Wesfarmers Limited · ASX:WES
Wesfarmers — H1 2018 Earnings Presentation
55 slides from Wesfarmers's earnings presentation, Feb 21, 2018
Slide 1: 2018 Half-year Results Briefing Presentation
2018 Half-year Results Briefing Presentation Wednesday, 21 February 2018
Slide 2: Presentation outline
Presentation outline Item Presenter Page Group Performance Overview Rob Scott 3 Group Balance Sheet & Cash Flow Anthony Gianotti 10 Bunnings Australia & New Zealand 17 Michael Schneider Bunnings United Kingdom & Ireland 22 Coles John Durkan 26 Department Stores Guy Russo 34 Officeworks Mark Ward 38
Slide 3: Group Performance Overview
Group Performance Overview Rob Scott Managing Director, Wesfarmers Limited
Slide 4: The Wesfarmers Way
The Wesfarmers Way Wesfarmers’ objective is to deliver satisfactory returns to shareholders over the long term ENABLERS Divisional autonomy Active portfolio management Underpinned by a strong balance sheet & sustainable practices AREAS OF FOCUS ` ` Leveraging data & Entrepreneurial World’s best tale
Slide 5: Active portfolio management
Active portfolio management Group transaction activity (inflation adjusted transaction size) Acquisitions Coles Group Howard Smith Homebase Quadrant IAMA Energy Coregas Coles credit Bengalla Aust Lumley card book Bunnings Finance deposit Railroad Workwear Group Aust & OAMPS Group Western NZ Australi
Slide 6: Developing our digital & data capabilities
Developing our digital & data capabilities • Total retail online sales of $761m, up 22%, for 1H18 Total retail online sales $m • Officeworks continuing to strengthen market-leading 1,400 ‘every-channel’ proposition 1,200 1,000 – Free click & collect and free same day delivery 800 600 400 • Coles inv
Slide 7: Group performance summary
Group performance summary Half-year ended 31 December ($m) 2017 2016 Var % Revenue 35,903 34,917 2.8 EBITDA 1,763 3,064 (42.5) EBIT 1,113 2,429 (54.2) EBIT (exc. significant items)1 2,350 2,429 (3.3) Net profit after tax 212 1,577 (86.6) Net profit after tax (exc. significant items)1 1,535 1,577 (2.
Slide 8: Divisional earnings summary
Divisional earnings summary EBIT ($m) Half-year ended 31 December 2017 2016 Var % Var $m Bunnings Australia & NZ 864 770 12.2 94 Bunnings UK & Ireland1 (165) (48) n.m. (117) Coles2 790 920 (14.1) (130) Department Stores3 415 387 7.2 28 Officeworks 68 62 9.7 6 WesCEF4 188 187 0.5 1 Industrial & Safet
Slide 9: Divisional return on capital
Divisional return on capital Rolling 12 months to 31 December 2017 2016 EBIT Cap Emp RoC RoC Var ($m) ($m) (%) (%) (ppt) Bunnings Australia & NZ 1,428 3,041 47.0 39.0 8.0 Bunnings UK & Ireland1 (206) 935 (22.0) n.a. n.a. Coles2 1,479 16,486 9.0 11.1 (2.1) Department Stores3 571 2,177 26.2 9.2 17.0 O
Slide 10: Group Balance Sheet & Cash Flow
Group Balance Sheet & Cash Flow Anthony Gianotti Chief Financial Officer, Wesfarmers Limited
Slide 11: Other business performance summary
Other business performance summary Half-year ended 31 December ($m) Holding % 2017 2016 Var % Share of profit of associates BWP Trust 25 26 18 44.4 Other Various 6 13 (53.8) Sub-total share of profit of associates 32 31 3.2 Interest revenue1 6 3 100.0 Other (35) (6) n.m. Corporate overheads (74) (67
Slide 12: Significant items summary
Significant items summary Half-year ended 31 December 2017 ($m) Pre-tax Tax impact Post-tax Homebase goodwill impairment (777) - (777) Homebase brand name impairment (18) - (18) Inventory writedowns (66) - (66) Store closure provision (70) - (70) Deferred tax asset write-off - (92) (92) Total BUKI (
