Wesfarmers Limited · ASX:WES
Wesfarmers — Merger or Acquisition (August 2007)
56 slides from Wesfarmers's merger presentation, Aug 16, 2007
Slide 1: Coles Acquisition Update: Wesfarmers' Plans for a Reinvigorated Coles
For personal use only Coles Acquisition Update: Wesfarmers’ Plans for a Reinvigorated Coles 16 August 2007
Slide 2: Disclaimer
Disclaimer For personal use only This presentation has been prepared by Wesfarmers Limited. The information contained in this presentation is for information purposes only and does not constitute an offer to issue or arrange to issue, securities or other financial products, nor is it intended to con
Slide 3: Agenda
Agenda For personal use only 1. Executive Summary 2. Wesfarmers’ Strategic Rationale 3. Management 4. Value Creation Opportunities 5. Plans for the Businesses 6. Financial Outcomes 7. Offer Details and Funding 8. Questions 3
Slide 4: 1. Executive Summary
For personal use only 1. Executive Summary 4
Slide 5: A unique opportunity
1. Executive Summary A unique opportunity For personal use only 1. Leading market positions in a highly All businesses meet attractive industry Wesfarmers’ key investment criterion: 2. Irreplaceable portfolio of retail POSITIVE NPV businesses 3. Wesfarmers’ retail sector know-how 9 Substantial value
Slide 6: 2. Wesfarmers' Strategic Rationale
For personal use only 2. Wesfarmers’ Strategic Rationale 6
Slide 7: Strategic setting for acquisitions
2. Wesfarmers’ Strategic Rationale Strategic setting for acquisitions For personal use only • Wesfarmers has generated significant returns by actively managing our asset portfolio through acquisition, divestment and capital management initiatives 10 year share price appreciation 10 year dividend per
Slide 8: Strategic setting for acquisitions: acquisition review
2. Wesfarmers’ Strategic Rationale Strategic setting for acquisitions For personal use only • Wesfarmers reviews a range of acquisition opportunities each year • Acquisition hurdle for investment is a positive NPV based on an ungeared discounted cash flow at appropriate risk weighted discount rates
Slide 9: Coles is an attractive opportunity
2. Wesfarmers’ Strategic Rationale Coles is an attractive opportunity For personal use only 1. Leading positions in a highly attractive industry structure Coles is a very 2. Unique retail platform with an irreplaceable store attractive network acquisition for 3. Wesfarmers’ retail sector know-how We
Slide 10: Attractive Industry Structure
2. Wesfarmers’ Strategic Rationale Attractive Industry Structure For personal use only • Food and liquor retailers are extremely resilient, with profit margins remaining steady throughout economic cycles Change in Consumer EBITDA Confidence Index Margin Per cent Per cent 25% 10% 20% 8% 15% 6% 10% 4%
Slide 11: Attractive Industry Structure: retailer EBITDA
2. Wesfarmers’ Strategic Rationale Attractive Industry Structure For personal use only EBITDA of Australian Listed Retailers $b 5.0 4.5 1997 – 2006 CAGR: 10% 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Source: Bloomberg. Total annual reported EBITDA of ASX l
Slide 12: Unique Platform and Asset Base: store footprint
2. Wesfarmers’ Strategic Rationale Unique Platform and Asset Base For personal use only • Coles has an irreplaceable store portfolio with a national footprint Coles Store Footprint by Business Supermarkets Liquor Fuel Kmart Target Officeworks VIC 185 150 151 41 65 34 NSW 230 246 187 48 86 32 QLD 148
Slide 13: Coles is one of two national leaders in supermarkets
2. Wesfarmers’ Strategic Rationale Unique Platform and Asset Base For personal use only • Coles is one of two national leaders in supermarkets Coles Packaged Grocery Market Share by Food and Liquor State National Market Share National: 34.1% Woolw orths 30% QLD: 33.1% Specialty / WA: 33.1% Others 47
Slide 14: Unique Platform and Asset Base: market shares
2. Wesfarmers’ Strategic Rationale Unique Platform and Asset Base For personal use only Discount DS Market Shares Fuel Market Shares Coles Target 24% Caltex Kmart 27% 23% 34% Others 11% Woolw orths 17% Exxon Other BigW 10% 13% 26% BP 15% Source: Bain & Company Source: CGJ, IBIS World 2005 and 2006 O
