Investor Briefing - Wesfarmers › docs › default-source › asx... · 2016-07-13 · Investor...

Investor Briefing 1

Investor Briefing

11 November 2004InterContinental Hotel, Sydney

Investor Briefing 2

Wesfarmers Industrial and Safety

Bob DenbyManaging Director

Investor Briefing 3

Presentation Outline

• Overview of the business

• Progress in 2004/05

• Strategies

• Business outlook

Investor Briefing 4

Overview of the business

Investor Briefing 5

Business Environment

• Two market segments

- Industrial Products - Maintenance Repair & Operating (MRO)

- Safety Products

• Wesfarmers Industrial and Safety is the market leader in highly fragmented markets

IndustrialProducts

SafetyProducts

Australia 7% 25%New Zealand 7% 45%

WIS Estimated Market Share

Investor Briefing 6

Trading Streams

Investor Briefing 7

Distribution Network

AUCKLAND

HASTINGS

NEW PLYMOUTH

LOWER HUTT

CHRISTCHURH

DARWIN

ALICE SPRINGS

CAIRNS

TOWNSVILLE

MACKAY

ROCKHAMPTON

BRISBANE

TAMWORTH

NEWCASTLE

SYDNEY

CANBERRA

MELBOURNE

LAUNCESTON

HOBART

ADELAIDE

PERTH

BUNBURY

WOLLONGONG

ORANGE

WHYALLA

GRIFFITH

ALBURYSHEPPARTON

BENDIGO

DANDENONG

GOSFORD

DUBBO

SOUTHPORTTWEED HEADS

COFFS HARBOUR

IPSWICH

TOOWOOMBA

GYMPIE

BUNDABERG

GLADSTONE

MT. ISA

WAGGA WAGGA

MORWELL

MARYBOROUGH

LISMORE

KWINANA

KARRATHA

KALGOORLIE

BURNIE

PORT HEDLAND

BELL BAY

ROXBY DOWNS

GERALDTON

PORTLAND GEELONG

MT GAMBIER

BALLARAT

MILDURA

BROKEN HILL

SINGLETON

TRADING STYLES:Blackwoods 65Atkins 3Blackwoods Atkins 21Bakers 6Motion 10Metals 1Mullings 9Protector Alsafe 55NZ Safety (NZ) 24Protector (NZ) 22Packaging House (NZ) 11Blackwood Paykels (NZ) 27

TOTAL 254

BRANCHESNSW 38VIC 29QLD 38WA 39SA 13 TAS 10NT 3NZ 84

TOTAL 254

Broome

Albany

Esperance

Newman

Kunnunurra

TAURANGA

PALMERSTON NTH

WANGEREI

GREYMOUTH

DUNEDIN

INVERCARGILL

NELSON WELLINGTON

ROTORUA

Locations

Investor Briefing 8

Progress in 2004/05

Investor Briefing 9

Progress in 2004/05

• July – October EBITA marginally below last year

• Industrial Products experienced continued sales growth in Queensland and Western Australia with tight market conditions in NSW and Victoria

• Protector Alsafe difficult trading conditions continue

• Established New Zealand businesses performed well

- Blackwood Paykels below expectations

• Competitive pressure continues on trading margins

Investor Briefing 10

Progress in 2004/05 (cont.)

• Rollout of 8 new trade centres

- Qld - Kawana Waters, Rockhampton, Coopers Plains

- NSW - Coffs Harbour, Dubbo

- SA - Edwardstown

- WA - Osborne Park, Bayswater

• New distribution centre

- Wiri (Safety New Zealand)


Strategies

• Increase sales and market share

- increase e-business sales

- improve brand positioning

- increase sales in direct imported products

- network expansion (ie trade centres)


Trade Centre


Safety Shop


Strategies

• Reduce expense to sales ratio

- optimise the distribution network

- improve information system

• Reduce working capital

- reduce debtor days

- reduce inventory

• Improve safety performance


Business Outlook

• Australia

- Market conditions remain solid, with strong spending in the mining & infrastructure construction industries

