Wesfarmers Limited · ASX:WES
Wesfarmers — H1 FY2008 Earnings Presentation
63 slides from Wesfarmers's earnings presentation, Feb 22, 2008
Slide 1: 2008 Half Year Results Teleconference
2008 Half Year Results Teleconference 22 February 2008
Slide 2: Presentation Outline
Presentation Outline Group Performance Highlights Richard Goyder Group Financial Results Gene Tilbrook Coles Integration Update Keith Gordon Divisional Managing Directors Home Improvement & Office Supplies John Gillam Coles Mick McMahon Target Launa Inman Kmart Larry Davis Resources Stewart Butel In
Slide 3: Group Performance Highlights
Group Performance Highlights Richard Goyder Managing Director, Wesfarmers Limited
Slide 4: Group Performance Highlights
Group Performance Highlights • Completion of Coles transaction on 23 November 2007 – Target and Kmart performing well – Christmas most profitable period of the year for most businesses – One-off costs to come through in full year results • Operating revenue of $9.8 billion, up 108% • Group profit af
Slide 5: Divisional Performance
Divisional Performance 2007 2006 Half Year ended 31 December EBIT ROC* ROC* $m % % Home Improvement & Office Supplies 332 31.4^ 25.1 Coles 130 n.m. n/a Target 118 n.m. n/a Kmart 101 n.m. n/a Resources 112 30.3 52.9 Insurance 64 11.2 24.6 Industrial & Safety 61 16.9 13.7 Chemicals & Fertilisers 48 16
Slide 6: Group Financial Results
Group Financial Results Gene Tilbrook Finance Director, Wesfarmers Limited
Slide 7: Group Performance Summary
Group Performance Summary Half Year ended 31 December ($m) 2007 2006 % Operating revenue 9,808 4,718 107.9 EBITDA 1,266 791 60.1 EBIT 1,046 613 70.6 Net profit after tax 601 392 53.3 Operating cash flow 1,241 477 160.2 Earnings per share (excl. employee res. shares) 134.9 105.8 27.5 Earnings per sha
Slide 8: Divisional EBIT
Divisional EBIT Half Year ended 31 December ($m) 2007 2006 % Home Improvement & Office Supplies 332 270 23.0 Coles 130 - n/a Target 118 - n/a Kmart 101 - n/a Resources 112 168 (33.3) Insurance 64 60 6.7 Industrial & Safety 61 51 19.6 Chemicals & Fertilisers 48 28 71.4 Energy 48 38 26.3 Other 72 34 1
Slide 9: Return on Shareholders' Funds
Return on Shareholders’ Funds (rolling 12 months to 31 December) % 35 30 25 21.4 20 15 30.2 27.7 10 20.2 17.0 18.4 5 0 2003 2004 2005 2006 2007 AGAAP^ A-IFRS # Excludes sale of Landmark, Girrah (2003) and ARG (2006) ^ Before goodwill amortisation 9
Slide 10: Cash Flow & Dividend
Cash Flow & Dividend (Half Year to 31 Dec) (per share) cents 280 240 200 160 120 80 40 0 2003# 2004 2005 2006 2007 EPS^ Operating Cashflow* Dividend # EPS and Cash flow exclude sale of Landmark * WANOS includes employee reserved shares ^ AGAAP excl. goodwill amortisation (2003), AIFRS excl. employee
Slide 11: Capital Expenditure
Capital Expenditure • Original $825 million FY08 budget weighted towards 1H08 • 1H08 capex excl. Coles Group slightly behind budget Half Year ended 31 December (A$m) 2007 2006 Home Improvement & Office Supplies 173 91 Coles, Target and Kmart ^ 93 - Resources 95 95 Insurance 6 7 Industrial & Safety 1
Slide 12: Capital Management
Capital Management • Net Debt / Equity of 70.1% at 31 December 2007 • Cash Interest Cover Ratio (rolling 12 months) of 5.0 times • $4,000 million to be refinanced in 2008 – DIP; Australian and offshore medium term debt; hybrids or convertibles • Dividend Investment Plan – at least 75% underwrite for
Slide 13: Coles Integration
Coles Integration Keith Gordon Business Integration Director
