Growth at runaway retail success Bunnings has slowed to just 1 per cent in the first few months of this financial year as rising fuel prices and softening house prices have impacted on consumer sentiment, Wesfarmers shareholders were told yesterday.
Growth at runaway retail success Bunnings has slowed to just 1 per cent in the first few months of this financial year as rising fuel prices and softening house prices have impacted on consumer sentiment, Wesfarmers shareholders were told yesterday.
See below for full statement by managing director Richard Goyder and chairman Trevor Eastwood.
WESFARMERS LIMITED
ANNUAL GENERAL MEETING - 8 NOVEMBER 2005
MANAGING DIRECTOR'S REVIEW OF CURRENT TRADING
Thank you Mr Chairman and good afternoon ladies and gentlemen.
It is a pleasure to report to you in my first year as Managing Director of Wesfarmers. I am
honoured to have been given the opportunity to lead such a great company and am grateful for
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the support I have received from our Chairman, the Board, senior management and all
employees.
A month ago I brought together the top 70 managers in the Group for a discussion focused on the
future of the company - in fact the theme of the meeting was "The Keys To Our Future". From
where I sit there are three such keys.
First there's direction - and that is perfectly summarized in our corporate objective - to provide a
satisfactory return to shareholders.
The second key is the standards we apply in striving to achieve that objective - all the things that
guide us as we progress down that path.
And third, but of absolutely equal standing, is the quality of the people we employ. It is simply
impossible to over emphasise the importance of attracting and retaining good people in pursuit of
sustainable success for Wesfarmers.
You may recall that we no longer report on a quarterly basis but as was the case last year we are
taking this opportunity to provide an update to shareholders and the broader market on some
aspects of our operations and developments since our full year profit results announcement in
August.
We're living in some particularly interesting times.
The economies of Western Australia and Queensland are flat out coping with a boom in
resources fuelled by the incredible economic progress of China - and with India set to play an
increasingly important part.
At the same time, consumers all over Australia are feeling the impact of high fuel prices and
there are concerning signs about the effect of a skills shortage and a higher cost base driven by
the pressures of the boom to which I referred.
It's in the context of a booming export economy and a tightening domestic environment that I
report on the state of our company.
Hardware
At the time of the full year results we announced that the Bunnings hardware operations had
experienced a slowdown in sales growth in the second half of the 2005 financial year, continuing
into July.
Falling house prices this calendar year, particularly in eastern Australia, have affected consumer
confidence which coupled with high household debt levels has affected discretionary spending.
The increased fuel prices of the past months have also clearly had an impact on consumer
sentiment.
Normalised cash store-on-store sales growth for the second half of the last financial year was
4.4 per cent. For the July to October period, that figure was just over 1 per cent. Australian
trading conditions were subdued in the September quarter.
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Despite the less buoyant trading conditions, assessing Bunnings performance against external
benchmarks indicates that market share is being gained.
The vigorous expansion of the Bunnings Warehouse network continues, with four new
warehouse stores opening in the July to October period and another seven stores currently under
construction. It is likely that store openings for the 2006 financial year will exceed last year's.
We believe that Bunnings has never been in better shape. Our confidence in the state of the
business and its future is demonstrated by continuing an aggressive roll-out of new warehouse
stores and acceleration of the refurbishment of existing stores. The exciting new product range
at the Vermont South warehouse in Melbourne is a great example of Bunnings' commitment to
constantly innovate and improve its offer.
Energy
The Energy division, continues to perform well and remains focused on improving its existing
operations while completing the Curragh North coal development in Queensland.
Continued global steel industry growth will benefit our Curragh coal operations and we expect
exports of metallurgical coal in the range of 6.4 to 6.8 million tonnes this financial year, subject
to satisfactory mine, rail and shipment performance. This is slightly below our previous target
of around seven million tones, due to operational and logistical issues, but a very big increase on
the 2004/2005 export total of 4.6 million tonnes.
The $360 million Curragh North mine development remains on track and the team at Curragh
continues to do a magnificent job in managing this very important project.
On the steaming coal side, Wesfarmers' 40 per cent investment in the Bengalla coal mine should
provide solid returns this year despite continuing port constraints and lower spot export thermal
coal prices.
Performance at the Premier coal mine at Collie in Western Australia has returned to normal
following industrial disruption earlier this calendar year.
We were delighted when Premier was selected in August this year to supply Western Power
Corporation's ongoing coal requirements from 2010 for its existing coal-fired power stations.
Providing we continue to improve mine productivity, this agreement should underpin the
long-term value of the Premier mine for our shareholders and the Collie community.
Energy's gas and power businesses are operating in challenging times characterised by margin
pressures due to continued high LPG and diesel prices and by lower LPG production due to
lower content in the gas flows to our plant at Kwinana which will lead to lower export volumes
this year.
