Slide 1: 2017 Half-year Results Briefing Presentation
2017 Half-year Results Briefing Presentation To be held on Wednesday, 15 February 2017
Slide 2: Presentation outline
Presentation outline Item Presenter Page Group Performance Overview Richard Goyder 3 Group Balance Sheet & Cash Flow Terry Bowen 8 Coles John Durkan 14 Home Improvement Michael Schneider 23 - Australia & NZ Michael Schneider 26 - UK & Ireland PJ Davis 29 Department Stores Guy Russo 35 - Target Guy R
Slide 3: Group Performance Overview
Group Performance Overview Richard Goyder Managing Director Wesfarmers Limited
Slide 4: Financial overview
Financial overview Half-year ended 31 December 2016 Reported Variance to pcp Operating revenue $34,917m 4.3% Earnings before interest & tax $2,429m 15.1% Net profit after tax $1,577m 13.2% Earnings per share (cps) 140.1 12.8% Operating cash flow per share (wanos, incl. res shares) (cps) 234.9 9.8% R
Slide 5: Group performance summary
Group performance summary Half-year ended 31 December ($m) 2016 2015 var % Revenue 34,917 33,462 4.3 EBITDA 3,064 2,749 11.5 EBIT 2,429 2,110 15.1 Net profit after tax 1,577 1,393 13.2 Operating cash flow 2,648 2,404 10.1 Net capital expenditure 400 675 (40.7) Free cash flow 2,231 1,665 34.0 Earning
Slide 6: Divisional earnings
Divisional earnings EBIT ($m) Half-year ended 31 December 2016 2015 var % var $m % of EBIT Coles 920 945 (2.6) (25) 37% Home Improvement 722 701 3.0 21 Bunnings Australia & NZ 770 701 9.8 69 29% Bunnings UK & Ireland (48) - n.m. n.m. Department Stores 387 393 (1.5) (6) 16% Target1 16 74 (78.4) (58)
Slide 7: Divisional return on capital (RoC)
Divisional return on capital (RoC) Rolling 12 months to 31 December 2016 2015 EBIT Cap Emp RoC RoC Variance ($m) ($m) (%) (%) (ppt) Coles 1,836 16,594 11.1 11.2 (0.1) Home Improvement1 1,235 4,018 30.7 35.8 (5.1) Bunnings Australia & NZ 1,282 3,291 39.0 35.8 3.2 Bunnings UK & Ireland n.a. n.a. n.a.
Slide 8: Group Balance Sheet & Cash Flow
Group Balance Sheet & Cash Flow Terry Bowen Finance Director Wesfarmers Limited
Slide 9: Other business performance summary
Other business performance summary Half-year ended 31 December ($m) Holding % 2016 2015 var % Share of profit of associates BWP Trust 25 18 56 (67.9) Other Various 13 2 n.m. Sub-total share of profit of associates 31 58 (46.6) Interest revenue1 3 3 - Other (6) (4) (50.0) Corporate overheads (67) (67
Slide 10: Operating cash flows
Operating cash flows • Operating cash flows increased 10.1% to Half-year ended 31 December ($m) 2016 2015 $2,648m Cash movement inflow/(outflow) • Cash realisation1 of 119.7%, up from Receivables & prepayments (110) (13) 118.3% in the prior corresponding period Inventory (617) (1,066) • Higher worki
Slide 11: Capital expenditure
Capital expenditure • Gross capital expenditure declined $135m Half- year ended to $924m 31 December ($m)1 2016 2015 var % Coles 463 459 0.9 – Fewer store openings in Home Improvement Home Improvement 228 314 (27.4) Kmart 85 79 7.6 – Reduced investment in Target Target 38 66 (42.4) • Proceeds from p
Slide 12: Debt management
Debt management • Net financial debt1 of $5,360m, in line with prior $m Debt maturity profile2 corresponding period 2,500 2,000 • $500m of domestic medium term notes matured 1,500 November 2016; repaid using existing cash balances & bank facilities 1,000 500 • ‘All-in’ effective borrowing cost furth
Slide 13: Dividends
Dividends • Strong cash flow generation supporting a $/share Shareholder distributions (declared) 13.2% increase in dividend per share 3.5 3.00 3.0 • Half-year dividend of $1.03 per share, fully 2.5 2.30 1.00 franked 2.00 2.0 0.50 1.86 1.65 0.10 – Dividend record date 21 February 2017 1.5 1.05 1.11
Slide 14: Coles
Coles John Durkan Managing Director Coles
Slide 15: Coles performance summary
Coles performance summary Half-year ended 31 December ($m) 2016 2015 var % Coles Revenue1 20,056 20,087 (0.2) EBITDA2 1,240 1,250 (0.8) Depreciation & amortisation (320) (305) (4.9) EBIT2 920 945 (2.6) EBIT margin2 (%) 4.6 4.7 RoC (R12, %) 11.1 11.2 Safety (R12, LTIFR) 8.4 7.6 Food & Liquor Revenue1
Slide 16: Food & Liquor summary: Maintaining our focus on the customer
Food & Liquor summary Maintaining our focus on the customer • Focusing on the customer in a competitive market – Over seven years of lowering prices for customers – Continued investment in service, availability & quality • Continued positive momentum positions the business for sustainable long-term