Slide 14: Coles Integration
Coles Integration Integrate: Corporate Functions - All reporting lines are now to Wesfarmers Limited Full integration to coincide with budgetary cycle and establishment of a small corporate office presence in Melbourne. Head Office to remain in Perth Create: Divisional Structures – Organisatio
Slide 15: Coles Integration
Coles Integration Commercial Reviews: Kmart – options assessment well progressed; 5yr business plan developed Simplification – programme ceased; all divisions have responsibility for cost base Supply Chain – review to be completed early March 2008 Working capital – accountability and managem
Slide 16: Coles Integration
Coles Integration Cost Savings: Simplification programme ceased $288 million in run-rate savings realised prior to WES acquisition Remaining $97 million to achieve $385 million target – expected to be realised through restructure and other initiatives $36 million net cost savings since acqui
Slide 17: Home Improvement & Office Supplies
Home Improvement & Office Supplies John Gillam Managing Director
Slide 18: Home Improvement & Office Supplies Performance Summary
Home Improvement & Office Supplies Performance Summary Half Year ended 31 December ($m) 2007 2006 % Revenue Home Improvement 2,795 2,471 13.1 Office Supplies 115 - n/a 2,910 2,471 17.8 EBIT Home Improvement 325 270 20.4 Office Supplies 7 - n/a 332 270 23.0 18
Slide 19: Home Improvement Performance Summary
Home Improvement Performance Summary Half Year ended 31 December ($m) 2007 2006 % Revenue 2,795 2,471 13.1 EBIT 325 270 20.4 ROC (R12 %) 31.4 25.1 6.3pt Safety (R12 LTIFR) 14.5 13.4 Trading Revenue* 2,766 2,428 13.9 Net property contribution 12 9 33.3 Trading EBIT* 313 271 15.5 Trading EBIT / Tradin
Slide 20: Home Improvement Highlights
Home Improvement Highlights • 14.4% cash sales growth – Store on store cash sales growth of 12.2% • 6.1% lift in trade sales • 6 warehouses and 1 trade centre opened – Strong ongoing investment in existing network • Maintaining strong focus on core retail drivers – Good traction from key strategies
Slide 21: Home Improvement Outlook
Home Improvement Outlook • Continued cash sales growth – Threats to positive retail trading conditions emerging • Further gains in trade • Ongoing network development – 12 warehouse openings likely for 2007/08 • Strong focus on delivering on strategic agenda 21
Slide 22: Office Supplies Performance Summary
Office Supplies Performance Summary 23 November to 31 December ($m) 2007 Revenue 115 EBIT 7 Comparative store sales growth (%) 1.6 Trading Revenue* 115 Net property contribution - Trading EBIT* 7 Trading EBIT/Trading revenue (%) 6.1 * Excludes property and other non-trading items 22
Slide 23: Office Supplies Highlights & Outlook
Office Supplies Highlights & Outlook • Satisfactory Christmas trading; competitive trading environment • Full year result to be impacted by some “one-offs” • Integration work proceeding well – Executive team structures in place – Separation activities well progressed – Tactical changes to the offer
Slide 24: Coles
Coles Mick McMahon Chief Operating Officer 24
Slide 25: Coles Performance Summary
Coles Performance Summary 23 November to 31 December ($m) 2007 Revenue 2,919 EBITDA 175 Depreciation & Amortisation^ (45) EBIT 130 Food & Liquor Revenue 2,271 Comparative store sales growth % 2.0 Trading EBIT* 118 Convenience Revenue 648 Comparative store sales growth % 6.2 Trading EBIT# 12 ^ Incl.
