22 September 2015

The Manager Market Announcements Office Australian Securities Exchange

Dear Sir,

2015 ANNUAL REVIEW

Attached is the Wesfarmers Limited 2015 Annual Review.

A copy of the review will be sent in October 2015 to those shareholders who have elected to receive a copy. The review is also available on the company’s website www.wesfarmers.com.au.

Yours faithfully,

L J KENYON COMPANY SECRETARY

Delivering value today and tomorrow.

Annual Review 2015 About About Wesfarmers this review

From its origins in 1914 as a Western This annual review is a summary Australian farmers’ cooperative, of Wesfarmers’ and its subsidiary Wesfarmers has grown into one of companies’ operations, activities Australia’s largest listed companies. and financial position as at With headquarters in Western 30 June 2015. In this review Australia, its diverse business references to ‘Wesfarmers’, ‘the operations cover: supermarkets; company’, ‘the Group’, ‘we’, ‘us’ home improvement and office and ‘our’ refer to Wesfarmers Limited supplies; department stores; (ABN 28 008 984 049) unless chemicals, energy and fertilisers; otherwise stated. coal; and industrial and safety References in this review to a ‘year’ products. Wesfarmers is one of are to the financial year ended Australia’s largest private sector 30 June 2015 unless otherwise employers and has a shareholder stated. All dollar figures are expressed base of approximately 500,000. in Australian dollars (AUD) unless otherwise stated. All references to ‘Indigenous’ people are intended to include Aboriginal and/or Torres Strait Islander peoples. This review is printed on environmentally responsible paper manufactured under ISO14001 environmental standards.

Our Objective

The primary objective of Wesfarmers is to provide a satisfactory return to our shareholders. Contents

2 Chairman’s message 4 Managing Director’s report 6 Highlights summary 8 Operating and financial review 20 – Coles 21 – Home Improvement and Office Supplies Wesfarmers is one of Australia’s 23 – Department store retailing largest private sector employers 23 – Kmart and has a shareholder base of 24 – Target approximately 500,000. 25 – Industrials 25 – Chemicals, Energy and Fertilisers 26 – Resources 27 – Industrial and Safety 28 – Other activities 29 Sustainability overview 37 Board of directors 41 Corporate governance summary 45 Remuneration overview 51 Five-year financial history 52 Corporate directory 53 Wesfarmers brands Chairman’s message

It gives me great pleasure to introduce Building on strong Wesfarmers’ annual review for 2015 and my last foundations Last year, as we celebrated our as Chairman. I am extremely pleased that we have centenary year, we reflected on again been able to produce another very strong the Wesfarmers journey since result for shareholders. being registered in June 1914 as a farmers’ cooperative with a paid up capital of £2,050. By the time we listed as a public company on 15 November 1984, we still only had a market capitalisation of We are in a very sound financial $30 million. Today we are one position, our balance sheet is strong of Australia’s largest companies and we are well positioned to take with a market capitalisation of advantage of growth opportunities in more than $45 billion. We are the future. We achieved a net profit one of the nation’s largest private after tax of $2,440 million for the sector employers with more than full-year, an underlying increase 205,000 employees in Australia, of 8.3 per cent when excluding as well as in New Zealand and Asia. discontinued operations and With that size comes responsibility, non-trading items. and employing more people, paying On the same underlying basis, our taxes and supporting suppliers The Wesfarmers story is unique earnings per share rose 9.9 per cent. are all obligations we take extremely in Australia. It’s all been possible The directors were able to declare seriously. because of the skills and attributes of a fully-franked final dividend of Our core values – integrity, openness, our people who have adjusted and set $1.11 per share at year’s end. accountability and boldness – stay the new directions as the domestic and That took the full-year dividend same. Our financial discipline must international realities have changed to $2.00 per share, up 5.3 per cent, remain of paramount importance. around them. The company has excluding last year’s special ‘Centenary’ If we are not financially strong and demonstrated incredible resilience dividend of 10 cents per share. successful, with a focus on our over the 101 years of its existence. It This year’s result builds on a truly returns to shareholders, we cannot has developed a very strong culture excellent legacy. Since listing, survive, prosper and do the many which gives us the ability to recruit Wesfarmers has delivered compound good things in the community we like talented people and that has been annual growth in total shareholder to do. To attract the best talent by the single most important factor in return (TSR) of 20.3 per cent, being an employer of choice, we must Wesfarmers’ success this year as in 1.8 times the rate of TSR growth also reflect the communities in which previous years. achieved by the market as represented we operate, and to set and live up to by the All Ordinaries Index. the standards we believe are desirable 2015 – our performance Over the past five years, Wesfarmers in those communities. I’d like to thank everybody who has delivered compound annual In a nation where we want to see has played a part in achieving this growth in TSR of 11.5 per cent, women given every opportunity to year’s result. Your contributions are compared with TSR growth of the fulfil their potential in employment at what makes Wesfarmers such a ASX 200 of 9.4 per cent. all levels, we must do everything we great company, able to deliver on its can to provide those opportunities commitment to provide satisfactory and encourage that potential. In a returns to our shareholders over the society where we believe Indigenous long-term and, in so doing, create value for all our stakeholders.

2 WESFARMERS ANNUAL REVIEW 2015 people need better representation The Board I would like to thank my Board in employment, we need to provide On behalf of the Board, I would like colleagues for their hard work those opportunities and help address to thank the Wesfarmers Leadership and support throughout the year. the issues and difficulties which Team led by our Managing Director, Their varied skills, experience and may be inhibiting their progress. Of Richard Goyder, for the tremendous perspectives is complemented by a critical importance is the profound work it has done over the past truly collaborative and cooperative responsibility we have to provide 12 months to ensure that this approach. I can faithfully report that a safe working environment for company’s future remains bright. the Board members are serving the all our employees – in fact, a safe Richard has been at the helm shareholders well. And I would like to environment for all our stakeholders. throughout my time as Chairman and, extend my appreciation to all the other All of these factors are important to in that period, has developed into people who have served on the Board our chances of remaining strong in one of the very best chief executives with me. Their individual and collective the modern economy. I am proud in Australia. It has been a pleasure contributions to the company have to say we are increasingly providing working with him. been enormous, their unwavering greater career opportunities for focus has been on delivering value to We had two retirements and one women; we now employ several our shareholders, and their support addition to the Board during the 2015 thousand Indigenous Australians for me in my role as firstly fellow Board financial year. Charles Macek and when just a few years ago we had member and then Chairman has been Colin Carter retired last November, only a handful; and we provide much tremendous. I cannot thank them after long and outstanding service in safer workplaces for our employees. enough for it. their respective roles. Their combined There is still much to be done, but the efforts over more than a decade of Thank you to shareholders progress has been good and I thank significant change and growth for and further encourage all of those Most importantly, of course, I want the company were outstanding. I involved in these efforts. to thank all our shareholders whose and the other Board members truly continued support and involvement in Our uncomplicated view is that we appreciated their wise counsel. our company is such a vital ingredient want to make the communities we are I am delighted Michael Chaney in the mix that makes the culture of part of stronger, healthier and better has joined the Board as Chairman- Wesfarmers so unique. places to live and raise families. It’s elect, some 10 years after his very the same vision that small group of I am humbled to have been Chairman successful period as Managing farmers had when they started the of this company, whose history and Director of the company. When I was company way back in 1914. culture has been fashioned by the appointed Chairman of Wesfarmers, contribution of many hundreds of There will always be challenges. I declared my main objective was thousands of people over such a long Successful companies must have to be custodian of the company’s period of time. the right vision supported by great culture. Who better then to succeed strategies and implemented by the me than Michael Chaney, who It has been a privilege to serve you. right people. Under the outstanding played such a vital role in establishing Thanks for having me. leadership of Richard Goyder and that culture? Michael has had an his management team, Wesfarmers outstanding career as an executive, is well-placed to meet the inevitable as Managing Director of Wesfarmers, challenges that will confront us in and as director and then chairman the years ahead. We have a strong of other major Australian companies. team of talented executives and He brings that experience and his the organisational changes made expertise back to the company as it in August this year are an indication moves into its next phase. of the constant drive for better – Bob Every AO performance and readiness for growth opportunities. Chairman

3 looking to grow the businesses. Our coal mines and in the Industrial and Managing Chemicals, Energy and Fertilisers Safety business this year, and indeed business has had another pretty in our gas businesses, have set those Director’s report strong year, earnings were pretty businesses up for a recovery in prices. much in line with last year when They are in cyclical industries and it’s adjusted for some one-offs, with good difficult now, but things will improve I performances from the chemicals and think. And the chemicals business is A conversation with fertilisers businesses. going pretty strongly at the moment. Richard Goyder AO So we’ve got well run businesses with Is it still accurate to call good assets that made good returns Wesfarmers a conglomerate in the past and I am very confident given the dominance of the they will make good returns in the What were your highlights retail earnings? future. for the 2015 financial year? There’s no doubt that Wesfarmers is Other than growth, are there It’s been another strong year for still a conglomerate, and proud and other key challenges for the Wesfarmers with good revenue happy to be a conglomerate. We’ve Group going ahead? growth, a strong profit performance got diversified businesses across retail – we were up over eight per cent on and industrial. We’ve got the capacity I think we always worry about an underlying basis – strong cash to run different businesses in the reputation, and it’s important that we generation and the balance sheet is Group and we are looking to grow our all strive to ensure that Wesfarmers in good shape. We can reward our industrial businesses, but we are also has a very good reputation because shareholders and we are creating looking to grow our retail businesses. that brings opportunities to us and it value for all our stakeholders. So And who knows what else we might also means we attract good people overall, another strong year for the acquire in the years ahead. to come and work with us. So we’ve Group and something that we should got to keep an eye on reputation, and all be proud of. What about the outlook for ultimately that’s about performance the coming year? but it’s also about how we conduct There were varying ourselves. Last year we spent over $2.2 billion performances in the retail on capital, growing our existing Operating sustainably is really and industrial portfolios. businesses, and we undertook important too. Ensuring that we are Can you take us through acquisition activity, including the working with the communities in those? Workwear Group, taking out the which we operate, working with the 50 per cent of the Coles credit card environment, operating in a way that We had a strong year from the retail business we didn’t already own, and means the company can continue in businesses. All of the businesses buying a stake in Quadrant Energy. the years ahead, as we have for the increased their profit on the previous That’s a significant investment in past 101 years. year. Coles had another strong growth, so that augers well for the performance, Bunnings was extremely And the other thing that we are Group in the near-term. And then positive, as was Officeworks. always focused on is safety. We have over the longer term we’ve got a Officeworks’ profits were up nearly 205,000 employees or more and really strong balance sheet. We’ve got 15 per cent, Bunnings up 11 per we want to make sure that every the capacity to do things if it’s in the cent. Kmart had another extraordinary employee goes home safely each day. interests of our shareholders to do so. year, up 18 per cent compared to last Our safety performance has improved As far as I’m concerned the future is year. At Target, we are seeing some a lot over the past few years, but very bright. improvement in that business, they we’ve got more to do on that front. were up nearly five per cent on the Importantly, we’ve got more than We have a really strong focus on previous year. So the retail businesses 205,000 wonderful employees in this making sure we improve safety. were all strong. company and we want all of these people to be looking to see how we After year-end, Wesfarmers In the industrial businesses, it’s can grow the company and create announced quite a tougher. It’s really tough for coal at value for all our stakeholders. the moment, and it’s tough if you are significant organisational restructure. Can you explain supplying to industrial businesses, like It’s still looking pretty tough our Industrial and Safety business. So what has happened there though for the industrial those businesses went backwards and why? portfolio? from a profit point of view, but I think We think it makes sense to group the they have done some really good In the near-term it’s tough, but I’ve industrial businesses together – so things in managing their costs and always felt that good businesses combining our Chemicals, Energy and shine in a tough environment. The Fertilisers business, our Industrial and cost reductions we’ve had at our

