Wesfarmers Limited · ASX:WES
Wesfarmers — H1 FY2016 Earnings Presentation
63 slides from Wesfarmers's earnings presentation, Feb 24, 2016
Slide 1: 2016 Half-year Results Briefing Presentation
2016 Half-year Results Briefing Presentation To be held on Wednesday, 24 February 2016
Slide 2: Presentation outline
Presentation outline Item Presenter Page Group Performance Highlights Richard Goyder 3 Coles John Durkan 13 Home Improvement & Office Supplies John Gillam 21 - Home Improvement 23 - Office Supplies 28 Department Stores - Kmart Guy Russo 32 - Target Stuart Machin 36 Industrials Rob Scott 40 - Chemica
Slide 3: Group Performance Highlights
Group Performance Highlights Richard Goyder Managing Director, Wesfarmers Limited
Slide 4: Wesfarmers' future operating business structure
Wesfarmers’ future operating business structure Richard Goyder Managing Director Wesfarmers Home Department Officeworks Coles Industrials Improvement Stores & Associates John Durkan John Gillam Guy Russo Rob Scott Terry Bowen Managing Director Chief Executive Officer Chief Executive Officer Managing
Slide 5: Financial highlights
Financial highlights Variance to prior Half-year ended 31 December 2015 corresponding period Reported Operating revenue of $33.5 billion 4.7% Earnings before interest & tax of $2,110 million 1.6% Net profit after tax of $1,393 million 1.2% Earnings per share of $1.24 2.6% Return on equity (R12) of 1
Slide 6: Financial highlights (continued)
Financial highlights (continued) • Strong increase in earnings within Group’s retail portfolio – Further investment in value, store network improvement & better merchandise offers & service – Strong Christmas seasonal trading in all businesses – Continued improvements in RoC through focus on capital
Slide 7: Group performance summary
Group performance summary Half-year ended 31 December ($m) 2015 2014 % Revenue 33,462 31,970 4.7 EBITDA 2,749 2,657 3.5 EBIT 2,110 2,076 1.6 Net profit after tax 1,393 1,376 1.2 Operating cash flow 2,404 2,281 5.4 Net capital expenditure 675 899 (24.9) Free cash flow 1,665 1,269 31.2 Earnings per sh
Slide 8: Divisional EBIT summary
Divisional EBIT summary EBIT ($m) 2015 2014 % EBIT growth Half-year ended 31 December Food, liquor & petrol retailing 945 895 5.6 +$50m Coles 945 895 5.6 1H15 1H16 Home Improvement & Office Supplies 760 668 13.8 +$92m Home Improvement 701 618 13.4 Office Supplies 59 50 18.0 1H15 1H16 Department Stor
Slide 9: Divisional RoC summary
Divisional RoC summary Rolling 12 months to 2015 2014 31 December EBIT Cap Emp RoC RoC Variance ($m) ($m) (%) (%) Food, liquor & petrol retailing 1,833 16,423 11.2 10.6 +54bps Coles 1,833 16,423 11.2 10.6 Dec '14 Dec '15 Home Improvement & Office Supplies 1,298 4,287 30.3 26.4 +388bps Home Improveme
Slide 10: Performance highlights
Performance highlights Coles • Continued good momentum in food & liquor • Operational simplification & supply chain efficiencies drove further investment in value & improvements to customer offer • Fresh offer improvements supported growth in transaction volumes, basket size & sales density • Conven
Slide 11: Performance highlights (continued)
Performance highlights (continued) Kmart • Sales & earnings growth through further investment in value, store network growth & store refurbishments • Sales growth strong in Home, Kids & Apparel categories • Strong improvement in RoC reflecting range improvement, cost control & inventory management T
Slide 12: Performance highlights (continued)
Performance highlights (continued) WesCEF • Chemicals & fertilisers businesses performed solidly, supported by plants operating at capacity & increased customer demand • Strong turnaround in Kleenheat earnings due to lower gas feedstock costs for LPG production • Contribution from Group’s interest i
Slide 13: Coles
Coles John Durkan Managing Director
Slide 14: Coles performance summary
Coles performance summary Half-year ended 31 December ($m) 2015 2014 % Coles Division Revenue 20,087 19,483 3.1 EBITDA 1,250 1,171 6.7 EBIT1 945 895 5.6 EBIT margin (%) 4.7 4.6 RoC (R12%) 11.2 10.6 Safety (R12 LTIFR) 7.6 7.6 Food & Liquor Revenue2 16,496 15,559 6.0 Headline sales growth (%)3,4 5.4 5
Slide 15: Food & Liquor highlights: trusted value, fresh & customer service
Food & Liquor highlights Focused on creating trusted value, fresh & customer service • Continued strong growth in fresh food • Better value led by price reductions in key lines including chicken breasts, Coles Brand free range eggs, Coles Brand roast chicken & lower produce prices – Improving fresh
Slide 16: Food & Liquor highlights: Project Unity
