Wesfarmers Limited · ASX:WES
Wesfarmers — H1 2004 Earnings Presentation
79 slides from Wesfarmers's earnings presentation, Feb 10, 2004
Slide 1: Half Year Results Presentation
Half Year Results Presentation 10 February 2004
Slide 2: Presentation Outline
Presentation Outline Opening Comments Michael Chaney Group Performance Richard Goyder Divisional Comments Peter Davis Bob Buckley Bob Denby David Robb John Gillam Gene Tilbrook Outlook Michael Chaney 2004 Half Year Results 2
Slide 3: Richard Goyder
Richard Goyder Finance Director, Wesfarmers Limited
Slide 4: Performance Summary
Performance Summary Half Year Ended 31 December ($m) 2002 2003 % Operating Revenue (ex. sale of Landmark) 3,728.1 3,786.2 1.6 Net Profit (before g/will ex. sale of Landmark) 267.6 338.5 26.5 Goodwill Amortisation (42.7) (41.7) (2.3) Net Profit (after g/will ex. sale of Landmark) 224.9 296.8 32.0 Net
Slide 5: Half Year Performance Highlights
Half Year Performance Highlights ¾ Strong performance from operating units ¾ Lumley purchase ¾ Sale of Landmark ¾ GPEF divestment (Repco) - $44.2m net profit ¾ Capital return of $934m in December 2003 2004 Half Year Results 5
Slide 6: Profit on Sale of Non-Current Assets
Profit on Sale of Non-Current Assets After Tax ($m) 2002 2003* Hardware (0.1) 0.0 Energy 1.2 0.5 Rural Operations 0.4 0.2 Insurance 0.0 0.0 Industrial & Safety 0.4 0.4 Chemicals & Fertilisers 0.3 0.0 Other 0.0 3.2 Total 2.2 4.3 * Excludes sale of Landmark 2004 Half Year Results 6
Slide 7: Divisional EBITA
Divisional EBITA Half Year Ended 31 December ($m) 2002 2003* Hardware 196.1 211.9 Energy 123.6 115.1 Rural Operations 21.5 8.4 Insurance 12.4 35.8 Industrial & Safety 55.5 53.0 Chemicals & Fertilisers 15.7 20.6 Other 16.7 84.1 Total 441.5 528.9 *Excludes earnings from sale of Landmark 2004 Half Year
Slide 8: Divisional ROC & Capital Employed
Divisional ROC & Capital Employed (before goodwill amortisation) Rolling 12 months to 31 December 2003 EBITA Capital ROC 2002 $m Employed % ROC $m % Hardware 364.9 1,928.9 18.9 17.8 Energy 251.3 778.8 32.3 30.2 Insurance 48.6 421.6 32.0* 58.6 Industrial & Safety 114.7 829.2 13.8 12.9 Chemicals & Fer
Slide 9: Cashflow & Dividend (Half Year)
Cashflow & Dividend (Half Year) (earnings, cashflow and dividend per share) Cents 200 160 120 80 40 0 1999 2000 2001 2002 2003 EPS (before goodwill amortisation)* Cashflow Dividend * Excludes sale of Landmark 2004 Half Year Results 9
Slide 10: Return on Shareholders' Funds
Return on Shareholders’ Funds (pre goodwill) – rolling 12 months to 31 December % 20 15 10 5 0 1999 2000 2001 2002 2003* Target * Excludes sale of Landmark 2004 Half Year Results 10
Slide 11: Net Debt/Equity
Net Debt/Equity (as at 31 December) % 80 60 Target 40 20 0 1999 2000 2001 2002 2003 2004 Half Year Results 11
Slide 12: Net Debt/Equity (no upstreaming of Insurance funds)
Net Debt/Equity (as at 31 December) (assuming no upstreaming of Insurance funds) % 100 80 Target 60 40 20 0 1999 2000 2001 2002 2003 2004 Half Year Results 12
Slide 13: Interest Cover Ratio
Interest Cover Ratio (Rolling 12 months to 31 December) Times 25 20 15 10 Minimum 5 0 1999 2000 2001 2002 2003* *Excludes the sale of Landmark 2004 Half Year Results 13
Slide 14: Capital Management
Capital Management ¾ Capital return of $934m in December ¾ On-market buy-back of up to 5% of Wesfarmers shares • At 31 December 2003, approximately 6.98m shares repurchased at an average price of $25.43 2004 Half Year Results 14
Slide 15: Peter Davis
Peter Davis Managing Director, Bunnings
