Wesfarmers Limited · ASX:WES
Wesfarmers — H1 2015 Earnings Presentation
59 slides from Wesfarmers's earnings presentation, Feb 19, 2015
Slide 1: 2015 Half-Year results Briefing presentation
2015 Half-Year results Briefing presentation 19 February 2015
Slide 2: Presentation outline
Presentation outline Item Presenter Page Group Performance Highlights Richard Goyder 3 Coles John Durkan 9 Home Improvement & Office Supplies John Gillam 17 Kmart Guy Russo 27 Target Stuart Machin 31 Chemicals, Energy & Fertilisers Tom O’Leary 35 Resources Stewart Butel 39 Industrial & Safety Olivie
Slide 3: Group Performance Highlights
Presentation Group outlineHighlights Performance Richard Goyder Managing Director, Wesfarmers Limited 2015 Half-Year Results | 3
Slide 4: Financial highlights
Financial highlights Half-Year ended 31 December 2014 Variance to prior corresponding period Reported Continuing operations1 Operating revenue of $32.0b ▲ 0.4% ▲ 4.0% EBIT of $2,076m ▼ (3.6%) ▲ 5.9% NPAT of $1,376m ▼ (3.7%) ▲ 8.3% Earnings per share of $1.21 ▼ (2.6%) ▲ 9.6% Return on equity (R12) of
Slide 5: Strength through diversified earnings
Strength through diversified earnings Half-Year ended 31 2014 2013 % December ($m) Coles 895 836 7.1 Home Improvement 618 562 10.0 Office Supplies 50 42 19.0 Kmart 289 260 11.2 Target 70 70 - WesCEF 95 110 (13.6) Resources 35 59 (40.7) Industrial & Safety 50 73 (31.5) Divisional EBIT from 2,102 2,01
Slide 6: Return on capital
Return on capital • Focus on return on capital to deliver satisfactory shareholder returns 2014 2013 Rolling 12 months to 31 December EBIT Cap Emp ROC ROC ($m) ($m) (%) (%) Coles 1,731 16,301 10.6 10.0 Home Improvement 1,035 3,277 31.6 27.6 Office Supplies 112 1,067 10.5 8.7 Kmart 395 1,361 29.0 26.
Slide 7: Divisional performance highlights
Divisional performance highlights Coles Officeworks • Good supermarket result • Continued execution of the ‘every channel’ • Ongoing improvements in productivity & strategy operational efficiencies funded greater • Sales growth achieved in store & online investment in lower prices • Strong growth in
Slide 8: Divisional performance highlights (continued)
Divisional performance highlights (continued) Target Resources • Earnings reflected a challenging first • Significant decline in export metallurgical & quarter with markdowns undertaken to steaming coal prices affected revenues clear excess winter inventory • Increased sales volumes & a lower A$:US$
Slide 9: Coles
Coles John Durkan Managing Director 2015 Half-Year Results | 9
Slide 10: Coles performance summary
Coles performance summary Half-Year ended 31 December ($m) 2014 2013 % Coles Division Revenue 19,483 18,946 2.8 EBITDA 1,171 1,076 8.8 Depreciation & amortisation (276) (240) (15.0) EBIT 895 836 7.1 ROC (R12 %) 10.6 10.0 Safety (R12 LTIFR) 7.6 8.7 Food & Liquor Revenue1 15,559 14,770 5.3 Headline sa
Slide 11: Food & Liquor highlights: value leadership & freshness
Food & Liquor highlights Extending value leadership & focus on freshness • Reduced the cost of the weekly shopping basket % A track record of lowering prices – Continued long-term process of greater investment 8 in trusted low prices 6 4 – Compelling weekly specials 2 – Coles brand providing a high
Slide 12: Food & Liquor highlights: Project Unity
Food & Liquor highlights Project Unity delivering greater simplicity • Simplified in-store operations Simpler store operations for greater efficiency Indexed – “Easy” or “Assisted Ordering” completed for 130 meat, bakery & fresh produce 125 120 – Greater efficiency through more assisted 115 check-ou
Slide 13: Food & Liquor highlights: new services & channel
Food & Liquor highlights Extending into new services & channel • Strong growth in Coles Online Refrigerated “click & collect” lockers – Accelerated sales growth – Better value with “Every Day” prices now available – More convenient with over 100 “click & collect” sites in total & expanding – Improve
Slide 14: Food & Liquor highlights: Transforming liquor
Food & Liquor highlights Transforming liquor • Liquor performance remained challenging Reshaping the liquor network # stores • Long-term transformation 60 – Progressed clearance of excess & inactive 40 8 10 8 3 8 stock 20 12 11 33 35 33 35 20 27 17 – Initiated first stage of price reductions e.g. 0
