Slide 1: 2019 Half-Year Results Briefing Presentation
2019 Half-Year Results Briefing Presentation To be held on Thursday, 21 February 2019
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 and New Zealand Michael Schneider 21 Kmart Group Ian Bailey 26 Officeworks Sarah Hunter 31 Industrials David Baxby 35 Group Outlook Rob Scott 42 2019
Slide 3: Group Performance Overview
Group Performance Overview Rob Scott Managing Director, Wesfarmers Limited
Slide 4: Long-term shareholder returns
Long-term shareholder returns Wesfarmers’ primary objective is to provide a satisfactory return to shareholders We believe it is only possible to achieve this over the long term by: Anticipating the needs Looking after our team Engaging fairly with our of our customers & members & providing a suppli
Slide 5: Progress on strategic agenda: 1H19 highlights
Progress on strategic agenda: 1H19 highlights Portfolio • Demerger of Coles management – • Sale of Bengalla significant • Sale of Kmart Tyre & Auto repositioning • Sale of stake in Quadrant Energy • Ian Bailey, MD Kmart Group • Marina Joanou, MD Target Talent – key • Sarah Hunter, MD Officeworks app
Slide 6: Financial overview
Financial overview Variance to pcp Excluding (exc. significant Half-year ended 31 December ($m) Reported significant items2 items2) Results from continuing operations1 Earnings before interest & tax 1,645 1,645 9.5% Net profit after tax 1,080 1,080 10.4% Basic earnings per share (cps) 96 96 10.5% Re
Slide 7: Group performance summary
Group performance summary Half-year ended 31 December ($m) 2018 2017 Var % Results from continuing operations1 EBIT 1,645 1,196 37.5 EBIT (excl. significant items)2 1,645 1,502 9.5 Net profit after tax 1,080 678 59.3 Net profit after tax (excl. significant items)2 1,080 978 10.4 Earnings per share (
Slide 8: Divisional earnings summary
Divisional earnings summary EBIT ($m) Half-year ended 31 December 2018 2017 Var % Var $m % of divisional EBIT Bunnings Australia & New Zealand 932 864 7.9 68 Kmart Group (continuing operations)1 383 398 (3.8) (15) Including KTAS2 393 415 (5.3) (22) Officeworks 76 68 11.8 8 Industrials (continuing op
Slide 9: Divisional return on capital
Divisional return on capital Rolling 12 months to 31 December 2018 2017 EBIT Cap Emp RoC RoC Var ($m) ($m) (%) (%) (ppt) Bunnings Australia & New Zealand 1,572 3,133 50.2 47.0 3.2 Kmart Group1,2 (continuing operations) 612 1,806 33.9 25.6 8.3 Officeworks 164 951 17.2 15.7 1.5 Industrials3 (continuin
Slide 10: Group Balance Sheet & Cash Flow
Group Balance Sheet & Cash Flow Anthony Gianotti Chief Financial Officer, Wesfarmers Limited
Slide 11: Significant items summary
Significant items summary Estimated Half-year ended 31 December 2018 ($m) Pre-tax tax impact1 Post-tax Gain on demerger of Coles 2,312 (60) 2,252 Gain on sale of Bengalla 679 (96) 583 Gain on sale of KTAS 267 (48) 219 Gain on sale of Quadrant Energy 138 (31) 107 Provision relating to supply chain mo
Slide 12: Discontinued operations summary
Discontinued operations summary Half-year ended 31 December ($m) Effective date 2018 2017 Coles1 28 November 2018 478 780 Bengalla (40% interest) 3 December 2018 95 73 KTAS 1 November 2018 10 17 Quadrant Energy (13.2% indirect interest) 27 November 2018 4 8 Curragh & BUKI During 2018 financial year
Slide 13: Other business performance summary
Other business performance summary Half-year ended 31 December ($m) Holding % 2018 2017 Var % Share of profit of associates Coles 15 23 - n.m. BWP Trust 25 20 26 (23.1) Other associates1,2 Various 22 6 n.m. Sub-total share of profit of associates 65 32 n.m. Interest revenue3 9 6 50.0 Other2,4 27 (25
