Coles Group Ltd. · ASX:COL
Coles — Investor Day (June 2019)
66 slides from Coles's investor day presentation, Jun 18, 2019
Slide 1: Winning in our Second Century
Melbourne 1914 Winning in our Melbourne 2023 Second Century Coles Investor Day June 2019 1
Slide 2: Today's agenda
Today’s agenda Topic Time Presenter 1 Growing long-term shareholder value 9:40am – 10:00am Steven Cain 2 Inspire Customers 10:00am – 10:35am Steven Cain 3 Smarter Selling 10:35am – 10:55am Leah Weckert & Matt Swindells Morning tea break 10:55am – 11:25am 4 Win Together 11:25am – 11:40am Steven Cain
Slide 3: Acknowledgement of Traditional Custodians
Coles wishes to acknowledge the Traditional Custodians of this land We recognise their strength and resilience and pay our respects fo their Elders past and present. Coles extends that respect to all Aboriginal and Torres Strait Islander people, and recognises their rich cultures and their continuin
Slide 4: Safety briefing
Safety briefing BUILDING SECURITY 03 9829 6900 Is EMERGENCY LINE & q EXT. 99 i Stockland E Tooronga 3 cnescentee oe z IN AN EMERGENCY, FOLLOW YOUR WARDEN’S INSTRUCTIONS. Assembly Point for North-East and South-East Emergency Warning Tones Alert: BEEP BEEP Evacuation Paths: Burke Road Reserv Evacuati
Slide 5: Disclaimer
Disclaimer This presentation contains summary information about Coles Group Limited (ACN 004 089 936) (the Group) and its activities current as at the date of this presentation. It is information given in summary form only and does not purport to be complete. It should be read in conjunction with th
Slide 6: Growing long-term shareholder value
Growing long-term shareholder value Steven Cain – Chief Executive Officer 1 Growing long-term shareholder value 2 3 4 5 6 6
Slide 7: Overview of Coles Group ... built on strong foundations
Overview of Coles Group 1 1 1 Demerger of Coles scheme booklet ... built on strong foundations 1 Growing long-term shareholder value 2 3 4 5 6 7
Slide 8: Wesfarmers / Coles demerger investment highlights, Nov 2018
Wesfarmers / Coles demerger investment highlights, Nov 2018 #1 Operates in resilient and growing markets #2 Market leading position in an evolving competitive landscape #3 Established, non-replicable national store network #4 Making life easier for customers strategy #5 Strong cash generation, attra
Slide 9: It's time for a new era at Coles to grow long-term shareholder value
It’s time for a new era at Coles to grow long-term shareholder value FY09-FY16 FY16-FY18 Investment in management, stores and brand Industry reset reducing driving strong revenue and earnings growth retail profit pool ~125% EBIT ~19% EBIT growth decline 1 Source: 1H FY19 Coles Results Release 1 Grow
Slide 10: Recap on initial CEO observations, Feb 2019
Recap on initial CEO observations, Feb 2019 Coles’ specific factors Market wide factors Competitive pressures continue: Customer expectations & behaviours changing faster • NSW supermarkets, higher demographics, than ever convenience foods • Vintage Cellars & First Choice Liquor Market • Fuel Market
Slide 11: Early progress to address headwinds
Early progress to address headwinds NSW Supermarkets, higher demographics, NSW operational focus has improved sales 1 1 convenience food Launched 75 convenience meals with more to come First Choice Liquor Market gaining traction and new 2 Vintage Cellars and First Choice Liquor 2 Vintage Cella
Slide 12: The Australian retail landscape is changing faster than ever
The Australian retail landscape is changing faster than ever Evolution Changing consumer Automation Sustainability of retail behaviours & data • Shift to online: home • Trusted value, • Automation • Food waste delivery and Click and premiumisation, ethnicity • AI and machine learning • Packaging Col
Slide 13: Coles' strategic differentiators
Coles’ strategic differentiators Win in online food and drinks with an optimised store and supply chain network Be a great value Own Brand powerhouse and destination for health Achieve long term structural cost advantage through automation and technology partnerships Create Australia’s most
Slide 14: Our vision
Our vision. Become the most trusted retailer in Australia and grow long-term shareholder value 1 Growing long-term shareholder value 2 3 4 5 6 14
Slide 15: Our purpose
Coles’ purpose Our purpose. Sustainably feed all Australians to help them lead healthier, happier lives 1 Growing long-term shareholder value 2 3 4 5 6 15
Slide 16: 1. Inspire Customers
Coles’ strategy 1.Inspire Customers through best value food and drink solutions to make lives easier 1 Growing long-term shareholder value 2 3 4 5 6 16
Slide 17: 2. Smarter Selling
Coles’ strategy 2.Smarter Selling through efficiency and pace of change 1 Growing long-term shareholder value 2 3 4 5 6 17