Slide 15: Convenience highlights
Convenience highlights Fueling convenience • Lower fuel volumes due to reduced fuel docket Expanding the convenience network # stores discounts given undertaking with ACCC 15 • Continued focus on the right fuel offer 10 – Growing premium fuel volume 5 9 10 12 11 12 8 – Trialling new fuel value initi
Slide 16: Coles outlook
Coles outlook • Consumers to continue to seek more value • Greater investment in value & fresh food to drive sales • Simplify operations & reduce the cost of doing business to reinvest in value • Maintain a strong focus on transforming liquor • Invest in new growth opportunities for the long term •
Slide 17: Home Improvement & Office Supplies
Home Improvement & Office Supplies John Gillam Managing Director 2015 Half-Year Results | 17
Slide 18: HIOS performance summary
HIOS performance summary Half-Year ended 31 December ($m) 2014 2013 % Revenue Home Improvement 4,959 4,434 11.8 Office Supplies 802 745 7.7 Total 5,761 5,179 11.2 EBITDA Home Improvement 686 625 9.8 Office Supplies 61 53 15.1 Total 747 678 10.2 EBIT Home Improvement 618 562 10.0 Office Supplies 50 4
Slide 19: Home Improvement performance summary
Home Improvement performance summary Half-Year ended 31 December ($m) 2014 2013 % Revenue 4,959 4,434 11.8 EBITDA 686 625 9.8 Depreciation & amortisation (68) (63) (7.9) EBIT 618 562 10.0 Trading EBIT margin (%) 12.2 12.6 ROC (R12 %) 31.6 27.6 Safety (R12 AIFR) 27.6 29.4 2015 Half-Year Results | 19
Slide 20: Home Improvement highlights
Home Improvement highlights • Strong revenue growth of 11.8% – Total store 11.7%; store-on-store 9.1% – Positive in all regions & all categories – Good momentum in consumer & commercial – Absolute growth of $525m (on 1H14) • EBIT increase of 10.0% – Strong underlying trading – Productivity gains & g
Slide 21: Home Improvement highlights
Home Improvement highlights • Contributions from all growth drivers – Creating more value – Better customer experiences – Accelerating brand reach » Wider & deeper digital ecosystem » Increasing physical network – Expanding commercial presence – More merchandise innovation • Investments strengthenin
Slide 22: Home Improvement outlook
Home Improvement outlook • Strategic agenda driving performance – Sales & earnings growth – Building a stronger business • More for customers – Value & experience – Consumer & commercial • Greater brand reach – Strong store pipeline; expected to open ~20 warehouses in FY15 – Increased digital ecosys
Slide 23: Office Supplies performance summary
Office Supplies performance summary Half-Year ended 31 December ($m) 2014 2013 % Revenue 802 745 7.7 EBITDA 61 53 15.1 Depreciation & amortisation (11) (11) - EBIT 50 42 19.0 EBIT margin (%) 6.2 5.6 ROC (R12 %) 10.5 8.7 Safety (R12 AIFR) 20.5 25.8 2015 Half-Year Results | 23
Slide 24: Office Supplies highlights
Office Supplies highlights • Continuing cycle of strong earnings & ROC growth Sales growth momentum % 8.0 • Revenue growth of 7.7% 8 6.7 7.5 7 6.0 – Strong store sales growth 6 5 4 – 14 consecutive halves of store transaction growth 3 3.0 2.7 2 – Six year 1H online sales CAGR of 17.9% 1 0 1Q14 2Q14
Slide 25: Office Supplies highlights
Office Supplies highlights • In-store merchandising investment – Improved layouts & expanded ranges – Delivering sales & margin uplift • Strong & continuous growth in SME market – Multi-dimensional service investment » Stores, online, call centre, mobile, face-to-face – Significant opportunity for f
Slide 26: Office Supplies outlook
Office Supplies outlook • Well positioned for 2H15 – More customers expected to respond favourably to offer • Continued growth driven strategic initiatives & additional ROC-enhancing investment – Drive ‘every channel’ agenda – Improve customer offer & service – Grow revenue in B2B market – Reduce co
Slide 27: Kmart
Kmart Guy Russo Managing Director 2015 Half-Year Results | 27
Slide 28: Kmart performance summary
Kmart performance summary Half-Year ended 31 December ($m) 2014 2013 % Revenue 2,442 2,321 5.2 EBITDA 333 299 11.4 Depreciation & amortisation (44) (39) (12.8) EBIT 289 260 11.2 EBIT margin (%) 11.8 11.2 ROC (R12 %) 29.0 26.8 Safety (R12 LTIFR) 7.1 8.0 Total sales growth1 (%) 5.3 1.7 Comparative sto
Slide 29: Kmart highlights