Slide 14: Operating cash flows
Operating cash flows • Divisional cash generation1 excluding % Divisional cash generation1 discontinued operations remains strong at excluding discontinued operations2 160 approximately 115%2 140 • Operating cash flows of $1,987m impacted by 120 100 demerger of Coles 80 – Coles operating cash flow $
Slide 15: Working capital & free cash flows
Working capital & free cash flows • Positive working capital result lower than 1H18 Half-year ended 31 December ($m) 2018 2017 – Timing of Coles demerger during seasonal Cash movement inflow/(outflow) inventory build & removal of the usual Receivables & prepayments 73 (169) working capital unwind du
Slide 16: Capital expenditure
Capital expenditure • Gross capital expenditure, including Half-year ended 31 discontinued operations, decreased $49m to December ($m)1 2018 2017 Var % $955m Bunnings 240 275 (12.7) – Higher capital expenditure in Coles Kmart Group 119 197 (39.6) – Investment in Coregas healthcare Officeworks 20 11
Slide 17: Balance sheet & debt management
Balance sheet & debt management • Net financial debt1 of $0.3b as at Debt maturity profile2 31 December 2018, down from $3.6b at $m 1,500 30 June 2018 1,000 500 – Demerger of Coles ($2b) 0 (500) – Net proceeds on disposals totalling $1.1b (1,000) (1,500) • All-in effective borrowing cost 4.90% in 1H
Slide 18: Management of lease portfolio
Management of lease portfolio • Undiscounted lease commitments totalled Weighted average lease terms $8.6b & represent 74% of Group fixed financial 4.8% 3.1% 2.2% 1.7% 0.8% obligations as at 31 December 2018 12.9% 12.3% 12.1% 8.0% 14.7% – Undiscounted lease commitments reduced by 31.4% 32.3% 32.3% 3
Slide 19: Preliminary impact of new lease accounting standard
Preliminary impact of new lease accounting standard • Wesfarmers will adopt the new lease accounting Estimated pro forma impact on standards (AASB 16) from 1 July 2019 FY19 financials (continuing operations) • Recognise on balance sheet: Balance sheet (as at 1 July 2018) – Lease asset: right-of-use
Slide 20: Dividends & capital management
Dividends & capital management Net cash flow composition • Fully-franked ordinary interim dividend of $m 6,000 Net cash flow composition $1.00 per share $m 6,000 – Reflects Coles earnings up to demerger date 4,500 4,500 of 28 November 2018 3,000 3,000 1,500 • Fully-franked special dividend of $1.00
Slide 21: Bunnings Australia & New Zealand
Bunnings Australia & New Zealand Michael Schneider Managing Director, Bunnings Group
Slide 22: Bunnings Australia & New Zealand performance summary
Bunnings Australia & New Zealand performance summary Half-year ended 31 December ($m) 2018 2017 Var % Revenue 6,909 6,566 5.2 EBITDA1 1,027 953 7.8 Depreciation & amortisation (95) (89) (6.7) EBIT1 932 864 7.9 EBIT margin1 (%) 13.5 13.2 RoC (R12, %) 50.2 47.0 Safety (R12, TRIFR) 12.0 15.8 Total stor
Slide 23: Bunnings Australia & New Zealand overview
Bunnings Australia & New Zealand overview • Revenue growth of 5.2% – Total store growth of 5.5%; store-on-store growth of 4.0% – Continued growth in consumer & commercial, in all product categories & across all major trading regions – Growth was achieved despite high levels of growth in 1H18, high r
Slide 24: Bunnings Australia & New Zealand overview
Bunnings Australia & New Zealand overview • Strong progress on strategic agenda • Driving growth – Continued investment in customer value – Product range expansion & innovation – Ongoing network & layout refresh work • Better experiences – Click & collect pilot trial underway – PowerPass mobile app
Slide 25: Bunnings Australia & New Zealand outlook
