Wesfarmers Limited · ASX:WES
Wesfarmers — FY2002 Earnings Presentation
72 slides from Wesfarmers's earnings presentation, Aug 6, 2002
Slide 1: Annual Results Presentation
Annual Results Presentation Year Ended 30 June 2002
Slide 2: Presentation Outline
Presentation Outline ¾ Opening Comments - Michael Chaney ¾ 2002 Performance - Richard Goyder ¾ Divisional Comments - David Robb - Mark Allison - Bob Denby - Peter Davis - John Gillam ¾ Outlook for 2003 - Michael Chaney August 2002 2
Slide 3: Richard Goyder
Richard Goyder 4 Wesfarmers
Slide 4: Performance Summary
Performance Summary Year End 30 June ($m) 2001 2002 % Operating Revenue 4,389 7,386 68.3 Net Profit (before Goodwill) 261.4 493.3 88.7 Goodwill Amortisation (10.4) (79.3) 662.5 Net Profit (after Goodwill) 251.0 414.0 64.9 Earnings Per Share (before Goodwill) (cents) 96.2 138.2 43.7 August 2002 4
Slide 5: 2002 Performance Highlights
2002 Performance Highlights ¾ Strong growth in Hardware ¾ Strong growth in coal earnings ¾ Satisfactory performance - Gas ¾ Synergy and scale benefits in Rural businesses ¾ Strong premium income growth – Insurance ¾ Strong growth on 2001 – Industrial Products ¾ Significantly improved Fertilisers and
Slide 6: Profit on sale of non-current assets
Profit on sale of non-current assets Year Year Ended Ended After Tax ($m) 30 June 30 June 2001 2002 Hardware 4.7 (0.1) Energy 0.9 0.1 Rural Operations & Insurance - 0.4 Industrial & Safety - 0.8 Fertiliser & Chemicals - 0.1 Other 12.5 8.6 18.1 9.9 August 2002 6
Slide 7: Divisional EBIT
Divisional EBIT (before Goodwill Amortisation) 2000/2001 2001/2002 $488 million $831 million 10.2% 5.9% 28.1% 9.7% 10.7% 12.4% 8.9% 10.8% 35.8% 39.0% 28.5% Other Rural and Insurance Fertiliser & Chemicals Energy Hardware Industrial & Safety August 2002 7
Slide 8: Divisional ROC & Cap Employed
Divisional ROC & Cap Employed Rolling 12 months Capital ROC ROC Year End 30 June ($m) EBIT Employed % % 2002 2001 Hardware 250.5 1,841.4 13.6 23.9 Energy 236.5 845.7 28.0 24.4 Rural Operations & Insurance 80.1 494.1 16.2 15.5 Industrial & Safety * 61.7 708.5 8.7 - Fertilisers and Chemicals 73.3 488.
