77: Differentiation the key
Differentiation the key For personal use only • New exciting and differentiated offers • Bring the best of what’s new in the world to Target • Promote, protect, and expand our quality reputation • Excitement through Designer for Target program 76
Slide 78: The allure of bright colours
The allure of bright colours GRAPHIC Vulla feum cionseg qui wr EXCLU Lae ty SIVE TO TARGET ON SALE FI
Slide 79: Jenny Kee
For personal use only Jenny Kee 78
Slide 80: For personal use only
For personal use only 79
Slide 81: For personal use only
For personal use only 80
Slide 82: Beauty Bank
For personal use only Beauty Bank 81
Slide 83: Target Outlook
Target Outlook For personal use only • Economic slowdown with signs of customers downgrading • Entry and mid-price points well stocked • Broaden sourcing base to mitigate cost increases from China • Controlled stock levels • Managing expenses • Increased and enhanced store network • Investment in th
Slide 84: Questions
For personal use only Questions 83
Slide 85: Resources
For personal use only Resources Stewart Butel
Slide 86: Wesfarmers Resources
Wesfarmers Resources For personal use only Export metallurgical and domestic steaming coal QLD Domestic steaming coal WA Export and domestic NSW steaming coal (40% ownership) 85 85
Slide 87: Coal production
Coal production For personal use only • Curragh - 10 day planned CHPP shutdown in July 2008 YTD ended Mine ('000 tonnes) Beneficial Interest Coal Type Sep 2008 Sep 2007 Curragh, QLD 100% Metallurgical 1,809 1,558 Steaming 774 722 Premier, WA 100% Steaming 938 763 Bengalla*, NSW 40% Steaming 519 558
Slide 88: Business environment
Business environment For personal use only • Curragh now achieving consistent production • Historically high coal prices • Established, long-term committed customers • Constrained export coal chain • Cost increases ongoing (opex and capex) • Positioned to capitalise as infrastructure constraints lif
Slide 89: Resources strategies
Resources strategies For personal use only Strategic initiatives Comments 3 Long-term contracts in place Maximise export sales and 3 Price relativity optimise sales mix 3 Maximise higher value products 3 Improve operational performance Cost reduction WIP People, process and systems programmes WIP Ev
Slide 90: Australian hard coking coal prices
Australian hard coking coal prices For personal use only • No available spot pricing for September / October US$/Tonne (Nominal) FOB Australia 400 350 300 250 200 150 100 50 0 2003 2004 2005 2006 2007 2008 2009 Spot Price Annual Reference Price 89 Source: Barlow Jonker, Tex Report, Macquarie Researc
Slide 91: Australian steaming coal prices
Australian steaming coal prices For personal use only US$/Tonne (Nominal) FOB Australia 200 160 120 80 40 0 2003 2004 2005 2006 2007 2008 2009 Spot Price JPU Reference 90 Source: Barlow Jonker, ANZ 90
Slide 92: Curragh 2008/09 projected metallurgical sales
Curragh 2008/09 projected metallurgical sales For personal use only Sales mix and volume Hard Semi Hard 45 - 48% 20% PCI 32 - 35% Hard or PCI 6.5 - 6.9 million tonnes 91 91
Slide 93: Curragh 2008/09 projected metallurgical sales
Curragh 2008/09 projected metallurgical sales For personal use only Contract term split AFY Contract Term July to June 25% JFY Contract Term April to March 75% 484kt of Carryover tonnes in Q1 2008/09 92 92
Slide 94: Stanwell payment
Stanwell payment For personal use only • Part of consideration tendered to Stanwell in 2002 competitive process for the right to develop the Curragh North deposit – Has enabled doubling of Curragh export production from 2002 level – Extends Curragh mine life to 2025 • Key terms: – Calculated from a
Slide 95: Wesfarmers Curragh hedging profile
Wesfarmers Curragh hedging profile as at 6 October 2008 For personal use only Current US$ Average 12 months The Australian Dollar - (AUD/USD) sold forward A$ / US$ to 30 Sep 1.00 (US$m) hedge rate 0.95 2009 947 0.84 0.90 0.85 2010 469 0.79 0.80 2011 189 0.79 0.75 0.70 2012 58 0.79 0.65 0.60 2013 10
Slide 96: Coal delivery systems
Coal delivery systems For personal use only • Gladstone – Rail capacity forecast at 90% of contract – Adequate port capacity in place – Short-term rail capacity improved – Wiggins Island Coal Terminal feasibility study continues into CY2009 • Newcastle – Decreased vessel queues and demurrage – Exist
Slide 97: Coal port congestion