The Energy group's focus on sustainability continues and in September Premier Coal was
successful in winning the prestigious Western Australian Department of Industry and Resources
'Golden Gecko Award' for Environmental Excellence in the Minerals and Petroleum Industries.
Industrial and safety
The performance of the industrial and safety division is similar for the same period last year.
Continuing strong demand from the mining sector in Queensland and Western Australia has
offset weaknesses in the manufacturing sector and in parts of the New Zealand business.
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Insurance
In the first quarter of trading for the Insurance division, all businesses performed very well
although competition for quality business is increasing.
We are expecting another strong performance from this division this year.
Chemicals and fertilisers
In CSBP, demand for mining chemicals in Western Australia remains very strong on the back of
the strength of the resources sector. Fertiliser sales are traditionally low at this time of year.
Demand in early 2006 will be dependent on a reasonable seasonal and price outlook, but
volumes for the first quarter are in line with last year.
As the Chairman mentioned briefly earlier, the Board has today approved the expansion of
CSBP's ammonium nitrate manufacturing capacity at Kwinana. When this $200 million project
is complete in mid-2007, CSBP will double its output from the current 235,000 tonnes to
470,000 tonnes.
Other
First quarter results for our rail joint venture, the Australian Railroad Group, were lower than for
the comparable period due to lower grain revenues and the impact of higher fuel prices. With a
favourable harvest outlook in Western Australia and South Australia, the ongoing growth in
commodity export volumes and new contracts, the outlook for the remainder of the 2005/06 year
is positive.
The Gresham Private Equity Fund is expected to achieve some asset realisation this year. This
should provide a useful contribution to the Group's results.
Balance Sheet
The company's balance sheet remains in very good shape and we have strong cashflows.
All this means that we are in a very good position to take advantage of opportunities as they
arise.
And we are, as always, actively assessing many growth initiatives. The evaluation of these
opportunities is framed against the cast-in-stone principle of acting with a strong shareholder
focus.
This financial year we have budgeted record capital expenditure of around $900 million. This is
a major programme by any measure and I think it is a very good reminder of our commitment to
strong, organic growth in areas which we believe will be to the benefit of our shareholders.
Ladies and gentlemen, there are times in the life of a company when people take a positive view
on the outlook and then there are times when a more negative mindset prevails. We've been
through both periods at Wesfarmers and I have no doubt the cycles will repeat.
Our job, and our focus, is to run our business as well as we can in the prevailing environment; to
look for opportunities to grow in ways that benefit shareholders; to manage the portfolio of assets
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and to do all this with a view to the longer term.
So all in all, ladies and gentlemen, we feel that the outlook for the group remains very positive
given our terrific assets, the wonderful people who work for us and our very healthy balance
sheet.
I look forward very much to taking questions on any aspects of the company's activities later in
today's proceedings.CHAIRMAN'S ADDRESS AND MANAGING DIRECTOR'S ADDRESS
Good afternoon ladies and gentlemen.
I am delighted to welcome you to the 24th annual general meeting of our shareholders.
This is my 3rd Annual General Meeting as Wesfarmers' Chairman after, of course, attending
many such gatherings as a director and previous to that as an employee. It's wonderful to see so
many familiar faces and to welcome those of you who are attending for the first time.
In the lead up to these meetings there's contact with a lot of people. We hear from investors and
advisers to investors and a range of others who these days take an interest in how a company is
managing its affairs. This is quite understandable and something we welcome. The occasion of
an Annual General Meeting presents as one of the few opportunities when those of us with either
board or management responsibilities come face to face with shareholders.
In all the too-ing and fro-ing to which I've just referred there are often phone calls and letters
from those who I like to think of as our grass roots shareholders. They are the private
individuals the likes of which were the founders of the company. If you'll indulge me I'd like to
refer to one such example that came to hand this year.
Our Company Secretary, Linda Kenyon, received a letter from Gordon and Marilyn Petersen
who hail from Mudgeeraba (and I hope I've pronounced that correctly) in Queensland. Gordon
and Marilyn said that because they didn't know either me or my fellow directors up for reelection
- Dick Lester and Gene Tilbrook - they'd decided to, and I quote, "hook up the caravan
and make the trip to the west coast so we can see if these directors will get our vote". Apart from
noting they hoped the promised free parking would accommodate the van, the Petersens asked us
to "have a cuppa ready".
The letter from Gordon and Marilyn concluded in this way:
"If we do not contact you before the meeting starts it means we did not make it, the old Dodge
has been overheating a bit lately. So we have put in our voting paper and will have to take a risk.
We have also voted for the directors to get remuneration, we don't think it fair that they do it for
nothing."