- Increased competition and tightening margins

• New Zealand

- Continued solid market conditions


Chemicals and Fertilisers

Keith Gordon Managing Director


CSBP Overview

• Manufacturer of mining & processing chemicals

- ammonia, ammonium nitrate, sodium cyanide, chlorine

• Manufacturer and importer of fertilisers

- phosphate, nitrogen, potassium and compounds

• Manufacturing operations at:

- Kwinana, Albany and Esperance (WA), Moura (Qld)

• 550 employees

• Post 1999, around 60% of EBITA generated from chemicals

activities


EBITA and EBITA/Capital 5 Year Trend

0

20

40

60

80

100

2000 2001 2002 2003 2004

$m

02468101214161820

%

EBITA EBITA/Capital

EBITA EBITA/Capital


Safety

0

20

40

60

80

100

2002 2003 2004012345678910

Lost Time Injuries Workplace Injuries R12 LTIFR

Injuries R12 LTIFR


Chemicals


Chemicals Background

• Ammonia

- Sole WA manufacturer (capacity 260,000 tpa)

- 40,000 tonnes import / export storage terminal

- Product sold to nickel industry and export markets

- Significant quantity consumed internally



• Ammonium Nitrate

- Sole WA manufacturer (capacity 235,000 tpa)

- distribution for mining explosives via Dyno Nobel

- Flexi-N liquid fertiliser consumes balance of production

- Queensland Nitrates plant at Moura (capacity 185,000

tpa)



• Sodium Cyanide

- Australian Gold Reagents - sole WA manufacturer

- Solution plant capacity 48,000 tpa

- Solid sodium cyanide plant capacity 20,000 tpa

- Strong Australian market position

- Developing export markets for solid product

• Industrial Chemicals

- Baseload production of chlorine for WA Water Corporation

- Traded products


Chemicals Strategies

• Profitably build on existing businesses

- examining AN production expansion opportunity

- sodium cyanide debottlenecking underway

- ammonia plant debottlenecking complete

• Evaluate growth opportunities

- exploit core competencies

- expand product range in existing markets

- assess opportunities in new markets


Ammonium Nitrate Expansion

• Location

• Feasibility study scope

• Environmental approvals

• Capital expenditure estimated at $140 million

• Commissioning expected in 2007

• Market opportunities


Chemicals Outlook

• Generally strong resource sector conditions

- Iron ore expansion in Pilbara

- Coal expansion in Bowen Basin

- Opportunities available in gold sector

- Nickel volumes driving ammonia sales

- Outlook underpins additional investment in chemical

manufacturing


Fertilisers


Fertilisers Background

• Unmatched infrastructure in WA market

- volume growth readily handled

• Extensive distribution network- commission based reward structure

- AWB Landmark, Elders & independents

- all collections ex-CSBP facilities

• CSBP market support- field staff supporting distribution network and account

managing key customers

- agronomic advisory services, product development, soil and plant testing services.


Fertilisers 4 Year Sales Volumes

0.0

0.2

0.4

0.6

0.8

1.0

1.2

2001 2002 2003 2004

million tonnes

Western Australia Other


Fertilisers Strategies

• Profitably build core WA business

- manufacturing and supply chain opportunities

- strengthen sales channel

• Product and service leadership

- differentiated products

- optimise liquids growth

- best service and technical support

- competitive pricing

• Develop markets beyond WA for proprietary products


Fertilisers Outlook

• Anticipate cautious start to 2005 season

- 2004 harvest impacted by frost and dry finish

- strong Australian dollar

• Sales programme underway

- Successful launch of 3 year contract

- enhanced range of products and services

• Continued growth in liquid fertiliser


Wesfarmers Insurance Division

Bob Buckley Chief Executive Officer


Agenda

• Wesfarmers Insurance Division overview

• Description of business units

• Insurance industry analysis

• Achievements

• Outlook


Wesfarmers Insurance Division

WESFARMERS INSURANCE DIVISION

(LGA)Lumley General

Australia

(LGNZ)Lumley GeneralNew Zealand

Koukia Pty Ltd(LTL)