Slide 15: Wesfarmers' Presence in the Retail Sector
2. Wesfarmers’ Strategic Rationale Wesfarmers’ Presence in the Retail Sector For personal use only Australia’s Leading Retailers, based on FY06 Sales $b 40.0 35.0 Bunnings 30.0 Coles 25.0 20.0 15.0 10.0 5.0 0.0 Bunnings/ Coles (1) Woolworths (2) Metcash (3) Harvey Norman (4) Myer David Jones (1) Col
Slide 16: Potential for Growth
2. Wesfarmers’ Strategic Rationale Potential for Growth For personal use only • Ability to generate value and restore Coles' profit and growth potential Food and Liquor Comparable Store Sales Growth Per Cent 8.0 7.0 6.2 6.0 5.1 5.0 4.5 4.0 4.0 3.1 3.3 3.0 2.8 3.0 2.5 2.1 1.7 1.5 2.0 1.1 0.9 0.8 1.0
Slide 17: Creating Value - Three-Part Plan
2. Wesfarmers’ Strategic Rationale Creating Value - Three-Part Plan For personal use only • Wesfarmers has a three-part plan to deliver significantly improved returns from the Coles businesses Management (section 3) Financial Outcomes: Create value and Value Business enhance returns Creation Specifi
Slide 18: 3. Management
For personal use only 3. Management 18
Slide 19: Business Restructure
3. Management Business Restructure For personal use only • Wesfarmers will restructure the Coles businesses into the following reporting structure Wesfarmers Board Managing Director: Richard Goyder Finance Director: Gene Tilbrook Food, Liquor and Kmart Big Box Retailing Target Convenience Other Exis
Slide 20: Overview and Culture
3. Management Overview and Culture For personal use only • Change of ownership creates an environment for management to realise the full potential of the Coles businesses Bringing about Cultural Change Specific Plans for Management • Put the uncertainty and distraction of • Lean head and divisional
Slide 21: Food, Liquor and Convenience
3. Management Food, Liquor and Convenience For personal use only • Wesfarmers intends to implement a tailored approach to the management of the Food, Liquor and Convenience Division Management Structure Initiatives • Divisional Board and Management 1 • Addition of international retail expertise to D
Slide 22: Food, Liquor and Convenience: management plan progress
3. Management Food, Liquor and Convenience For personal use only • Wesfarmers’ management plan is progressing well, with candidates being identified for key positions Phase Progress 1. Global Search • Identify high calibre domestic and international retailers to fill key roles (Apr – Sep) 2. Short-L
Slide 23: Implementation of Management Plan
3. Management Implementation of Management Plan For personal use only Wesfarmers Managing Director Food, Liquor and • Management plan progressing well Convenience • High calibre candidates being short-listed for key senior positions • The Officeworks and Bunnings businesses will report as one divisi
Slide 24: 4. Value Creation Opportunities
For personal use only 4. Value Creation Opportunities 24
Slide 25: Value Creation Opportunities
4. Value Creation Opportunities For personal use only Divisional Autonomy Overhead Synergies Reduction Group wide value creation Kmart opportunities Strategic Supply Chain Review Cost Savings Working Restoring Capital Sales Release Momentum 25
Slide 26: Divisional Autonomy
4. Value Creation Opportunities Divisional Autonomy For personal use only • Coles’ shared service support functions will be restructured to replicate Wesfarmers’ model of divisional autonomy to create a more accountable business model Wesfarmers’ Divisional Autonomy Business Model Key Benefits • Spe
Slide 27: Overhead Reduction
4. Value Creation Opportunities Overhead Reduction For personal use only • Wesfarmers is targeting corporate overhead reductions in the order of $385 million per annum • These reductions include savings achieved to date in the Coles Simplification programme and should be achieved by late FY09 • Wesf
Slide 28: Supply Chain Cost Savings
4. Value Creation Opportunities Supply Chain Cost Savings For personal use only • Targeted supply chain cost savings of Net Benefits Coles WES $540 million per annum by FY13 ($m per annum) View View Benefits achieved to • This includes benefits achieved to 90 90 date date of $90m per annum Remaining