Kmart highlights • Growth in revenue – Sustained focus on lowering prices – Continued growth in customer transactions – Strong trading over the second quarter & Christmas period • Increase in EBIT & return on capital – Improvement in product ranges – Effective working capital management – Increased
Slide 30: Kmart outlook
Kmart outlook • Ongoing focus on growth – Volume retailer – Operational excellence – Adaptable stores – High performance culture • Relentless focus on being lowest price in the market • Continued investment in accelerated refurbishment & new store opening programs • Further growth through product ra
Slide 31: Target
Target Stuart Machin Managing Director 2015 Half-Year Results | 31
Slide 32: Target performance summary
Target performance summary Half-Year ended 31 December ($m) 2014 2013 % Revenue 1,935 1,965 (1.5) EBITDA 112 113 (0.9) Depreciation & amortisation (42) (43) 2.3 EBIT 70 70 - EBIT margin (%) 3.6 3.6 ROC (R12 %) 3.2 1.9 Safety (R12 LTIFR) 4.9 7.3 Total sales growth1 (%) (1.8) (4.4) Comparative store s
Slide 33: Target highlights
Target highlights • Year-on-year earnings growth in Q2 offset by clearance in Q1, as previously indicated • Customer & volume growth supported by investment in lower prices • First Christmas in 3 years with comparable store sales growth Better customer experience, supported by the delivery of new st
Slide 34: Target outlook
Target outlook • Deliver the Transformation Plan ‒ Improve stock availability through ‘Factory to Customer’ program ‒ Refine & roll-out new store formats ‒ Improve & deliver greater consistency in store standards ‒ Grow online sales & earnings ‒ Further reduce SKUs to better define fashion, style &
Slide 35: Chemicals, Energy & Fertilisers
Chemicals, Energy & Fertilisers Tom O’Leary Managing Director 2015 Half-Year Results | 35
Slide 36: Chemicals, Energy & Fertilisers performance summary
Chemicals, Energy & Fertilisers Performance summary Half-Year ended 31 December ($m) 2014 2013 % Revenue Chemicals 415 377 10.1 Energy1 267 315 (15.2) Fertilisers 128 80 60.0 Total 810 772 4.9 EBITDA2 144 157 (8.3) Depreciation & amortisation (49) (47) (4.3) EBIT2 95 110 (13.6) External3 sales volum
Slide 37: Chemicals, Energy & Fertilisers highlights
Chemicals, Energy & Fertilisers highlights • In chemicals, higher contribution from ammonium nitrate (AN) following the recent capacity expansion offset by: – Increased gas input costs in ammonia business & loss of carbon abatement income ($20m in 1H15) – Ongoing challenging economic conditions for
Slide 38: Chemicals, Energy & Fertilisers outlook
Chemicals, Energy & Fertilisers outlook • Ongoing strong demand for AN & ammonia • In chemicals, increased second half AN earnings contribution from expanded capacity expected to be offset by: – Higher gas input costs & loss of carbon abatement income (~$30 million in 2H15) – Weaker sodium cyanide d
Slide 39: Resources
Resources Stewart Butel Managing Director 2015 Half-Year Results | 39
Slide 40: Resources performance summary
Resources performance summary Half-Year ended 31 December ($m) 2014 2013 % Revenue 689 764 (9.8) Royalties1 (80) (121) 33.9 Mining & other costs (501) (508) 1.4 EBITDA 108 135 (20.0) Depreciation & amortisation (73) (76) 3.9 EBIT 35 59 (40.7) ROC (R12%) 7.3 7.8 Coal production (‘000 tonnes) 7,781 7,
Slide 41: Resources highlights
Resources highlights • Continued strong safety performance • Record Curragh coal production & sales volumes during calendar year 2014 • Lower export coal prices partly offset by higher sales volumes • Continued strong cost performance – Recorded unit mine cash costs for the half 32% below 1H12 peak;
Slide 42: Resources outlook
Resources outlook • Export markets – Global metallurgical coal market remains in near-term over supply – Continued low export metallurgical & steaming coal prices expected in 2H15 • Financial year 2015 – Forecast Curragh metallurgical coal sales of 8.0mt – 9.0mt – Estimated full-year sales mix (Hard
Slide 43: Industrial & Safety
Industrial & Safety Olivier Chretien Managing Director 2015 Half-Year Results | 43
Slide 44: Industrial & Safety performance summary