Bunnings Australia & New Zealand outlook • Moderated trading conditions are expected to continue • Well positioned to continue to drive growth ‒ Investing further in customer value ‒ Broadening product ranges ‒ Expanding service offerings • Continued development of digital capability ‒ Significant i
Slide 26: Kmart Group
Kmart Group Ian Bailey Managing Director, Kmart Group
Slide 27: Kmart Group performance summary
Kmart Group performance summary Half-year ended 31 December ($m) 2018 2017 Var % Revenue1 4,639 4,604 0.8 EBITDA1 480 497 (3.4) Depreciation & amortisation1 (97) (99) 2.0 EBIT1 383 398 (3.8) EBIT (including KTAS)2 393 415 (5.3) EBIT margin1 (%) 8.3 8.6 RoC3 (R12, %) 33.9 25.6 Safety3 (R12, TRIFR) 21
Slide 28: Kmart Group overview
Kmart Group overview • Revenue increased 0.8% to $4,639 million1 • Kmart: – Total sales growth of 1.0% – Modest decline in comparable sales driven by underperformance in apparel, lower growth in non-seasonal products & exit from DVD category – Strong double digit sales growth in online offer support
Slide 29: Kmart Group overview
Kmart Group overview • Earnings decreased by 3.8% to $383m1 – Kmart earnings declined primarily due to increased store & supply chain expenses resulting from additional stores, increased units sold, underlying cost inflation & implementation of revised product flow through the supply chain to reduce
Slide 30: Kmart Group outlook
Kmart Group outlook • Kmart Group is well positioned for the future • In the short term earnings will be affected by moderated trading momentum & continued focus on customer value in Kmart & ongoing transformation in Target • Kmart will continue to focus on: – Creating a great place to shop that is
Slide 31: Officeworks
Officeworks Sarah Hunter Managing Director, Officeworks
Slide 32: Officeworks performance summary
Officeworks performance summary Half-year ended 31 December ($m) 2018 2017 Var % Revenue 1,100 1,017 8.2 EBITDA 90 80 12.5 Depreciation & amortisation (14) (12) (16.7) EBIT 76 68 11.8 EBIT margin (%) 6.9 6.7 RoC (R12, %) 17.2 15.7 Safety (R12, TRIFR) 11.0 10.7 Sales growth1 8.2 9.8 1. 2018 growth re
Slide 33: Officeworks overview
Officeworks overview • Strong headline results Revenue growth momentum % – Revenue growth of 8.2% 12 9.7 10 9.1 8.5 o Strong sales growth in stores & online 8.2 8 7.0 6.3 o Ongoing improvement in sales density 6 5.9 – EBIT growth of 11.8% 4 2 o Effective gross margin & CODB management 0 – RoC (R12)
Slide 34: Officeworks outlook
Officeworks outlook • Continued focus on execution of strategic agenda – Strengthen & expand the customer proposition by continually adding new products & services – Extend ‘every channel’ reach – physical & digital – Enhance productivity & efficiency through effective cost control & working capital
Slide 35: Industrials
Industrials David Baxby Managing Director, Industrials
Slide 36: Industrials performance summary (continuing operations)
Industrials performance summary (continuing operations) Half-year ended 31 December ($m) 2018 2017 Var % Revenue Chemicals, Energy & Fertilisers 874 764 14.4 Industrial & Safety 876 869 0.8 Total 1,750 1,633 7.2 EBITDA Chemicals, Energy & Fertilisers1 221 216 2.3 Industrial & Safety 61 73 (16.4) Tot
Slide 37: Chemicals, Energy & Fertilisers performance summary
Chemicals, Energy & Fertilisers performance summary Half-year ended 31 December1 ($m) 2018 2017 Var % Revenue2 Chemicals 502 439 14.4 Energy 233 223 4.5 Fertilisers 139 102 36.3 Total 874 764 14.4 EBITDA 221 216 2.3 Depreciation & amortisation (36) (35) (2.9) EBIT 185 181 2.2 EBIT3 (including Quadra