Slide 29: Supply Chain Cost Savings: review findings
4. Value Creation Opportunities Supply Chain Cost Savings For personal use only Coles’ cost saving programme has been thoroughly reviewed by Wesfarmers and its supply chain consultants and the key findings are: • The programme replicates global retail peers’ best practice • Benefits adversely impact
Slide 30: Restoring Sales Momentum
4. Value Creation Opportunities Restoring Sales Momentum For personal use only • Re-establishing sales momentum is critical to driving the turnaround – Short term: reverse the current comparable store sales momentum and move towards market comparable store sales growth – Medium term: comparable stor
Slide 31: Working Capital Release
4. Value Creation Opportunities Working Capital Release For personal use only • Goal: release more than $300m in Coles working capital over next five years • Divisional management will be accountable for improvements in working capital under Wesfarmers’ plans Sources of Working Capital Improvements
Slide 32: Kmart Strategic Review
4. Value Creation Opportunities Kmart Strategic Review For personal use only • Wesfarmers is confident that one or a combination of these options will deliver value in excess of that assumed in Wesfarmers’ valuation • While Wesfarmers’ preference is to retain the businesses, all options to maximise
Slide 33: Synergies
4. Value Creation Opportunities Synergies For personal use only • In addition to the other opportunities, Wesfarmers has identified potential head office and retail brand synergies Head Office Synergies Retail Brands Synergies 9 Coles listing and related public company costs 9 Leverage Coles’ global
Slide 34: 5. Plans for the Businesses
For personal use only 5. Plans for the Businesses 34
Slide 35: Plans for the Businesses: Overview
5. Plans for the Businesses Overview For personal use only Medium Term Value Creation – NPV Positive Value Accretive from Date of Acquisition Food, Liquor and Convenience Target • Stabilise the business • Focus on retail basics • Continuation of strong performance • Deliver supply chain cost savings
Slide 36: Food
5. Plans for the Businesses Food For personal use only • Focus operational strategies to create medium term growth First Immediate Goals 12 months •• Focus Focus on on retail retail basics basics •• Increase Increase focus focus on on space space and and category “Engage “Engagewith with •• Review R
Slide 37: Liquor
5. Plans for the Businesses Liquor For personal use only • Focus operational strategies to maximise brand potential First Immediate Goals 12 months •• Review Review key key areas areas •• Focus Focus on on 1st 1st Choice Choice roll- roll- including: including: out and performance out and performanc
Slide 38: Convenience
5. Plans for the Businesses Convenience For personal use only • Focus operational strategies to drive improved performance through convenience offering First Immediate Goals 12 months •• Review Review key key areas areas •• Drive Drive network network expansion expansion including: and refurbishment
Slide 39: Kmart
5. Plans for the Businesses Kmart For personal use only • Focus operational strategies on maximising value First Immediate Goals 12 months •• Conduct Conduct aa review review of of the the •• Execute Execute recommendations recommendations business to determine of “Undertake “Undertakebusiness busin
Slide 40: Target
5. Plans for the Businesses Target For personal use only • Focus operational strategies to continue current strong performance First Immediate Goals 12 months •• Review Review key key areas areas •• Strengthen Strengthen position position in in key key including: including: categories through produc
Slide 41: Officeworks
5. Plans for the Businesses Officeworks For personal use only • Focus operational strategies to achieve category leadership First Immediate Goals 12 months •• Align Align Officeworks Officeworks with with •• Expand Expand categories categories of of Bunnings Bunnings natural leadership natural leade