Coal port congestion East Coast Australia as at 7 October 2008 For personal use only No. of ships at anchor 180 160 140 120 100 80 60 40 20 0 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Gladstone Newcastle Other Ports 96 Source: McCloskey Fax 96
Slide 98: Curragh expansion study
Curragh expansion study For personal use only • Major feasibility study underway • Export expansion to 8.0 to 8.5mtpa • Expansion involves: – Upgrade CHPP – Overburden removal capacity • Targeted expansion decision Q2 CY2009 • Additional export volume in late CY2010 97 97
Slide 99: Bengalla expansion study
Bengalla expansion study For personal use only • Potential expansion from 8.7 to 10.7mtpa ROM • Development Consent approved • Expansion to involve – Dragline upgrade – CHPP upgrade – Additional mining equipment • Expansion timing dependent on infrastructure constraints 98 98
Slide 100: Resources outlook
Resources outlook For personal use only • Strong prices for current contract year • Volatile Australian dollar • Monitoring global economy impact on steel production • Shipping remains consistent with annual contracts • Ongoing constrained export coal chains • Availability of key inputs and industry
Slide 101: Questions
For personal use only Questions 100
Slide 102: Insurance
For personal use only Insurance Rob Scott 101
Slide 103: Insurance businesses at a glance
For personal use only Broking Underwriting UK Australia Australia New Zealand FY08 $209m Revenue / $1,328m GWP Market Number 3 Position1 Number 5 1 by Revenue (Broking) and GWP (Underwriting) for corporate groups Australia and New Zealand 102
Slide 104: WFI
WFI are good people to know… For personal use only Provides insurance cover for rural, business and private requirements 85 locations across rural and BUSINESS regional Australia FARM HOME & CAR STRATA 103
Slide 105: Lumley wholesale insurance
For personal use only Wholesale distribution of tailored insurance solutions to individuals, businesses, large corporates and government FLEET MOTOR MARINE PROPERTY & LIABILITY ENGINEERING 21 locations in Australia & CONSTRUCTION New Zealand BUILDERS WARRANTY 104 104
Slide 106: Crombie Lockwood
For personal use only Provides advice and solutions to allow clients to financially survive any insurable event BUSINESS INSURANCE PERSONAL LINES FINANCIAL SERVICES LIFE, DISABILITY & HEALTH SCHEMES CLAIMS MANAGEMENT PREMIUM FINANCING 17 locations across New Zealand 105
Slide 107: OAMPS
For personal use only Provides specialist product advice and tailored services to businesses by accessing local and global insurance markets BUSINESS INSURANCE PERSONAL LINES SUPERANNUATION LIFE & INCOME PROTECTION SCHEMES FINANCIAL MANAGEMENT ENVIRONMENTALCONSULTING 36 locations in Australia & the
Slide 108: Trading Update - Underwriting
Trading Update - Underwriting For personal use only Business Unit Details WFI Expansion of distribution network Improved conversion rates from referrals Lumley Australia Tighter underwriting controls Rate increases in underperforming classes Lumley New Zealand Restructuring program delivering positi
Slide 109: Trading Update - Broking
Trading Update - Broking For personal use only Business Unit Details Crombie Lockwood Maintaining retention rates and new business growth New products and affinity schemes Acquisition of Uni-Care and Needham Heatley OAMPS Australia Profit margin improving Improved terms with key underwriters Process
Slide 110: Market Conditions (Australia)
Market Conditions (Australia) - Economic Cycle and Underwriting Performance For personal use only 20% 5% 4% Industry Underwriting Margin 15% GDP Growth 3% 10% 2% 5% 1% 0% 0% Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Industry Underwriting Margin GDP Growth Source: APRA, Australian Bureau of Statistics 109
Slide 111: Market Conditions - Industry COR Performance
Market Conditions - Industry COR Performance For personal use only AUSTRALIA NEW ZEALAND 105% 105% 100% 100% 95% 95% COR COR 90% 90% 85% 85% 80% 80% Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Source: APRA Industry Quarterly Statistics Source: ICNZ 110
Slide 112: Market Conditions
Market Conditions For personal use only • Financial market conditions impacting insurer investment returns • Enhanced focus on underwriting profitability • Rate increases gaining momentum particularly in New Zealand • Single large losses above long term average • Economic slowdown and credit tighten
Slide 113: Underwriting Strategies