Slide 18: 3. Win Together
Coles’ strategy 3.Win Together with our team members, suppliers and communities 1 Growing long-term shareholder value 2 3 4 5 6 18
Slide 19: Coles' purpose and strategy
Coles’ purpose and strategy 2. 3. 1. 1 Growing long-term shareholder value 2 3 4 5 6 19
Slide 20: Strengthening Coles' leadership team in FY19
Strengthening Coles’ leadership team in FY19 Daniella Pereira Kris Webb Lisa Ronson Ian Bowring1 Company Secretary Chief People Officer Chief Marketing Officer Group Executive, Transformation 1 Announced FY19 to commence in FY20 1 Growing long-term shareholder value 2 3 4 5 6 20
Slide 21: Coles' strategy aligns to long-term shareholder value
Coles’ strategy aligns to long-term shareholder value • Long-term revenue growth at least in-line with market growth • Cumulative cost-out of ~$1bn by FY23 • Increased levels of capital expenditure at returns in excess of cost of capital • Strong cash generation and balance sheet to fund growth and
Slide 22: Inspire Customers
Inspire Customers Steven Cain – Chief Executive Officer 1 2 Inspire customers 3 4 5 6 22
Slide 23: Customer expectations and behaviours are changing faster than ever
Customer expectations and behaviours are changing faster than ever Increasingly time poor – full time Weaker wage growth (~2%) ~64% of population growth 67% of population are employees working longer & and household debt ratio driven by immigration obese or overweight rising female workforce high (1
Slide 24: Inspire Customers through best value food and drink
Inspire Customers Inspire Customers • Customer obsessed through best value • Tailored offer with trusted and targeted value food and drink • Own Brand powerhouse solutions to make • Destination for convenience and health lives easier. • Leading anytime, anywhere shopping • Accelerate growth through
Slide 25: Customer obsessed
Customer obsessed Insights to drive decision making • Utilise ~27k Tell Coles surveys per week, Mum’s panel and proprietary research to drive insights • Leverage flybuys customer (6.6m active households) transaction data to build a full picture of customer needs • ~35 data scientists to analyse >1bn
Slide 26: Tailored offer with trusted and targeted value
Tailored offer with trusted and targeted value Tailor range to stores, expand online range • Tailoring 40% of layouts to ensure stores are optimised for demographics and operating efficiencies • Leverage Ocado to double online range (~40,000 SKUs) at minimal incremental cost Embed trusted value • Ac
Slide 27: Own Brand powerhouse
Own Brand powerhouse World class innovation | Unique brand identities | Partnerships 1 2 Inspire customers 3 4 5 6 27
Slide 28: Destination for convenience and health
Destination for convenience and health Convenience Health • Expanded choice in convenience range • Expand choice in Fresh departments through improved • Trial meal solutions availability and shelf life through faster fresh flows • Dedicated front of store convenience space starting • Grow Own Brand
Slide 29: Leading anytime, anywhere shopping
Leading anytime, anywhere shopping Customer offer Profitability Ocado • Increased home delivery slots • Picking efficiency through • Expanded range in growth in peak times technology improvements categories • Same-day delivery available • Volume driven cost • Best-in-class product nationally fractio
Slide 30: Accelerate growth through new markets - export
Accelerate growth through new markets - export Australian Brands in China Index 20191 Asia: Top FMCG and retail brands 4bn people 1. Dairy Farmers 2. Capilano Honey 3. Coles Australia: 4. Chemist Warehouse 25m people 5. T2 Teas Focus on meat Leverage competitive advantage • Focus on meat export – Co
Slide 31: Accelerate growth through new markets - flybuys
Accelerate growth through new markets - flybuys Today Strategy • 50:50 JV with Wesfarmers • Modernised loyalty • flybuys supports Coles on - Expanded partners and value, loyalty and data rewards insights - Subscription program • Key part of offer to customers • Data products and services with target
Slide 32: Inspire Customers: Liquor
Inspire Customers: Liquor • Re-platform website and rollout on-demand services • Increase personalised offers through flybuys and Vintage Cellars Wine Club • Range tailoring facilitated by new range and space systems • Drive Exclusive Liquor Brand penetration and increase innovation in low/no alcoho
Slide 33: Inspire Customers: Express
Inspire Customers: Express • Enhanced coffee offer through roll-out of new machines • Compelling meal solutions range across breakfast, lunch, dinner and snacking • Leverage food-to-go infrastructure across ~90% of the network • Deliver fresh bakery, healthy snacking, fresh produce, meat and chilled
Slide 34: Inspire Customers: summary