4 WESFARMERS ANNUAL REVIEW 2015 Safety division and our Resources Finally, Wesfarmers is a big business into one. Rob Scott will lead player in most of the sectors that division, and Anthony Gianotti is in which it operates. Is big going into it as Finance Director. We think it makes sense. There will be a bad? focus on growth, there will be a focus I think Wesfarmers and all our on ensuring that it’s the right portfolio stakeholders, particularly our in that division. And it will free me and shareholders and our employees, others up to look at opportunities should be proud of the contribution beyond some of the things we are Wesfarmers makes. Not just through currently looking at. So we think we delivering satisfactory returns to our will have a stronger focus in that and the Leadership Team and he shareholders – and in the past division and enable the Group to look embodies the values of Wesfarmers, 12 months we have delivered some at more opportunities. particularly integrity and openness. $3.5 billion back to our shareholders And Bob’s had a really strong focus, through dividends and capital Wesfarmers announced because of his industrial background, distributions. We employ more than earlier this year that Bob on safety and we’ve had dramatic 205,000 people, we pay nearly Every would be retiring as improvement in this area. $8 billion in salaries and wages, we pay more than $1.3 billion in taxes Chairman and be replaced We’re looking forward to working and royalties each year, we’re with Michael Chaney as the new by your predecessor as spending billions of dollars reinvesting Chair. I’ve worked with Mike through Managing Director, Michael in our company and we pay my executive career. He’s an Chaney. What contribution approximately $43 billion to our outstanding business person, he suppliers. So I think we make a really has Bob made and what knows Wesfarmers well, knows the significant contribution. And then we difference do you think it culture well. I think we will have a do things in the communities in which will make when Michael terrific working relationship and Mike we operate and that equals about will be great for the Group. takes on the Chair? another $103 million a year. So I am, I think Bob has been a terrific Chair. and I think we should all be, proud of He’s guided the Group post-Coles the work that we do to continue to through the Global Financial Crisis, grow Wesfarmers so we can do all he’s worked really closely with me those great things.

Group revenue up 3.8 per cent $ to $62.4 billion 2.16 1 % Earnings 3.8 per share 1 On an underlying basis, excluding discontinued operations and non-trading items.

5 Highlights summary

2015 2014 WEALTH CREATED BY

$M $M WESFARMERS 13,382 13,842 Employees salaries, wages and other benefits Government 59% 12% 56% 14% tax and royalties

2% 3% Lenders finance costs related to borrowed funds 17% 16% Shareholders 10% 11% dividends on their investments Reinvested in the business

Business performance

Key financial data 2015 2014 Revenue from continuing operations $m 62,447 60,181 Earnings before interest, tax, depreciation and amortisation from continuing $m 4,978 3,877 operations Depreciation and amortisation $m 1,219 1,082 Earnings before interest and tax from continuing operations $m 3,759 2,795 Earnings before interest and tax from continuing operations, excluding NTIs1 $m 3,759 3,566 Finance costs and income tax expense $m 1,319 1,285 Profit after tax from discontinued operations2 $m – 1,179 Net profit after tax $m 2,440 2,689 Net profit after tax from continuing operations, excluding NTIs1 $m 2,440 2,253 Operating cash flows $m 3,791 3,226 Net capital expenditure on property, plant and equipment and intangibles $m 1,552 1,216 Free cash flows $m 1,893 4,178 Equity dividends paid $m 2,597 2,160 Total assets $m 40,402 39,727 Net debt $m 6,209 3,401 Shareholders' equity $m 24,781 25,987

Key share data Earnings per share cents 216.1 234.6 Earnings per share from continuing operations, excluding NTIs1 cents 216.1 196.6 Operating cash flow per share cents 335.1 281.0 Free cash flow per share cents 167.3 363.9 Total dividends per share (declared) cents 200 200 – Ordinary cents 200 190 – Special ‘Centenary’ cents – 10 Capital management distribution (paid) cents 100 50

Key ratios Return on average shareholders' equity (R12) % 9.8 10.5 Fixed charges cover (R12) times 3.0 3.2 Interest cover (R12) (cash basis) times 20.5 15.9 Gearing (net debt to equity) % 25.1 13.1

1 Non-trading items in FY2014 reflect the Coles Liquor restructuring provision and the impairment of Target’s goodwill. 2 Discontinued operations relate to the disposal of the Insurance division and WesCEF’s interest in Air Liquide WA Pty Ltd.

6 WESFARMERS ANNUAL REVIEW 2015 In 2015, our net profit after tax was $2,440 million, an underlying increase of 8.3 per cent when excluding discontinued operations and non-trading items.

Coles Department store retailing

Coles 2015 2014 Target 2015 2014 Revenue $m 38,201 37,391 Revenue $m 3,438 3,501 Earnings before interest and tax $m 1,783 1,672 Earnings before interest and tax $m 90 86 Segment assets $m 21,533 20,532 Segment assets $m 3,021 2,963 Segment liabilities $m 3,913 3,974 Segment liabilities $m 515 486 Capital employed $m 16,276 16,272 Capital employed $m 2,466 2,979 Return on capital employed % 11.0 10.3 Return on capital employed % 3.6 2.9

Home Improvement and Office Supplies Industrials Home Improvement and Office Industrials 2015 2014 Supplies 2015 2014 $m 4,977 Revenue $m 11,248 10,121 Revenue 4,985 $m 482 Earnings before interest and tax $m 1,206 1,082 Earnings before interest and tax 353 $m 4,125 Segment assets $m 5,959 5,706 Capital employed 4,245 % 11.7 Segment liabilities $m 1,476 1,177 Return on capital employed 8.3 Home Improvement Chemicals, Energy and Fertilisers $m 1,812 Revenue $m 9,534 8,546 Revenue 1,839 $m 221 Earnings before interest and tax $m 1,088 979 Earnings before interest and tax 233 $m 1,746 Capital employed $m 3,244 3,343 Segment assets 1,732 $m 355 Return on capital employed % 33.5 29.3 Segment liabilities 341 Office Supplies Capital employed $m 1,535 1,539 % 14.4 Revenue $m 1,714 1,575 Return on capital employed 15.2 Earnings before interest and tax $m 118 103 Resources $m 1,544 Capital employed $m 1,034 1,097 Revenue 1,374 $m 130 Return on capital employed % 11.4 9.4 Earnings before interest and tax 50 Segment assets $m 1,892 1,904 Segment liabilities $m 362 384 Department store retailing Capital employed $m 1,453 1,459 Return on capital employed % 3.4 8.9 Kmart 2015 2014 Industrial and Safety Revenue $m 4,553 4,209 Revenue $m 1,772 1,621 Earnings before interest and tax $m 432 366 Earnings before interest and tax $m 70 131 Segment assets $m 2,182 2,131 Segment assets $m 1,626 1,349 Segment liabilities $m 849 692 Segment liabilities $m 391 273 Capital employed $m 1,312 1,361 Capital employed $m 1,257 1,127 Return on capital employed % 32.9 26.9 Return on capital employed % 5.5 11.6

7 OPERATING AND FINANCIAL REVIEW

Operating and financial review

The Wesfarmers Way

Satisfactory Value creating Growth Core return to strategies enablers Values shareholders

Our Value creating Growth Core objective strategies enablers values

To provide a satisfactory return Strengthen existing Outstanding people Integrity to our shareholders businesses through Commercial excellence Openness operating excellence and satisfying customer needs Empowering culture Accountability Secure growth Innovation Boldness opportunities through entrepreneurial initiative Social responsibility Renew the portfolio Robust financial capacity through value-adding transactions Ensure sustainability through responsible long‑term management

8 WESFARMERS ANNUAL REVIEW 2015 Who we are What we do How we do it

On behalf of the Board, statements are streamlined, with notes than mandating detailed strategies grouped in order to make it easier or implementation plans, the I’m very pleased to for readers to access information Group focuses on ensuring that present the operating and understand its relevance. An six key enablers are in place in our and financial review explanation of the Group’s accounting businesses, with a goal of driving policies is disclosed alongside operating performance to best of Wesfarmers for relevant notes with the aim of practice. shareholders. enhancing the understanding of the financial statements. Key estimates Outstanding people and judgements have also been Wesfarmers seeks to be an employer highlighted throughout the accounts of choice. Attracting outstanding to improve transparency. people and utilising their individual talents is the most critical element The Wesfarmers Way in striving for sustainable success. From our origins in 1914 as a Western Wesfarmers recognises that while Australian farmers’ cooperative, great assets and strategies are Wesfarmers has grown into one of critical, it is people who ultimately Australia’s largest listed companies drive outcomes. and private sector employers. Commercial excellence Wesfarmers’ diverse business Wesfarmers seeks to ensure that it operations in this year’s review cover: employs strong financial discipline supermarkets; home improvement in all of its decisions across the and office supplies; department Group. Wesfarmers has a clear bias – Terry Bowen stores; chemicals, energy and towards promoting strong commercial Finance Director fertilisers; coal; and industrial and capability across its leadership base. safety products. The vast majority Wesfarmers’ primary objective of Wesfarmers’ businesses operate Empowering culture is to deliver satisfactory returns in Australia and New Zealand, with Wesfarmers recognises that an to shareholders through financial the portfolio including some of these empowering culture is critical to discipline and strong management of countries’ leading brands. engendering accountability for a diversified portfolio of businesses. delivering the results agreed upon The Group’s objective of delivering A key focus of the Group is ensuring through the Group’s corporate long-term satisfactory returns to that each of its divisions has a planning framework. Wesfarmers uses shareholders through a strong strong management capability stretch targets in objective setting focus on operating excellence and that is accountable for strategy and encourages team members to disciplined capital deployment was development and execution, as be proactive in driving the creation of demonstrated this year, with solid well as day-to-day operational value in their businesses. growth in underlying revenue and performance. Each division is earnings achieved. Innovation overseen by a divisional board of Wesfarmers seeks to develop a directors or steering committee Portfolio management undertaken during the year included the sale culture that encourages innovation, including the Wesfarmers Managing and rewards boldness and creativity. Director and Finance Director, and is of Kleenheat’s east coast LPG guided by a Group-wide operating operations, and acquisitions of the Social responsibility cycle and governance framework. Workwear Group, the remaining Respect for employees, customers 50 per cent of the Coles credit card Consistent with last year, this and suppliers and a relentless joint venture and a 13.7 per cent operating and financial review sets focus on providing safe workplaces interest in Quadrant Energy. out the Group’s growth enablers, are fundamental to the way that objective and strategies, as well The Wesfarmers Way is the Wesfarmers operates. Wesfarmers’ as summarising its operating framework for the company’s social responsibility extends to model, risks and prospects. It also business model and comprises maintaining high standards of ethical outlines each division’s competitive core values, growth enablers and conduct, environmental responsibility environment, strategies, risks and value creating strategies directed and community contribution. prospects, in addition to a review of at achieving the Group’s primary Robust financial capacity operational performance for the 2015 objective of providing a satisfactory By maintaining a strong balance financial year. return to shareholders. sheet, the Group aims to provide The review should be read in Growth enablers a competitive cost and access to conjunction with the financial capital in order to allow the Group to A core attribute of the Wesfarmers statements, which are presented on act when value-creating opportunities operating model is that each of pages 87 to 130 of the 2015 annual present themselves. our businesses operates with a report. As introduced last year, these high degree of autonomy. Rather