Food & Liquor highlights Project Unity delivering end-to-end simplicity • Building better supplier partnerships – More long-term supply partnerships – Implementation of new supplier standards to ensure greater simplicity & transparency • More efficient supply chain improving product life, freshness,
Slide 17: Food & Liquor highlights: new services & channels
Food & Liquor highlights Extending into new services & channels • Delivering more convenience through Coles Online – Continued strong sales & customer growth – Optimised network to service growing demand – In-aisle specials now available online • Providing greater choice & value through flybuys – Do
Slide 18: Food & Liquor highlights: Liquor transformation
Food & Liquor highlights Progressing the Liquor transformation • Customer-led turnaround continues to gain momentum with significant long-term opportunities for improvement Refreshed Liquorland store remaining • Progress to date has been driven by – Significant price investment – Liquorland renewals
Slide 19: Convenience highlights
Convenience highlights Driving convenience growth • Creating trusted value Driving value for customers – 11.6% C-Store headline sales growth on the back of record shop transaction growth – Completed rollout of Coles ‘Every Day’ value offer, including strong growth in Coles Brand sales • Growing food
Slide 20: Coles outlook
Coles outlook • Consumers expected to remain value-conscious with lower prices remaining a focus for households • Continue investment in value, service & fresh to drive sales & improve the customer experience • Simplify operations & reduce the cost of doing business to reinvest in value • Maintain a
Slide 21: Home Improvement & Office Supplies
Home Improvement & Office Supplies John Gillam Managing Director
Slide 22: HIOS performance summary
HIOS performance summary Half-year ended 31 December ($m) 2015 2014 % Revenue Home Improvement 5,500 4,959 10.9 Office Supplies 875 802 9.1 Total 6,375 5,761 10.7 EBITDA Home Improvement 776 686 13.1 Office Supplies 70 61 14.8 Total 846 747 13.3 EBIT Home Improvement 701 618 13.4 Office Supplies 59
Slide 23: Home Improvement performance summary
Home Improvement performance summary Half-year ended 31 December ($m) 2015 2014 % Revenue 5,500 4,959 10.9 EBITDA 776 686 13.1 Depreciation & amortisation (75) (68) (10.3) EBIT 701 618 13.4 Less: Net property contribution1 33 14 135.7 Trading EBIT 668 604 10.6 RoC (R12, %) 35.8 31.6 Safety (R12, AIF
Slide 24: Home Improvement highlights
Home Improvement highlights • Strong revenue uplift of 10.9% – Total store growth of 11.0%; store-on-store growth of 7.9% – Broad strength of trading performance across all major regions & all categories – Good improvement in consumer & commercial • EBIT increase of 13.4% – Strong trading performanc
Slide 25: Home Improvement highlights
Home Improvement highlights • Contributions from all growth drivers Accelerating digital engagement - – Creating more value visits per capita per month – Better customer experiences – Accelerating brand reach » Physical & digital – Expanding commercial presence – More merchandise innovation • Invest
Slide 26: Acquisition of Homebase
Acquisition of Homebase • January 2016 announcement of agreement to acquire Homebase for £340 million (~A$700 million) – Further progress on operational/ integration plans – Completion likely within two weeks, subject to HRG’s shareholder vote on 25 February 2016 – Post completion, first 12 months f
Slide 27: Home Improvement outlook
Home Improvement outlook • Strategic agenda driving performance – Sales & earnings growth – Building a stronger business • More for customers – Value & experience – Consumer & commercial • Greater brand reach – Strong new store pipeline – Increased digital ecosystem investment • Homebase acquisition
Slide 28: Office Supplies performance summary
Office Supplies performance summary Half-year ended 31 December ($m) 2015 2014 % Revenue 875 802 9.1 EBITDA 70 61 14.8 Depreciation & amortisation (11) (11) - EBIT 59 50 18.0 EBIT margin (%) 6.7 6.2 RoC (R12 %) 12.5 10.5 Safety (R12 AIFR) 17.2 20.5 Office Supplies 2016 Half-year Results | 28
Slide 29: Office Supplies highlights
Office Supplies highlights • Revenue growth of 9.1% Sales growth momentum – Strong store sales growth – 16 consecutive halves of store transaction growth » More customers, more often – Annualised website sales c. $260 million » Seven year 1H website sales CAGR of 21.4% – ‘Every channel’ investment c
Slide 30: Office Supplies highlights
Office Supplies highlights • Continuing investments in ‘every channel’ strategy – New & expanded categories – Store layout & design improvements – Ongoing website enhancements – Four new stores opened to extend reach – Positive results in B2B market • Strong focus on customer offer – Differentiated