Slide 16: Lowest Prices, Widest Range, Best Service
LOWEST PRICES WIDEST RANGE BEST SERVICE 2004 Half Year Results 16
Slide 17: Half Year Result
Half Year Result Segment Result ($m) 2002 2003 Change Revenue* 1,781.6 1,993.1 11.9% EBITA* 196.1 211.9 8.1% Amortisation 25.1 25.0 -0.2% EBIT 171.0 186.9 9.3% EBITA/Sales Ratio 11.0% 10.6% -0.4% *Includes Revenue and EBITA from property and other 2004 Half Year Results 17
Slide 18: Half Year Result
Half Year Result Trading Result ($m) 2002 2003 Change Revenue* 1,755.7 1,965.0 11.9% EBITA* 185.9 205.8 10.7% Amortisation 25.1 25.0 -0.2% EBIT 160.8 180.8 12.4% EBITA/Sales Ratio 10.6% 10.5% -0.1% *Excludes Revenue and EBITA from property and other 2004 Half Year Results 18
Slide 19: Half Year Result
Half Year Result ¾ Cash store on store growth 13% • Strong result – Queensland, Western Australia, New South Wales & New Zealand ¾ Water restrictions • NSW Stage 1, Vic Stage 2, ACT Stage 3 • Sales impact $5m/month 2004 Half Year Results 19
Slide 20: Half Year Result
Half Year Result ¾ Trade credit sales decreased by 5% (Australia) • Account rationalisation & store closures • Slowing housing construction market • Strong competition (margin) ¾ Inventory Management • Information systems • Supplier scorecard • Logistics 2004 Half Year Results 20
Slide 21: 1st Half Highlights
1st Half Highlights ¾ Store Network Development • Warehouses 8 new (NB: Christchurch NZ) 2 closed (former Hardwarehouse) • Traditional stores 6 closed (ex-BBC trade and small regional) 2004 Half Year Results 21
Slide 22: 1st Half Highlights
1st Half Highlights ¾ Store Network Development • Bunnings Warehouse upgrades 5 completed • Former Hardwarehouse refits 4 completed • Traditional store upgrades 2 completed 2004 Half Year Results 22
Slide 23: Store Network Update
Store Network Update Totals 2 122 Warehouses 23 Traditional 9 88 Stores 17 8 WA Salvage 4 18 Stores 18 3 40 26 32 4 7 32 As at 31 December 2003 2 1 Excludes Frame & Truss Operations 2004 Half Year Results 23
Slide 24: Outlook
Outlook ¾ Continued growth in DIY and renovation markets ¾ Rising interest rates affecting new housing ¾ Store development pipeline ¾ Store network upgrades and conversions ¾ Continuous improvement 2004 Half Year Results 24
Slide 25: 2004 Half Year Results
2004 Half Year Results 25
Slide 26: Bob Buckley
Bob Buckley Chief Executive, Wesfarmers Insurance
Slide 27: 2004 Half Year Results
2004 Half Year Results 27
Slide 28: Agenda
Agenda ¾ Financial highlights for 1st half ¾ Claims performance ¾ Sale of Lumley Life ¾ Integration ¾ Outlook 2004 Half Year Results 28
Slide 29: Financial Highlights and Outlook
Financial Highlights and Outlook ¾ Includes 2.5 month contribution from Lumley group ¾ Excludes Lumley Life ¾ Operating revenue of $300.7m ¾ EBITA of $35.8m (not pro-ratable) 2004 Half Year Results 29
Slide 30: Claims Performance
Claims Performance ¾ Lower than budget ¾ Division not adversely affected by Melbourne storms - LGA protected by reinsurance ¾ LGNZ claims lower than budget ¾ WFI recorded higher than normal crop claims 2004 Half Year Results 30
Slide 31: Sale of Lumley Life
Sale of Lumley Life ¾ Lumley Life sale completed on 30/12/2003 ¾ $4.4m overall reduction in Wesfarmers’ purchase price 2004 Half Year Results 31
Slide 32: Integration
Integration ¾ Business focus and momentum uninterrupted ¾ Modest savings expected from merged reinsurance programs ¾ Higher retentions in Lumley from 2005 onwards ¾ Restructure of Lumley Technology continues satisfactorily ¾ Gennetic@ development restricted to current clients 2004 Half Year Results