9 OPERATING AND FINANCIAL REVIEW

Acquisition and investment review Investment approach opportunity identification

Capacity to act through a strong Megatrend exposure balance sheet and focus on cash flow Flexibility through different ownership Industry structure models (e.g., minority interest, full control, partnerships) Industry scale INDUSTRY CRITERIA Remain opportunistic to sector, structure and geography BUSINESS CRITERIA Competitive position Financially disciplined including investment comparison to capital management alternatives Wesfarmers fit

Financial criteria

Our objective as well as making an adequate return Shareholder distributions and on any new capital deployed. The primary objective of Wesfarmers portfolio management is to provide a satisfactory return to Minimum ROC targets for each The Group endeavours to optimise shareholders. The measure used division are set based on their pre-tax shareholder returns through its by the Group to assess satisfactory cost of capital, while satisfactory ROC dividend policy, its approach to capital returns is total shareholder return targets are established based on management and disciplined portfolio (TSR) over time. We measure the Group’s ROE targets, which are management. reviewed annually with reference to the our performance by comparing In summary, the Group seeks to: Wesfarmers’ TSR against that performance of the broader market. achieved by the S&P/ASX 50 Index. –– continue to invest in Group Capital efficiency focus businesses where capital Performance measures We believe that in order to deliver investments exceed return requirements; Growth in TSR relies on improving satisfactory shareholder returns it is returns from invested capital relative important to try to achieve a cost of –– acquire or divest businesses where to the cost of that capital and growing capital advantage, which we feel is doing so is estimated to increase the capital base at a satisfactory rate best done through a strong focus on long-term shareholder wealth; and of return on capital (ROC)1. cash realisation, the maintenance of –– manage the Group’s balance a strong balance sheet and having sheet to achieve an appropriate Given a key factor in determining flexibility in financing options. risk profile and an optimised cost TSR performance is movement in of capital. Wesfarmers’ share price, which can be Working capital and capital affected by factors outside the control expenditure Acquisition approach of the company (including market The Group continuously looks to When reviewing the acquisition of sentiment, business cycles, interest businesses the Group applies various rates and exchange rates), the Group improve the working capital efficiency of all of its businesses, and also filters, as illustrated in the diagram at focuses on return on equity (ROE) as a the top of this page. key internal performance indicator. ensures strong discipline in relation to capital expenditure or any other Importantly, in applying these filters While ROE is recognised as a investment decisions that are made. the Group applies a long-term horizon fundamental measure of financial to investment decisions and remains performance at a Group level, very disciplined in its approach to ROC has been adopted as the evaluation, with the most important principal measure of business unit filter being whether the investment is performance. ROC focuses divisional going to create value for shareholders businesses on increasing earnings over time. and/or increasing capital productivity by managing factors they can control,

1 ROC = EBIT/(Working capital, fixed assets and investments less provisions and other liabilities).

10 WESFARMERS ANNUAL REVIEW 2015 Who we are What we do How we do it

Approach to delivering satisfactory returns to shareholders

Cash flow Balance sheet Delivery of long-term generation + strength = shareholder returns

Drive long-term earnings growth Risk management of Improve returns on invested maturities capital Manage working capital effectively Diversity of funding sources Grow dividends over time Strong capital expenditure Optimise funding costs Effective capital management processes Maintain strong credit Invest above the cost of capital metrics Financial discipline

Focused approach to deliver Group. As well as share price satisfactory returns to appreciation, Wesfarmers seeks, shareholders where possible, to grow dividends over time. Dependent upon As illustrated above, the Group has circumstances, capital management a focused approach to delivering decisions may also be taken from satisfactory returns to shareholders. time to time where this activity is in Cash flow generation shareholders’ interests. In generating cash flow and Our approach to sustainability earnings, the Group seeks to employ Wesfarmers will only be sustainable excellent management teams who as a corporation if, in addition to are empowered to drive long-term its continued financial success, it earnings growth. This is achieved adequately addresses a range of through deploying best practice other issues which are significant in principles in operational execution their own right and ultimately influence and maintaining a long-term focus financial outcomes. in regards to strategy and results. In addition, the Group manages working Wesfarmers operates its businesses capital very closely and ensures that in accordance with the Group’s strong discipline in capital expenditure ten community and environment and investment processes are principles, which relate to our people, maintained. sourcing networks, the communities in which we operate, and environmental Balance sheet strength and governance standards. The Group endeavours to achieve Within this framework, each business a cost of capital advantage while has identified the key issues most maintaining balance sheet strength relevant to its operations within their and flexibility in order to be able to act summaries as detailed later in this when opportunities arise. operating and financial review. Further information on our sustainability Long-term shareholder performance can also be found on returns pages 29 to 36 of this annual review. In implementing our With a focus on generating strong Our full 2015 Sustainability Report will overarching strategies, cash flows and maintaining balance be available in October on our website we maintain a long- sheet strength, the Group aims sustainability.wesfarmers.com.au term focus and act to deliver satisfactory returns to sustainably in creating shareholders through improving value across our returns on capital invested in the business portfolio.

11 OPERATING AND FINANCIAL REVIEW

Our value creating strategies

Consistent with the Wesfarmers –– renewing the portfolio through At a divisional level, detailed Way, the Group’s primary objective value-adding transactions strategies are developed specific to to provide a satisfactory return –– ensuring sustainability the opportunities to improve each of to shareholders is driven by four through responsible long-term our individual businesses. Divisional overarching strategies. These are: management. strategies are discussed within their –– strengthening existing businesses As shown in the table below, each respective summaries, starting on through operating excellence and strategy is underpinned by the page 20. satisfying customer needs Group’s well established strategic –– securing growth opportunities planning framework. A key attribute through entrepreneurial initiative of this approach is the maintenance of a long-term focus and acting sustainably in the creation of value and the building of businesses.

Operating excellence

Our strategies Our achievements Our focus for the coming years

Strengthen –– Continued to make improvements –– Coles remains committed to implementing customer-led existing in our customer offers, including strategies and delivering trusted value. Coles will continue to businesses reinvesting in value to drive business invest in value, supported by a focus on simplification and cost through growth. reduction. The division has plans to drive further improvement operating –– Further optimised and invested in our in fresh category sales. Coles will also maintain a disciplined excellence retail store networks. and returns-focused approach to network expansion and and satisfying capital investment, develop new channels and services and customer –– Focused on production plant progress its Liquor transformation. needs efficiency following recent capacity expansions and maintaining –– Bunnings will maintain its focus on driving long-term value customer relationships in our creation through strengthening its core business, including industrial businesses. delivering more customer value, better customer experiences, greater brand reach, an expanded commercial business and –– Made further operational productivity further merchandise innovation. improvements and reduced costs across our businesses. –– Officeworks will continue to deliver a unique ‘one-stop shop’ via its ‘every channel’ strategy while extending reach across all channels through new categories and services, and drive further productivity improvements. –– Kmart aims to grow through continued price leadership, expansion of its digital strategy, product ranges and store network. The division will continue to focus on delivering increased operational efficiency across the business. –– Target will continue to transform its business through improved sourcing, supply chain efficiencies and range improvements. It will also seek to further lower the cost of doing business to provide greater value to customers and further improve in-store and online offers. –– Chemicals, Energy and Fertilisers will optimise production and plant efficiencies following recent capacity expansions, while ensuring readiness to take advantage of value-generating opportunities as they arise. –– Resources will maintain focus on cost control and productivity improvement, with low-cost plant expansions and counter- cyclical investments to be implemented where satisfactory returns can be achieved. –– Industrial and Safety will continue to focus on cost control and operational productivity improvements. The business will continue to seek to increase revenue through market share growth and expansion into addressable adjacent markets.

12 WESFARMERS ANNUAL REVIEW 2015 Who we are What we do How we do it

Entrepreneurial initiative

Our strategies Our achievements Our focus for the coming years

Secure growth –– Provided even greater value for customers through –– Continue to reinforce innovation and drive opportunities price reinvestment of innovation-led productivity gains. boldness as growth enablers. through –– Continued to innovate our product ranges and –– Continue to rigorously apply financial entrepreneurial categories across all businesses providing value and disciplines and financial evaluation initiative quality to customers. methodologies. –– Further improved and extended channel and brand –– Increase and encourage collaboration across reach in our retail portfolio, focusing on store format divisions, where appropriate. innovation and the expansion of online offers. –– Grown our customer programs, particularly the flybuys loyalty program and the PowerPass offer at Bunnings. –– Continued to better leverage data, particularly in our retail businesses. –– Maintained our focus on growing new businesses, including Coles Financial Services and natural gas retailing.

Renewing the portfolio

Our strategies Our achievements Our focus for the coming years

Renew the –– Acquired Pacific Brands’ –– Maintain a strong ongoing focus and capability to evaluate growth portfolio Workwear business in our opportunities where long-term shareholder value can be created. through Industrial and Safety business. –– Consider innovative investment approaches to complement value-adding –– Completed the divestment of traditional growth models to provide future optionality. transactions Kleenheat’s east coast LPG –– Ensure a patient, disciplined and broad scanning approach distribution business. to investment opportunities is maintained. –– Exercised the call option –– Apply rigorous due diligence and integration processes post- to acquire the remaining acquisition. 50 per cent of the Coles credit card joint venture. –– Maintain a strong balance sheet to enable the Group to act opportunistically. –– Acquired a 13.7 per cent interest in Quadrant Energy. –– Consider opportunities to divest assets either in full or in part, where long-term shareholder value can be created.

