Wesfarmers Limited · ASX:WES
Wesfarmers — Debt Investor Presentation (March 2014)
56 slides from Wesfarmers's debt investor presentation, March 2014
Slide 1: 2014 Half-Year Results Debt Investor Update
2014 Half-Year Results Debt Investor Update March 2014 2014 Half-Year Results | 1
Slide 2: Company overview
Company overview • Long track record – established in 1914 • 10th largest company listed on the ASX with market capitalisation of A$49.2 billion1 (EUR 32 billion)2 as at 20 February 2014 • FY13 revenue of A$59.8 billion, EBIT of A$3,658 million & operating cash flow of A$3,931 million • Australia’s
Slide 3: Key credit strengths
Key credit strengths • A leading Australian retailer with strong market positions, significant scale & nationally recognised brands • Extensive & strategically positioned retail store portfolio with a majority of locations having long term lease arrangements • Coles supermarkets continuing to genera
Slide 4: Divisional summary
Divisional summary 1H FY14 1H FY14 1H FY14 Revenue EBIT Divisional EBIT Division Activities (A$m) (A$m) Contribution (%) Coles Supermarkets comprises one of Australia's largest group of supermarkets, liquor retailing 18,946 836 38% outlets, fuel & convenience outlets A leading Australian supplier of
Slide 5: Divisional summary (continued)
Divisional summary (continued) 1H FY14 1H FY14 1H FY14 Revenue EBIT Divisional EBIT Division Activities (A$m) (A$m) Contribution (%) Provider of underwriting, broking, premium funding & financial 4% Insurance1 services activities in Australia, 1,110 99 New Zealand & the UK Mining & sale of metallurg
Slide 6: Group Performance Highlights
Group Performance Highlights 2014 Half-Year Results | 6
Slide 7: Group performance highlights
Group performance highlights • Operating revenue of A$31.9 billion, up 4.0% • Earnings before interest & tax of A$2,154 million, up 5.4% • Net profit after tax (NPAT) of A$1,429 million, up 11.2% • Earnings per share of A$1.24, up 11.5% • Strong liquidity position; fixed charges cover of 3.0 times,
Slide 8: Group performance highlights (continued)
Group performance highlights (continued) Retail • Coles: strong earnings growth & increased return on capital highlighted successful transition to next phase of growth • Bunnings: very good result with growth in all regions & customer segments; continued to execute strategic agenda to plan • Officew
Slide 9: Group performance highlights (continued)
Group performance highlights (continued) Insurance • Strong increase in underlying underwriting earnings; reported earnings affected by A$45 million Christchurch Earthquake (EQ2) reserve increase; solid broking earnings growth driven by good performance of NZ business Industrial • Resources: lower e
Slide 10: Group performance highlights (continued)
Group performance highlights (continued) Group • Agreement to sell the Insurance division’s underwriting operations to Insurance Australia Group for A$1,845 million (remains subject to regulatory approvals) • Disposal of 40% interest in ALWA • Acquisition of Mineral Development Licence 162 by the Re
Slide 11: Group performance summary
Group performance summary Half-Year ended 31 December (A$m) 2013 2012 % Operating revenue 31,853 30,614 4.0 EBITDA 2,710 2,574 5.3 EBIT 2,154 2,043 5.4 Finance costs (179) (229) 21.8 Net profit after tax 1,429 1,285 11.2 Operating cash flow 1,757 2,207 (20.4) Fixed Charges Cover (R12) - times 3.0 2.
