Wesfarmers Limited · ASX:WES
Wesfarmers — Debt Investor Presentation (February 2017)
46 slides from Wesfarmers's debt investor presentation, February 2017
Slide 1: 2017 Half-year Results Debt Investor Update
2017 Half-year Results Debt Investor Update February 2017
Slide 2: Wesfarmers' operating business structure
Wesfarmers’ operating business structure Richard Goyder Managing Director Wesfarmers Home Department Officeworks Coles Industrials Improvement Stores & Associates John Durkan Michael Schneider Peter (PJ) Davis Guy Russo Rob Scott Anthony Gianotti Terry Bowen Managing Director Managing Director Manag
Slide 3: Group Performance Summary
Group Performance Summary
Slide 4: Group performance summary
Group performance summary Half-year ended 31 December ($m) 2016 2015 var % Revenue 34,917 33,462 4.3 EBIT 2,429 2,110 15.1 Net profit after tax 1,577 1,393 13.2 Operating cash flow 2,648 2,404 10.1 Net capital expenditure 400 675 (40.7) Free cash flow 2,231 1,665 34.0 Interim ordinary dividend (cps)
Slide 5: Divisional earnings
Divisional earnings EBIT ($m) Half-year ended 31 December 2016 2015 var % var $m % of EBIT Coles 920 945 (2.6) (25) 37% Home Improvement 722 701 3.0 21 Bunnings Australia & NZ 770 701 9.8 69 29% Bunnings UK & Ireland (48) - n.m. n.m. Department Stores 387 393 (1.5) (6) 16% Target1 16 74 (78.4) (58)
Slide 6: Operating cash flows
Operating cash flows • Operating cash flows increased 10.1% to Half-year ended 31 December ($m) 2016 2015 $2,648m Cash movement inflow/(outflow) • Cash realisation1 of 119.7%, up from Receivables & prepayments (110) (13) 118.3% in the prior corresponding period Inventory (617) (1,066) • Higher worki
Slide 7: Capital expenditure
Capital expenditure • Gross capital expenditure declined $135m Half- year ended to $924m 31 December ($m)1 2016 2015 var % Coles 463 459 0.9 – Fewer store openings in Home Improvement Home Improvement 228 314 (27.4) Kmart 85 79 7.6 – Reduced investment in Target Target 38 66 (42.4) • Proceeds from p
Slide 8: Coles
spicit Financial Services
Slide 9: Coles performance summary
Coles performance summary Half-year ended 31 December ($m) 2016 2015 var % Coles Revenue1 20,056 20,087 (0.2) EBIT2 920 945 (2.6) EBIT margin2 (%) 4.6 4.7 Food & Liquor Revenue1 16,878 16,496 2.3 Headline sales growth3,4 (%) 2.2 5.4 Comparable sales growth3,4 (%) 1.3 4.3 Inflation/(deflation)3 (0.9)
Slide 10: Food & Liquor summary: Maintaining our focus on the customer
Food & Liquor summary Maintaining our focus on the customer • Focusing on the customer in a competitive market – Over seven years of lowering prices for customers – Continued investment in service, availability & quality • Continued positive momentum positions the business for sustainable long-term
Slide 11: Food & Liquor summary: Shelf margin deterioration a factor
Food & Liquor summary Shelf margin deterioration a factor • Shelf margin lower than prior year – Represents gross margin excluding loss & logistics – Decline driven by proactive investment, including absorption of meat costs, & competition • Continued investments in service, quality & availability •
Slide 12: Food & Liquor highlights: Improving our customer offer
Food & Liquor highlights Improving our customer offer • Maintaining a consistent customer proposition – Focus remains on improving the customer offer • Key metrics continue to improve – Continued growth in comparable transactions, basket size & sales density – Improved ‘Tell Coles’ metrics across th
Slide 13: Food & Liquor highlights: Progressing the Liquor transformation
Food & Liquor highlights Progressing the Liquor transformation • Positive momentum continues Reshaping the liquor network # stores 5 – Five quarters of comparable sales growth 60 40 10 2 8 8 – Strong transaction growth remains the driver 20 11 8 51 2 33 27 35 33 35 17 11 • Increased renewal activity
Slide 14: Home Improvement