Slide 9: Divisional ROC & Cap Employed Before Goodwill Amortisation
Divisional ROC & Cap Employed Before Goodwill Amortisation Rolling 12 months Capital ROC Year End 30 June ($m) EBITA Employed % 2002 Hardware 297.1 1,887.9 15.7 Energy 236.9 846.1 28.0 Rural Operations & Insurance 89.2 503.2 17.7 Industrial & Safety * 84.8 731.5 11.6 Fertilisers and Chemicals 73.5 4
Slide 10: Return on Shareholders' Funds
Return on Shareholders’ Funds (before Goodwill Amortisation) % 20 15 10 5 0 1998 1999 2000 2001 2002* Target * Calculated on average monthly shareholders’ funds to take into account the issue of shares August 2002 10
Slide 11: Cashflow & Dividend
Cashflow & Dividend Cents 210 175 140 105 70 35 0 1998 1999 2000 2001 2002 EPS (before Goodwill Amortisation) Cashflow Dividend August 2002 11
Slide 12: Net Debt/Equity
Net Debt/ Equity % 80 70 60 Target 50 40 30 20 10 0 1998 1999 2000 2001 2002 Net Debt / Equity August 2002 12
Slide 13: Interest Cover
Interest Cover times 35 30 25 20 15 10 Minimum 5 0 1998 1999 2000 2001 2002 Cash Interest Cover August 2002 13
Slide 14: Capital Expenditure & Depreciation
Capital Expenditure & Depreciation $m 3,000 700 600 2,000 500 500 400 400 300 300 200 200 100 100 0 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 Capex Acquisitions Depreciation August 2002 14
Slide 15: Energy
Energy David Robb 4 Wesfarmers
Slide 16: Wesfarmers Energy Limited
Wesfarmers Energy Limited August 2002 16
Slide 17: Energy 2002 Environment
Energy 2002 Environment Gas ¾ International prices 25% lower ¾ Autogas demand down 10%+ ¾ Industrial gases growth Coal ¾ Western Power delivery shortfall ¾ Coking coal demand and prices firm ¾ Weak thermal markets August 2002 17
Slide 18: LPG Prices Saudi CP
LPG Prices Saudi CP US$/t 370 350 330 310 290 270 250 230 210 190 170 150 130 110 C3 C3 90 US$312 US$230 70 JAN JAN JAN JAN JAN JAN JAN JAN JAN JAN 93 94 95 96 97 98 99 00 01 02 PROPANE BUTANE August 2002 18
Slide 19: Hard Coking Coal Prices Japan Benchmark
Hard Coking Coal Prices Japan Benchmark JRP US$/Tonne FOB nominal 60 55 50 45 40 35 30 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 August 2002 19
Slide 20: Thermal Coal Prices
Thermal Coal Prices $45.00 $40.00 $35.00 $30.00 $25.00 $20.00 • Reference Price less relevant $15.00 • Oversupply to continue $10.00 $5.00 $- Apr-87 Dec- Aug- Apr-89 Jan-90 Sep- May- Jan-92 Oct-92 Jun-93 Feb- Nov-94 Jul-95 Mar- Nov-96 Aug- Apr-98 Dec- Sep- May- Jan-01 Sep- Jun-02 87 88 90 91 94 96 9
Slide 21: Health and Safety
Health and Safety The #1 Priority No LTI 15 LTI for No LTI down to 10 yrs for 5 514 days LTI = Lost Time Injury August 2002 21
Slide 22: Production
Production WLPG Coal t (‘000) t (‘000) 400 14,000 12,000 300 10,000 8,000 200 6,000 4,000 100 2,000 0 0 1999 2000 2001 2002 1999 2000 2001 2002 Premier Curragh Bengalla (40%) August 2002 22
Slide 23: Sales Volumes 2002 versus 2001
Sales Volumes 2002 versus 2001 ¾ Kleenheat Gas (1) 10% ¾ Wesfarmers LPG 0% ¾ Air Liquide (2) 15% ¾ Premier 0% ¾ Curragh 21% ¾ Bengalla 4% (1) Adjusted for Unigas (2) Pipeline Sales August 2002 23
Slide 24: Profitable Growth
Profitable Growth Revenues $m 1,200 $978m $964m 1,000 800 $588m 600 $472m 400 200 0 1999 2000 2001 2002 Gas Coal August 2002 24
Slide 25: Profitable Growth: Financial Performance
Profitable Growth Financial Performance EBIT ROC $m % 280 30 240 25 200 20 160 15 120 10 80 40 5 0 0 1999 2000 2001 2002 1999 2000 2001 2002 August 2002 25
Slide 26: Energy Developments
Energy Developments ¾ Unigas, Bangladesh sales start ¾ LPG plant debottleneck ¾ 350,000 TPA capacity ¾ ALWA HIsmelt supply discussions ¾ Statewest Power Acquisition August 2002 26
Slide 27: Energy Developments (cont.)