Slide 13: Operating cash flows & working capital management
Operating cash flows & working capital management • Operating cash flows increased $249m to Half-year ended 31 December ($m) 2017 2016 $2,897m Cash movement inflow/(outflow) – Improvement in cash realisation ratio to Receivables & prepayments (169) (110) 132.6%1 Inventory (452) (617) – Highly cash g
Slide 14: Disciplined capital expenditure
Disciplined capital expenditure Half-year ended 31 December • Gross capital expenditure increased $80m to ($m)1 2017 2016 Var % $1,004m BANZ 275 212 29.7 – Acquisition of Kmart brand name for $100m BUKI 56 16 n.m. Coles 377 463 (18.6) – Higher number of store openings in BANZ Department Stores 201 1
Slide 15: Balance sheet & debt management
Balance sheet & debt management • Net financial debt1 of $3.9b as at Debt maturity profile2 $m 31 December 2017, down from $4.3b at 2,000 30 June 2017 1,500 1,000 – US$750m bond maturing in March 2018; 500 expected to be repaid using cash at bank 0 • Finance costs decreased 23.5% to $114m due (500)
Slide 16: Dividends
Dividends • Dividend distributions subject to earnings, $m Net cash flow composition 4,000 franking credit availability, credit metrics & 3,000 cash flow 2,000 – Maximising value of franking credits for 1,000 shareholders 0 (1,000) • Interim dividend of $1.03 per share, (2,000) fully-franked (3,000)
Slide 17: Bunnings Australia & New Zealand
Bunnings Australia & New Zealand Michael Schneider Managing Director, Bunnings Group
Slide 18: Bunnings Australia & New Zealand performance summary
Bunnings Australia & New Zealand performance summary Half-year ended 31 December ($m) 2017 2016 Var % Revenue 6,566 5,957 10.2 EBITDA1 953 853 11.7 Depreciation & amortisation (89) (83) (7.2) EBIT1 864 770 12.2 EBIT margin1 (%) 13.2 12.9 RoC (R12, %) 47.0 39.0 Safety (R12, AIFR) 15.8 21.0 Total stor
Slide 19: Bunnings Australia & New Zealand overview
Bunnings Australia & New Zealand overview • Revenue growth of 10.2% – Total store growth of 10.1%; store-on-store growth of 9.0% – Positive trading performance across all regions, consumer & commercial & all categories – Cycling weather & stock liquidation impacts • EBIT increase of 12.2% – Operatin
Slide 20: Bunnings Australia & New Zealand overview (continued)
Bunnings Australia & New Zealand overview (continued) Continued focus on strategic agenda Creating better experiences – Accelerating digital capability – More in-store activities – Deeper community engagement & support Strengthening the core – Continuous safety improvements – More product training –
Slide 21: Bunnings Australia & New Zealand outlook
Bunnings Australia & New Zealand outlook • Dynamic competitive environment • Strong focus on long-term value creation • Continued network reinvestment & expansion • Ongoing investments in lower prices, range innovation & customer service • Further property recycling • Launch online selling for speci
Slide 22: Bunnings United Kingdom & Ireland
Bunnings United Kingdom & Ireland Michael Schneider Managing Director, Bunnings Group
Slide 23: Bunnings United Kingdom & Ireland performance summary
Bunnings United Kingdom & Ireland performance summary Half-year ended 31 December ($m) 2017 2016 Var % Revenue 875 1,038 (15.7) EBITDA1 (140) (20) n.m. Depreciation & amortisation (25) (28) 10.7 EBIT1 (165) (48) n.m. EBIT margin1 (%) (18.9) (4.6) RoC (R12, %) (22.0) n.a. Safety (R12, AIFR) 16.4 n.a.