Slide 31: Office Supplies outlook
Office Supplies outlook • Continue to drive ‘every channel’ agenda – Investment in range to meet customer needs & wants – Reach & engage more customers » Anywhere, Anyhow, Anytime – Provide compelling value to customers – Develop & deliver growth initiatives – Lift productivity, reduce cost & comple
Slide 32: Kmart
Kmart Guy Russo Managing Director
Slide 33: Kmart performance summary
Kmart performance summary Half-year ended 31 December ($m) 2015 2014 % Revenue 2,750 2,442 12.6 EBITDA 368 333 10.5 Depreciation & amortisation (49) (44) (11.4) EBIT 319 289 10.4 EBIT margin (%) 11.6 11.8 RoC (R12 %) 36.6 29.0 Safety (R12 LTIFR) 6.9 7.1 Total sales growth1 (%) 12.4 5.3 Comparable st
Slide 34: Kmart highlights
Kmart highlights • Double digit sales growth – Continued investment in price – Growth in customer transactions & units sold – New ranges that connected with customers – Contribution new stores & refurbishments • Strong growth in EBIT & RoC – Productivity improvement across stores & supply chain – En
Slide 35: Kmart outlook
Kmart outlook • Remain focused on growth through – Volume retailer – Operational excellence – Adaptable stores – High performance culture • Continued focus on being lowest price • Continue to refine & optimise product range • Further growth & development of the multichannel offer • Investment in the
Slide 36: Target
Target Stuart Machin Managing Director
Slide 37: Target performance summary
Target performance summary Half-year ended 31 December ($m) 2015 2014 % Revenue 1,972 1,935 1.9 EBITDA 119 112 6.3 Depreciation & amortisation (45) (42) (7.1) EBIT 74 70 5.7 EBIT margin (%) 3.8 3.6 RoC (R12 %) 3.8 3.2 Safety (R12 LTIFR) 4.4 4.9 Total sales growth1 (%) 1.6 (1.8) Comparable store sale
Slide 38: Target highlights
Target highlights • Sound transformation progress • Higher customer transactions & units sold • Further seven stores launched in new format, with encouraging results • Profitable online sales growth • Continued strong investment in lower prices as part of ‘first price, right price’ strategy • Price
Slide 39: Target outlook
Target outlook • Transformation plan to continue, progressing through ‘Growth & Efficiency’ phase • Expected rollout of new store format to a further seven stores in 2H FY16 • Continue to grow online sales & earnings • Further reduce SKUs to better define fashion, style & quality • Increase direct s
Slide 40: Industrials
Industrials Rob Scott Managing Director
Slide 41: Industrials performance summary
Industrials performance summary Half-year ended 31 December ($m) 2015 2014 % Revenue Chemicals, Energy & Fertilisers 753 810 (7.0) Industrial & Safety 927 835 11.0 Resources 598 689 (13.2) Total 2,278 2,334 (2.4) EBITDA Chemicals, Energy & Fertilisers 161 144 11.8 Industrial & Safety 57 67 (14.9) Re
Slide 42: Industrials highlights
Industrials highlights • Improved safety performance – No Lost Time Injuries for Resources in calendar year 2015 • Downturn in mining & resources sector continued to adversely affect earnings – Partially offset by operational & cost improvements • Chemicals, Energy & Fertilisers earnings up 9.5% – I
Slide 43: Chemicals, Energy & Fertilisers performance summary
Chemicals, Energy & Fertilisers performance summary Half-year ended 31 December ($m) 2015 2014 % Revenue Chemicals 469 415 13.0 Energy1,2,3 173 267 (35.2) Fertilisers 111 128 (13.3) Total 753 810 (7.0) EBITDA 161 144 11.8 Depreciation & amortisation (57) (49) (16.3) EBIT3,4 104 95 9.5 External1 sale
Slide 44: Chemicals, Energy & Fertilisers highlights
Chemicals, Energy & Fertilisers highlights • Strong earnings improvement – Higher earnings across chemicals businesses (excluding PVC); solid improvement in ammonia & ammonium nitrate with all plants operating at full capacity in period – Significant improvement in Kleenheat earnings following negot
Slide 45: Industrial & Safety performance summary
Industrial & Safety performance summary Half-year ended 31 December ($m) 20151 2014 % Revenue 927 835 11.0 EBITDA 57 67 (14.9) Depreciation & amortisation (21) (17) (23.5) EBIT2 36 50 (28.0) EBIT margin (%) 3.9 5.9 RoC (R12 %) 4.2 9.3 Safety (R12 LTIFR) 2.2 2.5 1 Includes six month contribution from
Slide 46: Industrial & Safety highlights
Industrial & Safety highlights • Revenue increase of 11.0% – Largely due to inclusion of Workwear Group’s contribution which was acquired in December 2014 – Increased market share in specialty services & large accounts through more integrated MRO solutions, more than offset by lower customer demand,