Operating sustainably

Our strategies Our achievements Our focus for the coming years

Ensure –– Maintained a strong balance sheet. –– Continue to foster a more inclusive work sustainability –– Achieved good improvements in our safety environment, with particular focus on through performance. diversity (gender, age and ethnicity). responsible –– Maintained a very strong focus on the development and –– Increase the number of women in long-term leadership positions across the Group. management management of our teams. –– Continued to promote diversity in our workplaces, with –– Continue to look after the health, safety and 60 per cent more self-identified Indigenous employees development of our people. this year, and 500 new Indigenous employees at Coles –– Minimise our environmental footprint. alone. –– Contribute positively to the communities in –– Advanced our executive development, retention and which we operate. succession programs. –– Provide appropriate governance structures –– Continued to actively contribute to the communities in to safeguard future which we operate, where in the 2015 financial year, we value creation. made community contributions, both direct and indirect, of $103 million.

13 OPERATING AND FINANCIAL REVIEW

Operating model, risks and prospects

OUTPUTS

Superior long-term Operating model financial performance The operating model  Above market TSR over the adopted to achieve the medium-to-long-term Group’s objective is represented here:

A most-admired company  Superior reputation among customers, employees, suppliers and the community

VALUE-CREATING Portfolio of Value-adding transactions BUSINESS MODEL quality businesses  Ability to recognise and Positioned for future growth acquire undervalued assets (e.g., strong competitive Skill to turnaround and positioning in attractive grow those assets industry structures) Discipline to exit where value accretive to shareholders

INPUTS

Superior Robust Strong corporate people resources financial capacity infrastructure Ability to attract, motivate Strong balance sheet and Systems and processes to and retain great people focus on cash generation support business operations, underpinned by core values

Inputs Businesses are governed by divisional assurance over any significant capital boards and a Group-wide framework expenditure evaluation, as well as The three key inputs considered where key disciplines and processes merger and acquisition activity. at the Group level are as follows: are coordinated over a 12-month Superior people resources – operating cycle. This approach Value-creating business model the ability to attract and retain great people, bringing a mix of encourages strong accountability for The value-creating business model comprises the portfolio of quality skills, knowledge, experience operating results, as well as assurance businesses, and is shaped by value- and diversity to the Group, and in areas such as: adding transactions, with a focus on successful development through creating long-term shareholder value. succession planning. –– strategic planning, budgeting and monitoring of performance; Robust financial capacity – a Outputs strong balance sheet and focus –– risk management, including internal on cash generation, including audit and insurance protection; The two key outputs from the recycling of capital where returns –– group-wide human resource operating model are: can be optimised. management systems such as The delivery of superior Strong corporate infrastructure executive remuneration and share long-term financial – systems and processes which schemes, talent development and performance – as measured by support the way the businesses key role succession planning; and medium-to-long-term operate, underpinned by a set of TSR performance relative to the core values. –– centralised support in areas such S&P/ASX 50 Index. as statutory accounting, tax, The Group ensures that each treasury and legal support. Remaining a most-admired of its divisions has a very strong company – superior reputation The Group also has a Business among customers, employees, management capability and day-to- suppliers and the community. day operational autonomy. Development function that provides

14 WESFARMERS ANNUAL REVIEW 2015 Who we are What we do How we do it

Risks Further information on risk –– Business interruption arising from industrial disputes, work stoppages Wesfarmers recognises the management, including policies, and accidents importance of, and is committed responsibility and certification, can be to, the identification, monitoring found in the corporate governance –– Risks inherent in distribution and and management of material risks section of the company’s website at sale of products www.wesfarmers.com.au/cg associated with its activities across Regulatory the Group. Strategic –– Non-compliance with applicable The following information sets out –– Increased competition laws, regulations and standards the major Group-wide risks. These –– Ineffective execution of strategy –– Adverse regulatory or legislative are not in any particular order and change do not include generic risks such –– Loss of key management personnel as changes to macroeconomic Financial conditions affecting business and –– Damage or dilution to Wesfarmers’ –– Currency volatility households in Australia, which would brands affect all companies with a large –– Digital disruption to industry –– Adverse commodity price domestic presence and which could structures movements have a material affect on the future –– Reduced access to funding performance of the Group. Operational –– Loss of critical supply inputs or infrastructure, including IT systems –– Loss of data security and integrity

Prospects

The Group is well-placed to innovation, better customer service, a positive outlook for the fertilisers strengthen and further build upon its and extending channel reach and business, subject to seasonal existing businesses with a focus on performance through improving conditions. seeking to deliver improved returns store networks and digital offers. The Resources and the Industrial to shareholders. The near-term outlook for the and Safety businesses will seek to With consumers remaining focused Group’s Industrials division remains further reduce costs and improve on value, the Group’s portfolio of challenging. In this environment, operational productivity. Recent retail businesses is expected to each business will seek to further pricing pressures, as evidenced benefit from strategies that drive reduce cost structures and optimise by declines in the current quarter’s further value for customers and plant and mine performance. export coal price settlements, improvements in merchandise Within Chemicals, Energy and present a subdued revenue and offers. As the Group enters the 2016 Fertilisers, the ammonium nitrate earnings environment for the financial year, the Coles, Bunnings, business is expected to benefit Resources business. With volume Officeworks and Kmart businesses from increased customer demand, and margin pressure expected, all have good momentum, with while lower benchmark pricing and the Industrial and Safety business Target expected to improve as its a planned major plant shutdown in will tightly manage its cost base, transformation plan continues. the second half of the 2016 financial while endeavouring to grow sales in The retail businesses will seek year will affect ammonia earnings. existing and new markets, including to create increased value for Production economics are expected through integration and improvement customers through reinvestment to remain challenging for Australian of the Workwear Group. of sourcing and supply chain Vinyls, with a strategic review of Wesfarmers will retain a strong efficiencies, as well as other its polyvinyl chloride business balance sheet to secure growth productivity gains. Each business underway. Kleenheat is expected to opportunities, should they arise, also has strategies aimed at driving benefit from lower gas input costs, and where practical, optimise increased merchandise while strong recent harvests afford the portfolio.

15 OPERATING AND FINANCIAL REVIEW

Year in review

Net profit after tax Earnings per share Return on equity $M cents % 2,440 216.1 9.8 2015 2,440 2015 9.8 3,000 250 2015 216.1 12 2,400 2014 2,689 200 2014 234.6 10 2014 10.5 8 1,800 2013 2,261 150 2013 195.9 2013 8.9 6 1,200 2012 2,126 100 2012 184.2 4 2012 8.4 600 50 2 11 12 13 14 2015 2011 1,922 2011 166.7 11 12 13 14 2015 2011 7.7 0 0 11 12 13 14 2015 0

Including discontinued operations and non-trading items in 2014 which contributed a $436 million post-tax profit. Discontinued operations (a post-tax contribution of $1,179 million) relate to the disposal of the Insurance division and WesCEF’s interest in Air Liquide WA Pty Ltd. Non-trading items (a post-tax loss of $743 million) represent the Coles Liquor restructuring provision and the impairment of Target’s goodwill.

Overview The good cash realisation result was Illustrative of the benefits from this supported by working capital cash capital expenditure to capture high The 2015 financial year saw a solid inflows from the retail portfolio as return opportunities, Coles and increase in underlying performance a result of further improvements in Bunnings achieved strong returns for the Group. The Group’s 205,000 overall inventory management and on capital employed for the year, plus team members delivered a net period-end timing differences which excluding acquisition goodwill, of profit after tax of $2,440 million for resulted in an additional creditor 29.7 per cent and 45.8 per cent the year, an underlying increase of payment at Coles last year. respectively. Similarly, Kmart, which 8.3 per cent when excluding has seen higher levels of investment discontinued operations and non- Capital expenditure and this year due to its store renewal trading items (NTIs). On the same property recycling program and network growth, underlying basis, earnings per share delivered a return on capital employed rose 9.9 per cent to 216 cents, and The Group retains very strong excluding goodwill of 78.1 per cent. return on equity (R12) increased disciplines in respect to capital 40 basis points to 9.8 per cent. expenditure, with generally conservative business cases and The Group’s retail portfolio delivered Cash capital expenditure ($m) appropriate hurdle rates applied, strong earnings growth. All retail commensurate with the risks of 2015 2014 businesses grew earnings, having the project. benefited from hard work to deliver Coles 941 1,016 an improved merchandise offer and Gross capital expenditure of HIOS 750 557 better value for customers. $2,239 million was in line with the Kmart 169 162 prior year. Consistent with our aim Despite good cost control and Target 127 78 of deploying capital to high return operational productivity, the WesCEF 56 172 opportunities, capital expenditure Industrial businesses recorded lower continued to be weighted to the Resources 137 163 overall earnings. This was due to Group’s retail portfolio through growth Industrial and a challenging sales environment, 57 51 and refurbishment of store networks, Safety created by lower commodity most notably in Coles and Home Other* 2 34 prices, reduced project activity and Improvement. Capital expenditure in customers’ cost reduction programs. * 2014 includes discontinued operations. the Group’s industrial businesses was Divisional financial performances are well down on the prior year, following Free cash flow outlined in pages 20 to 28. the completion of the ammonium Free cash flows of $1,893 million were nitrate plant capacity expansion below the $4,178 million recorded last Operating cash flow and the debottlenecking of sodium year, which included the proceeds Despite lower reported earnings, cyanide capacity. from the disposal of the Insurance operating cash flow performance Net capital expenditure of division. When adjusting for the improved on last year due to working $1,552 million was 27.6 per cent proceeds from the disposal of the capital cash inflows and reduced or $336 million above the prior year Insurance division, free cash flows finance costs. Operating cash flows due to lower proceeds from the sale were $159 million above last year, with of $3,791 million were $565 million or of retail property during the year, with higher operating cash flows partially 17.5 per cent above last year, with a proceeds of $687 million compared offset by increased acquisition activity cash realisation ratio of 104 per cent to $1,017 million last year. and higher net capital expenditure. recorded.

16 WESFARMERS ANNUAL REVIEW 2015 When adjusting for the proceeds from the disposal of the Insurance division, free cash flows were $159 million above last year, with higher operating cash flows partially offset by increased acquisition activity and higher net capital expenditure.