Inspire Customers: summary • Analyse >1bn transactions per annum to anticipate our customers’ needs • New innovative convenience meals range to be rolled-out following successful Pagewood trial. Expand range to be a leading health focussed retailer • Tailored layouts to land the right range in store
Slide 35: Smarter Selling
Smarter Selling Leah Weckert & Matt Swindells 1 2 3 Smarter Selling 4 5 6 35
Slide 36: Cost headwinds require intensified and disciplined approach
Cost headwinds require intensified and disciplined approach • Wage costs are significant and increasing ahead of comparable store sales growth • Energy and fuel input costs as well as waste are all growing • Sales transfer to online channel picking up pace, putting pressure on profitability of brick
Slide 37: Smarter Selling through efficiency
$1bn cumulative cost reduction by FY23 through Smarter Selling Smarter • Technology-led stores & supply chain Selling through • Strategic sourcing efficiency • Optimised network and formats & pace of change. • Efficient and agile SSC 1 2 3 Smarter Selling 4 5 6 37
Slide 38: Technology-led (stores)
Technology-led (stores) Store operating model Profit protection Expenses • Automation of manual tasks (e.g. • Next generation security (e.g. • Energy cost reductions through Easy Ordering in fresh, wearable smart EAS gates) reduced usage and switch to technology) • Simpler stocktake renewables • Sto
Slide 39: Technology-led (supply chain)
Technology-led (supply chain) One Coles supply chain Productivity gains Improved freshness • Automation program execution • Labour planning tools • Faster fresh flows to give product (Ocado and Witron) • Transport control towers life back to customer at lower • Primary and secondary cost to serve •
Slide 40: Strategic sourcing
Strategic sourcing Smarter Global sourcing Deepen supplier System and process buying and value relationships enablers • Monitoring input prices • Own Brand program to • Strategic partnerships to • SAP Ariba implementation • Simplified and transparent improve quality and create competitive to support
Slide 41: Optimised network
Optimised network Future store network Focus on greenfield and quality growth • Slow the rate of bricks and mortar network • Focus supermarket store openings in sites with growth significant population growth • Optimise future fleet size via rationalisation of • Reduce the amount of infill locations
Slide 42: A tailored store format strategy
A tailored store format strategy Format A Format B Format C Proposition A premium, foodie and Low cost, self service Premium offer focused convenience offer with Standard Coles offering operating model and on health, fresh and extended range simple to shop convenience Mid-high affluence, Medium affl
Slide 43: Efficient and agile
Efficient and agile Investing in systems SSC operating model Increased pace of change • Systems implementation to • Simpler, streamlined organisation • Future focussed facilitate self service of insights and removing duplication • Building agile capability across key data (e.g. SAP Success Factors)
Slide 44: Smarter Selling: summary
Smarter Selling: summary • Reduce costs through more efficient and agile organisation • Deploy technology to transform productivity • Partnering better with world class suppliers to reduce costs • Optimising the existing bricks and mortar property network to grow sales density whilst focussing on gr
Slide 45: Win Together
Win Together Steven Cain – Chief Executive Officer 1 2 3 4 Win together 5 6 45
Slide 46: Win together
Coles employs 9% of total employees in the retail trade sector We employ over — Gross capital expenditure 4,200 Sion indigenous team members per year Coles is the largest corporate on average sector employer of indigenous more than 30% team members in Australia and beverage manufacturing sector 2 3
Slide 47: Win Together with our team members, suppliers and communities
Win Together Win Together • Wellbeing and safety in our DNA with our team • Great place to work – increase engagement members, • Drive generational sustainability suppliers and communities. • Better together through diversity • Innovation through partnerships 1 2 3 4 Win together 5 6 47
Slide 48: Wellbeing and safety in our DNA
Wellbeing and safety in our DNA TRIFR performance 40.0 35.0 30.0 25.0 P1 P2 P3 P4 P5 P6 P7 P8 P9 P10 P11 P12 FY18 FY19 Safety leadership & culture Critical risk reduction Health & wellbeing • Health, safety & wellbeing • Coles is recognised for innovation • Coles is known for being in the DNA of Col
Slide 49: Great place to work – increase engagement
Great place to work – increase engagement Talent development LEaD behaviours Engaged team and retention • The behaviours we demonstrate • 80,000 of our team members • Retail Leaders program in when Coles is at its best responded to recent mysay survey Supermarkets and Express stores • Embedded in ou