Energy Developments (cont.) ¾ Premier / WPC progress on coal shortfall ¾ Curragh upgrade and expansion ¾ Girrah coal deposit evaluation ¾ Potential 4 mtpa ROM coal for 15 years August 2002 27
Slide 28: Energy Issues
Energy Issues ¾ LPG prices and demand ¾ Prices up 5 – 10% ¾ Coal volumes and prices ¾ Export sales increase ¾ Exchange rates ¾ 2002/03 export sales >80% hedged ¾ Premier restructuring ¾ -500,000 tonnes, 64 redundancies ¾ Project opportunities August 2002 28
Slide 29: Rural Operations & Insurance
Rural Operations & Insurance Mark Allison
Slide 30: August 2002
eo Wesfarmers ——— LANDMARK STS 30
Slide 31: Financial Performance
Financial Performance $m EBIT % ROC 90 25 80 70 20 60 15 50 40 10 30 20 5 10 0 0 2000 2001 2002 2000 2001 2002 August 2002 31
Slide 32: Rural Operations By Activity - 2002
Rural Operations By Activity - 2002 ¾ Merchandise and Fertiliser revenue 33% ¾ Livestock Agency revenue 18% ¾ Wool Broking revenue 19% ¾ Real Estate revenue 36% ¾ Insurance Premium income 15% ¾ Size of Finance Loan Book 44% August 2002 32
Slide 33: Wesfarmers Federation Insurance
Wesfarmers Federation Insurance ¾ New business up by 30% ¾ Strong earnings growth and sound expense management offset higher crop claims August 2002 33
Slide 34: Landmark Merger Progress
Landmark Merger Progress ¾ Branch rationalisation on plan (31 of 39) ¾ Merchandise logistics & procurement on plan ¾ Centralised IT systems August 2002 34
Slide 35: Landmark Merger Progress (cont.)
Landmark Merger Progress (cont.) ¾ Major non-core asset sales completed ¾ Staff savings (reduced by 300) ¾ Wesfarmers Landmark re-branding on plan August 2002 35
Slide 36: Issues & Outlook 2003
Issues & Outlook 2003 ¾ Dry market conditions ¾ Variable outlook for commodities ¾ Farmer terms of trade ¾ Tight management of costs & capital ¾ Focus on growth strategies August 2002 36
Slide 37: Industrial & Safety
Industrial & Safety Bob Denby
Slide 38: Financial Analysis
Financial Analysis ¾ EBIT: $61.7m for 11 months ¾ ROC: 8.7% August 2002 38
Slide 39: Performance by Business Unit
Performance by Business Unit Blackwoods ¾ Solid sales and EBITA result overall ¾ Northern & Southern strong Motion Industries ¾ Big improvement off low base August 2002 39
Slide 40: Performance by Business Unit (cont.)
Performance by Business Unit (cont.) Australian Safety ¾ Combined Protector & Alsafe ¾ Good sales & EBITA growth New Zealand ¾ NZ Safety, Protector NZ, Packaging House and Blackwoods NZ ¾ Strong sales ¾ All businesses exceeded budget EBITA August 2002 40
Slide 41: Key Factors Impacting Performance
Key Factors Impacting Performance ¾ Wesfarmers Industrial & Safety formed 1 August 2001 - new management team and structure ¾ Strong revenue contribution from mining sector ¾ Manufacturing sector improved during second half 2001/02 ¾ Continued growth in safety products ¾ Operation Deliver successful
Slide 42: Key Factors Impacting Performance (cont.)