Slide 47: Resources performance summary
Resources performance summary Half-year ended 31 December ($m) 2015 2014 % Revenue 598 689 (13.2) Royalties1 (81) (80) (1.3) Mining & other costs (561) (501) (12.0) EBITDA (44) 108 n.m. Depreciation & amortisation (74) (73) (1.4) EBIT (118) 35 n.m. RoC (R12%) (7.0) 7.3 n.m. Coal production (‘000 ton
Slide 48: Resources highlights
Resources highlights • Continued improvement in safety performance – No Lost Time Injuries reported in calendar year 2015 • Seaborne metallurgical coal markets remained in oversupply – Significant decline in US$ export revenue due to lower export coal prices • Benefits of a lower Australian dollar l
Slide 49: Resources highlights (continued)
Resources highlights (continued) • Very strong focus on cost control & productivity improvement at Curragh – 1H FY16 unit mine cash costs approximately 7% below FY15 & 35% below peak of 1H FY12 – Lower coal production due to planned mine site shutdown to upgrade power related to a required overhaul
Slide 50: Industrials outlook
Industrials outlook Chemicals, Energy & Fertilisers • Overall outlook is positive; remains subject to international commodity prices, exchange rates & seasonal outcomes • Chemicals earnings supported by contracted volumes & pricing but subject to ongoing good plant performances; second half ammonia
Slide 51: Industrials outlook (continued)
Industrials outlook (continued) Resources • Earnings largely dependent upon export coal pricing, with near-term outlook challenging – Global market remains over-supplied – Subdued forecasts for export coal pricing (3Q FY16 Curragh metallurgical coal pricing (US$) expected to be ~7% below 2Q FY16) •
Slide 52: Group Balance Sheet & Cash Flow
Group Balance Sheet & Cash Flow Terry Bowen Finance Director
Slide 53: Other business performance summary
Other business performance summary Half-year ended 31 December ($m) Holding % 2015 2014 % Share of profit of associates BWP Trust 25 56 29 93.1 Other Various 2 5 (60.0) Sub-total share of profit of associates 58 34 70.6 Interest revenue1 3 19 (84.2) Other (4) (13) 69.2 Corporate overheads (67) (66)
Slide 54: Working capital management
Working capital management • Working capital well managed despite retail store network growth, a lower Australian dollar impacting inventory costs & retail sales growth - Good productivity improvement in net working capital days, falling 2.1 days to 10.5 days Half-year ended 31 December ($m) 2015 20
Slide 55: Solid operating cash flow generation
Solid operating cash flow generation • Continued strong cash realisation • Higher operating cash flow performance includes lower income tax paid as a result of higher prepayments in prior corresponding period $m Cash realisation % 2,800 160 2,100 120 1,400 80 700 40 - - 1H10 1H11 1H12 1H13 1H14 1H15
Slide 56: Capital investment & property recycling
Capital investment & property recycling • Effective deployment of capital to capture Half-year ended 31 December ($m)1 2015 2014 % highest growth & return opportunities Coles 459 537 (14.5) – Retail businesses comprised 89% of HIOS 337 370 (8.9) capital expenditure (in line with the pcp) Kmart 79 93
Slide 57: Debt strategy & credit agency ratings
Debt strategy & credit agency ratings • Solid credit metrics Net debt composition – Cash interest cover (R12) improved to 19.3 times At 31 December ($m) 2015 2014 – Fixed charges cover (R12) stable at to 3.0 times Net debt (reported) (6,108) (5,139) • ‘All-in’ effective borrowing cost further reduce
Slide 58: Dividends
Dividends • Interim dividend of $0.91 per share fully-franked, up 2.2%; consistent with growth in EPS – Dividend record date 2 March 2016 with interim dividend payable 7 April 2016 – Dividend investment plan; no underwrite; shares purchased on market; last day for application 3 March 2016 Shareholde
Slide 59: Outlook
Outlook Richard Goyder Managing Director
Slide 60: Outlook
Outlook Retail • Retail businesses have good sales momentum & are well positioned in an environment where consumers remain value-conscious with household budgets carefully managed • In strongly competitive markets, performance is expected to be supported by ongoing focus on delivering further value,
Slide 61: Outlook (continued)
Outlook (continued) Group • Generally optimistic in outlook • Maintain a strong balance sheet • Secure growth opportunities through entrepreneurial initiative • Ensure sustainability through responsible long-term management • Leverage & build human resource capability 2016 Half-year Results | 61
Slide 62: Questions
Questions
Slide 63: Wesfarmers
Ws Wesfarmers