Slide 26: Coles Highlights
Coles Highlights • Improving Food & Liquor sales trend – Improved on-shelf availability and better fresh participation • Christmas trading solid, but later than last year – Stronger performance in all Christmas categories – Liquor sales weather affected • Strong increase in Convenience sales • Conti
Slide 27: Coles Outlook
Coles Outlook • Continuing focus on product availability and cost management • Customer focussed strategies • Restructuring to occur • New stores planned to open in second half – 10 supermarkets – 7 1st Choice – 10 convenience 27
Slide 28: Target
Target Launa Inman Managing Director 28
Slide 29: Target Performance Summary
Target Performance Summary 23 November to 31 December ($m) 2007 Revenue 605 EBITDA 123 Depreciation & Amortisation (5) EBIT 118 Comparative store sales growth (%) 3.1 EBIT margin (%) 19.5 Store numbers 274 29
Slide 30: Target Highlights
Target Highlights • New store openings since July 31, 2007: – 7 Target – 2 Target Country • Profit from Christmas trading period comfortably ahead of last year • All high margin departments continue to perform well • Outstanding growth in electrical department (consumer digital products) • Ongoing u
Slide 31: Target Outlook
Target Outlook • Continuation of solid store roll out programme – expecting further three Target stores to open this financial year • New “Designers for Target” • Preparing for potential slow down in retail spending – controlled stocks in higher risk areas • Continued strategy of differentiation 31
Slide 32: Kmart
Kmart Larry Davis Managing Director 32
Slide 33: Kmart Performance Summary
Kmart Performance Summary 23 November to 31 December ($m) 2007 Revenue 692 EBITDA 106 Depreciation & Amortisation (5) EBIT 101 Comparative store sales growth (%) 5.0 EBIT margin (%) 14.6 Store numbers (incl. Kmart Tyre & Auto) 450 33
Slide 34: Kmart Highlights
Kmart Highlights • Improvement in performance commenced second half FY07 • Strategic adjustments to the business are generating improved results • Returned to comp sales increase • Customers are responding well to the improved product offer • Consistently strong performance across destination catego
Slide 35: Kmart Outlook
Kmart Outlook • Evolve product offer • Focus on improving the in-store customer experience • Expanded refit programme – 19 refits to commence in 2H08 • More aggressive store opening program • Create stand-alone capacity 35
Slide 36: Resources
Resources Stewart Butel Managing Director
Slide 37: Resources Performance Summary
Resources Performance Summary Half Year ended 31 December ($m) 2007 2006 % Revenue 530 587 (9.7) EBITDA 179 267 (33.0) Depreciation & Amortisation* (67) (99) 32.3 EBIT 112 168 (33.3) ROC (R12 %) 30.3 52.9 (22.6pt) Coal Production (‘000 tonnes) 6,963 7,133 (2.4) Safety (R12 LTIFR)^ 4.4 3.7 * Includes
Slide 38: Resources Highlights
Resources Highlights • Strong metallurgical coal demand in constrained infrastructure environment • Bengalla’s Wantana Pit Modified Development Consent approval • Feasibility studies continue into expanding Curragh and Bengalla mines • Central Queensland major flood events in Jan/Feb 2008 – Ongoing
Slide 39: Resources Outlook
Resources Outlook • Strong market outlook for 2008/09 • Constrained export coal logistics remain • Ongoing high demurrage cost • Awaiting 2008/09 price negotiation outcomes – Spot export coal prices increasing – 556kt Curragh carryover tonnage impact in Q4 2007/08 • Forecast Curragh metallurgical sa
Slide 40: Insurance
Insurance Rob Scott Managing Director 40
Slide 41: Insurance Performance Summary
Insurance Performance Summary Half Year ended 31 December* ($m) 2007 2006 % Gross Written Premium Underwritten 618 546 13.2 EBITA Underwriting 38 61 (37.7) EBITA Broking 28 4 n.m. EBITA Other 5 (2) n.m. EBITA Insurance Division 71 63 12.7 EBIT Insurance Division 64 60 6.7 Net Earned Loss Ratio (%) 6
Slide 42: Insurance Highlights
Insurance Highlights • Increased frequency of severe weather events • Continued acquisition of small broking operations in Australia, NZ and UK • Completed rollout of OAMPS brand across all Australian broking operations • Integration phase completed with portfolio transfer from AIIL to Lumley • Reco
Slide 43: Insurance Outlook
Insurance Outlook • Premium rates in Australia and NZ stabilising • Restructuring of Lumley NZ operations to improve underwriting performance • Continue programme of selective acquisitions that meet investment criteria • Difficult claims environment will remain if current La Niña weather continues 4
Slide 44: Industrial & Safety
Industrial & Safety Olivier Chretien Managing Director
Slide 45: Industrial & Safety Performance Summary