Slide 33: Outlook
Outlook ¾ Competition re-emerging in a number of classes ¾ Claims trending lower than budget ¾ Environment remains positive 2004 Half Year Results 33
Slide 34: Bob Denby
Bob Denby Managing Director, Wesfarmers Industrial and Safety
Slide 35: Financial Highlights
Financial Highlights ¾ Operating Revenue down 0.6% to $575m ¾ EBITA down 4.5% to $53m ¾ EBITA up 5.1% for 2nd Quarter on last year ¾ EBITA/Op. Rev. Margin down from 9.6% to 9.2% ¾ EBITA/Capital up from 12.9% to 13.8% 2004 Half Year Results 35
Slide 36: Business Activity Highlights
Business Activity Highlights ¾ Blackwoods • Northern & Western regions strong growth • Central & Southern regions flat sales ¾ Protector Alsafe • New management & business improvement now in place ¾ New Zealand • Significant sales increase, margin & EBITA growth contributed by the Paykels acquisitio
Slide 37: Highlights for Half Year 2004
Highlights for Half Year 2004 ¾ Blackwoods Trade Fair ¾ Integration of Blackwoods & Paykels ¾ Rationalisation of distribution centres ¾ Implementation of ERP system • Acc Payable & Gen Ledger live 1/10/03 • Payroll live 15/10/03 • Acc Receivable live 1/12/03 2004 Half Year Results 37
Slide 38: Outlook for Second Half 2004
Outlook for Second Half 2004 ¾ Australia • Generally positive • Easing of drought • Continued spending in mining and transport infrastructure (cautious outlook due to AUD) ¾ New Zealand • Steady • EBITA improvement through integration of Paykels 2004 Half Year Results 38
Slide 39: David Robb
David Robb Managing Director, Wesfarmers Energy
Slide 40: Energy 2003/04 H1 Environment
Energy 2003/04 H1 Environment Gas ¾ International prices similar to pcp ¾ Excise uncertainty Coal ¾ Demand firm, logistics bottlenecks ¾ Coking coal prices lower, steam improving ¾ Western Power deliveries down ¾ Adverse exchange rate movement 2004 Half Year Results 40
Slide 41: Saudi Contract Price
Energy 2003/04 H1 Environment Saudi Contract Price US$/t 400 350 300 250 200 150 Jul Sep Dec Mar Jun Propane 2002/2003 Propane 2003/2004 2004 Half Year Results 41
Slide 42: Hard Coking Coal Prices
Energy 2003/04 H1 Environment Hard Coking Coal Prices JRP US$/Tonne FOB nominal 60 55 50 45 40 35 30 83 85 87 89 91 93 95 97 99 01 03 04 Japanese Financial Year 2004 Half Year Results 42
Slide 43: Thermal Coal Prices
Energy 2003/04 H1 Environment Thermal Coal Prices US$/Tonne FOB nominal 50 40 30 20 10 -0 Apr- 96 Apr-97 Apr-98 Apr-99 Apr-00 Apr-01 Apr-02 Apr-03 Apr-04 Spot Price Source: Barlow Jonker 2004 Half Year Results 43
Slide 44: Exchange Rates
Energy 2003/04 H1 Environment Exchange Rates $A/$US 0.8 0.7 0.6 0.5 0.4 Jul Dec Jun AUD/USD 2002/2003 AUD/USD 2003/2004 2004 Half Year Results 44
Slide 45: Wesfarmers Curragh Hedging Profile
Wesfarmers Curragh Hedging Profile at 31 December 2003 Proportion of USD Average revenue hedged * AUD/USD hedge % rate ($) 2003/4 100 0.6109 2004/5 77 0.6349 2005/6 58 0.6347 2006/7 41 0.6540 2007/8 18 0.7023 *Calculated after adjusting for Curragh North, USD capital and operational expenditure and
Slide 46: Production
Production WLPG Coal Kt Mt 400 14 12 300 10 8 200 6 4 100 2 0 0 1999 2000 2001 2002 2003 H1 04 1999 2000 2001 2002 2003 H1 04 2004 Half Year Results 46
Slide 47: Production
Production Mine Beneficial Coal T ype Half ended Interest Dec-02 Dec-03 % ('000 tonnes) Premier 100 Steam 1,711 1,593 Curragh 100 Coking 1,836 2,213 Steam 990 1,149 Bengalla 40 Steam 1,098 1,252 2004 Half Year Results 47
Slide 48: Logistics Bottlenecks