Balance sheet Group capital employed

The Group’s balance sheet continues $m $m to be strong. Net debt at the end Year ended 30 Junea 2015 2014 of the period, comprising interest- bearing liabilities less cash at bank and on deposit, was $6,209 million, Inventories 5,497 5,336 $2,808 million above the net debt Receivables and prepayment 1,658 1,805 position at 30 June 2014. At Trade and other payables (5,764) (5,424) period-end, net financial debt was Other 393 403 $5,515 million when including fair Net working capital 1,784 2,120 value assets relating to cross currency interest rate swaps. Property, plant and equipment 10,205 9,952 Capital employed at year-end was Intangibles 19,309 18,956 $29.0 billion, $168 million above last Other assets 775 721 year. Increased capital employed Provisions and other liabilities (3,040) (2,884) reflected a higher value of property, Total capital employed 29,033 28,865 plant and equipment given increased Net financial debtb (4,746) (3,050) net capital expenditure from the Group’s retail businesses, and higher Net tax balances 494 172 intangibles following acquisitions made Total net assets 24,781 25,987 during the year. These were partially a Balances reflect the management balance sheet, which is based on different classification and groupings offset by lower working capital. than the balance sheet in the financial statements. b Net debt including interest rate swap assets and excluding financing of credit book relating to the Coles Working capital finished lower mainly credit card. as a result of lower receivables, due to the receipt of the completion adjustments related to the divestment of the Insurance division, and higher payables within the retail businesses due to store network expansion, sales growth and better offshore terms. These cash inflows were partially offset by outflows relating to increased inventories due to store network growth and acquisition activity. Impairment testing of non-current assets, including goodwill and other intangible assets, was undertaken during the year with no material non- cash impairments recognised.

17 OPERATING AND FINANCIAL REVIEW

Year in review (continued)

TSR: Wesfarmers and ASX 200

Wesfarmers Limited TSR Index1 ASX 200 Accumulation Index

300 In December 2014, the Group 250 returned $1,148 million to 200 shareholders via a capital 150 management distribution of 100 $1.00 per fully-paid ordinary share. 50 A special ‘Centenary’ dividend of 10 11 12 13 14 15 10 cents per share fully-franked 1 Assumes 100 per cent dividend reinvestment was also paid in October 2014. on the ex-dividend date, and full participation in capital management initiatives e.g., rights issues and share buybacks. Source: Bloomberg.

Debt management and Finance costs for the year decreased In December 2014, the Group financing 13.2 per cent to $315 million, largely returned $1,148 million to as a result of a lower average net debt shareholders via a capital The Group’s debt levels increased balance. The Group’s ‘all-in’ effective management distribution of during the year, following the capital borrowing cost was in line with the $1.00 per fully-paid ordinary share. management distribution paid prior year at 5.45 per cent. Reduced A special ‘Centenary’ dividend of in December 2014. Investments finance costs resulted in continued 10 cents per share fully-franked funded by debt during the year strong liquidity metrics, with cash was also paid in October 2014. This included the acquisitions of Pacific interest cover1 increasing to capital management distribution Brands Limited’s Workwear Group, 20.5 times and fixed charges cover1 was undertaken after the sale of the remaining 50 per cent of the of 3.0 times. the Insurance division to return a Coles credit card joint venture which portion of the Group’s surplus capital included the entire financing of the The Group’s credit ratings for to shareholders to achieve a more credit book and the 13.7 per cent Standard & Poor’s and Moody’s efficient capital structure. interest in Quadrant Energy. Investors Services remained unchanged at A- (stable) and The capital management comprised Consistent with the Group’s strategy A3 (stable) respectively. both a capital return component to diversify sources of debt, pre-fund (75 cents per share returning upcoming maturities and maintain a Capital management $861 million to shareholders) and a presence in key debt markets, the fully-franked dividend component Group issued a seven-year bond in As a key enabler of delivering (25 cents per share returning October 2014 raising €600 million satisfactory returns to shareholders, $287 million to shareholders). The (approximately A$864 million) through the Group aims to maintain an capital management distribution its Euro medium term note program. efficient capital structure that is was accompanied by an equal and In May 2015, the Group issued consistent with a strong investment proportionate share consolidation five-and-a-half-year fixed and grade credit rating. through the conversion of one share floating bonds through its domestic Strong free cash flow generation, into 0.9827 of a share. medium term notes program, raising assisted by disciplined portfolio A$500 million. management, has enabled the In September 2014, following Group to undertake capital settlement of the sale of the management. Since 2009, the Group Insurance division, the Group repaid has undertaken cumulative capital A$500 million of medium term notes management of $2.6 billion, which from existing cash on hand. During has comprised the full neutralisation the year, the Group also reduced of the dividend investment plan and syndicated debt facilities by a net the purchasing on-market of shares A$750 million. Post the completion relating to employee share plans. of the year, in July 2015 the Group repaid €500 million (A$756 million) of Euro medium term notes.

1 Calculated on a rolling 12-month basis.

18 WESFARMERS ANNUAL REVIEW 2015 The Board declared a fully- franked final ordinary dividend Dividends per share cents of 111 cents per share, taking the 200 full-year ordinary dividend to 250 2015 200 200 2014 200 200 cents per share, 150 2013 180 representing an increase of 100 2012 165 50 2011 150 0 11 12 13 14 2015 5.3 per cent on the 2014 financial

2014 includes a 10 cents per share special year full-year ordinary dividend ‘Centenary’ dividend. of 190 cents per share.

Equity Given the preference of many Shares on issue decreased during shareholders to receive dividends in the year as a result of the capital the form of equity, the directors have management distribution completed decided to continue the operation in December 2014 and associated of the Dividend Investment Plan proportionate share consolidation. (the ‘Plan’). The allocation price for This had the effect of reducing the shares issued under the Plan will be number of shares on issue by calculated as the average of the daily 19 million to 1,124 million. volume weighted average price of Wesfarmers shares on each of the Dividends 15 consecutive trading days from and including the third trading day after the A key component of TSR is the record date, being 1 September 2015 dividends paid to shareholders. to 21 September 2015. Wesfarmers’ dividend policy seeks to No discount will apply to the allocation deliver growing dividends over time, price and the Plan will not be with dividends declared reflective of underwritten. Given the company’s the Group’s current and projected current capital structure and strong cash position, profit generation and balance sheet, any shares to be available franking credits. issued under the Plan will be acquired The Board declared a fully-franked on-market and transferred to final ordinary dividend of 111 cents participants on 30 September 2015. per share, taking the full-year ordinary dividend to 200 cents per share, representing an increase of 5.3 per cent on the 2014 financial year full-year ordinary dividend of 190 cents per share. The final dividend will be paid on 30 September 2015 to shareholders on the company’s register on 27 August 2015, the record date for the final dividend.

19 OPERATING AND FINANCIAL REVIEW

Coles Since opening its first store in 1914, Coles has grown into an iconic Australian retailer with brands including Coles Supermarkets, Coles Express, Liquorland, Vintage Cellars, First Choice Liquor, Spirit Hotels, Coles Financial Services and Coles Online.

REVENUE EBIT 38,201$M 1,783$M

2015 2015 38,201 2015 2015 1,783 2014 2014 37,391 2014 2014 1,672 2013 2013 35,780 2013 2013 1,533 2012 2012 34,117 2012 2012 1,356 2011 2011 32,073 2011 2011 1,166

food standards cover product Our business Sustainability safety and quality, packaging and all claims, such as animal welfare and Coles provides fresh food, groceries, During the year, Coles sought sustainability. general merchandise, liquor, fuel feedback about its sustainability and financial services to more than performance and reporting from Community support 20 million customers on average each external stakeholders. How Coles week through its store network and supports Australian made food and Coles’ direct community support online platform. Coles has more than product quality and safety were totalled $36.5 million and an additional 101,000 team members and operates the two most frequently mentioned $7.2 million was contributed by 2,386 retail outlets nationally. issues. Other priority issues included customers, team members and community partnerships and support, suppliers. Coles supported the supplier relationships and labour rights. Australian Defence Force Assistance Our market Trust to raise awareness of the issues facing our servicemen and women, Coles has a store network of Australian sourcing many of whom return from overseas 776 supermarkets, 858 liquor stores, Coles is proud of its Australia First duty suffering traumatic injuries 90 hotels and 662 convenience sourcing policy, which aims to support and ill health. Coles also reached a outlets located from as far south as Australian farmers and manufacturers. milestone of distributing 10 million Blackmans Bay, Tasmania, to as far Today 96 per cent of fresh fruit and kilograms of fresh food, equivalent to north as Casuarina, Northern Territory, vegetables sourced for Coles are 20 million meals, to people in need operating in Australia’s highly dynamic Australian grown, along with since its partnership with SecondBite and evolving food, grocery, liquor and 100 per cent of fresh milk and commenced in November 2011. convenience sector. 100 per cent of fresh meat from Coles Financial Services has more the meat department. During the Environment year, Coles secured a contract with than 880,000 customers and has A highlight for Coles during the year issued more than 440,000 home, car, Bundaberg Sugar to supply the whole Coles brand range and guarantee was Coles Hallam in the south-east life and landlord insurance policies as of Melbourne achieving the first at 30 June 2015. customers 100 per cent Australian grown sugar. Green Star rating for an Australian supermarket. Hallam was awarded Product quality and safety a 4-Star Green Star rating from the Green Building Council of Australia. Coles’ Manufacturing Supplier Further information about Coles’ Standards for food were updated sustainability progress is covered in this this year and will be relaunched to review on pages 29 to 36 and in the suppliers in the coming year. Coles’ Wesfarmers Sustainability Report at sustainability.wesfarmers.com.au

20 WESFARMERS ANNUAL REVIEW 2015 Home Bunnings Improvement Bunnings continued to create more value for customers and improve their experience while and Office extending brand reach both physically and digitally Supplies and strengthening the stock flow, productivity and team aspects of the business.