Slide 38: Chemicals, Energy & Fertilisers overview
Chemicals, Energy & Fertilisers overview • Modest earnings growth & improved capital efficiency increased RoC by 2.5 ppt • Chemicals earnings slightly lower – Strong WA EGAN1 demand due to continued disruption at competing Burrup plant but AN2 earnings impacted by increasing ammonia input costs & cu
Slide 39: Industrial & Safety performance summary
Industrial & Safety performance summary Half-year ended 31 December ($m) 2018 2017 Var % Revenue 876 869 0.8 EBITDA 61 73 (16.4) Depreciation & amortisation (19) (21) 9.5 EBIT 42 52 (19.2) EBIT margin (%) 4.8 6.0 RoC (R12, %) 7.5 8.3 Safety (R12, TRIFR) 7.3 6.4 2019 Half-year results | 39
Slide 40: Industrial & Safety overview
Industrial & Safety overview • Revenue 0.8% higher than prior corresponding period – Blackwoods revenue broadly in line, with increased Australian revenues from stronger mining demand offset by weakness in construction & New Zealand market – Workwear Group revenue lower due to timing of uniform sale
Slide 41: Industrials outlook
Industrials outlook Chemicals, Energy & Fertilisers • Production & demand for products expected to remain robust • AN to continue to benefit from ongoing disruption at competing Burrup plant but medium term earnings will be affected by an oversupply of EGAN in WA • Growth in natural gas retail is ex
Slide 42: Group Outlook
Group Outlook Rob Scott Managing Director, Wesfarmers Limited
Slide 43: Outlook
Outlook • Following successful repositioning of the portfolio, Wesfarmers has a very strong balance sheet & is well placed to deliver improved shareholder returns • Despite cautious trading conditions, businesses within the portfolio are well positioned to continue to deliver long term growth in sha
Slide 44: Questions
Questions
Slide 45: Appendix: Supplementary Information
Appendix: Supplementary Information
Slide 46: Group management balance sheet – overview
Group management balance sheet – overview ($m)1 1H19 FY18 1H18 Commentary (versus 1H18) Inventories 4,374 6,011 6,979 Receivables & prepayments 1,152 1,939 2,096 Detailed working capital discussion Trade & other payables (4,108) (6,552) (7,890) provided on slides 47 and 48 Other 195 492 805 Net work
Slide 47: Balance sheet – working capital
Balance sheet – working capital ($m)1 1H19 FY18 1H18 Commentary (versus 1H18) • Decrease reflects demerger of Coles & Inventories 4,374 6,011 6,979 disposal of Bengalla, partially offset by store network growth in retail divisions Receivables & prepayments 1,152 1,939 2,096 • Decrease primarily due
Slide 48: Balance sheet – working capital (continuing operations)
Balance sheet – working capital (continuing operations) ($m)1 1H19 FY18 1H18 Commentary (versus 1H18) • Increase primarily reflects inventory growth Inventories 4,374 3,883 4,029 in Bunnings to support network growth & timing of shipments in WesCEF Receivables & prepayments 1,152 1,213 1,066 • Incre
Slide 49: Retail store networks
Retail store networks As at 31 December 2018 More than 1,000 locations across Australia & New Zealand Brand NSW/ACT VIC QLD SA WA TAS NT NZ Total Bunnings Warehouse 78 58 45 15 32 7 3 27 265 Smaller format 17 13 13 3 9 - - 20 75 Trade 7 4 7 2 3 1 - 8 32 Total Bunnings 102 75 65 20 44 8 3 55 372 Kmar
Slide 50: Revenue reconciliation – Kmart Group
Revenue reconciliation – Kmart Group Half-year ended 31 December ($m) 2018 2017 Segment revenue (Gregorian) 4,639 4,604 Less: Non sales revenue (6) (2) Headline sales (Gregorian) 4,633 4,602 Add: Gregorian adjustment1 102 99 Headline sales revenue (Retail)2 4,735 4,701 1. Adjustment to headline sale
Slide 51: Wesfarmers
We Wesfarmers