Logistics Bottlenecks Half ended Half ended Demurrage Dec-02 Dec-03 Gladstone $0.04m $2.0m Newcastle $0.4m $1.2m 2004 Half Year Results 48
Slide 49: Sales Volumes
Sales Volumes 1H2004 versus 1H2003 ¾ Kleenheat Gas +2% ¾ Wesfarmers LPG 0% ¾ Air Liquide* +3% ¾ Premier -6% ¾ Curragh +31% ¾ Bengalla 0% *Pipeline Sales 2004 Half Year Results 49
Slide 50: Profitable Growth – Energy Division
Profitable Growth – Energy Division Financial Performance $m EBITA* % EBITA/Capital 300 35 30 250 25 200 20 150 15 100 10 50 5 0 0 1999 2000 2001 2002 2003 H1 04 1999 2000 2001 2002 2003 R12 Dec * Excludes Girrah $80.5m in 2003 2004 Half Year Results 50
Slide 51: Energy Highlights
Energy Highlights ¾ LPG excise outcome ¾ ALWA HIsmelt construction progress ¾ Mid West power project commissioning ¾ Curragh North development ¾ Premier’s mineral sands sales progress ¾ Successful Oracle system implementation 2004 Half Year Results 51
Slide 52: Energy Issues Second Half
Energy Issues Second Half ¾ LPG prices and demand • Lower summer peak • Excise decision impact • Supermarket success ¾ Coal volumes, prices, costs • Export sales prices increase • Production performance (dragline shutdown) • Inventory effects ¾ Exchange rates • Hedge program 2004 Half Year Results 5
Slide 53: John Gillam
John Gillam Managing Director, CSBP
Slide 54: CSBP
CSBP 2004 Half Year Results 54
Slide 55: Performance Summary
Performance Summary Year to Date Actual Actual Actual ∆ HY03 FY03 HY04 Chemicals Total Sales (‘000t) 196 413 223 +27 Revenue ($m) 84 174 94 +10 Fertilisers Total Sales (‘000t) 241 988 249 +8 Revenue ($m) 74 297 77 +3 Company Safety (R12 LTIFR) 6.9 5.4 4.8 -2.1 EBITA ($m) 15.7 78.9 20.6 +4.9 2004 Hal
Slide 56: EBITA and EBITA/Capital Year Trend
EBITA and EBITA/Capital 5 Year Trend EBITA EBITA/Capital $m % 100 20 90 18 80 16 70 14 60 12 50 10 40 8 30 6 20 4 10 2 0 0 2000 2001 2002 2003 2004 First HY EBITA Full Year EBITA EBITA/Capital (R12) 2004 Half Year Results 56
Slide 57: Chemicals
Chemicals Key Influences Year to Date ¾ Favourable resource sector conditions • Lift in AN volumes • Contracted ammonia customer difficulties • Competitive sodium cyanide markets ¾ Steady production performance ¾ Queensland Nitrates performing to expectations • Joint venture structure simplified 200
Slide 58: Chemicals
Chemicals Outcomes Year to Date ¾ Higher Ammonia and AN contribution • Ammonia export shipment in October 2003 ¾ Queensland Nitrates positive contribution • Equity accounted earnings from July 2003 ¾ Sodium cyanide margin pressures ¾ Earnings contribution 19% higher than pcp 2004 Half Year Results 5
Slide 59: Chemicals
Chemicals Outlook ¾ Continued strength in resource sector demand ¾ Short term earnings softness • Major ammonia plant shutdown May 2004 • Below budget sodium cyanide earnings ¾ Evaluating growth opportunities 2004 Half Year Results 59
Slide 60: Fertilisers
Fertilisers Key Influences Year to Date ¾ Good seasonal conditions • Record 2003 harvest ¾ Solid first half sales programme • Good distributor support • Competitive pricing ¾ Cost base and supply chain improvements 2004 Half Year Results 60
Slide 61: Fertilisers
Fertilisers Outcomes Year to Date ¾ Higher sales volumes ¾ Growth driven by liquid fertilisers • storage and handling investment support ¾ Cost base and supply chain benefits ¾ Improved overall contribution 2004 Half Year Results 61
Slide 62: Fertilisers