LumleyTechnology

(WFI)WesfarmersFederationInsurance

(LFL)Lumley Finance

Australia

(LFNZ)Lumley FinanceNew Zealand


Lumley General Australia

• Specialised skills and products

• Short tail focussed

• Ranked 9 in Australian market

• 2004 Gross Written Premium of $543m

• Strong focus on underwriting


LGA – Gross Written Premium by line of business

Gross Written Premium for 12 months to 30 June 2004 = $543m

Other17%

Personal Lines10%

Commercial Motor

26%

Liability8%

Marine5% Commercial

21%

Engineering13%


Lumley General New Zealand

• Specialised skills and products

• Short tail focussed

• Ranked 3 in New Zealand market

• 2004 Gross Written Premium of A$235m

• Strong focus on underwriting

• Increasing support from intermediaries


LGNZ – Gross Written Premiumby line of business

Gross Written Premium for 12 months to 30 June 2004 = A$235m

Other8%Personal Lines

(inc. Westpac)27%

Commercial Motor32%

Liability10%

Marine7% Commercial

11%

Engineering5%


WFI

• Specialist niche insurer

• Focused on rural and small business sectors in Australia

• Ranked 14 in Australian market

• Ranked 2 in rural market after IAG/CGU

• 2004 Gross Written Premium of $248m


WFI – Gross Written Premium by line of business

Gross Written Premium for 12 months to 30 June 2004 = $248m

Marine1%

Liability12%

Commercial Motor17%

Commercial23%

Employers Liability10%

Crop8%

Personal Lines29%


Koukia

• Insurance software specialist

• Wesfarmers ownership 60%

• Will be deployed as WFI and LGNZ platform

• Growing prospect pipeline for future sales


Gross Earned Premium

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

IAG/C

GUSu

ncor

pPr

omna

Allia

nz

QBEZu

rich

Lloyd

sW

FI/Lu

mley ING AIG

ACE

RACQ RA

C

$m

Source : Deloitte and Trowbridge 2003

Industry Analysis

• Top 12 Insurers


Industry Analysis(WID results include full 12 month contribution from Lumley)

90.8

62.0

21.8

21.8

QBE (6 months)

91.2

66.8

6.6

6.6

IAG (full year)

93.5

59.2

10.7

10.7

PMN (6 months)

58.1NELR (%)

32.0Reinsurance expense (excl AMO)

87.0COR (%)

37.5

WID (full Yr)

Reinsurance expense (% GEP)

At 30 June 2004 $m


Achievements

• Financial targets for 1st year exceeded

• Implementation of Wesfarmers’ systems

– Uniform risk management approach

• Restructure of Lumley Technology

• Formation of WID infrastructure team

– Modest IT synergies achieved


Achievements (cont.)

• Reinsurance review progressing

• Favourable claims outcome

• WES financial targets exceeded

• Cultural alignment achieved

• Management programme introduced for senior

executives


Outlook

• Continuing favourable claims experience

• Competitive environment

• Some rate reductions

• New Zealand growth moderating

• Financial performance above target


Business Development / ARG /Gresham Private Equity Fund

Gene Tilbrook Executive Director, Business Development


Outline

• Australian Railroad Group

• Gresham Private Equity


ARG50% Interest with Genesee and Wyoming


ARG

• Revenue and earnings up strongly (p.c.p. had low grain harvest)

• Other tonnage growth mainly in iron ore

• Rising fuel costs continue to erode earnings

• Continue safety focus

• Lack of train drivers


ARG Outlook

• Average grain season expected


Grain Harvests in WA and SA

0

5

10

15

20

25

94/95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05

To

nn

es

(m

ilio

ns

)