Slide 17: Food & Liquor summary: Shelf margin deterioration a factor
Food & Liquor summary Shelf margin deterioration a factor • Shelf margin lower than prior year – Represents gross margin excluding loss & logistics – Decline driven by proactive investment, including absorption of meat costs, & competition • Continued investments in service, quality & availability •
Slide 18: Food & Liquor highlights: Improving our customer offer
Food & Liquor highlights Improving our customer offer • Maintaining a consistent customer proposition – Focus remains on improving the customer offer • Key metrics continue to improve – Continued growth in comparable transactions, basket size & sales density – Improved ‘Tell Coles’ metrics across th
Slide 19: Food & Liquor highlights: New services & channels
Food & Liquor highlights New services & channels • Coles Online continues to achieve strong growth – Double digit transaction & sales growth – Cost control leading to profitable growth • Delivering greater value through flybuys – Continued growth in active members – Partnership with Velocity Frequen
Slide 20: Food & Liquor highlights: Progressing the Liquor transformation
Food & Liquor highlights Progressing the Liquor transformation • Positive momentum continues Reshaping the liquor network # stores 60 5 – Five quarters of comparable sales growth 40 10 2 8 8 – Strong transaction growth remains the driver 20 11 8 51 2 33 27 35 33 35 17 11 • Increased renewal activity
Slide 21: Convenience highlights: Fuelling convenience
Convenience highlights Fuelling convenience • A market-leading convenience store offer Expanding the convenience network # stores – Strong growth in food-to-go offer 35 30 – Focus on Every Day value & Coles Brand offer 25 (eighth consecutive quarter of price deflation, 20 15 31 excluding Tobacco) 22
Slide 22: Coles outlook
Coles outlook • Relative to the prior comparable period, market growth has slowed & competition has increased • Providing a market leading customer offer will remain the focus • Decline in Food shelf margin due to significant investment in value; expected to persist through 2H17 • Coles believes a c
Slide 23: Home Improvement
Home Improvement Michael Schneider Managing Director BANZ PJ Davis Managing Director BUKI
Slide 24: Home Improvement performance summary
Home Improvement performance summary Half-year ended 31 December ($m) 2016 2015 var % Revenue 6,995 5,500 27.2 Bunnings Australia & NZ 5,957 5,500 8.3 Bunnings UK & Ireland ($) 1,038 n.a. Bunnings UK & Ireland (£) 612 n.a. EBITDA 833 776 7.3 Bunnings Australia & NZ1 853 776 9.9 Bunnings UK & Ireland
Slide 25: Home Improvement performance summary (continued)
Home Improvement performance summary (continued) Half-year ended 31 December ($m) 2016 2015 var % Revenue 6,995 5,500 27.2 EBITDA 833 776 7.3 Depreciation & amortisation (111) (75) (48.0) EBIT1 722 701 3.0 EBIT margin (%) 10.3 12.7 RoC (R12, %) 30.7 35.8 Bunnings Australia & NZ - RoC (R12, %) 39.0 3
Slide 26: Home Improvement: Michael Schneider
Home Improvement Michael Schneider Managing Director BANZ
Slide 27: Home Improvement overview
Home Improvement overview Bunnings Australia & New Zealand (BANZ) • Revenue uplift of 8.3% – Total store growth of 8.4%; store-on-store growth of 6.5% – Broad strength of trading performance across all major regions; consumer & commercial – Weather & stock liquidation impacts • EBIT increase of 9.8%
Slide 28: Home Improvement overview
Home Improvement overview Bunnings Australia & New Zealand (BANZ) • Good progress against strategic agenda: Creating better experiences – Improved customer service metrics – More in-store activities – Ongoing range innovation – Even more team member training Strengthening the core – Continued safety
Slide 29: Home Improvement: PJ Davis
Home Improvement PJ Davis Managing Director BUKI
Slide 30: Acquisition Overview: Three Phase Investment Plan
Acquisition Overview: Three Phase Investment Plan Phase 1 Phase 2 Phase 3 • Combine essential local • Retail basics focus elements with best of Bunnings • Invest in team to build new business • Invest in core business • Warehouse format activities • Lowest prices, wider choice with trusted brands, g
Slide 31: Home Improvement overview: BUKI