Key Factors Impacting Performance (cont.) ¾ Continued emphasis on development of strategic alliances with key suppliers and customers ¾ Continued rollout of E-business solutions to supplier and customer base ¾ Consolidation to two ERP computer platforms ¾ Formation of Wesfarmers Industrial & Safety
Slide 43: Wesfarmers Industrial & Safety Organisation Structure Changes
Wesfarmers Industrial & Safety Organisation Structure Changes ¾ Successful integration of Atkins Carlyle business into Blackwoods ¾ Successful integration of Protector NZ ¾ Alsafe Safety and Protector Australia combined into a single business unit ¾ Sale of Metals distribution business in progress A
Slide 44: 2003 Outlook
2003 Outlook ¾ Positive outlook for mining and transport sectors ¾ Major infrastructure projects commencement ¾ Continue to refine distribution network ¾ Emphasis on IT to enhance Wesfarmers Industrial & Safety’s service offering, including B2B opportunities August 2002 44
Slide 45: Hardware
Hardware Peter Davis 4 Wesfarmers
Slide 46: History
History ¾ Traditionally a Western Australian business ¾ 1990 Acquired ALCO Handyman & WA Salvage ¾ 1993 Acquired McEwans - Vic & SA ¾ 1994 Commenced rollout of warehouse stores ¾ 2001 Acquired BBC Hardware - NSW, Qld & NZ August 2002 46
Slide 47: History (cont.)
History (cont.) ¾ Strong performance culture in business ¾ Best merchandising and marketing skills ¾ Proven warehouse formula ¾ Store layout and development capabilities ¾ Effective recruitment and training programs ¾ Employer of choice within the industry ¾ Strong growth in sales and profits August
Slide 48: Sales & EBITA history
Sales & EBITA history Sales ($m) EBITA ($m) 3500 350 3000 300 2500 PRE BBC AQUISITION 250 Sales CAGR 1995 to 2001 - 19% 2000 200 EBITA CAGR 1995 to 2001 - 31% 1500 150 1000 100 500 50 0 0 1995 1996 1997 1998 1999 2000 2001 2002 Sales EBIT (pre Goodwill) August 2002 48
Slide 49: Sales split by region
Sales split by region 2000/01 - $1.4b 2001/02 - $3.1b 1% 2% 5% VIC WA VIC 8% 14% 26% WA 6% 23% 41% 1% 2% 19% 26% 7% 14% Qld 5% 14% NSW NSW VIC QLD NSW/ACT WA Salvage TAS NZ WA SA NT August 2002 49
Slide 50: Sales
Sales ¾ Sales $3.1 billion ¾ 14.7% increase across the combined network ¾ Increase from ¾ a solid store on store growth ¾ new store openings ¾ less store closures August 2002 50
Slide 51: Sales (cont.)
Sales (cont.) ¾ Australian sales grew at 15.1% ¾ New Zealand slower at 5.7% ¾ Retail sales up 17.5% on last year ¾ 76.5% of total sales (last year 86.9%) ¾ Trade sales up 9% on last year Note – Growth is on a full year versus full year basis across the whole network including BBC August 2002 51
Slide 52: Sales (cont.)
Sales (cont.) ¾ Warehouses account for >75% of sales ¾ Store on store growth averaged 11% ¾ Bunnings stores averaged 12.4% growth ¾ BBC & Hardwarehouses lower at 9.6% ¾ BBC average growth increased each quarter since the acquisition August 2002 52
Slide 53: EBIT/ROC
EBIT/ROC ¾ All regions above budget except for NSW and Tasmania ¾ EBIT/sales ratio constant despite much lower BBC ratio at acquisition ¾ WA Salvage below budget ¾ Return on capital (before goodwill) remained at high level August 2002 53
Slide 54: Store Numbers
Store Numbers WA Total Warehouses Traditionals Salvage Stores Locations trading at 30 June 01 47 22 17 86 Add: Acquired from BBC 60 120 0 180 Add: Opened during the year 7 0 2 9 Less: Closed during the year (3) (28) (1) (32) Locations trading at 30 June 02 111 114 18 243 August 2002 54
Slide 55: Integration
Integration ¾ Integration basically complete ¾ Rebranding ¾ One brand per region from November 01 ¾ All Australian stores rebranded Bunnings this year ¾ NZ warehouses only this year August 2002 55
Slide 56: Integration (cont.)
Integration (cont.) ¾ Merchandising ¾ Initial changes for temporary branding completed last October ¾ Major change this year to support Bunnings brand ¾ Range ¾ Intensity August 2002 56
Slide 57: Integration (cont.)