REVENUE EBIT 11,248$M 1,206$M

2015 2015 11,248 2015 2015 1,206 2014 2014 10,121 2014 2014 1,082 2013 2013 9,167 2013 2013 997 2012 2012 8,644 2012 2012 926 2011 2011 8,251 2011 2011 882

Bunnings continues to raise Team member safety Our business awareness of sustainable living A focus on five key safety areas: options in the wider community, Bunnings is the leading retailer of Committing to Safety, Save Your helping customers take practical home improvement and outdoor living Back, ForkSafe, Protect Your Hands, actions at low-cost or no-cost to products in Australia and New Zealand and Back to Life/Back to Work, save energy, use less water or take and a major supplier to project resulted in a 9.4 per cent reduction environmentally friendly actions. In- builders, commercial tradespeople in the number of injuries recorded store workshops, online videos and and the housing industry. and a 14.7 per cent reduction in in-store brochures are a great source the total recordable injury frequency Bunnings continues to expand and of free sustainability do-it-yourself rate, which was a pleasing result improve its store network through (DIY) advice. These actions link with given the continued growth of the ongoing investment in existing outlets, Bunnings’ ongoing work to reduce business. Bunnings’ continuing focus innovative merchandising initiatives its impact on the environment which on safety included a grading and and new store openings. Bunnings includes a strong focus on using less performance monitoring system rolled continues to develop and enhance a energy and water and lowering levels out to over 3,500 forklift operators, network of trade centres to service of waste to landfill. a hazard spotter app developed for major commercial customers. Community involvement the in-store iPods, and the extension of the successful safety superhero Our market Bunnings has a long tradition competition which was run across of actively supporting the local all stores. Operating from a network of 236 communities where its stores operate large warehouse stores, 65 smaller and its team members live. While we continue to have a strong format stores, 33 trade centres and focus on safety leadership and injury three frame and truss manufacturing Bunnings’ teams supported more prevention, our new simplified injury sites, Bunnings caters for consumers than 62,000 local activities including management process has helped to and both light and heavy commercial fundraising sausage sizzles, hands- achieve a 10.3 per cent reduction in customers across the home on DIY projects, local fundraising our average time lost rate. improvement and outdoor living activities, community workshops and market. product contributions. More than 2,800 sustainability-related activities were conducted, including more Sustainability than 1,900 school visits and projects Bunnings pursues sustainability across Australia and New Zealand. within its operations by striving to Bunnings helped raise and contribute make them socially responsible, more than $35 million to local, regional environmentally aware and and national charities and community economically viable. organisations across Australia and New Zealand.

21 OPERATING AND FINANCIAL REVIEW

Home Officeworks Improvement Officeworks is Australia’s leading retailer and supplier of office products and solutions for home, and Office business and education. Supplies

a share of 10,000 rulers made from Our business Sustainability recycled printer cartridges and the winning school won a garden bed Officeworks is Australia’s leading Officeworks wants to make a made from recycled toner cartridges. retailer and supplier of office difference by contributing positively to products and solutions for home, the environment, setting high ethical Developing our future leaders small-to-medium size businesses sourcing standards and having an and education. Operating through inclusive workplace that reflects and During the year, 70 aspiring team multiple channels to market, supports the communities it serves. members participated in our Future including a nation-wide network Leaders and Officeworks Leadership of stores and online platforms, Making it easy to recycle programs. Both programs include a Officeworks is focused on delivering packaging variety of learning, networking and coaching opportunities as well as an ‘every channel’ one-stop shop for As part of its ‘Positive Difference’ plan, households, students, teachers and challenging assignments to accelerate Officeworks is focused on promoting team member development. education institutions, and small-to- awareness of recycling. Officeworks medium businesses. On completion of the programs, has worked with Planet Ark to design participants were awarded either a new, simple and easy-to-understand Diploma of Management or Advanced industry standard labels to help Diploma of Management certificate. Our market promote more recycling of packaging The office products market size materials and to reduce contamination in Australia is approximately in recycling bins. $12 billion. Driven by an ongoing focus on meeting the needs and Raising awareness of printer wants of customers and in response cartridges recycling in to low levels of growth in the core schools office products market, Officeworks Officeworks is Australia’s largest has continued to explore and expand collector of printer cartridges for the addressable market through range recycling with more than five million and category expansion. printer cartridges collected since The office products market remains 2005. To celebrate this milestone, highly competitive with a wide variety Officeworks ran a new program in of participants, some of whom partnership with Planet Ark to further compete across multiple categories promote printer cartridge recycling while others seek to specialise in in schools. The first two hundred certain areas. schools to join the program received

22 WESFARMERS ANNUAL REVIEW 2015 Department Kmart store retailing Kmart is a discount department store retailer in Australia and New Zealand and Kmart Tyre and Auto Service is a provider of retail automotive services, repairs and tyres in Australia. Kmart’s vision is to ensure it is where families come first for the lowest prices on everyday items.

REVENUE EBIT 4,553$M 432$M

2015 2015 4,553 2015 2015 432 2014 2014 4,209 2014 2014 366 2013 2013 4,167 2013 2013 344 2012 2012 4,055 2012 2012 268 2011 2011 4,036 2011 2011 204

the development of key focus areas Our business Our market covering ethical sourcing, community, environment, product quality and Kmart was established in 1969 Kmart operates in the department safety, and team members. with the opening of its first store store market with key competitors in Burwood, Victoria – Kmart was including Target, Big W, Myer and Kmart remains committed to the very first discount department David Jones. Trading both in-store the safety of its team members, store in Australia. and online, Kmart also competes with customers and suppliers. The business recorded a total recordable Kmart revolutionised the way specialist shops and online businesses injury frequency rate of 31.6 for the Australians shopped and operates locally and internationally. The market year, with the lost time injury frequency 203 discount department stores is highly concentrated and competition rate increasing slightly from 6.9 last throughout Australia and New Zealand is anticipated to increase as year to 7.0 this year (these figures also (185 Australia, 18 New Zealand). international retailers enter the market and existing competitors expand store include KTAS). Kmart employs approximately networks. Kmart continued to trial LED lighting 30,000 team members, mainly located in stores during the year, with trials within the stores, who are focused With high levels of product substitution showing a reduction in energy use on delivering our vision – where and low switching costs, customer of 20 to 30 per cent. Kmart is now families come first for the lowest power is high. Consumers differentiate working towards rolling LED lighting prices on everyday items. Kmart offers between retailers depending on out across its business. customers a wide range of apparel price, quality, value and shopping and general merchandise products experience. Kmart continued to seek at low prices, every day. Kmart sources from both local and opportunities to engage with and support community organisations, Kmart Tyre and Auto Service (KTAS) overseas suppliers with product including working with Indigenous has 246 centres in Australia providing sourcing offices in Hong Kong, leaders and families. customers with retail automotive Shanghai, Dongguan, Bangladesh, services, repairs and tyres. India and Indonesia. Kmart continues to support international organisations such as Salaam Baalak in Delhi and Gurgaon, Sustainability Room to Read in Bangladesh and Half This year, Kmart focused on the the Sky in China along with the Kmart development of its 2020 sustainability Wishing Tree Appeal in Australia. strategy, engaging with key internal and external stakeholders. These stakeholders have provided invaluable feedback to assist with

23 OPERATING AND FINANCIAL REVIEW

Department Target store retailing Target is an iconic department store retailer making fashion, style and quality affordable for the whole family every day.

REVENUE EBIT 3,438$M 90$M

2015 2015 3,438 2015 2015 90 2014 2014 3,501 2014 2014 86 2013 2013 3,658 2013 2013 136 2012 2012 3,738 2012 2012 244 2011 2011 3,782 2011 2011 280

Team member safety Our business Sustainability Team member safety continues Target operates a national network of Target continues to advance its to be a strong focus for Target more than 300 stores and a growing sustainability, including creating an with lost time injuries (LTIs) having online business generating sales of Aboriginal and Torres Strait Islander decreased by 25 on the prior year over $3.4 billion. The business sells a Strategy, publishing factory lists for and total recordable injuries reduced wide range of products for the whole key supplier countries, establishing by 186 for the same period. The family, including clothing, homewares community programs in Australia reduction in LTIs resulted in a and general merchandise. and Asia and implementing a robust 17.5 per cent decline in the lost time injury frequency rate to Target employs more than 19,000 energy efficiency plan. 4.7 for June 2015, reiterating its team members across its stores, Ethical sourcing uncompromising stance on safety. support offices and direct sourcing operations in Asia. Target continues to focus on improving conditions for workers in Energy efficiency supplier factories with a transparent Target has set out to minimise its Our market supply chain. Target supports environmental impacts across its The Australian clothing, homewares Impactt’s Benefits for Business and entire property portfolio. A range of and general merchandise retail Workers Program, which works with activities including audits, controls sector is competitive and comprises factories in developing countries management and new lighting department stores, independent to make business improvements standards have contributed to a specialty retailers and a growing online that lead to better training, pay and significant reduction in electricity channel. The sector is characterised conditions for workers. demand across the network. by an expanding presence of Target has also published factory international retailers, an increasing lists of key supplier countries level of direct sourcing and growth of including Bangladesh, Vietnam, connected retail. Cambodia, India and Sri Lanka Target has a strong competitive with the remaining countries to be position supported by a brand published by the end of calendar heritage in quality and value. It is year 2015. a market leader in womenswear, underwear, childrenswear and baby.

24 WESFARMERS ANNUAL REVIEW 2015 Industrials Chemicals, Energy and Fertilisers Wesfarmers Chemicals, Energy & Fertilisers (WesCEF) operates chemical, gas and fertiliser businesses that service a range of sectors in both domestic and international markets.

REVENUE EBIT 1,839$M 233$M

2015 2015 1,839 2015 2015 233 2014 2014 1,812 2014 2014 221 2013 2013 1,805 2013 2013 249 2012 2012 1,786 2012 2012 258 2011 2011 1,641 2011 2011 283

• Australian Vinyls’ subsidiary Our business ModWood which manufactures Sustainability wood-plastic composite decking During the year, WesCEF focused WesCEF operates eight businesses and screening products on a range of areas to improve structured into three business units: Kleenheat extracts, distributes and sustainability including improving Chemicals, Kleenheat, and CSBP markets LPG to the residential and safety, investing in leadership Fertilisers. commercial markets in Western capability, operating its businesses Australia and the Northern Territory. responsibly, positively contributing It is also a retailer of natural gas to Our market to the communities in which it residential and commercial markets, operates, and maintaining an Chemicals includes: and electricity to businesses in Western ongoing commitment to environmental • the manufacture and supply of Australia. Kleenheat also produces and stewardship. ammonia, ammonium nitrate and supplies LNG to the heavy duty vehicle In the 2015 financial year, WesCEF’s industrial chemicals primarily to the and remote power generation markets total recordable injury frequency rate Western Australian resource and through EVOL LNG. industrial sectors through CSBP reduced by 46 per cent to 5.1 and the CSBP Fertilisers manufactures, lost time injury frequency rate reduced • Queensland Nitrates (QNP) – imports and distributes phosphate, by 50 per cent to 1.6. CSBP’s 50 per cent joint venture nitrogen and potassium-based with Dyno Nobel Asia Pacific fertilisers for the Western Australian WesCEF continued its focus which manufactures and supplies agricultural sector. CSBP Fertilisers on regulatory compliance. In the ammonium nitrate to the resource also provides technical support 2015 financial year, there were sector in the Bowen Basin coal services through a network of staff 24 occasions where environmental fields and accredited partners in regional licence conditions were either exceeded or environmental regulatory • Australian Gold Reagents (AGR) – Western Australia. requirements not fully met. None of CSBP’s 75 per cent joint venture WesCEF has operations around these recorded events resulted in any with Coogee Chemicals which Australia and employs approximately material environmental harm. WesCEF manufactures and supplies sodium 1,300 people. cyanide to the Western Australian continued to reduce its greenhouse and international gold mining sector During the year, Wesfarmers acquired gas emissions, with nitrous oxide a 13.7 per cent interest in Quadrant abatement technology installed in • Australian Vinyls which Energy which supplies domestic CSBP’s nitric acid plants at Kwinana manufactures and supplies gas in Western Australia and oil delivering an average 94 per cent polyvinyl chloride (PVC) resin across Australia. Earnings from total nitrous oxide abatement to the Australian industrial sector this investment will be reported in (a two per cent improvement on WesCEF’s result. last year) equating to a reduction of 1,110,069 tonnes of CO2-e (carbon dioxide equivalent).