Western Australia South Australia

Industry estimates at end October


ARG Outlook

• Average grain season expected

• Strong minerals tonnages

• Continuing safety and incident management

• Ongoing capital expenditure


ARG Capital Expenditure

•South West line upgrade

•Highest tonnage sector

•$27m in 04/05


Gresham Private Equity


Gresham Private Equity Fund 150% Interest

• No divestments to date this financial year

• Current capital investment by Wesfarmers: $40m

• Net Fund IRR to date running at approx. 35% pa

• Five investments remain


Gresham Private Equity Fund 1Remaining Investments

• EROC - contract mining and tunnelling

• Norcros - building materials, coatings

• Riviera - luxury cruisers

• Virgin Active - health clubs

• Raywood - vehicle dispatch systems


Gresham Private Equity Fund 2

• Wesfarmers has committed $100m to Fund 2

• Further commitments from Wesfarmers of up to $50m

dependent on reaching target capital of $300m - $350m

• Co-investment (retail) fund has $102m commitments

• Fund 2 currently has total capital of $241m (including Co-

investment Fund)

• GPEF2 and GPECF participate pro rata in all investments


Gresham Private Equity Fund 2 Structure

Investee Companies

GPECFGPEF2a

Co-investmentFundInvestorsWES

GPEF2b

Gresham Private Equity

(Investor Pool for GPEF2)

(Manager)

(Investment Vehicles)


Gresham Private Equity Fund 2First Investment

• Noel Leeming – NZ’s leading electrical retail business

• Acquired for NZ$138.5m

• Wesfarmers’ investment to date is $16m


Business Development


Bunnings

John Gillam Managing Director


Agenda

1. Background

2. 2003/04 Achievements

3. Progress in 2004/05

4. Strategies

5. Outlook


BackgroundBackground

WIDEST RANGELOWEST PRICESBEST SERVICE


1

32

18

84

Totals

Smaller FormatStores

Warehouses125

85

3

2

2

7

40

923

24

631

18WA SalvageStores18

as at 31 October 2004excludes DC’s and Frame and Truss sites

Current Store Network


0.2%10.2%10.0%EBITA/Sales Ratio

18.3

298.9

50.1

349.0

3,474.5

2003

14.5LTIFR

14.4%342.0EBIT ($m)

0.0%50.1Amortisation ($m)

12.3%392.1EBITA ($m)

10.7%3,845.7Revenue ($m)

Change2004

2003/04 Achievements

Segment Result


• Strong EBITA result despite slowing sales

- Excellent response to New Zealand branding

- Good margin performance

- Tight expense control

- Continued strength in Qld & WA

- Improving NSW

- Challenging Vic & SA



• Cash store on store growth 11%

- 4th quarter cash store on store growth 7%

• Opened 12 warehouses

- upgraded 15 other stores

• Opened 2 new distribution centres

• Recruited over 4,000 team members



• July – October store on store cash growth 8%

• Tighter trade market

• 2 new warehouse openings year to date

• Strong direction within business

- Range, trade, new systems and supply chain

Progress in 2004/05


Strategies

1. Focus on retail drivers

2. Store network development

3. Trade business

4. Team members

5. Business systems

6. Business improvement


1. Focus on core retail drivers

• Range

- Innovation driving WIDEST RANGE• Price

- Strong cost focus delivering LOWEST PRICES- Productivity loop

• Service

- Best people delivering BEST SERVICE

Strategies


2. Store network development

• Continue 8 to 12 new warehouse openings

- Additional smaller store developments

• Format and development adaptability

• Store upgrades and refits

• Relocate low performing sites

Strategies


3. Trade business

• Stronger focus, increased resources

• Implementing business plan

- Trade Distribution Centres

• Targeting profitable market share growth

Strategies


Strategies

020406080

100120140160

Dec-01

Mar-02

Jun-02

Sep-02

Dec-02

Mar-03

Jun-03

Sep-03

Dec-03

Mar-04

Jun-04

Housing Work Done Bunnings Credit Sales

Bunnings Credit Sales vs National Housing Work Done* (Indexed to 100)