Slide 12: Strength through diversified earnings
Strength through diversified earnings Divisional EBIT $m Percentage of Half-Year ended 31 Divisional EBIT: December (A$m) 2013 2012 % Insurance Insurance 4% Coles 836 755 10.7 (1H13: 5%) WIS Home Improvement 562 518 8.5 2,000 WES CEF Industrial 15% (1H13: 14%) Office Supplies 42 38 10.5 Resources Ta
Slide 13: Operating cash flow generation
Operating cash flow generation • NPATDA growth of 9.3% & cash $m Cash realisation % realisation of 88.5% 2,400 160 • Lower cash realisation in half driven by: 1,800 120 – January 2014 settlement of the sale of 1,200 80 the Group’s 40% interest in ALWA 600 40 – Lower working capital cash inflows from
Slide 14: Working capital management
Working capital management • Further reduction in net inventory days Half-Year ended 31 December (A$m) 2013 2012 across retail portfolio supported by business Cash movement inflow/(outflow)1: growth Receivables & 91 221 • Continued working capital cash inflows from prepayments Inventory (715) (509)
Slide 15: Disciplined capital investment
Disciplined capital investment • Continued investment in Coles & Half-Year ended 31 December (A$m)1 2013 2012 % Coles 554 665 (16.7) Bunnings store networks & HI & OS 280 357 (21.6) accelerated Kmart store Target 46 51 (9.8) Kmart 89 49 81.6 refurbishment activity Insurance 15 12 25.0 • AN3 expansio
Slide 16: Property disposals increased
Property disposals increased • Recent transactions $m Property capital expenditure % 1,000 40% – Sale & leaseback of 10 Bunnings stores to BWP Trust in August 2013 realising 750 30% A$176 million1 – Sale & leaseback of 15 Bunnings warehouse 500 20% properties via securitised lease transaction in Aug
Slide 17: Coles
Coles 2014 Half-Year Results | 17
Slide 18: Coles performance summary
Coles performance summary Half-Year ended 31 December (A$m) 2013 2012 % Coles Division Revenue 18,946 18,047 5.0 EBIT 836 755 10.7 Food & Liquor Revenue1 14,770 14,104 4.7 Total store sales growth %2,3 4.7 5.0 Comp store sales growth %2,3 3.6 3.8 EBIT4 755 677 11.5 EBIT margin % 5.1 4.8 Convenience
Slide 19: Coles performance summary
Coles performance summary • Market leading performance Market leading performance % – Strong underlying volume growth 10 – Continued increase in basket size 8 – Record Christmas transaction numbers 6 4 • Significantly improved financial performance 2 – More than doubled EBIT in five years 0 – Food &
Slide 20: Value, quality & innovation
Value, quality & innovation • Value leadership driving sales density % Lowering prices for 5 years 8 – Down Down, Unreal Deals, Super Specials 6 – Personalised offers & instant offer activation 4 with flybuys 2 0 (2) • Better quality building fresh credentials (4) (6) – Co-investing with local suppl
Slide 21: Shaping the future store network
Shaping the future store network • Strong store pipeline for future growth – 2.3% net selling area growth since 1H13 Indexed Sales density continues to grow 130 – Targeting “bigger, better” stores +25% 125 – Underpins strong sales density improvement 120 115 – Trialling “Easy & Assisted Ordering” fo
Slide 22: New businesses initiatives
New businesses initiatives • Multi-channel innovation New Coles Online website – Exclusive taste.com.au sponsorship – Leveraging customer analytics to deliver personalised offers – Enhanced Coles Online website with improved functionality to grow customer traffic • Strong growth in financial service
Slide 23: Home Improvement & Office Supplies
Home Improvement & Office Supplies 2014 Half-Year Results | 23
Slide 24: HIOS performance summary
HIOS performance summary Half-Year ended 31 December (A$m) 2013 2012 % Revenue Home Improvement 4,434 4,017 10.4 Office Supplies 745 712 4.6 Total 5,179 4,729 9.5 EBIT Home Improvement 562 518 8.5 Office Supplies 42 38 10.5 Total 604 556 8.6 2014 Half-Year Results | 24
Slide 25: Home Improvement highlights
Home Improvement highlights • Revenue growth of 10.4% – 10.6% total store sales growth – 7.2% store-on-store growth – Positive performances in all regions & all categories – Good commercial growth • EBIT growth of 8.5% – Strong underlying trading results – New store costs in line with expectations –