Industrial & Safety performance summary Half-Year ended 31 December ($m) 2014 2013 % Revenue 835 804 3.9 EBITDA 67 88 (23.9) Depreciation & amortisation (17) (15) (13.3) EBIT 50 73 (31.5) EBIT margin (%) 5.9 9.1 ROC (R12 %) 9.3 13.5 Safety (R12 TRIFR) 10.4 12.8 2015 Half-Year Results | 44
Slide 45: Industrial & Safety highlights
Industrial & Safety highlights • Earnings impacted by volume & margin pressures • Continued very subdued customer & project activity across most sectors – Margins remained under pressure from intense competition & rising cost of imports • Resetting cost base & investing in customer value in response
Slide 46: Industrial & Safety outlook
Industrial & Safety outlook • Weakness in customer activity & margin pressure expected to continue in 2H15 – Margin pressure from ongoing intense competition & higher cost of imports due to declining AUD • Continue focus on maintaining & growing market share & reducing cost of doing business – Conti
Slide 47: Balance Sheet & Cash Flow
Presentation Balance Sheetoutline & Cash Flow Terry Bowen Finance Director, Wesfarmers Limited 2015 Half-Year Results | 47
Slide 48: Other business performance summary
Other business performance summary Half-Year ended 31 December ($m) Holding % 2014 2013 % Share of profit of associates: BWP Trust 24 29 16 81.3 Other Various 5 2 150.0 Sub-total 34 18 88.9 Interest revenue 19 3 533.3 Other (13) (14) 7.1 Corporate Overheads (66) (59) (11.9) Total Other (from continu
Slide 49: Working capital management
Working capital management • Further reduction in net working capital days • Increased working capital cash inflows from retail supported by business growth (1.9 days or portfolio: 13.1% reduction on prior corresponding – Higher creditors at period end due to business growth – Year-end timing differ
Slide 50: Operating cash flow generation
Operating cash flow generation • Improved cash realisation of 116.6% in $m Cash realisation % 1H15: 2,400 160 – Higher working capital cash inflows from 1,800 120 retail portfolio (timing of creditor payments at Coles in prior corresponding 1,200 80 period & strong inventory focus) 600 40 • Group re
Slide 51: Capital investment & property recycling
Capital investment & property recycling Half-Year ended 31 December ($m)1 2014 2013 % • Effective deployment of capital to Coles 537 554 (3.1) capture highest growth & return HIOS 370 280 32.1 Target 78 46 69.6 opportunities Kmart 93 89 4.5 – Coles & HIOS comprise 75% of 1H15 Resources 65 33 97.0 In
Slide 52: Diversity of funding sources & risk management of maturities
Diversity of funding sources & risk management of maturities • Debt strategy to diversify $m Debt maturity profile1 sourcing, pre-fund debt 2,000 maturities, maintain access to 1,000 0 diverse debt capital markets & (1,000) ensure a good maturity profile (2,000) FY15 FY17 FY19 FY21 FY23 • 1H15 debt
Slide 53: Credit metrics & ratings
Credit metrics & ratings • Solid credit metrics – Debt:EBITDA1 (R12) of 1.0 times (from 1.1 times in 1H14) – Cash interest cover (R12) improved to 18.1 times (from 13.8 times in 1H14) – Fixed charges cover (R12) improved to 3.1 times (from 3.0 times in 1H14) • Strong & stable credit ratings – Standa
Slide 54: Dividends & capital management
Dividends & capital management Shareholder distributions (declared) • Interim dividend of $0.89 per share fully- $/share 3.00 franked, up 4.7% 3.00 2.50 2.30 1.00 – Dividend investment plan; no underwrite; 2.00 1.65 0.50 0.10 1.50 1.50 shares purchased on market 1.10 1.25 1.03 1.05 0.85 0.95 0.89 1.
Slide 55: Outlook
Presentation outline Outlook Richard Goyder Managing Director, Wesfarmers Limited 2015 Half-Year Results | 55
Slide 56: Outlook
Outlook Retail • Group’s portfolio of retail businesses positioned well • Continued reinvestment of productivity gains & cost savings expected to support ongoing improvements to value & range propositions • Ongoing optimisation & expansion of store networks • Continued advancement of digital capabil
Slide 57: Outlook (continued)
Outlook (continued) Group • Generally optimistic as domestic economy transitions • Maintain a strong balance sheet • Secure growth opportunities through entrepreneurial initiative • Ensure sustainability through responsible long-term management • Leverage & build human resource capability • Continue
Slide 58: Questions
Questions 2015 Half-Year Results | 58
Slide 59: Wesfarmers
Ws Wesfarmers