Slide 24: Bunnings United Kingdom & Ireland overview
Bunnings United Kingdom & Ireland overview • Revenue down 15.7% – Significant clearance volumes in prior year – Inconsistent store standards – New ranges did not offset exit of discontinued lines • 15 pilots trading as at 31 December 2017 – Positive customer feedback & community engagement – Widest
Slide 25: Bunnings United Kingdom & Ireland outlook
Bunnings United Kingdom & Ireland outlook • Ongoing review to identify options to improve shareholder returns – Update at June 2018 Strategy Briefing Day • Short-term focus on significantly improving execution to improve Homebase trading performance – Store network review ongoing • Reviewing & refin
Slide 26: Coles
Coles John Durkan Managing Director, Coles
Slide 27: Coles performance summary
Coles performance summary Half-year ended 31 December ($m) 2017 2016 Var % Coles Revenue1 19,978 20,056 (0.4) EBITDA2 1,121 1,240 (9.6) Depreciation & amortisation (331) (320) (3.4) EBIT2 790 920 (14.1) EBIT margin2 (%) 4.0 4.6 RoC (R12, %) 9.0 11.1 Safety (R12, TRIFR) 36.1 41.8 Food & Liquor Revenu
Slide 28: Food & Liquor overview
Food & Liquor overview • Customer focus maintained in a competitive market • Sales momentum improved during the half – Stronger Q2 comparable transaction growth, the highest in six quarters – Units per basket growth – Fresh participation & market share gains – Customer satisfaction improvements • Re
Slide 29: Food & Liquor overview
Food & Liquor overview • Balanced focus on improving the customer offer – Store network: 35 renewals completed during the period, 14 supermarkets opened – Fresh: Improved quality has seen growth in participation & market share – Service: Investment in team hours & training continues – Coles Brand: P
Slide 30: Food & Liquor overview: New services & channels
Food & Liquor overview: New services & channels • Coles Online continues to improve the customer experience – Strong double digit sales & transaction growth – Disciplined investment & cost control leading to profitable growth – Award winning customer offer (Canstar Blue) • Largest ‘Online Supermarke
Slide 31: Food & Liquor overview: Liquor transformation progresses
Food & Liquor overview: Liquor transformation progresses • Positive momentum continues – Nine quarters of comparable sales growth – Strong transaction growth achieved • Improved quality of store network – 90 Liquorland renewals completed • Improved price competitiveness & range • Enhanced omnichanne
Slide 32: Convenience overview
Convenience overview • Lower earnings driven by lower fuel volumes & Expanding the convenience store network commercial terms of Alliance agreement # stores 32 • A market-leading convenience store offer 28 24 20 – Positive comparable store sales growth 16 31 12 22 – Strong growth in food-to-go offer
Slide 33: Coles outlook
Coles outlook • Coles believes a customer-led approach will best position the business for long-term growth • Sales momentum achieved in 2Q18 in Supermarkets expected to continue in 2H18 • Price deflation expected to remain at elevated levels due to lower fresh produce prices & Cyclone Debbie impact
Slide 34: Department Stores
Department Stores Guy Russo Chief Executive Officer, Department Stores Managing Director, Target
Slide 35: Department Stores performance summary
Department Stores performance summary Half-year ended 31 December ($m) 2017 2016 Var % Revenue 4,769 4,619 3.2 EBITDA1 518 486 6.6 Depreciation & amortisation (103) (99) (4.0) EBIT1 415 387 7.2 EBIT margin1 (%) 8.7 8.4 RoC2 (R12, %) 26.2 9.2 Safety (R12, LTIFR) 4.7 5.4 Kmart Total sales growth3 (%)
Slide 36: Department Stores overview
Department Stores overview • Revenue growth of 3.2% – Kmart: continued investment in price resulted in higher customer transactions & units per basket – Target: further reset of product, price & range, particularly across womenswear, toys & general merchandise • Continued growth in Kmart earnings su
Slide 37: Department Stores outlook
Department Stores outlook • Department Stores division is well-positioned to grow • Kmart will continue its focus on driving sustainable growth through: – Ongoing investment in price to drive volume – Focus on reducing costs & increasing operational productivity with improved product availability in
Slide 38: Officeworks
Officeworks Mark Ward Managing Director, Officeworks
Slide 39: Officeworks performance summary