Slide 26: Home Improvement highlights
Home Improvement highlights • New store opening & targeted store reinvestment – Opened 14 trading locations & 15 sites under construction at 31 December • Faster network expansion – On-track to open at least 20 warehouse stores in each of FY14, FY15 & FY16 • Continued growth driven through: – Greate
Slide 27: Office Supplies highlights
Office Supplies highlights Strong earnings & ROC growth • Continued strong earnings growth with five year 1H EBIT % 14 compound annual growth of 10.9% 12 8.7 10 6.9 • Revenue growth of 4.6% with store sales growth gaining 8 6 11.8 10.5 momentum & nine consecutive halves of double digit 4 6.3 6.3 7.8
Slide 28: Kmart
Kmart 2014 Half-Year Results | 28
Slide 29: Kmart performance summary
Kmart performance summary Half-Year ended 31 December (A$m) 2013 2012 % Revenue 2,321 2,299 1.0 EBIT 260 246 5.7 EBIT margin (%) 11.2 10.7 Total sales growth1 (%) 1.7 3.5 Comparative store sales growth1 (%) 0.3 3.0 1 2013 growth reflects the 27 week period 1 July 2013 to 5 January 2014, & the 27 wee
Slide 30: Kmart highlights
Kmart highlights • Customers continue to respond well to Kmart’s strategy of providing the lowest prices on everyday items for families – 16 consecutive quarters of growth in transactions & units sold – Ongoing benefit from the development of product ranges & pricing architecture • Growth in revenue
Slide 31: Target
Target 2014 Half-Year Results | 31
Slide 32: Target performance summary
Target performance summary Half-Year ended 31 December (A$m) 2013 2012 % Revenue 1,965 2,070 (5.1) EBIT 70 148 (52.7) EBIT margin (%) 3.6 7.1 Total sales growth1 (%) (4.4) 1.2 Comparative store sales growth1 (%) (4.2) (1.8) 1 2013 growth reflects the 27 week period 30 June 2013 to 4 January 2014, &
Slide 33: Target highlights
Target highlights • Challenging trading conditions ‒ High levels of winter clearance, delaying the launch of spring/summer ‒ Transition away from historical reliance on high inventory & heavy promotions • Inventory position improved • Costs of doing business tightly managed • Improvements in store s
Slide 34: Insurance
Insurance 2014 Half-Year Results | 34
Slide 35: Insurance performance summary
Insurance performance summary Half-Year ended 31 December (A$m) 2013 2012 % Revenue 1,110 1,035 7.2 EBITA Underwriting 64 72 (11.1) EBITA Broking 41 38 7.9 EBITA Other 1 0 n.m. EBITA Insurance Division 106 110 (3.6) EBITA Insurance Division (excluding EQ2)1 151 110 37.3 EBIT Insurance Division 99 10
Slide 36: Insurance highlights
Insurance highlights • Strong underlying underwriting performance – Continued improvement in underwriting performance through disciplined risk pricing, exposure management & claims efficiencies – Earned premiums continuing to benefit from rate increases in FY13 – Favourable claims experience in most
Slide 37: Resources
Resources 2014 Half-Year Results | 37
Slide 38: Resources performance summary
Resources performance summary Half-Year ended 31 December (A$m) 2013 2012 % Revenue1 764 826 (7.5) Royalties2 (121) (148) 18.2 Mining & other costs (508) (517) 1.7 EBITDA 135 161 (16.1) Depreciation & amortisation (76) (68) (11.8) EBIT 59 93 (36.6) Coal production (‘000 tonnes) 7,454 7,017 6.2 1 Inc
Slide 39: Resources highlights
Resources highlights • Continued improvement in safety performance – Significant reduction in Lost Time Injury Frequency Rate (LTIFR) & Total Recordable Injury Frequency Rate (TRIFR) • Production & sales of metallurgical coal during the six months to 31 December 2013 at an annualised rate exceeding
Slide 40: Chemicals, Energy & Fertilisers Industrial & Safety
Chemicals, Energy & Fertilisers Industrial & Safety 2014 Half-Year Results | 40
Slide 41: Other businesses performance summary
Other businesses performance summary Half-Year ended 31 December (A$m) 2013 2012 % Chemicals, Energy & Revenue 772 775 (0.4) Fertilisers 1 Industrial & Safety 804 837 (3.9) Chemicals, Energy & EBIT 205 104 97.1 Fertilisers 2 Industrial & Safety 73 88 (17.0) 1 Includes Kleenheat Gas & ALWA (prior to