Integration (cont.) ¾ Integration of support activities completed ¾ New trade strategy developed ¾ Bunnings back office systems in all Australian stores ¾ Review of non core operations completed August 2002 57
Slide 58: Outlook
Outlook ¾ Continuing growth in profit ¾ Strong store on store sales increase ¾ Closure non performing stores ¾ 8 to 12 new warehouses per annum ¾ Introduction of Bunnings service culture throughout the BBC network ¾ Review of overhead structures August 2002 58
Slide 59: Outlook (cont.)
Outlook (cont.) ¾ Continued focus on technology ¾ Improving operating efficiency ¾ Store administration ¾ Trade support systems ¾ Supply chain August 2002 59
Slide 60: Fertilisers & Chemicals
Fertilisers & Chemicals John Gillam
Slide 61: Performance Summary
Performance Summary 2001 2002 ∆ Chemicals Sales volumes (t’000) 394 412 +18 Revenue ($m) 153 171 +18 Fertilisers Sales volumes (t’000) 938 1,038 +100 Revenue ($m) 285 292 +7 Company EBIT ($m) 52.6 73.3 +20.7 ROC (%) 10.4 15.1 +4.7 August 2002 61
Slide 62: Chemicals Key Influences
Chemicals Key Influences ¾ Strong resource sector conditions ¾ Good plant performance ¾ Growth in new product stream for AN ¾ Improved sodium cyanide margins ¾ Lower caustic costs, firmer selling prices ¾ QNP reliability problems August 2002 62
Slide 63: Chemicals Outcomes
Chemicals Outcomes ¾ Ammonia volumes 14% higher ¾ AN volumes 26% higher ¾ Above budget sodium cyanide earnings ¾ Overall contribution increased by 53% ¾ Commissioning new sodium cyanide solids plant August 2002 63
Slide 64: Fertilisers Key Influences
Fertilisers Key Influences ¾ Market focused strategies ¾ Cost base improvements ¾ Competitive domestic pricing ¾ Opportunistic eastern Australian sales ¾ Solid 2001 harvest ¾ Generally favourable commodity pricing ¾ Difficult 2002 seasonal conditions August 2002 64
Slide 65: Fertilisers Outcomes
Fertilisers Outcomes ¾ 11% increase in overall sales volumes ¾ WA volumes up by 4% ¾ Lower average unit revenue ¾ Higher discounts and rebates ¾ Slight decline in gross margins ¾ Overall contribution increased by 5% August 2002 65
Slide 66: Outlook
Outlook ¾ Firm demand for ammonia and AN ¾ Improving sodium cyanide conditions ¾ Solid sodium cyanide export sales ¾ Difficult conditions may restrict fertiliser volumes ¾ Increased reach from stronger fertiliser offer ¾ Reviewing ammonia / AN expansion opportunities August 2002 66
Slide 67: Michael Chaney
Michael Chaney 4 Wesfarmers
Slide 68: 2003 Outlook
2003 Outlook ¾ Overall positive outlook ¾ Continued strong revenue and earnings growth in Hardware ¾ Coal and gas earnings growth subject to international price trends ¾ Rural division – drier seasonal conditions, focus on managing costs and achieving scale benefits August 2002 68
Slide 69: 2003 Outlook (cont.)
2003 Outlook (cont.) ¾ Improving trading conditions for Industrial and Safety businesses ¾ Wider fertiliser range and increased profits from chemicals business ¾ Improved contribution from ARG ¾ Continued scale down of the Sotico operations ¾ Additional superannuation costs of $15 million August 200
Slide 70: Capital Expenditure Programme
Capital Expenditure Programme 2003 Forecast Total $328.1m $37.2m $119.5m $2.5m $24.7m $118.9m $25.3m Other Rural and Insurance Fertiliser & Chemicals Energy Hardware Industrial & Safety August 2002 70
Slide 71: Questions
Questions 4 Wesfarmers
Slide 72: www.wesfarmers.com.au
www.wesfarmers.com.au August 2002 72