25 OPERATING AND FINANCIAL REVIEW

Industrials Resources Wesfarmers Resources is a significant Australian export miner with investments in two coal mines producing metallurgical and steaming coal. Both mines are world-scale, open-cut operations, with a majority of production exported to Asia.

REVENUE EBIT 1,374$M 50$M

2015 2015 1,374 2015 2015 50 2014 2014 1,544 2014 2014 130 2013 2013 1,539 2013 2013 148 2012 2012 2,132 2012 2012 439 2011 2011 1,778 2011 2011 369

Our business Our market Sustainability Curragh (100 per cent) Curragh Wesfarmers Resources strives to be a highly ethical business that puts The Curragh mine in Queensland’s Curragh’s export metallurgical coal the welfare of its people first. It takes Bowen Basin produces metallurgical is used in the steel-making process. its environmental responsibilities coal for export markets. It also Curragh has a well-established seriously and seeks to make a provides steaming coal for supply and geographically diverse positive and lasting contribution to the to the Queensland Government’s customer portfolio with a number communities in which it operates and Stanwell Corporation under a long- of long-standing relationships with to the nation as a whole through its term contract. Curragh’s present world-leading steel-makers. In economic activity. This is achieved by export metallurgical coal nameplate the 2015 financial year, Curragh’s focusing on its material sustainability production capacity is 8.5 million metallurgical exports went to Japan, issues. Health and safety is material to tonnes per annum (mtpa), with further India and other Asian destinations, the business. concurrent nameplate capacity for Europe and South America. The business recorded a approximately 3.5 mtpa of steaming 16 per cent reduction in the total coal production. Bengalla recordable injury frequency rate from Bengalla’s steaming coal is used for 5.0 to 4.2 and a 72 per cent reduction Bengalla (40 per cent) power generation and as an energy since June 2013. Wesfarmers The business has a 40 per cent source, predominantly by customers Resources continues to support local interest in the Bengalla mine, near in north Asia. communities, particularly in times Muswellbrook in New South Wales, of hardship as a result of natural which produces steaming coal disasters and is providing improved for export markets. The mine has employment opportunities for the a present nameplate capacity of local Indigenous communities. By 10.7 million tonnes run-of-mine (ROM) approaching sustainability this way, it coal per annum (100 per cent basis). is able to make a positive difference in the areas which are important to both the business and its stakeholders.

26 WESFARMERS ANNUAL REVIEW 2015 Industrials Industrial and Safety The Industrial and Safety business is the leading provider of industrial, safety and workwear products and services in Australia and New Zealand, enabling its customers to seamlessly and cost-efficiently run, maintain and grow their business.

REVENUE EBIT 1,772$M 70$M

2015 2015 1,772 2015 2015 701 2014 2014 1,621 2014 2014 131 2013 2013 1,647 2013 2013 165 2012 2012 1,690 2012 2012 190 2011 2011 1,557 2011 2011 166

1 Includes one-off restructuring costs of $20 million related to branch closures, business consolidation and organisational redesign.

During the year, the business acquired People and operations Our business the Workwear Group from Pacific The business keeps a strong focus Brands Limited, which includes a Wesfarmers Industrial and Safety on the wellbeing and development of suite of iconic industrial workwear business comprises four customer its people, including a commitment to brands such as Hard Yakka, KingGee focused streams: Blackwoods employee safety. It aims to minimise and Stubbies. Workwear Group also (including Blackwoods Protector in its environmental impact with a waste supplies uniforms and imagewear New Zealand); Safety Specialists management diversion focus and to leading airlines, financial services (Protector Alsafe, Greencap, NZ energy efficiency initiatives such as providers, retailers and other large Safety); Industrial Specialists (Coregas, retrofit lighting projects, sustainable corporates through NNT and Bullivants, Packaging House); and design for new buildings and using Incorporatewear (UK), as well as Workwear Group (including Safety hybrid vehicle technology. specialised garments to defence and Source). emergency services customers in Customers It operates from a network of Australia and New Zealand. 240 industrial, safety and workwear The business is committed to branches, 159 additional gas delivering safe and sustainable distribution points, 55 Workwear Sustainability products and services to customers franchise locations, supported by on time to help them meet their large distribution centres, hundreds Sourcing and products business objectives. It measures of external and internal sales Through supplier survey and DIFOT (delivered in-full on time), resources and digital channels. site audit engagements for both monitors quality issues associated domestic and globally sourced with products and offers a products, the business promotes ‘Greener Work Place’ range of Our market the sustainability of its supply chain sustainable products. The businesses service customers including ethical labour standards across industries such as resources, and the environmental impact of construction, retail, manufacturing, manufactured products. government and health. They provide a comprehensive range of industrial, safety and workwear products and services, which is complemented by specialised products and services such as industrial gases or lifting and rigging.

27 OPERATING AND FINANCIAL REVIEW

Other Wesfarmers is also a major investor in BWP Trust, Gresham Partners and activities Wespine Industries.

BWP Trust Gresham Partners Wespine Industries Wesfarmers’ investment in Wesfarmers has a 50 per cent The 50 per cent-owned Wespine BWP Trust (the Trust) contributed shareholding in Gresham Partners Industries operates a plantation earnings of $52 million, compared to Group Limited, the holding company softwood sawmill in Dardanup, $37 million last year. for the Gresham Partners investment Western Australia. The Trust was established in house operations. Gresham is a Timber sales for the 2015 1998 with a focus on warehouse leading independent financial services financial year improved by retailing properties and, in particular, business focused primarily on the 14 per cent largely due to the Bunnings warehouses leased to provision of financial advisory services, ongoing strength of the Western Bunnings Group Limited. BWP structured finance, and property and Australian house building activity. Management Limited, the responsible private equity funds management. Operating margins improved during entity for the Trust, is a wholly-owned Following a recovery in Australia’s the year due to improvements in subsidiary of Wesfarmers Limited. corporate financial markets activity, product mix and geographical market Units in the Trust are listed on the Gresham participated in a number focus, leveraging the timely and Australian Securities Exchange and of significant advisory transactions, integrated information generated from Wesfarmers holds, through a wholly- including mergers and acquisitions, the management information system owned subsidiary, 24.8 per cent of corporate restructurings and commissioned last year. the total units issued by the Trust refinancings on behalf of a range of Safety performance deteriorated as at 30 June 2015. domestic and international clients. slightly, but with a reduction in the During the 2015 financial year, Its property funds management number of Lost Time Injuries. The the Trust acquired one additional business, which is the manager of management team is continuing Bunnings Warehouse property, and three established institutional funds its focus on the identification and completed four Bunnings Warehouse or syndicates, continued to support mitigation of occupational risks, developments and one store upgrade. a range of Australian development notably manual handling. The Trust also completed the sale of projects. six non-core properties. Wesfarmers is a participant in the The Trust’s portfolio as at Gresham Private Equity funds which 30 June 2015 consisted of a total saw the progressive realisation of of 82 properties: 80 established investments during the year, with Bunnings warehouses, eight of which the remaining holding being an have adjacent retail showrooms that underground mining services business the Trust owns and are leased to other operating both in Australian and retailers, a fully leased stand-alone overseas markets. showroom property, and a leased industrial property.

Four Bunnings Warehouse developments and one store upgrade were completed during the year

28 WESFARMERS ANNUAL REVIEW 2015 Sustainability Long-term value creation is only possible if we play a positive role in the communities we serve. At overview Wesfarmers, sustainability is about understanding and managing our impact on the community and the environment, to ensure that we will still be creating value in the future.

We aim to operate our businesses in This year, we have updated our accordance with our 10 community 10 principles to include principles and environmental impact principles on the development of our people relating to five areas of people, and product safety. These changes sourcing, community, environment reflect the outcome of our materiality and governance. Each year, we process. engage with our shareholders, Sustainability issues are managed at customers, employees, suppliers, a divisional level and overseen by the government, non-government Wesfarmers Board through regular organisations and the community reporting. to understand which issues are important to them. We aim to Our full sustainability report will address these issues and report our be available in October 2015 at sustainability.wesfarmers.com.au Brigalow rehabilitation at Curragh. progress against them in our online sustainability report.

Safety has been restated using the same methodology. Using the improved approach, our TRIFR this year was We maintain a relentless 39.5, a 7.5 per cent improvement focus on providing safe compared to last year’s restated workplaces. results, which was driven by improvements across all divisions.

Safety remains our highest priority. Our safety initiatives We are pleased that we are seeing Each of our divisions has undertaken the benefits of this relentless focus on safety initiatives this year that target making our workplaces safer. their particular safety risks. For Safety at Coregas Port Kembla – no lost time example, Coles has introduced a injuries in 10 years. Workplace safety national ‘nurse on call’ injury care performance service for team members and Bunnings has developed a hazard Across the Group, we measure commenced working with transport spotter app for in-store iPods our total recordable injury frequency providers to jointly address safety and introduced a simplified injury rate (TRIFR) and our lost time injury issues linked with stock deliveries. management process. frequency rate (LTIFR) to monitor our historical safety performance. Our TRIFR1 LTIFR1 LTIFR decreased by 5.2 per cent this year from 7.7 (excluding the Insurance division) to 7.3, driven by improvements 39.5 7.3 2015 39.5 2015 7.3 across most businesses, most notably 50 15 2 2 Officeworks, Target, WesCEF and 40 2014 42.7 12 2014 7.7 Bunnings. 30 2013 38.7 9 2013 9.0 20 6 Coles recently discovered an 2012 42.7 2012 10.9 10 3 2011 40.9 2011 12.9 inaccuracy in how incident reporting 0 11 12 13 14 2015 0 11 12 13 14 2015 systems were being used at a 1 TRIFR is the number of Lost Time Injuries and 1 LTIFR is the number of Lost Time Injuries, per supermarket store level. This medical treatment injuries, per million hours million hours worked. year’s TRIFR uses a more accurate worked. 2 Restated due to the maturation of data. 2 Last year’s Group TRIFR result has been restated approach and last year’s TRIFR from 31.9 to 42.7.