Officeworks performance summary Half-year ended 31 December ($m) 2017 2016 Var % Revenue 1,017 927 9.7 EBITDA 80 74 8.1 Depreciation & amortisation (12) (12) - EBIT 68 62 9.7 EBIT margin (%) 6.7 6.7 RoC (R12, %) 15.7 13.9 Safety (R12, AIFR) 10.8 14.7 Sales growth1 9.8 5.8 1. 2017 growth reflects the
Slide 40: Officeworks overview
Officeworks overview • Strong headline results % Revenue growth momentum 12.0 – Revenue growth of 9.7% 9.9 9.7 10.0 9.1 Sales growth in stores & online 7.7 8.0 7.0 5.9 6.3 – EBIT growth of 9.7% 6.0 Effective gross margin & CODB management 4.0 – RoC (R12) up 1.8 ppts to 15.7% 2.0 0.0 • Ongoing im
Slide 41: Officeworks outlook
Officeworks outlook • Strong back-to-school trading results • Competitive intensity expected to continue, particularly in technology • Further enhancement of offer through range extension & merchandise initiatives • Ongoing focus on execution of strategic agenda – Strengthen & expand the customer of
Slide 42: Industrials
Industrials David Baxby Managing Director, Industrials
Slide 43: Industrials performance summary
Industrials performance summary Half-year ended 31 December ($m) 2017 2016 Var % Revenue Chemicals, Energy & Fertilisers1 764 695 9.9 Industrial & Safety 869 884 (1.7) Resources 1,071 742 44.3 Total 2,704 2,321 16.5 EBITDA Chemicals, Energy & Fertilisers2 223 225 (0.9) Industrial & Safety 73 73 - Re
Slide 44: Chemicals, Energy & Fertilisers performance summary
Chemicals, Energy & Fertilisers performance summary Half-year ended 31 December ($m) 2017 2016 Var % Revenue Chemicals 439 412 6.6 Energy1 223 182 22.5 Fertilisers 102 101 1.0 Total 764 695 9.9 EBITDA 223 225 (0.9) Depreciation & amortisation (35) (38) 7.9 EBIT 188 187 0.5 EBIT excluding significant
Slide 45: Chemicals, Energy & Fertilisers overview
Chemicals, Energy & Fertilisers overview • Increased revenue, earnings & ROC, supported by strong production performance & solid demand • Chemicals’ earnings increased compared to the previous corresponding period: – Strong production across all plants, particularly Ammonia due to disruptions in pre
Slide 46: Industrial & Safety performance summary
Industrial & Safety performance summary Half-year ended 31 December ($m) 2017 2016 Var % Revenue 869 884 (1.7) EBITDA 73 73 - Depreciation & amortisation (21) (21) - EBIT 52 52 - EBIT margin (%) 6.0 5.9 RoC (R12, %) 8.3 5.9 Safety (R12, LTIFR) 1.5 1.0 2018 Half-year results | 46
Slide 47: Industrial & Safety overview
Industrial & Safety overview • Revenue decline of 1.7% – Strong demand in the mining & construction sectors did not offset weakness in other sectors & timing of uniform sales in Workwear Group • Earnings of $52m in line with the previous corresponding period – Blackwoods: improved trading margins du
Slide 48: Resources performance summary
Resources performance summary Half-year ended 31 December ($m) 2017 2016 Var % Revenue 1,071 742 44.3 Royalties1 (220) (90) n.m. Mining & other costs (609) (481) (26.6) EBITDA 242 171 41.5 Depreciation & amortisation (33) (33) - EBIT 209 138 51.4 RoC (R12, %) 77.0 (6.1) Coal production (‘000 tonnes)
Slide 49: Resources overview
Resources overview • Continued strength in coal prices during 1H18 & strong production resulted in 44.3% increase in revenue – 1H18 sales mix: Hard 48%; Semi 12%; PCI 40% – Lower hedge book losses of $17m ($45m in 1H17) • 51.4% increase in EBIT due to higher revenue • Stanwell obligations reduced 1H
Slide 50: Industrials outlook
Industrials outlook Chemicals, Energy & Fertilisers • Production & demand for products is expected to remain strong for the remainder of the financial year • Increased competition & over-supply in AN & fertiliser markets in the medium term • International commodity prices, exchange rates & seasonal
Slide 51: Industrials outlook
Industrials outlook Resources • Earnings dependent on export coal pricing & exchange rates, with export market conditions expected to remain volatile in the near term • Aurizon train derailment in January 2018 & recently announced changes to network operations expected to affect 2H18 coal sales volu
Slide 52: Group Outlook
Group Outlook Rob Scott Managing Director, Wesfarmers Limited
Slide 53: Outlook
Outlook Group • Continued focus on strong cash flow generation & maintaining strong balance sheet • Continue to reinforce strong customer offers across all brands • Acceleration of data & digital initiatives across the Group • Attracting, developing & retaining the best talent • Progressing growth o
Slide 54: Questions
Questions
Slide 55: Wesfarmers
4 Wesfarmers