Home Improvement overview Bunnings United Kingdom & Ireland (BUKI) • Solid progress on phase 1 • Revenue of £612m ($1,038m), EBIT loss £28m ($48m) – £13m ($21m) restructure costs included; concessions & transition activity – Price deflation in line with expectations – Clearance activity largely comp
Slide 32: Home Improvement overview: BUKI
Home Improvement overview Bunnings United Kingdom & Ireland (BUKI) Invest in team • Leadership development • Service training for over 10,000 Team Members • Supplier trained product knowledge Invest in core business activities • Separation well advanced • Majority of services transitioned • Home del
Slide 33: Home Improvement overview: BUKI
Home Improvement overview Bunnings United Kingdom & Ireland (BUKI) First Bunnings Warehouse pilot launched • Strong Supplier support • Widest range of trusted brands • Positive customer feedback • Expect to open four pilot stores in FY17 Successful pilots an absolute precursor to further investment
Slide 34: Home Improvement outlook
Home Improvement outlook Bunnings Australia & NZ • Dynamic competitive landscape • Strong focus on long-term value creation • Continued network reinvestment & expansion Bunnings UK & Ireland • Drive stronger Homebase operating performance • Full separation & exit transitional services • Continued fo
Slide 35: Department Stores
Department Stores Guy Russo Chief Executive Officer Department Stores Managing Director Target
Slide 36: Department Stores performance summary
Department Stores performance summary Half-year ended 31 December ($m) 2016 2015 var % Revenue Target1 1,623 1,972 (17.7) Kmart 2,996 2,750 8.9 Total 4,619 4,722 (2.2) EBITDA Target1 59 119 (50.4) Kmart 427 368 16.0 Total 486 487 (0.2) EBIT Target1 16 74 (78.4) Kmart 371 319 16.3 Total 387 393 (1.5)
Slide 37: Target
Target Guy Russo Managing Director Target
Slide 38: Target performance summary
Target performance summary Half-year ended 31 December ($m) 2016 2015 var % Revenue 1,623 1,972 (17.7) EBITDA1 59 119 (50.4) Depreciation & amortisation (43) (45) 4.4 EBIT1 16 74 (78.4) EBIT margin (%) 1.0 3.8 RoC (R12, %) (15.1) 3.8 Safety (R12, LTIFR) 3.4 4.4 Total sales growth2 (%) (17.4) 1.6 Com
Slide 39: Target overview
Target overview • Further improvements in safety performance – 23% reduction in LTIFR • Total sales decline of 17.4% – Difficult trading period, reflecting significant business transition – Deflation through conversion to EDLP, including Toy Sale exit – Buying programs & inventories reset, with lead
Slide 40: Target outlook
Target outlook • Outlook for balance of FY17 reflects a transitional year • Sales momentum expected to remain challenging but further improvement in merchandise disciplines expected to support trade • Continued focus on cost base, leveraging supply chain improvements & store productivity • 2H17 earn
Slide 41: Kmart
Kmart Ian Bailey Managing Director Kmart
Slide 42: Kmart performance summary
Kmart performance summary Half-year ended 31 December ($m) 2016 2015 var % Revenue 2,996 2,750 8.9 EBITDA 427 368 16.0 Depreciation & amortisation (56) (49) (14.3) EBIT 371 319 16.3 EBIT margin (%) 12.4 11.6 RoC (R12, %) 41.5 36.6 Safety (R12, LTIFR) 6.2 6.9 Total sales growth1 (%) 9.1 12.4 Comparab
Slide 43: Kmart overview
Kmart overview • Further improvements in safety performance – 10% reduction in LTIFR • Strong sales performance; up 9.1% on last year – Further investment in price drove volume growth across all categories – Increased customer transactions & units sold • EBIT growth of 16.3% – Strong contribution fr
Slide 44: Kmart outlook
Kmart outlook • Focus on driving sustainable growth through – A great place to shop that is simple to run – Better products at even lower prices • Continued focus on reducing cost of doing business • Increased emphasis on understanding our customers • Faster stock turns • Continued investment in the
Slide 45: Officeworks
Officeworks Mark Ward Managing Director Officeworks
Slide 46: Officeworks performance summary
Officeworks performance summary Half-year ended 31 December ($m) 2016 2015 var % Revenue 927 875 5.9 EBITDA 74 70 5.7 Depreciation & amortisation (12) (11) (9.1) EBIT 62 59 5.1 EBIT margin (%) 6.7 6.7 RoC (R12, %) 13.9 12.5 Safety (R12, AIFR) 14.7 17.2 Total sales growth1 (%) 5.8 9.1 1 2016 growth f
Slide 47: Officeworks overview
Officeworks overview • Pleasing headline results Revenue growth % – Revenue growth of 5.9% 12 9.9 10 9.1 – EBIT growth of 5.1%, eight year 1H CAGR of 12.0% 7.7 8 7.0 – RoC (R12) up 136 bps to 13.9% 6 5.9 4.6 4.5 4 • Intense focus on customer offer 2 – Merchandise layout & store design changes implem