Slide 42: Chemicals, Energy & Fertilisers highlights
Chemicals, Energy & Fertilisers highlights • A$95 million gain on sale of 40% interest in Air Liquide WA (ALWA) • Construction of expanded ammonium nitrate (AN) production capacity to 780,000 tonnes per annum – Commissioning under way & full operation expected, as planned, in Q4 FY14 – On track to b
Slide 43: Industrial & Safety highlights
Industrial & Safety highlights • Customer & project activity significantly reduced across Australia – Most sectors affected, led by mining – Heightened competitive pricing pressures – New Zealand businesses & Coregas performed well • Focused business response – Operational & organisational realignme
Slide 44: Outlook
Outlook 2014 Half-Year Results | 44
Slide 45: Outlook
Outlook Retail • Growth to be supported by continued improvements in customer proposition, range & category innovation, operational productivity & store network optimisation • Strengthened leadership team at Target focused on executing strategic plan with improvement expected over time; short-term c
Slide 46: Outlook (continued)
Outlook (continued) Industrial • Resources & Industrial & Safety: challenging near-term conditions to continue; ongoing cost reduction focus; well placed to respond to market recovery • WES CEF: short-term earnings affected by extended outage of NA/AN2 plant; positive outlook beyond this; focus on c
Slide 47: Debt Management
Debt Management 2014 Half-Year Results | 47
Slide 48: Financial discipline is core to Wesfarmers' strategy
Financial discipline is core to Wesfarmers’ strategy Maintaining prudent capital structure and strong credit ratings is important to Wesfarmers • Recent activity - Mar 13: A$350 million 7 year Australian domestic bond Ability to raise capital and - Mar 13: US$750 million 5 year Rule 144A bond mainta
Slide 49: Strong credit metrics
Strong credit metrics Fixed charges cover ratio (times) Cash interest cover ratio (times) 4.0 16.0 14.0 3.0 12.0 10.0 2.0 8.0 6.0 1.0 4.0 2.0 - - FY2009 FY2010 FY2011 FY2012 FY2013 1H FY2014 FY2009 FY2010 FY2011 FY2012 FY2013 1H FY2014 (R12) (R12) S&P EBIT interest coverage - lease adj. (times) S&P
Slide 50: Pro-active debt management
Pro-active debt management • Focus on extending maturity profile and maintaining liquidity headroom in revolving and bilateral facilities Refinancing • Commitment to diversity of funding sources including the domestic and international debt objectives capital markets • Standard terms and conditions
Slide 51: Pro-active debt management (continued)
Pro-active debt management (continued) Geographical MTN EUR1,150m DCM Funding US144A USD1,400m Diversity MTN AUD1,850m CP NZD40m Maturity Profile 2014 Half-Year Results | 51
Slide 52: Through the cycle cash flows
Through the cycle cash flows • Dividend policy takes into account through the cycle free cash flow requirements and debt refinancing • Strong phase of capital expenditure led growth • Dividend investment plan neutralised since 2008/09 final dividend; potential to preserve cash • Continued focus on w
Slide 53: Questions
Questions 2014 Half-Year Results | 53
Slide 54: Appendix: Australian Economy
Appendix: Australian Economy Central bank cash rates1 Real GDP growth3 4% 3% 2% 1% 0% (1)% (2)% (3)% 2009 2010 2011 2012 2013 Australia US Europe Consumer price index2 Average annual unemployment4 4% 14% 12% 3% 10% 8% 2% 6% 4% 1% 2% 0% 0% 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 Australia U
Slide 55: Important notice
Important notice This presentation is not an offer, solicitation or recommendation with respect to the purchase or sale of any security in the United States or any other jurisdiction. Securities may not be offered or sold in the United States or to, or for the account or benefit of, "U.S. persons" (
Slide 56: For all the latest news visit www.wesfarmers.com.au
years 16 ‘Thousands Xe 0) of stories Wesfarmers For all the latest news visit www.wesfarmers.com.au