*ABS 8752.0 (Houses Only)


4. Team members

• Attracting, developing and engaging quality people

- Reduction in key operational vacancy rates

• Development investment

- Accelerated Management Development

- Corporate “University” and e-learning systems

• Continuing strong safety focus

Strategies


5. Business systems

• Major systems upgrade

- Preferred vendor selected

- Implementation planning underway

• 3 year phased program

• 1st phase deliverables

- New inventory management system

- New distribution centre systems

Strategies


6. Business improvement

• Warehouse Administration Review (W.A.R.) project

• Supply chain focus

- Increased resources and focus

- Store deliveries working group formed

Bunnings, suppliers, logistics provider

Pilot programme early 2005

Strategies


• Ongoing strong consumer confidence

• Competing retail demands

• Declining new housing starts

Outlook


Outlook

-10.0%-1.0%3. Housing Starts

+3.9%+8.4%2. Alterations and Additions to Dwellings

+5.1%+6.0%1. Private Consumption

20052004Indicator

Sources: 1 & 2 BIS Shrapnel; 3 Housing Industry Association

Forecast Calendar Year Growth Rates


Summary

• Strong focus on key strategic platforms

- Range, price and service

• Driving costs down through business improvements

• Renewed trade focus

Outlook


Wesfarmers Energy

David RobbManaging Director


Wesfarmers Energy


Wesfarmers Energy2004 Snapshot

Coal• Production 12.8 million tonnes• Sales 12.6 million tonnes• Customers 33• Employees 903

Gas / Power• Direct customers 235,000• LPG Production 0.33 million tonnes• LPG Sales 0.59 million tonnes • Generation 378 Gwh• Employees 894


Safety LTIFR

0

5

10

15

20

25

30

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Kleenheat Gas

0

5

10

15

20

25

30

35

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

WLPG

0

5

10

15

20

25

30

35

40

45

1996 1997 1998 1999 2000 2001 2002 2003 2004

0

2

4

6

8

10

12

14

16

18

1996 1997 1998 1999 2000 2001 2002 2003 2004

Premier Curragh


Strategy Summary

• Premier - contracts, new markets, unit costs

• Curragh - Curragh North delivery and optimisation

• Bengalla - JV Alignment, mine plan, sales mix

• KHG - “focus on fundamentals” III

• WLPG - flexible operation

• ALWA - delivering new projects


Strategy Progress

• Premier - mineral sands sales

- shortlisted for PPP2 (300MW base load)

- Western Power coal supply

• Curragh - Curragh North on track

- first coal March 2005

• Bengalla - alignment improved

- value adding projects


Strategy Progress

• KHG - volumes up

- margins under pressure

• WLPG - post 2005 negotiations continue

• ALWA - plant on schedule but HIsmelt delayed

- revenue stream commenced


Energy Business Environment

Gas/Power

• High international LPG prices

• Increased electricity sales

Coal

• Strong demand

• Higher coking coal prices

• Adverse exchange rate movement


Saudi Contract Price

150

200

250

300

350

400

450

500US$/t

Propane 2003/2004 Propane 2004/2005JunJul DecSep Mar


Hard Coking Coal Prices

JRP US$/Tonne FOB nominal

Japanese Financial Year

30

35

40

45

50

55

60

83 85 87 89 91 93 95 97 99 01 03 04


Thermal Coal Prices

Source: Barlow Jonker

US$/Tonne FOB nominal

Spot Price

-

10

20

30

40

50

60

70

Jan-96 Dec-96 Nov-97 Oct-98 Sep-99 Aug-00 Jul-01 Jun-02 May-03 Apr-04


$A/$US

0.4

0.5

0.6

0.7

0.8

0.9

Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04

Exchange Rates

USD/AUD exchange rate


Hedging

Objective

- Reduce impact of exchange rate volatility

Approach

- Hedge on conservative basis

- 90 / 70 / 50 / 30 / 10

- Recognise contract timing

- Use known outcomes where possible

- Otherwise assume long run pricing


Wesfarmers Curragh Hedging Profile

Year end 30 June

(@ 31 October)

Current proportion of USD revenue

hedged *

Average AUD/USD hedge

rate

2005 87% 0.6490

2006 81% 0.6395

2007 59% 0.6539

2008 42% 0.6719

2009 17% 0.6808

2010 9% 0.6792

* Calculated using known contract outcomes, long run pricing assumptions, and after adjusting for USD capital and operational expenditure and USD royalty payments.