Slide 42: Investing for Growth - Capital Expenditure
5. Plans for the Businesses Investing for Growth - Capital Expenditure For personal use only • Wesfarmers has a history of ongoing investment in its businesses to deliver shareholder value • Approximately 70% of capex will be invested in the network (across brands) through new store roll out, increa
Slide 43: 6. Financial Outcomes
For personal use only 6. Financial Outcomes 43
Slide 44: Acquisition provides a platform to generate substantial value
6. Financial Outcomes For personal use only • Acquisition of Coles provides a platform to generate substantial value for Wesfarmers’ and Coles’ shareholders 9 NPV Positive • Acquisition meets Wesfarmers investment criteria of delivering a positive NPV • Food / Liquor / Convenience a major vehicle fo
Slide 45: Value Creation Opportunities
6. Financial Outcomes Value Creation Opportunities For personal use only • Substantial value creation opportunities are readily identifiable Opportunity Initiatives Potential Financial Outcomes1 Overhead Reduction Ensuring overhead reduction savings are $385m2 pa cost savings by FY09 sustainable Sup
Slide 46: Timing
6. Financial Outcomes Timing For personal use only • We expect the benefits of Wesfarmers’ strategies to begin flowing in FY09 • In terms of reported returns, FY08 and FY09 will be impacted by: – The acquisition occurring part way through FY08 – Transaction costs – The remaining one-off costs associ
Slide 47: Dividends
6. Financial Outcomes Dividends For personal use only • Wesfarmers expects to pay fully franked dividends in excess of $2.00 per share in FY2008 and FY2009 if the Coles transaction proceeds, subject to the availability of retained earnings and franking credits • Represents an estimated 73% increase
Slide 48: How we will measure our success – short term
6. Financial Outcomes How we will measure our success – short term For personal use only Short Term Initiatives Objective Measure Stabilisation of Supermarkets 9 Reverse current comparable store sales • Comparable store sales growth momentum by FY08/09 and move towards • Total sales market comparabl
Slide 49: How we will measure our success – medium term
6. Financial Outcomes How we will measure our success – medium term For personal use only Medium Term Initiatives Objective Measure Restoring sales 9 Comparable store sales growth in line • Comparable store sales growth momentum in with market comparable store sales • New store openings growth by FY
Slide 50: 7. Offer Details and Funding
For personal use only 7. Offer Details and Funding 50
Slide 51: Key Offer Terms
7. Offer Details and Funding Key Offer Terms For personal use only • Wesfarmers’ proposal gives Coles shareholders the flexibility of three forms of consideration Wesfarmers Offer • 0.2843 Wesfarmers shares Base Offer • $4 cash • Maximum proportion of scrip available (based on the level of demand fr
Slide 52: Offer Conditions
7. Offer Details and Funding Offer Conditions For personal use only Implementation of the scheme is subject only to a number of limited conditions • Coles shareholder and Court approval and associated mechanical conditions • Condition relating to the trading price of Wesfarmers shares staying above
Slide 53: Debt and Funding
7. Offer Details and Funding Debt and Funding For personal use only • Committed corporate debt Acquisition Debt $bn facilities in place to fund cash Cash component of bid 4.3 portion of offer Coles net debt1 1.3 • Discussions underway with S&P Refinanced bridge facility 2.1 • Insurance underwriting
Slide 54: Scheme Implementation
7. Offer Details and Funding Scheme Implementation For personal use only • Wesfarmers is expecting to complete the acquisition of Coles on 14 November Indicative Timetable Scheme book lodged with ASIC 31 August 2007 Scheme book available to Coles Shareholders Mid September Coles Shareholder Meeting
Slide 55: 8. Questions
For personal use only 8. Questions 55
Slide 56: For all the latest news visit www.wesfarmers.com.au
For personal use only For all the latest news visit www.wesfarmers.com.au 56