Slide 1: 2011 Half-Year Results Teleconference
2011 Half-Year Results Teleconference 17 February 2011
Slide 2: Presentation outline
2 Presentation outline Item Presenter Page 1 Group Performance Highlights Richard Goyder 3 2 Coles Ian McLeod 13 3 Home Improvement & Office Supplies John Gillam 21 4 Target Launa Inman 29 5 Kmart Guy Russo 33 6 Insurance Rob Scott 37 7 Resources Stewart Butel 41 8 Chemicals, Energy & Fertilisers To
Slide 3: Group Performance Highlights
Group Performance Highlights Richard Goyder Managing Director, Wesfarmers Limited
Slide 4: Group financial highlights
4 Group financial highlights • First half profit after tax of $1,173 million, up 33.4% • Operating revenue of $28,074 million, up 5.8% • Group EBIT result of $1,917 million, up 23.9% – Growth in earnings across most divisions – Solid retail performance in challenging trading conditions, up 5.6% – St
Slide 5: Group performance highlights
5 Group performance highlights Retail • Coles’ performance was pleasing with revenue up 5.9% & EBIT up 18.3%; good progress continues to be made on the turnaround • Bunnings’ result was solid with operational improvements across its three strategic pillars: widest range; lowest price; & best service
Slide 6: Group performance highlights (cont.)
6 Group performance highlights (cont.) Industrials • Resources earnings were significantly up on increased coal prices despite higher than average rainfall affecting production & increasing mining costs • WES CEF & WIS recorded strong results driven by increased resource sector activity, good operat
Slide 7: Group performance summary
7 Group performance summary Half Year ended 31 December ($m) 2010 2009 % Operating revenue 28,074 26,533 5.8 EBITDA 2,378 1,996 19.1 EBIT 1,917 1,547 23.9 Finance costs (272) (319) 14.7 Tax expense (472) (349) (35.2) Net profit after tax 1,173 879 33.4 Operating cash flow 1,960 2,083 (5.9) Earnings
Slide 8: Earnings per share (EPS)
8 Earnings per share (EPS) • Return to EPS growth, following impact of equity raisings on 2008 & 2009 result • 33.3% growth in EPS reflects strong growth in earnings from Retail & Industrial businesses cps (WANOS) 150 120 90 60 125.1 98.1 103.6 101.7 76.3 30 0 1H FY07 1H FY08 1H FY09 1H FY10 1H FY11
Slide 9: Diversified earnings
9 Diversified earnings Divisional EBIT Percentage of Half Year ended (1H FY11, $m) Divisional EBIT 2010 2009 % 31 December ($m) 2,000 Insurance Insurance 3%; WIS (1H10: 4%) Coles 575 486 18.3 WES CEF Home Improvement 457 422 8.3 Industrial 24%; Resources (1H10: 9%) Office Supplies 32 27 18.5 1,500 T
Slide 10: Continued focus on divisional ROC
10 Continued focus on divisional ROC • ROC underpins long standing culture of financial discipline • Divisional focus on growth in ROC through earnings growth & improvements in capital efficiency 2010 2009 Rolling 12 months to 31 December EBIT Cap Emp ROC ROC $m $m % % Coles 1,051 14,868 7.1 5.9 Hom
Slide 11: Progress on key strategic initiatives
11 Progress on key strategic initiatives Retail • Coles: turnaround on track driven by delivering better value, product quality & in-store service; continued focus on ‘Delivering Consistently Well’ • HIOS: increasing authority on lowest price & widest range as well as network expansion • Kmart: cont
Slide 12: Progress on key strategic initiatives (cont)
12 Progress on key strategic initiatives (cont) Industrials • Resources: focus on major expansion projects underway at Curragh & Bengalla & productivity improvements • WES CEF: focus on expansion opportunities (including AN31) & improving plant performance • WIS: increasing share of existing custome
Slide 13: Coles
Coles Ian McLeod Managing Director
Slide 14: Coles performance summary