Fertilisers Outlook 2004 ¾ Positive outlook for 2004 harvest ¾ Focus on strong market offer • Product range leadership • Increased sales and service presence ¾ Cost base and supply chain improvements ¾ Pricing pressure from import based competitors ¾ Developing new markets for proprietary fertiliser
Slide 63: Gene Tilbrook
Gene Tilbrook Executive Director, Business Development Wesfarmers Limited
Slide 64: Outline
OUTLINE ¾ Australian Railroad Group ¾ Gresham Private Equity ¾ Business Development 2004 Half Year Results 64
Slide 65: ARG
ARG 50% Interest with Genesee & Wyoming ¾ Improved performance, although still below expectations • Large grain harvest • New business gained • Improved safety / reduced incidents 2004 Half Year Results 65
Slide 66: ARG
ARG Rolling LTIFR Frequency Rate 20 18 16 14 12 10 8 6 4 2 0 Jan-03 Feb-03 Mar-03 Apr-03 May-03 Jun-03 Jul-03 Aug-03 Sep-03 Oct-03 Nov-03 Dec-03 Actual (Rolling) Target 2004 Half Year Results 66
Slide 67: ARG
ARG 50% Interest with Genesee & Wyoming ¾ Actual performance improved, although still below expectations • Large grain harvest • New business gained • Improved safety / reduced incidents • Refinancing 2004 Half Year Results 67
Slide 68: ARG
ARG 50% Interest with Genesee & Wyoming ¾ Outlook for improvement • Grain season • New business contributions • Operational initiatives • Mineral tonnages 2004 Half Year Results 68
Slide 69: Gresham Private Equity Fund 1
Gresham Private Equity Fund 1 50% interest ¾ Repco IPO • $64m EBIT contribution • 5+ times money back ¾ Other divestments being considered ¾ Wesfarmers has some $52m invested in Fund 1, representing half the fund 2004 Half Year Results 69
Slide 70: Gresham Private Equity Fund: Remaining Investments
Gresham Private Equity Fund 1 Remaining Investments ¾ Cashcard - ATMs + financial transaction processing ¾ EROC - mining / infrastructure contractor ¾ Norcros - building materials, coatings ¾ Riviera - cruisers ¾ Virgin Active - health clubs ¾ Raywood - vehicle control systems 2004 Half Year Results
Slide 71: Gresham Private Equity Fund 2
Gresham Private Equity Fund 2 ¾ Wesfarmers has committed up to $100m (of 1st close $110m) ¾ Potential commitment: $150m of $300-350m target ¾ Investments over 4 – 5 years ¾ Life of up to 10 years; realisations 6 – 8 years 2004 Half Year Results 71
Slide 72: Gresham Private Equity Fund 2
Gresham Private Equity Fund 2 ¾ Wesfarmers’ involvement: • Investment Committee; and • secondee 2004 Half Year Results 72
Slide 73: Business Development
Business Development 4 Wesfarmers
Slide 74: Projects to December 2003
Projects to December 2003 ¾ Lumley Insurance completion ¾ Koukia acquisition ¾ Landmark sale ¾ Lumley Life sale 2004 Half Year Results 74
Slide 75: Michael Chaney
Michael Chaney Chief Executive Officer, Wesfarmers Limited
Slide 76: Capital Expenditure Programme
Capital Expenditure Programme 2004 Estimate Total: $329.0m Chemicals & Fertilisers $42.0m Hardware Industrial & Safety $106.3m $24.7m Energy $141.6m Insurance $7.9m Other $6.5m Excludes Lumley acquisition 2004 Half Year Results 76
Slide 77: Outlook
Outlook ¾ Hardware – solid retail sales growth – subdued trade sales performance ¾ Favourable outlook for Industrial and Safety ¾ Improved earnings from CSBP ¾ Lower short term earnings outlook for Coal, medium term positive ¾ LPG outlook dependent on international LPG prices 2004 Half Year Results
Slide 78: Outlook (cont)
Outlook (cont) ¾ Positive outlook for Insurance ¾ Australian Railroad Group – improving performance ¾ Continued wind down of Sotico operations ¾ Further profitable divestments likely for GPEF 2004 Half Year Results 78
Slide 79: Questions
Questions 4 Wesfarmers