Slide 50: Drive generational sustainability
Drive generational sustainability Sustainable communities Sustainable products Sustainable practices • ‘Australia First’ sourcing policy • Ethical, sustainable and welfare • Greener stores with reduced greenhouse • Coles Nurture Fund - $19m contributed credentialed sourcing emissions since launch to
Slide 51: Better together through diversity - FY23 charter
Better together through diversity - FY23 charter 1 2 3 4 Win together 5 6 51
Slide 52: Win Together: summary
Win Together: summary • Sustainably embed wellbeing and safety into Coles’ culture to provide a great place to work, shop and partner with • Attract, engage and retain talented team members to deliver on Coles’ purpose • Be recognised as Australia’s most sustainable supermarket • Become an employer
Slide 53: Coles' financial framework
Coles’ financial framework Leah Weckert – Chief Financial Officer 1 2 3 4 5 Coles financial framework 6 53
Slide 54: Coles' financial framework aligns with shareholder objectives
Coles’ financial framework aligns with shareholder objectives Sustainable cash Disciplined approach to Maintain a strong flow generation capital allocation balance sheet Cash flow Focus capex on growth & Maintain solid credit realisation > 100% efficiency initiatives metrics Returning surplus capita
Slide 55: Sustainable cash flow generation
Sustainable cash flow generation Historical cash flow realisation1 Key areas of focus Average ~100% over the past 3 years • Improved working capital management 100% • Disciplined focus on operating costs • Enhanced capital allocation framework Coles is a highly cash generative business which aims to
Slide 56: Disciplined approach to capital allocation
Disciplined approach to capital allocation Historic focus on… • ~1.5% - 2% space growth • Roll-out of capital spend across entire store network Renewed focus on… • Targeted new space – focus on population growth corridors • Store renewal capital expenditure targeted to drive better and more consiste
Slide 57: Disciplined approach to capital allocation
Disciplined approach to capital allocation • FY19 net capital expenditure guidance unchanged. Net capital expenditure to be $700-800m • Going forward focus will be on gross operating capital expenditure given property capital expenditure and disposals are dependent on market conditions • FY20 capita
Slide 58: Disciplined approach to capital allocation
Disciplined approach to capital allocation FY20 capital expenditure examples Store renewals • ~75 supermarket renewals (~50 FY19) • Format innovation Growth initiatives • ~10 new supermarket stores (~21 FY19) • Convenience meals roll-out • Online store footprint Efficiency initiatives • DC automatio
Slide 59: Disciplined approach to capital allocation
Disciplined approach to capital allocation • Target dividend payout ratio of 80% - 90% • Coles Board reconfirms a target dividend payout ratio of 80% - 90% of underlying earnings from 28 November 2018 to 30 June 2019 which will be payable in September 2019 • Dividend decision to be considered by the
Slide 60: Maintain a strong balance sheet
Maintain a strong balance sheet Gross debt and leverage 1H19 balance sheet position • Undrawn committed credit facilities A$2.1bn with an average maturity equating to 3.7 years • Gross debt of A$1.6bn (impacted by favourable working capital seasonality) ~1.0x ~0.8x • Exploring potential capital mark
Slide 61: Financial framework: summary
Financial framework: summary • Aim to achieve cash realisation greater than 100% • Refocus capital expenditure on growth and efficiency initiatives and deliver returns above cost of capital • Smarter Selling to deliver cumulative ~$1bn cost-out by FY23 Coles Group Ltd • Commitment to maintain invest
Slide 62: Updated outlook and summary of significant items
Updated outlook and summary of significant items • Supermarkets expect Q4 FY19 comparable sales to be in the upper half of the range between Q2 and Q3 adjusted results • Net capex remains within guidance of $700m - $800m • Smarter Selling restructuring provision of $15m - $20m to be included in FY19
Slide 63: Estimated impact of AASB 16
Estimated impact of AASB 16 AASB 16 lease accounting to be adopted from 1 July 2019 • Estimated proforma opening balance sheet impact on FY19 financials: − Additional $8 - 9bn lease liability (as at 1 July 2018) − Additional $7 - 8bn right-of-use asset (as at 1 July 2018) − Net impact, adjusted for
Slide 64: Summary of today
Summary of today 64
Slide 65: Measures of success of Coles' strategy
Measures of success of Coles’ strategy - 1 2 3 4 5 6 Concluding comments and Q&A 65
Slide 66: Q&A
Q&A