Underwriting Strategies For personal use only Key Strategies Move to a single licensed entity for Australian businesses - Capital efficiency - Shared services and leveraging combined capabilities LGNZ margin improvement Continue to build technical capabilities IT systems alignment and upgrade Portfo
Slide 114: Insurance Broking Strategies
Insurance Broking Strategies For personal use only Key Strategies Leverage combined broking capabilities Build the best team Upgrade broker sales performance systems Launch of SME insurance offer in New Zealand Promote ancillary business - Life, income protection, premium funding Continue broker bol
Slide 115: Outlook 2008/09
Outlook 2008/09 For personal use only • Australian licence consolidation on track for completion in FY09 • Lumley New Zealand delivering on turnaround • Global financial markets turmoil likely to benefit well capitalised insurers • Rate increases gaining momentum • Economic slowdown constraining bus
Slide 116: Questions
For personal use only Questions 115
Slide 117: Industrial Businesses
For personal use only Industrial Businesses Keith Gordon 116
Slide 118: Industrial & Safety
For personal use only Industrial & Safety
Slide 119: Distribution Network: branch locations
Industrial & Safety Distribution Network: 241 branch locations For personal use only Australia No. 72 MRO, “All your workplace 2 needs” 1 1 17 6 Electrical 15 6 12 6 9 5 9 4 44 Safety 1 1 55 Materials handling, lifting, 5 1 17 19 rigging 1 7 3 16 Fasteners 5 1 8 Engineering 11 5 7 2 3 1 New Zealand
Slide 120: Industrial & Safety Highlights
Industrial & Safety Highlights For personal use only • Good sales growth over the first quarter despite mixed trading conditions − Good growth from resources and infrastructure − Limited impact from energy disruptions in Western Australia − Manufacturing remains subdued, especially in NSW, Victoria
Slide 121: Growth strategies
Growth strategies For personal use only Strategic Progress Achievements Initiatives Increase sales 9 • DIFOT performance continued to improve to existing (ongoing) • Investment in sales force underway (CRM, coaching and customers training, tools) • New positions created to reinforce management of Na
Slide 122: Growth strategies (cont.)
Growth strategies (cont.) For personal use only Strategic Progress Achievements Initiatives Target higher 9 • Grew penetration of services (training, embroidery, testing, growth sectors on-site) (ongoing) • Further reinforced exposure to mining, infrastructure and services • Acquisition of Bay Lifti
Slide 123: Industrial & Safety Outlook
Industrial & Safety Outlook For personal use only • Strong competitive foundations to address market conditions – Continued demand from resources and infrastructure – Optimising positions in traditional markets – Ongoing improvements to the customer value proposition – Attracting, developing and rew
Slide 124: Energy
For personal use only Energy 123
Slide 125: Overview
Overview For personal use only Business Geography Products Key customers Gas production & NSW, Vic, Qld, distribution SA Metals, manufacturing, utilities, water, healthcare, metals, food & Oxygen, nitrogen, acetylene, hospitality, pharmaceuticals, argon, carbon dioxide, etc research, education, Gas
Slide 126: Operational Update
Operational Update For personal use only • Varanus island gas supply disruptions • LNG project commissioning • LPG content in DBP uncertain Hiteshkumar Raval at the LNG • Stabilising NSW market activity for industrial gases plant in Kwinana, WA August 08 • Continuing high international energy prices
Slide 127: Strategies
Strategies For personal use only Strategies Segment Status Industrial gas growth in: • eastern states sales; & Refocus • oil and gas sector Ongoing Improve – Existing Maximise LPG production Exploring options Businesses LPG distribution: Ongoing • customer focus; & • controllable costs Pursue new po
Slide 128: Outlook
Outlook For personal use only • LNG project – LNG plant commissioning near complete – Darlot and Sunrise Dam to commence full operation – positive HDV uptake • Industrial, medical and specialty gases – improved efficiency in logistics and cylinder utilisation – stabilise CO2 supply – complete upgrad
Slide 129: Chemicals & Fertilisers
For personal use only Chemicals & Fertilisers 128
Slide 130: Chemicals & Fertilisers Overview