Slide 48: Officeworks outlook
Officeworks outlook • Strong back-to-school trading results • Pressure on sales & margin to continue • Competitive landscape to continue to evolve • Ongoing focus on strategic agenda – Strengthen & expand the core offer – Extend our ‘every channel’ reach – Embed great service in everything we do – D
Slide 49: Industrials
Industrials Rob Scott Managing Director Industrials
Slide 50: Industrials performance summary
Industrials performance summary Half-year ended 31 December ($m) 2016 2015 var % Revenue Chemicals, Energy & Fertilisers1 695 753 (7.7) Industrial & Safety 884 927 (4.6) Resources 742 598 24.1 Total 2,321 2,278 1.9 EBITDA Chemicals, Energy & Fertilisers2 225 161 39.8 Industrial & Safety 73 57 28.1 R
Slide 51: Chemicals, Energy & Fertilisers performance summary
Chemicals, Energy & Fertilisers performance summary Half-year ended 31 December ($m) 2016 2015 var % Revenue Chemicals 412 469 (12.2) Energy1 182 173 5.2 Fertilisers 101 111 (9.0) Total 695 753 (7.7) EBITDA 225 161 39.8 Depreciation & amortisation (38) (57) 33.3 EBIT 187 104 79.8 EBIT excluding one-
Slide 52: Chemicals, Energy & Fertilisers overview
Chemicals, Energy & Fertilisers overview • Consistently strong focus on safety led to a significant improvement in LTIFR • Revenue declined 7.7% – Cessation of PVC manufacturing in chemicals – Lower global fertiliser pricing – Lower Saudi CP pricing & lower LPG exports offset by growth in natural ga
Slide 53: Industrial & Safety performance summary
Industrial & Safety performance summary Half-year ended 31 December ($m) 2016 2015 var % Revenue 884 927 (4.6) EBITDA 73 57 28.1 Depreciation & amortisation (21) (21) - EBIT1 52 36 44.4 EBIT margin (%) 5.9 3.9 RoC (R12, %) 5.9 4.2 Safety (R12, LTIFR) 1.0 2.2 1 2015 includes $5m of one-off restructur
Slide 54: Industrial & Safety overview
Industrial & Safety overview • Continued focus on safety awareness programs delivering improved safety performance • Revenue declined 4.6% due to continuing subdued investment across mining & resources sectors • Earnings improved during the half – Lower operating costs achieved through the ‘Fit for
Slide 55: Resources performance summary
Resources performance summary Half-year ended 31 December ($m) 2016 2015 var % Revenue 742 598 24.1 Royalties1 (90) (81) (11.1) Mining & other costs (481) (561) 14.3 EBITDA 171 (44) n.m. Depreciation & amortisation (33) (74) 55.4 EBIT 138 (118) n.m. RoC (R12, %) (6.1) (7.0) Coal production (‘000 ton
Slide 56: Resources overview
Resources overview • LTIs remain low at Curragh – one LTI recorded in 12 months • 24.1% increase in revenue – Significant increase in metallurgical & thermal coal prices during 2Q17, partially offset by impact of carryover tonnage – 1H17 sales mix: Hard 39%; Semi 26%; PCI 35% – Lower hedge book loss
Slide 57: Industrials outlook
Industrials outlook Chemicals, Energy & Fertilisers • Continued focus on strong operational & safety performance • International commodity prices, exchange rates, seasonal & competitive factors expected to impact 2H17 earnings – Prevailing global ammonia prices are lower (in AUD) than at this time l
Slide 58: Industrials outlook
Industrials outlook Resources • Earnings heavily dependent upon export coal pricing & exchange rates, with export market conditions expected to remain highly volatile in the near-term – Recent spot prices trading significantly below the November 2016 peak of US$311 per tonne • Curragh’s forecast met
Slide 59: Outlook
Outlook Richard Goyder Managing Director Wesfarmers Limited
Slide 60: Outlook
Outlook Retail • Generally optimistic outlook • Strong momentum & market leading positions provide for a positive outlook for BANZ, Kmart & Officeworks • Coles to continue to deliver strong customer proposition to support long-term growth in earnings & returns despite short-term margin pressures • B
Slide 61: Outlook (continued)
Outlook (continued) Group • Progressing strategic reviews of Resources & Officeworks • Maintain a strong balance sheet & cash flow generation • Secure growth opportunities through entrepreneurial initiatives • Ensure sustainability through responsible long-term management 2017 Half-year results | 61
Slide 62: Questions
Questions
Slide 63: Wesfarmers
os Wesfarmers