Industrial & Safety Performance Summary Half Year ended 31 December* ($m) 2007 2006 % Revenue 642 580 10.7 EBITDA 66 58 13.8 Depreciation & Amortisation of PPE (5) (7) 28.6 EBIT 61 51 19.6 EBIT margin (%) 9.5 8.8 0.7pt ROC (R12 %) 16.9 13.7 3.2pt Safety (R12 LTIFR) 4.9 4.1 * 2007 includes Bullivants
Slide 46: Industrial & Safety Highlights
Industrial & Safety Highlights • Operating revenue improved by 10.7% to $642m – Growth in all businesses – Inclusion of Bullivants • Earnings increased by 20% to $61m – Improvement in most businesses including New Zealand – Benefits of global sourcing and business improvement initiatives • Return on
Slide 47: Industrial & Safety Outlook
Industrial & Safety Outlook • Market conditions remain mixed − Continued demand from resources and infrastructure in WA and QLD – Manufacturing conditions remain subdued in Australia and New Zealand • Ongoing strong competition and scarcity of skilled labour • However satisfactory growth is expected
Slide 48: Chemicals & Fertilisers
Chemicals & Fertilisers Ian Hansen Managing Director 48
Slide 49: Chemicals & Fertilisers Performance Summary
Chemicals & Fertilisers Performance Summary Half Year ended 31 December ($m) 2007 2006 % Revenue Chemicals 218 125 74.4 Fertilisers 173 106 63.2 391 231 69.3 EBITDA 69 46 50.0 Depreciation & Amortisation of PPE (21) (18) (16.7) EBIT 48 28 71.4 Sales Volume (‘000t): Chemicals 281.4 227.6 23.6 Fertili
Slide 50: Chemicals & Fertilisers Highlights
Chemicals & Fertilisers Highlights • EBA successfully renegotiated • Ammonia plant production ahead of last year despite performance problems • Higher production, sales and earnings from AN despite delay in expansion • Good performance from Australian Vinyls (acquired Sept ’07) • Improved sodium cya
Slide 51: Chemicals & Fertilisers Outlook
Chemicals & Fertilisers Outlook • Demand for mining chemicals remains strong • Demand for PVC strong • Completion of new prill plant in May 08 – Additional prill production – Total cost of AN expansion of around $400 million • Seasonal break critical for fertiliser sales • $15 million investment to
Slide 52: Energy
Energy Tim Bult Managing Director 52
Slide 53: Energy Performance Summary
Energy Performance Summary Half Year ended 31 December* ($m) 2007 2006 % Revenue 281 222 26.6 EBITDA 66 51 29.4 Depreciation & Amortisation^ (18) (13) (38.5) EBIT 48 38 26.3 ROC (R12 %) 12.0 33.2 (21.2pt) LPG production (kt) 82.3 93.8 (12.3) Safety (R12 LTIFR) 3.0 1.1 * Includes Coregas in 2007 for
Slide 54: Energy Highlights
Energy Highlights • WA LNG project remains on budget • Good progress on industrial gas supply projects • Record high energy prices • Agreement to sell UNIGAS interest • Integration of Coregas complete • Appointment of new General Manager at Coregas 54
Slide 55: Energy Outlook
Energy Outlook • Full year contribution from Coregas • Dependent on: – international LPG prices – gas flow rates – LPG feed rates • LPG export sales – second half expected to be in line with last year • Lower autogas sales • Contributions from LNG project due in 2008/09 55
Slide 56: Other Businesses
Other Businesses Gene Tilbrook Finance Director, Wesfarmers Limited 56
Slide 57: Other Business Performance Summary
Other Business Performance Summary Half Year ended 31 December ($m) Holding% 2007 2006 Associates: Gresham Private Equity - Fund 1 50 3 0 Gresham Private Equity - Fund 2 67 23 (1) Gresham Partners 50 5 2 Wespine 50 3 4 Bunnings Warehouse Property Trust 23 8 26 Tax on relevant associates (4) (4) Asso
Slide 58: Breakdown of reported result
Breakdown of reported result Half Year ended 31 December ($m) 2007 2006 Divisional EBIT 1,014 615 Profit from associates 38 27 Other EBIT 34 7 Corporate overheads (40) (36) Group EBIT 1,046 613 Less: Finance costs - expense net of capitalisation (244) (58) - discounts* (6) (5) Reported profit before
Slide 59: Gresham Private Equity
Gresham Private Equity GPE Fund 1 • Norcros divested, with some deferred consideration • Current investment $31m • Exit of Riviera expected within several years GPE Fund 2 • Wesfarmers’ current commitment $180m; Capital invested $141m • New Investments in Barminco and Experiential Group • Revaluatio
Slide 60: Outlook
Outlook Richard Goyder Managing Director, Wesfarmers Limited
Slide 61: Outlook
Outlook • Focus on bringing about substantial change in Coles • One-off transaction/restructure costs in 2H08 expected; too early to quantify • Continuing good results in most businesses • Impact of higher interest rates and fuel price volatility • Strengthening coal price outlook • $4bn to be refin
Slide 62: Questions
Questions
Slide 63: For all the latest news visit www.wesfarmers.com.au
For all the latest news visit www.wesfarmers.com.au 63