Chemicals & Fertilisers Overview For personal use only Business Geography Sector Key Customers Ammonia WA Nickel BHP, Minara Orica, Dyno Ammonium Nitrate WA Iron Ore Nobel, Rio Tinto BMA, AngloCoal, (50%) Ammonium Nitrate Qld Coal Rio Tinto Newmont, Barrick, (75%) Sodium Cyanide WA/Global Gold Anglo
Slide 131: Strategy Update
Strategy Update For personal use only Strategic initiatives Comment Growth 3 • Kwinana duplication (+235,000 tpa) WIP • Upgrade of QNP (+30,000 tpa) underway WIP • Sodium cyanide expansion Optimise cost and capital 3 • Inventory and expense management Sustainability WIP • Sustainability framework an
Slide 132: Operational Update
Operational Update For personal use only • Ammonium nitrate solution name plate capacity has increased from 235,000 tonnes to 470,000 tonnes • Expansion of sodium cyanide solution plant underway to meet Boddington Gold Project demand; expansion commissioning expected early 2009 • Expansion of QNP am
Slide 133: Chemicals & Fertilisers Outlook
Chemicals & Fertilisers Outlook For personal use only Chemicals • Ammonia production and sales in 2008/09 curtailed due to gas disruption and plant shutdown • AN production and sales will benefit from a full year’s operation of expanded capacity • AV will make a full year contribution Fertiliser • 2
Slide 134: Questions
For personal use only Questions 133
Slide 135: Kmart
For personal use only Kmart Richard Goyder 134
Slide 136: Trading Update months to September
Trading Update 3 months to September For personal use only • Total sales decline of 0.2% – Comparative store sales decline of 0.5% • Tightening discretionary expenditure – Customers shifting to value items – Selective purchasing from promotions • 4 refurbishments completed 135
Slide 137: Outlook
Outlook For personal use only • Guy Russo appointed as Managing Director • Build team capability • Continuing impact of weak consumer sentiment • Impact of FX and inflation – Inventory tightly managed and controlled – Broaden sourcing base • Extend and enhance network – Improve customer engagement a
Slide 138: Capital Management
For personal use only Capital Management Gene Tilbrook 137
Slide 139: Capital Structure
Capital Structure For personal use only Net Debt:Equity (as at 30 June 2008) Total Equity 19,590 • Net Debt:Equity ~ 50% Cash at bank and on deposit 241 • Cash interest cover at 4.9 times, Syndicated Bank Loans 5,900 Other Debt (Bank, Bonds, CP & MTNs) 3,617 interest expense cover 4.3 times Net Debt
Slide 140: Debt Funding
Debt Funding For personal use only • S&P and Moody’s ratings of BBB+ (negative watch) and Baa1 (stable) respectively • Ongoing review of financing requirements and opportunities • Well within all debt covenants Debt Profile ($m) Facilities Used Facility Due at 30 June 2008 $m Bank Loans, CP, Bank Bi
Slide 141: Capital Expenditure
Capital Expenditure For personal use only • Capital expenditure budget for FY09 $m of ~$2bn 2,500 • Expected capital expenditure for FY09 2,000 <$1.8bn 1,500 • Capital expenditure programme within 1,000 operating cash flows 500 0 • Return on capital focus ensures 2004 2005 2007 2008* 2009E Non-retai
Slide 142: Working Capital
Working Capital For personal use only • Strong historical cash realisation ratio • Strong financial disciplines as a result of return on capital focus • FY08 shortfall relates to creditor payment timing ($m) Cash Realisation Ratio 2,000 150% 1,600 100% 1,200 800 50% 400 0 0% 2004* 2005 2007 2008 NPA
Slide 143: Working Capital - Inventory
Working Capital - Inventory For personal use only • Net inflow from reduced inventory levels – Acquired high inventory levels due to timing of Coles Acquisition – Growth in inventory in heritage businesses due to sales growth, commodity prices and timing of shipments; offset by increase in creditors
Slide 144: Working Capital - Creditors
Working Capital - Creditors For personal use only • Acquired high creditor levels due to timing of Coles acquisition • Large working capital outflow within first week of Coles ownership and on 30 June 2008 due to creditor run cycle in Coles Group • Seeking opportunities for improvement • Ongoing flu
Slide 145: Questions
For personal use only Questions 144
Slide 146: Q&A
For personal use only Q&A Richard Goyder Managing Director, Wesfarmers Limited Gene Tilbrook Finance Director, Wesfarmers Limited
Slide 147: For all the latest news visit www.wesfarmers.com.au
For personal use only For all the latest news visit www.wesfarmers.com.au 146