Coles 14 Coles performance summary Half-Year ended 31 December 2010 ($m) 2010 2009 % Coles Division Revenue 16,059 15,161 5.9 EBIT 575 486 18.3 ROC (R12 %) 7.1 5.9 Safety (LTIFR YTD) 12.0 12.2 Food & Liquor Revenue1 12,804 12,028 6.5 Total store sales growth %3,4 6.3 7.1 Comp store sales growth %3,4
Slide 15: Strong sales continue
Coles 15 Strong sales continue • Food & liquor 1H FY11 comparable store sales up 6.4% F&L Comp. Sales Growth – Seven consecutive quarters of 8% industry outperformance 7% – Increasing customer numbers 6% 5% – Fresh food growing basket size 4% – Lower prices driving food & liquor 3% deflation of 1.7%
Slide 16: Building trust in our value
Coles 16 Building trust in our value • Price investment delivering value – State based uniform pricing – Prices lowered on 5,000 products – Driving value on key family items • Growing trust in Coles brand – Coles brand relaunch – Coles Finest quality driven – Smart Buy relaunch planned • Customer &
Slide 17: Building trust in our quality
Coles 17 Building trust in our quality • Ethical sourcing & animal welfare – Responding to customer concern – HGP free beef for 2011 – Removal of caged eggs by 2013 – Sow stall free pork by 2014 • Trust in freshness & quality – Fruit & vegetable quality & value – Fresh meat quality & value – Seafood
Slide 18: Building trust in our service
Coles 18 Building trust in our service • Renewal roll-out with scale – 99 stores now live – 49 stores landed in FY11 so far – Target circa 100 stores delivered by end of FY11 • Scale roll-out of new concepts – Health & beauty facelift in 677 stores – Entertainment & Paper Shop in 115 stores – Fresh
Slide 19: Driving growth in Liquor & Convenience
Coles 19 Driving growth in Liquor & Convenience Coles Liquor • Difficult market environment – Coles growing market share • Driving product innovation – Private label growth – Strong price position • Cost reduction focus – New network development system by end FY11 Convenience • Comp. fuel volumes up
Slide 20: Coles outlook
Coles 20 Coles outlook • Turnaround progressing to plan – Encouraging progress to date – Significant work still to come – Delivery challenge remains • External challenges – Flood & cyclone supply challenges & supplier impact – Future inflation risks – Strong competitive environment
Slide 21: Home Improvement & Office Supplies
Home Improvement & Office Supplies John Gillam Managing Director
Slide 22: HIOS performance summary
Home Improvement & 22 Office Supplies HIOS performance summary Half-Year ended 31 December ($m) 2010 2009 % Revenue Home Improvement 3,572 3,402 5.0 Office Supplies 706 662 6.6 4,278 4,064 5.3 EBIT Home Improvement 457 422 8.3 Office Supplies 32 27 18.5 489 449 8.9
Slide 23: Home Improvement performance summary
Home Improvement Home Improvement & Office Supplies 23 Performance summary Half-Year ended 31 December ($m) 2010 2009 % Revenue 3,572 3,402 5.0 Trading Revenue 3,549 3,400 4.4 (excl. property & non-trading items) EBIT 457 422 8.3 Trading EBIT margin (%) 12.8 12.4 Net property contribution 1 (1) ROC
Slide 24: Home Improvement highlights
Home Improvement & 24 Office Supplies Home Improvement highlights • Trading revenue growth of 4.4% – 4.1% total store sales growth (store-on-store growth of 1.7%) – 3.7% lift in commercial sales – Deflationary impact of ‘value focus’ work continued – Adverse weather impacts in many locations • EBIT
Slide 25: Home Improvement outlook
Home Improvement & 25 Office Supplies Home Improvement outlook • Continued sales growth – Further strengthening of key strategic pillars • Sale of 13 retail warehouse properties • Focus to continue in five key areas – Service – Category expansion & optimisation – Network expansion & optimisation – C
Slide 26: Office Supplies performance summary