Well, as it turned out, they didn't make it. The Dodge played up around Lismore and the
Petersens' turned back. Never mind maybe Gordon and Marilyn will join us for a cuppa next
year.
I've taken the time to mention that letter because it's a good reminder that as directors and
managers we have one overriding reason for doing our jobs - that is, to serve as best we can the
interests of shareholders.
I also want to make special mention of those people around Australia and indeed around the
world who are tuning into today's meeting through the wonders of modern technology via the
Wesfarmers website. This is the first time we have web cast the meeting and we very much hope
that our audience out there in cyberspace enjoys and benefits from this new feature.
Prior to providing you with an overview of the company for the 2004/05 year, I would firstly like
to screen a short video covering some of the activities and achievements of the Wesfarmers
group during the last financial year. I am pleased to say the video will also be available to those
watching and listening on the website.
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After the video has finished, I will return to give the Chairman's address.
This will be followed by an update on the current operational and financial performance of the
group's businesses by our Managing Director, Mr Richard Goyder.
Finally, I'll open the formal part of the meeting to consider, discuss and vote on the resolutions
set out in the Notice of Meeting.
I now invite you to watch the corporate video.
CHAIRMAN'S ADDRESS
Ladies and gentlemen I hope you found the video informative and that it helped to broaden your
understanding of the Wesfarmers group.
As you would have seen in the video presentation and read in this year's annual report, it was
another very good year for Wesfarmers with higher earnings recorded by most of the company's
main business divisions.
Net profit of $618 million was achieved, representing an increase of 9 per cent on the prior year,
excluding profit from the sale of Landmark in the 2003/04 year. On the same basis, operating
revenue of $8.2 billion was up 6 per cent on last year's.
Earnings per share (before goodwill amortisation) increased by 8 per cent to $1.88 per share and
the full year dividend increased by over 29 per cent to $1.80 per share.
The Board was especially pleased to be able to also make a capital return to shareholders of
$1.00 per share amounting in total to $378 million, in March this year.
The group's activities and the performance of each operating division have been well covered in
the company's annual report and in the corporate video.
I therefore don't propose going into detail and will confine my remarks to a few general
comments.
The contribution made by the Bunnings hardware division for the 2004/05 year was pleasing
given the subdued retail sales environment, particularly in the second half of the year.
Revenue was up 6 per cent on the comparative period, earnings were 9 per cent higher and
store-on-store growth for cash sales was 5.6 per cent. Richard will have something to say about
how things have been going since 30 June in his operational update to which I referred earlier.
The energy division made an outstanding contribution to the group's result with revenue up
18 per cent and earnings up 33 per cent.
The uplift in earnings was mainly due to strong global demand for coking coal and the
achievement of record prices.
As you saw on the video, a key milestone during the year was the commencement of mining at
the new Curragh North coal development.
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The insurance division had an excellent year with profit substantially above expectations despite
a more competitive environment.
The industrial and safety division with its maintenance, repair and operating supplies businesses
achieved a result marginally down on the prior year.
CSBP's chemicals and fertilisers businesses recorded increased profits.
Mention was made in the video of consideration being given to increasing production of
ammonium nitrate. I am pleased to say that today the Board approved a major expansion project,
at a cost of about $200 million which, when completed in 2007, will double the production
capacity at CSBP's ammonium nitrate plant.
The 50 per cent-owned Australian Railroad Group achieved improved revenues for the year but
earnings were down and the 50 per cent-owned Wespine plantation sawmill made an improved
contribution.
No significant divestments were made by the Gresham Private Equity Funds in the 2004/05 year
which contributed $51.4 million after-tax in the prior year. Sale of these Funds' assets are
expected over the coming years.
Management changes
A number of significant senior company management changes have taken place since the year
end.
As I'm sure you all know, Richard Goyder became Managing Director and Chief Executive
Officer in July this year.
Richard would be known to many of you. He joined the company in 1993 and held a number of
commercial positions in Wesfarmers Business Development Department, including General
Manager. In 1999, Richard was appointed Managing Director of Wesfarmers Dalgety Limited
which subsequently became Wesfarmers Landmark Limited, a position he retained until his
appointment as Finance Director of Wesfarmers Limited in 2002. In May 2004, he was
appointed Deputy Managing Director and Chief Financial Officer.
Richard has demonstrated that he is well equipped to take over the leadership of our company.
We were delighted to have been able to select a new Chief Executive Officer from within our
strong senior management ranks and look forward to working with Richard and his senior
management team in continuing the success Wesfarmers has achieved since listing on the ASX
in 1984.
As this is Richard's first AGM in his new capacity I'd ask you to join me in congratulating him
on his appointment and welcoming him here today.
Richard of course took over from Michael Chaney who retired four months ago after 13 years as
the company's most senior executive.