Home Improvement BUNNINGS BUNNINGS TRADE” H@MEBASE
Slide 15: Home Improvement performance summary
Home Improvement performance summary Half-year ended 31 December ($m) 2016 2015 var % Revenue 6,995 5,500 27.2 Bunnings Australia & NZ 5,957 5,500 8.3 Bunnings UK & Ireland ($) 1,038 n.a. Bunnings UK & Ireland (£) 612 n.a. EBIT 722 701 3.0 Bunnings Australia & NZ1 770 701 9.8 Bunnings UK & Ireland (
Slide 16: Home Improvement: Bunnings Australia & New Zealand
Home Improvement Bunnings Australia & New Zealand
Slide 17: Home Improvement overview: Bunnings Australia & New Zealand
Home Improvement overview Bunnings Australia & New Zealand (BANZ) • Revenue uplift of 8.3% – Total store growth of 8.4%; store-on-store growth of 6.5% – Broad strength of trading performance across all major regions; consumer & commercial – Weather & stock liquidation impacts • EBIT increase of 9.8%
Slide 18: Home Improvement: Bunnings United Kingdom & Ireland
Home Improvement Bunnings United Kingdom & Ireland
Slide 19: Acquisition Overview: Three Phase Investment Plan
Acquisition Overview: Three Phase Investment Plan Phase 1 Phase 2 Phase 3 • Combine essential local • Retail basics focus elements with best of Bunnings • Invest in team to build new business • Invest in core business • Warehouse format activities • Lowest prices, wider choice with trusted brands, g
Slide 20: Home Improvement overview: Bunnings UK & Ireland
Home Improvement overview Bunnings United Kingdom & Ireland (BUKI) • Solid progress on phase 1 • Revenue of £612m ($1,038m), EBIT loss £28m ($48m) – £13m ($21m) restructure costs included; concessions & transition activity – Price deflation in line with expectations – Clearance activity largely comp
Slide 21: Home Improvement overview: Bunnings UK & Ireland
Home Improvement overview Bunnings United Kingdom & Ireland (BUKI) Invest in team • Leadership development • Service training for over 10,000 Team Members • Supplier trained product knowledge Invest in core business activities • Separation well advanced • Majority of services transitioned • Home del
Slide 22: Home Improvement overview: First Bunnings Warehouse pilot
Home Improvement overview Bunnings United Kingdom & Ireland (BUKI) First Bunnings Warehouse pilot launched • Strong Supplier support • Widest range of trusted brands • Positive customer feedback • Expect to open four pilot stores in FY17 Successful pilots an absolute precursor to further investment
Slide 23: Department Stores
Department Stores Target
Slide 24: Department Stores performance summary
Department Stores performance summary Half-year ended 31 December ($m) 2016 2015 var % Revenue Target1 1,623 1,972 (17.7) Kmart 2,996 2,750 8.9 Total 4,619 4,722 (2.2) EBIT Target1 16 74 (78.4) Kmart 371 319 16.3 Total 387 393 (1.5) 1 2016 includes a provision of $13m recognised for restructuring co
Slide 25: Target overview
Target overview • Total sales decline of 17.4% – Difficult trading period, reflecting significant business transition – Deflation through conversion to EDLP, including Toy Sale exit – Buying programs & inventories reset, with lead times affecting availability of seasonal stock & fashion in womenswea
Slide 26: Kmart overview
Kmart overview • Strong sales performance; up 9.1% on last year – Further investment in price drove volume growth across all categories – Increased customer transactions & units sold • EBIT growth of 16.3% – Strong contribution from everyday ranges sold at full price – Improved clearance & inventory
Slide 27: Officeworks
| Officeworks
Slide 28: Officeworks performance summary
Officeworks performance summary Half-year ended 31 December ($m) 2016 2015 var % Revenue 927 875 5.9 EBIT 62 59 5.1 EBIT margin (%) 6.7 6.7 Total sales growth1 (%) 5.8 9.1 1 2016 growth for Officeworks represents the six month period 1 July 2016 to 31 December 2016 & 1 July 2015 to 31 December 2015.