Production

MtCoal

Kt

WLPG

99 00 01 02 03 04 99 00 01 02 03 04 Q1 05

0

100

200

300

400

Q1 05

0

2

4

6

8

10

12

14


Coal Production

Premier 100% Steam 877 882

Curragh 100% Coking 1068 1169

Steam 593 657

Bengalla 40% Steam 449 694

Quarter ended Sep-03 Sep-04

Mine Beneficial Interest

Coal Type

('000 tonnes)


Energy Issues

• Gas- Record prices

- Margin pressure, substitution risk

- Export volume and shipment timing

• Coal- Production and logistics performance

- Cost pressures

- Curragh North progress

- Coal price outcomes


SOUTH

NORTH

CENTRAL

CU

RR

AG

H N

OR

TH M

LA

Curragh NorthMine Plan


Mining at Curragh North

• Contractor boxcut and pre-strip for first 4 to 5 years

• Curragh-owned excavators and haulers to mine coal

• Conveyor transport of coal to Curragh

• Existing Curragh infrastructure utilised for:

- Coal processing

- Stockpiling

- Rail load-out

• Dragline relocations to CN in 2006 and 2007


Export Sales Growth

0

1

2

3

4

5

6

7

8

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Coking Coal PCI

MT

Year Ending June


Queensland LV PCI BrandsIndicative Quality Comparison

0.030

0.040

0.050

0.060

0.070

0.080

0.090

0.100

0.3 0.4 0.5 0.6 0.7

Sulphur % (adb)

Phosphorous % (adb)

Yarrabee

Jellinbah

Blackwater Foxleigh

South Walker Creek Coppabella

Curragh

Source: Barlow Jonker 2004


World Pig Iron Production

0

200

400

600

800

1000

2001 2003 2005 2008 2014

Asia

Africa/Oceania/M.EastSth America

Nth America

CIS

E. Euope

W. Europe

MT

Source: CRU International


Seaborne Coking CoalDemand/ Supply Deficit

SeaborneCoking Coal

DeficitMine Depletions

Germany / Czech / Ukraine

Strong Domestic DemandChina / India

New Coke Oven CapacityChina / India

ExpansionAustraliaCanada

New ZealandOthers

Reduced Seaborne CokeChina/Poland

Greater HCC requirement

+-

ResurgenceUS exports


Australian Coal Port Capacity

0102030405060708090

100

A b b o tP o i n t

H a y P o i n t D a l r y m p l eB a y

Gl a d st o n e B r i sb a n e N e wc a st l e P o r tK e m b l a

Mtpy

2003 Exports 2006 Capac ity

Source: AME Mineral Economics


Metallurgical CoalPrice Change Year–on-Year

-40%

-20%

0%

20%

40%

60%

80%

100%

1976 1980 1984 1988 1992 1996 2000 2004

JFY

Source: CSFB


Corporate Social Responsibility

Keith KessellGeneral Manager, Public Affairs



• Reporting since ’98

• New title, format

• Group-wide triple bottom

line approach

• Addressing Global Reporting

Initiative criteria



• Why do it?

- Greater transparency enhances reputation

- Growing investor interest

- Super funds

- DJSI World membership

- Inevitability of regulatory requirement


Questions


For all the latest news visitwww.wesfarmers.com.au

Investor Briefing - Wesfarmers › docs › default-source › asx... · 2016-07-13 · Investor...

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Transcript of Investor Briefing - Wesfarmers › docs › default-source › asx... · 2016-07-13 · Investor...