Office Supplies Home Improvement & Office Supplies 26 Performance summary Half-Year ended 31 December ($m) 2010 2009 % Revenue 706 662 6.6 EBIT 32 27 18.5 EBIT margin (%) 4.5 4.1 ROC (R12 %) 6.6 5.8 Safety (R12 AIFR) 37.7 56.9
Slide 27: Office Supplies highlights
Home Improvement & 27 Office Supplies Office Supplies highlights • Officeworks retail store sales growth of 7.5% – Underpinned by strong transaction growth • OW Business offer continues to gain traction • Double digit earnings growth in challenging conditions • Focus on growth through ongoing invest
Slide 28: Office Supplies outlook
Home Improvement & 28 Office Supplies Office Supplies outlook • Challenging retail environment • Increased competitive pressure on sales & margin • Continued focus on reducing costs • Focus on executing strategic agenda – Drive sales – Improve customer offer & service – Expand & upgrade network – Re
Slide 29: Target
Target Launa Inman Managing Director
Slide 30: Target performance summary
Target 30 Target performance summary Half-Year ended 31 December ($m) 2010 2009 % Revenue 2,120 2,182 (2.8) EBIT 206 279 (26.2) EBIT margin (%) 9.7 12.8 ROC (R12 %) 9.4 12.6 Safety (R12 LTIFR) 8.2 9.2 Total sales growth1 (%) (3.1) 3.5 Comparative store sales growth1(%) (3.3) 1.7 1. 2010 for the 27 w
Slide 31: Target highlights
Target 31 Target highlights • Sales results affected by a difficult retail environment – Significant price deflation due to strong Australian dollar & competition – Summer apparel sales affected by wet & cool weather across the east coast of Australia – Overall increase in customer numbers & sales v
Slide 32: Target outlook
Target 32 Target outlook • Customers remain cautious & driven by value – Challenge of mitigating commodity cost pressures • Continued focus on the customer – Style, quality & value: Speciality store product at Target prices – Differentiated product: Delivery of in-house designs to commence 3Q FY11 i
Slide 33: Kmart
Kmart Guy Russo Managing Director Kmart Guy Russo
Slide 34: Kmart performance summary
Kmart 34 Kmart performance summary Half-Year ended 31 December ($m) 2010 2009 % Revenue 2,271 2,226 2.0 EBIT1,2 174 154 13.0 EBIT margin (%) 7.7 6.9 ROC (R12 %)3 25.8 19.8 Safety (R12 LTIFR) 8.3 9.6 Total sales growth4 (%) 1.9 (1.2) Comparative store sales growth4 (%) 1.7 (1.6) 1. Excludes non-tradi
Slide 35: Kmart highlights
Kmart 35 Kmart highlights • Improved underlying profitability – 13.0% increase in profit to $174 million, driven by gross margin improvement & cost control • Customers continue to respond well to lowest prices on everyday items & improved in-store offer – 1.7% increase in comparable sales – Consiste
Slide 36: Kmart outlook
Kmart 36 Kmart outlook • Continue with ‘Growth’ phase of the turnaround • Attract more customers into stores more often – Ongoing refinement of the product offer to deliver lowest price on everyday items for families – Deliver on lowest price: source product at lowest cost – Improve the in-store exp
Slide 37: Insurance
Insurance Rob Scott Managing Director
Slide 38: Insurance performance summary
Insurance 38 Insurance performance summary Half-Year ended 31 December ($m) 2010 2009 % Gross Written Premium Underwritten 659 680 (3.1) Total Revenue 872 868 0.5 EBITA Underwriting 42 38 10.5 EBITA Broking 28 25 12.0 EBITA Other - - - EBITA Insurance Division 70 63 11.1 EBIT Insurance Division 65 5
Slide 39: Insurance highlights
Insurance 39 Insurance highlights • Increased earnings across underwriting & broking • Revenue in line with 1H FY10 notwithstanding underwriting portfolio remediation • Strong underlying performance despite specific event claims from: – Christchurch earthquake (net impact of $10.8 million) – Natural
Slide 40: Insurance outlook