Slide 29: Officeworks overview
Officeworks overview • Pleasing headline results Revenue growth % – Revenue growth of 5.9% 12 9.9 10 9.1 – EBIT growth of 5.1%, eight year 1H CAGR of 12.0% 7.7 8 7.0 – RoC (R12) up 136 bps to 13.9% 6 5.9 4.6 4.5 4 • Intense focus on customer offer 2 – Merchandise layout & store design changes implem
Slide 30: Industrials
Industrials ws yd ws tag cietsers inchattial and Safety Wesfarmers Resources
Slide 31: Industrials performance summary
Industrials performance summary Half-year ended 31 December ($m) 2016 2015 var % Revenue Chemicals, Energy & Fertilisers1 695 753 (7.7) Industrial & Safety 884 927 (4.6) Resources 742 598 24.1 Total 2,321 2,278 1.9 EBIT Chemicals, Energy & Fertilisers2 187 104 79.8 Industrial & Safety 52 36 44.4 Res
Slide 32: Chemicals, Energy & Fertilisers overview
Chemicals, Energy & Fertilisers overview • Revenue declined 7.7% – Cessation of PVC manufacturing in chemicals – Lower global fertiliser pricing – Lower Saudi CP pricing & lower LPG exports offset by growth in natural gas retailing • Strong growth in underlying earnings & RoC – Chemicals earnings in
Slide 33: Industrial & Safety overview
Industrial & Safety overview • Revenue declined 4.6% due to continuing subdued investment across mining & resources sectors • Earnings improved during the half – Lower operating costs achieved through the ‘Fit for Growth' simplification program, completed during 1H17 – Improved category management &
Slide 34: Resources overview
Resources overview • 24.1% increase in revenue – Significant increase in metallurgical & thermal coal prices during 2Q17, partially offset by impact of carryover tonnage – 1H17 sales mix: Hard 39%; Semi 26%; PCI 35% – Lower hedge book losses of $45m ($70m in 1H16) • Wet weather disruptions during 1Q
Slide 35: Outlook
Outlook
Slide 36: Outlook
Outlook Retail • Generally optimistic outlook • Strong momentum & market leading positions provide for a positive outlook for BANZ, Kmart & Officeworks • Coles to continue to deliver strong customer proposition to support long-term growth in earnings & returns despite short-term margin pressures • B
Slide 37: Outlook (continued)
Outlook (continued) Group • Progressing strategic reviews of Resources & Officeworks • Maintain a strong balance sheet & cash flow generation • Secure growth opportunities through entrepreneurial initiatives • Ensure sustainability through responsible long-term management 2017 Half-year results | 37
Slide 38: Debt Management
Debt Management
Slide 39: Financial discipline is core to Wesfarmers' strategy
Financial discipline is core to Wesfarmers’ strategy Maintaining prudent capital structure and strong credit rating is important to Wesfarmers • Recent activity - Nov 16: Repaid A$500 million five-year domestic bond - Feb 17: Received A$937 million from sale of Coles credit card receivables; proceed
Slide 40: Maintaining strong credit metrics
Maintaining strong credit metrics • Strong credit ratings: Moody’s A3 (stable); Standard & Poor’s A- (negative) • Continued strength in Group’s debt service position - Net financial debt1 of $5.4 billion in line with corresponding period of $5.3 Solid credit billion; significantly decreased from $6.
Slide 41: Pro-active debt management
Pro-active debt management • Continued focus on maturity profile and maintaining liquidity headroom in revolving bilateral bank facilities Refinancing • Commitment to maintain diversity of funding sources including the domestic objectives and international debt capital markets • Standard terms and c
Slide 42: Pro-active debt management
Pro-active debt management MTN EUR1,250m US144A USD750m Geographical DCM Funding Diversity MTN AUD1,350m $m 2,500 2,000 Maturity 1,500 Profile at 31 1,000 December 500 2016 0 (500) FY17 FY18 FY19 FY20 FY21 FY22 FY23 Cash at bank & on deposit Capital Markets Bank Facilities 2017 Half-year results | 4
Slide 43: Reduced funding costs
Reduced funding costs • ‘All-in’ effective borrowing cost further reduced by 68 basis points to 3.95% • Reflects active management of debt sources & the benefit of lower base rates $m Finance costs & % 300 weighted average cost of debt 8 6 200 4 100 2 0 0 1H13 1H14 1H15 1H16 1H17 Finance costs (LHS)
Slide 44: Capital management considerations
Capital management considerations • Dividend policy takes into account through the cycle free cash flow requirements and debt refinancing • Strong phase of capital expenditure led growth • Dividend investment plan neutralised since FY09 final dividend until FY16 interim dividend • DIP not neutralise
Slide 45: Questions
Questions
Slide 46: Wesfarmers
os Wesfarmers
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