A tribute to Michael detailing his outstanding achievements, is included in this year's annual
report. I would like to take this opportunity to again acknowledge the enormous contribution
Michael made to the standing of Wesfarmers Limited as one of the most successful and respected
companies in Australia - and to welcome him here today as a shareholder.
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Following Richard's appointment as Managing Director, Mr Gene Tilbrook was appointed
Finance Director while retaining responsibility for the company's Business Development team.
From July this year, Mr David Robb assumed broader responsibilities in the group while
continuing in his role as Managing Director of the Energy division. David is now a director on
most of the main divisional boards.
Both Gene and David are directors on the Wesfarmers Board.
At the end of the financial year, the managing director of the Industrial and Safety division,
Mr Bob Denby, advised of his decision to resign. We extend our appreciation to Bob for his
efforts over the last four years in integrating the various businesses in that sector which were
acquired as part of the Howard Smith takeover in 2001.
Mr Terry Bowen, a former senior executive with Wesfarmers Landmark, took over from Bob a
few weeks ago. Welcome Terry.
Corporate governance
The Board is committed to ensuring the group's governance practices support the company's key
objective of "providing a satisfactory return to shareholders".
The Board and management recognise that an integral part of good corporate governance is the
existence of a culture of openness, ethical behaviour and strong values. We see this as one of
Wesfarmers' great strengths and will continue to foster it throughout the group.
During the year, a number of Wesfarmers' policies and practices were updated to reflect changes
in the law and best practice.
A new market disclosure policy was approved by the Board in February.
Enhancements were made to our continuous disclosure processes and practices and senior
management have undergone training to reinforce the importance of timely disclosure of price
sensitive information to the market.
Improvements have also been made to the approval processes to monitor auditor independence.
The Board's Audit Committee has been very diligent in this regard.
Full details of the company's corporate governance policies and practices are included in our
annual report and have been posted to the website.
Overall, in governance terms, I think Wesfarmers is in good shape.
Remuneration Report
At this meeting, shareholders will be given the opportunity of voting on the company's
remuneration report. This is a new development and follows changes to the Corporations Law.
As noted in the Notice of Meeting, the vote is of a non-binding nature.
Full details of Wesfarmers' approach to remuneration for directors and senior executives are
included in the report and additional information has been posted to our website. If any matters
are not clear we encourage you to ask questions when we come to that item on the agenda.
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We had two aims when we designed our remuneration policy.
The first, and it should be no surprise, was that the performance related part of our senior
managers' remuneration packages should be directly related to ensuring a satisfactory return to
shareholders. This is the prime objective of the company and is the basis of all our planning,
budgeting, project appraisals, performance measurements and remuneration strategy.
We have a highly developed sophisticated set of systems which are fully integrated and linked to
our objective. All these systems are interrelated to create a single focus for all our people across
the group. This is the major reason we use our internal measures for the performance linked
parts of senior executive remuneration rather than say Total Shareholder Return, a market
favourite.
The second aim of our remuneration policy is ensuring that the overall levels of remuneration are
fair and competitive so that we are able to attract, motivate and retain quality people. We believe
we have been successful in this and that the quality of our people and systems has been the major
contributor to the company's success in creating shareholder value.
Corporate Social Responsibility
Ladies and gentlemen, as was the case last year, we have placed on each of your seats a copy of
the 2005 Social Responsibility Report. This report is hot off the press having been received from
the printer and released to the ASX only yesterday and continues our now well established
practice of providing a very detailed account of what is often described as non-financial
performance.
As you know, public companies are required by law to report on their financial activities and you
would have received this year's splendid annual report in the mail about a month ago. But there
is no compulsion to be publicly accountable on matters that fall outside the mainstream of
financial and governance issues - by that I mean things like safety, environmental impacts and
community interaction.
The fact that we have been doing this voluntarily since 1998 I think sends a really positive signal
to the community that we place a lot of importance on these aspects of our performance. We are
still, by the way, in a relatively small minority by reporting in this way - probably about 30 per
cent of Australian public companies produce similar sorts of documents.
The front cover this year highlights our community involvement. The photograph shows one of
our leading citizens, Professor Fiona Stanley, with students from the Clontarf Football Academy.
Fiona's work in delivering better outcomes for young people is well known and out at Clontarf
Gerard Neesham and his team are doing a terrific job with the same objective. Wesfarmers is
proud to be associated with their efforts.
I will now invite Richard Goyder to provide an update on the current trading of the group's
businesses.
Chairman's address (continued)
Before I conclude this presentation today, I would like to acknowledge all of our employees.
One of the underlying strengths of the group is the quality of its people. Their commitment to
Wesfarmers underpins the excellent results achieved this year. On behalf of the Board, I would
like to thank all employees for their great efforts.