Insurance 40 Insurance outlook • Severe weather events since 1 January including Queensland & Victorian floods & cyclone Yasi will adversely affect second half earnings by $30 million to $35 million, net of reinsurance recoveries • Expectation of further improvement in underlying underwriting perfor
Slide 41: Resources
Resources Stewart Butel Managing Director
Slide 42: Resources performance summary
Resources 42 Resources performance summary Half-Year ended 31 December ($m) 2010 2009 % Revenue1 957 624 53.4 EBITDA 305 61 400.0 Depreciation & amortisation (55) (59) (6.8) EBIT2 250 2 n.m. ROC (R12%) 34.3 20.6 Coal production (‘000 tonnes) 7,080 7,278 (2.7) Safety (R12 LTIFR)3 0.9 2.3 1. Includes
Slide 43: Resources highlights
Resources 43 Resources highlights • Performance – Strong 1H FY11 financial result given difficult weather conditions – Curragh mine cash costs ($/t) increased 19.9% 1H FY11 vs. 1H FY10 • Mine cash costs ($/t) reduced 9.2% in FY10 – Exceptional effort by Curragh team during flood period – Increase in
Slide 44: Record rainfall – impact on production
Resources 44 Record rainfall – impact on production • Record rainfall in central Queensland during 1H FY11 Bowen Basin highest rainfall on record • Three major flood events – one in September & two in December • Southern Bowen Basin mines & rail infrastructure most affected • December rainfall at Cu
Slide 45: Resources outlook
Resources 45 Resources outlook • Financial year 2011 – December wet weather will impact production & costs per tonne during March quarter – March quarter metallurgical coal pricing negotiations completed: 12% increase on December quarter – Supply shortfall anticipated to affect export coal prices –
Slide 46: Chemicals, Energy & Fertilisers
Chemicals, Energy & Fertilisers Tom O’Leary Managing Director
Slide 47: Chemicals, Energy & Fertilisers performance summary
Chemicals, Energy & Fertilisers Chemicals, Energy & Fertilisers 47 Performance summary Half-Year ended 31 December ($m) 2010 20092 % Revenue Chemicals 315 292 7.9 Energy3 286 252 13.5 Fertilisers 121 141 (14.2) 722 685 5.4 EBITDA1 199 116 71.6 Depreciation & amortisation (48) (47) 2.1 EBIT1 151 69 1
Slide 48: Chemicals, Energy & Fertilisers highlights
Chemicals, Energy & Fertilisers Chemicals, Energy & Fertilisers 48 Highlights • Increased earnings from ammonia & ammonium nitrate – Strong demand & plant performances • Increased sodium cyanide sales offset by increased gas input costs & higher Australian dollar • Record low PVC selling price relat
Slide 49: Chemicals, Energy & Fertilisers outlook
Chemicals, Energy & Fertilisers Chemicals, Energy & Fertilisers 49 Outlook • Continuing strong production & demand for ammonium nitrate & sodium cyanide • Board consideration for ammonium nitrate expansion in 2H FY11 • PVC – VCM spread showing signs of improvement albeit still below historical long-
Slide 50: Industrial & Safety
Industrial & Safety Olivier Chretien Managing Director
Slide 51: Industrial & Safety performance summary
Industrial & Safety Industrial & Safety 51 Performance summary Half-Year ended 31 December ($m) 2010 20091 % Revenue 774 689 12.3 EBITDA 92 78 17.9 Depreciation & amortisation (13) (13) - EBIT 79 65 21.5 EBIT margin (%) 10.2 9.4 ROC (R12 %) 11.8 9.5 Safety (R12 LTIFR) 2.7 1.3 1. Restated to include
Slide 52: Industrial & Safety highlights
Industrial & Safety 52 Industrial & Safety highlights • Strong results supported by market conditions & competitive position – 12.3% sales growth (first half last year affected by GFC) – 21.5% EBIT growth; EBIT improvement in all businesses • Strengthened business portfolio – Transitioned Coregas in
Slide 53: Industrial & Safety outlook
Industrial & Safety 53 Industrial & Safety outlook • Leveraging strong growth platform to take advantage of improving conditions – Growing share of customers’ product & service spend – Increasing diversification & exposure to high growth sectors – Continued investment in organisational effectiveness
Slide 54: Other Businesses & Capital Management
Other Businesses & Capital Management Terry Bowen Finance Director, Wesfarmers Limited
Slide 55: Balance sheet & dividend
55 Balance sheet & dividend • Strong balance sheet provides financial flexibility • Operating cash flows continue to provide balance sheet support – Working capital focus remains – Seasonally stronger working capital cash flows in the first half • Credit ratings maintained – Standard & Poor’s BBB+ (
Slide 56: Working capital management
56 Working capital management • Slow down in working capital improvement as foreshadowed – 1H FY10 cash flows reflect supplier reset work, Kmart off-site closures, strong seasonal stock sell through & significant fertiliser price declines at CSBP • Overall net working capital days improvement for re
Slide 57: Portfolio of strong cash generating assets
57 Portfolio of strong cash generating assets • Cash realisation ratio remained strong at 120.0% • Seasonally stronger first half cash flows $m % 2,500 200 2,000 160 1,500 120 1,000 80 500 40 0 0 1H FY07 1H FY08 1H FY09 1H FY10 1H FY11 NPATDA* Operating Cash Flow Cash Realisation Ratio (RHS) * 1H FY
Slide 58: Investment expenditure (cash basis)
58 Investment expenditure (cash basis) • Continued investment to drive future growth, including $345 million on land & buildings • FY11 capital expenditure estimate $2.2 to $2.4 billion, subject to changes in freehold property activity Capital Expenditure Capital Expenditure (1H FY11, $m) Insurance
Slide 59: Debt financing
59 Debt financing • Further strengthening of the Group’s liquidity position – Cash interest cover (R12) improved to 7.7 times – Fixed charges cover (R12) improved to 2.6 times – Net debt to equity reduced to 14.8% • Gross debt of $5.0 billion, net debt of $3.7 billion – Established new syndicated fa
Slide 60: Extension of debt tenor
60 Extension of debt tenor • Further lengthening of Group’s debt maturity profile – Established $2.5 billion revolving syndicated facility with equal maturities in December 2013 & December 2014 – Proceeds used to repay $2.5 billion of syndicated debt facility maturing in December 2011 ($1.8 billion)
Slide 61: Other businesses performance summary
61 Other businesses performance summary Holding Half-Year ended 31 December ($m) 2010 2009 % % Associates share of profit/(loss): Gresham Private Equity Funds Various (28) 29 n.m. Gresham Partners 50 (1) 2 n.m. Wespine 50 5 4 25.0 Bunnings Warehouse Property Trust 23 12 10 20.0 Associates sub-total
Slide 62: Outlook
Outlook Richard Goyder Managing Director, Wesfarmers Limited
Slide 63: Flood & storm events
Flood & storm events 63 (Post 31 December 2010) • Second half earnings will be negatively affected by severe flood & storm events, including cyclone Yasi, experienced in Q3 FY11 • The financial impact, estimated to date, on the Group’s retail businesses includes: – Writedown of damaged plant, equipm
Slide 64: Outlook
64 Outlook • Strong first half result provides a solid foundation for the remainder of the financial year Retail • The Group’s retail businesses are well placed but performance is subject to any adverse impact to consumer confidence & a competitive retail environment • Coles will continue to impleme
Slide 65: Outlook
65 Outlook Insurance • Underwriting performance before one-off events is expected to continue to benefit from improved risk selection & portfolio remediation Industrials • Strong demand & increased price prospects for coal; tempered by difficult mining conditions, industry cost pressures and carryov
Slide 66: Questions
66 Questions
Slide 67: For all the latest news visit www.wesfarmers.com.au
For all the latest news visit www.wesfarmers.com.au