29 SUSTAINABILITY

People development In addition to our employees, our Wesfarmers provides executive divisions engage contractors in development and orientation to ensure a range of roles. There are also leaders understand and are developed We provide seasonal variations in employment in the key elements of the Wesfarmers opportunities for our numbers, with a peak throughout the culture. For example, Wesfarmers people to enhance their Christmas/summer period in line with runs a New Executive Orientation the broader retail industry. program for new general managers job performance and This year, we employed 52,179 new and an Executive Development develop their careers. people across the Group, in a range of Program for future potential executives permanent, part-time and casual roles. across the Group. Participants benefit Wesfarmers businesses provide Our voluntary turnover rate across the from development opportunities employment to approximately Group was 17 per cent. including stretch assignments, action one in 59 working Australians. We learning projects, coaching, mentoring Since last year, we have had a net distribute 59 per cent of our revenue and 360 degree feedback. decrease in our employee numbers in salaries, wages and benefits to of approximately 2,300 people. This At least annually, the Group our employees. The quality of our decrease is due to the sale of our Managing Director meets with each people is our greatest competitive Insurance business and structural division to review senior leader advantage and providing them redundancies, partially offset by the performance and development, with opportunities to improve their acquisition of the Workwear Group succession plans for critical roles and performance and their careers is key and growth in our businesses. the pipeline of high-potential leaders. to our success. Particular focus is placed on ensuring Each division provides a wide range As at June 2015, we employed that this pipeline reflects the diversity of training and development in approximately 205,000 people, of our workforce. job-specific technical aspects as well which makes Wesfarmers Australia’s as generic skills such as customer largest private-sector employer. Of service, teamwork and leadership. these, approximately 130,000 are permanent and 75,000 are casual.

Diversity

a key opportunity for the Group is to talent management practices increase the percentage of leadership including talent reviews, formal leader positions held by women. Women development (i.e., 360 assessment, We strive to create hold 45 per cent of salaried roles programs, coaching, mentoring) an inclusive work and 57 per cent of award or Enterprise and development of talent through Bargaining Agreement roles. Further stretch assignments. In the 2015 environment, with details of female representation across financial year, 80 per cent of our particular attention to the Group over time are set out in the women leaders were retained, with gender diversity and the table on the following page. women comprising 21 per cent of the divisional leadership team succession inclusion of Aboriginal We track progress in relation to the following four core objectives under pipeline population. and Torres Strait our Diversity Policy. Enhance recruitment practices: Islander peoples. Foster an inclusive culture: This year, 40 per cent of externally Inclusion begins with practices recruited positions and 31 per cent Wesfarmers strives to create a work designed to increase retention of internal promotions (all manager environment which is inclusive of all of leaders with significant level and above roles) were filled by people regardless of gender, age, responsibilities outside of work. women. Across all roles, women race, disability, sexual orientation, All Wesfarmers divisions have and men were recruited evenly cultural background, religion, family embraced this opportunity in a (49.7 per cent women, and responsibilities or other areas of variety of ways, including flexible 50.3 per cent males). potential difference. Our Diversity work arrangements, paid parental Ensure pay equity: Each year we Policy is available on our website. leave, keep-in-touch programs and undertake a gender pay review for on-site vacation childcare. all salaried employees by examining Gender diversity Improve talent management: A remuneration over 17 job levels. The While Wesfarmers’ workforce is made focus on increasing representation of 2015 review indicated that in the up of 55 per cent women and women in leadership is embedded majority of pay levels no gap existed. 45 per cent men as at 30 June 2015, throughout the Group and divisional

30 WESFARMERS ANNUAL REVIEW 2015 Diversity Suppliers Indigenous representation in our workforce Wesfarmers has maintained a Reconciliation Action Plan (RAP) since We commit to strong and 2009. A RAP is a public Aboriginal respectful relationships and Torres Strait Islander engagement strategy, registered with Reconciliation with our suppliers. Australia. Our RAP is the overarching document for divisional Indigenous Our relationship with our 15,000 engagement strategies and is available suppliers across the Group is very on our website. Officeworks provides Indigenous employment important to us. We want to provide Across the Group, we have made opportunities. better value to our customers and commitments to increasing our sustainable growth for our suppliers Indigenous cultural awareness; three-year partnership agreement. and their employees. Striving for supporting Indigenous organisations Many divisions also continued or better efficiency in our consumer through employee secondments; commenced partnerships with supply chains ensures their continued investing in Indigenous education; organisations that support Indigenous competitiveness. increasing purchasing from communities, such as The Fred Hollows Foundation, Red Dust Role Coles is our largest consumer Indigenous-owned businesses; and business and its relationship with growing our Indigenous workforce. Models and The Australian Literacy & Numeracy Foundation. food and grocery suppliers in This year, we made progress across Australia continues to be the focus of all areas of our RAP, with the following Indigenous procurement activities: attention. To achieve everyday lower highlights. To support our RAP objective of prices for customers, Coles has increasing purchasing from Indigenous Indigenous employment: Indigenous been increasing the efficiency and suppliers, Wesfarmers continues employment remains the primary focus cost-competitiveness of its supply its membership of Supply Nation. of our RAP. This year, we improved chain. This has enabled the purchase Indigenous-sourced products, internal reporting mechanisms to of significantly greater volumes of including Yaru Water and Outback allow us to better track Indigenous fresh food from Australian suppliers. Spirit products, are ranged in Coles employment and retention. At Strengthening its relationship with outlets nationally, contributing to a 30 June 2015, Wesfarmers had its suppliers is a key focus for the cumulative spend across the Group 2,762 Indigenous employees, Coles team. of more than $20 million with Supply representing 1.4 per cent of Nation-certified suppliers. Fewer suppliers, deeper Wesfarmers’ Australian workforce. This was more than a 60 per cent increase Our full RAP report and 2015-2016 relationships for Coles on the previous year. This year, Coles RAP commitments can be found on Coles is aiming to develop deeper hired more than 500 Indigenous team our website. and longer-term relationships, with members through targeted programs. Age diversity fewer suppliers. This gives greater Indigenous community Our workforce broadly reflects the certainty to suppliers to invest in their partnerships: We continued Australian working population, with businesses and more opportunity community partnerships with the a high representation of young for collaboration on efficiencies and Australian Indigenous Mentoring people. We employ one in 14 working product development. Experience (AIME), Graham ‘Polly’ Australians under 20. By providing Australia First at Coles Farmer Foundation, The Kaiela these first jobs, our businesses enable Institute and Jawun Indigenous young people to acquire skills and Coles has an Australian First Policy Corporate Partnerships. We also experience early, which is useful to which means it always seeks to increased our sponsorship of The them in a career with us, or in other buy Australian produce in the first Clontarf Foundation, with a new employment. instance, where it is available in sufficient quantities and appropriate 30 30 30 30 30 Percentage of June June June June June quality at a fair and reasonable price. female employees 2011 2012 2013 2014 2015 Today, 96 per cent of fresh fruit and vegetables sourced for Coles Wesfarmers Limited 25 25 30 30 33 non-executive directors customers are Australian grown, along with 100 per cent of fresh milk and Senior executive positions* 22 21 25 25 25 (general manager and above) 100 per cent of fresh meat from the meat department. All management and 26 28 28 29 29 professional roles* Total workforce 57 57 57 56 55 * These positions are defined through job evaluation methodology.

31 SUSTAINABILITY

Suppliers

Coles and dairy farmers a voluntary Food and Grocery Code unconditionally apologised, paid a There has been continued discussion of Conduct with the Australian Food $10 million fine and gave an about the effect of the retail price of and Grocery Council. The code enforceable undertaking to appoint an Coles private label milk on Australian came into effect in June 2015 and independent arbiter (the Honourable dairy farmers. Consumers want Coles adopted it with effect from Jeff Kennett AC) to engage with local, fresh milk and Coles continues 1 July 2015. The voluntary code suppliers over eligibility for refunds of to work with processors to ensure governs certain conduct between payments to the ARC program and this can be offered at an affordable, grocery retailers and wholesalers in other disputed payments. competitive price over the long term. their dealings with suppliers including On 30 June 2015, Mr Kennett Coles continues to stock a range of supply agreements, payments, reported Coles agreed to repay more other brands from large and small termination of agreements and than $12 million to the ARC suppliers processors. dispute resolution. and $324,000 to other suppliers. These now include brands developed Coles and the ACCC Coles has taken many steps to improve its relationships with suppliers by Coles with the South Australian In December 2014, the Federal Court including implementing a best practice Dairyfarmers’ Association (SADA of Australia approved settlement compliance framework and the Fresh) and the WA Farmers of two proceedings between the establishment of a Supplier Charter, Federation (WA Farmers First) ACCC and Coles alleging that Coles which formally commits Coles to which see 40 cents from every engaged in unconscionable conduct deal in good faith with suppliers. two litre container of milk directed in dealings with suppliers. Coles It provides a strong, independent to industry-benefiting projects. admitted eight allegations of conduct and confidential dispute resolution in 2011 regarding its Active Retail Food and Grocery Code of process underpinned by Mr Kennett, Collaboration (ARC) program and five Conduct as an independent arbiter (in addition allegations regarding negotiations with to his role under the enforceable Since 2013, Coles has been a suppliers over various matters such as undertaking). leading voice in the development of profit gaps in 2010 and 2011. Coles

Ethical sourcing

We have an ethical sourcing policy, which sets the minimum standards expected of our divisions. Each retail We strive to source division has its own ethical sourcing products in a responsible policy appropriate to its business, most of which exceed the minimum manner while working expectations set. Our cross-divisional with suppliers to ethical sourcing forum meets quarterly improve their social and to share best practice and audit program outcomes; ethical sourcing environmental practices. practices are reported regularly to the Target work with Benefit for Business and Audit and Risk Committee. Workers in Bangladesh. We directly source products for resale from a large range of locations Increasing supply chain Proactively addressing ethical outside Australia, including China, transparency sourcing issues Bangladesh, Thailand, India and Our divisions are leading the way Our businesses proactively address Indonesia. Buying products from for Australian retailers in relation to ethical sourcing issues through these countries creates economic supply chain transparency. This year, a range of actions, including by benefits for them as well as allowing Kmart, Target and Coles continued providing supplier and factory our businesses to provide affordable rolling out disclosure of their factories’ education through seminars, products to consumers. names and addresses on their training and workshops. They also As some of these countries have respective websites. Increased undertake research, engage with non- a lower level of regulation, our transparency in relation to our government organisations (NGOs) and businesses need to be aware of supplier factory locations helps to support broader industry initiatives to risks such as inappropriate labour ensure accountability and that decent address these issues. practices, child labour, forced labour conditions and workers’ rights are and lack of freedom of association. being upheld.

32 WESFARMERS ANNUAL REVIEW 2015 Ethical sourcing (continued) Product safety

Australian suppliers Where a non-compliance is identified, Coles has led the way on responsible the factory is required to fix the sourcing in Australia in recent years, issue, within an appropriate period including the introduction of RSPCA of time, depending on the nature of We are committed to approved chicken, sow-stall free pork, the non-compliance. Factories are providing consumers cage free eggs and Fairtrade coffee, ‘conditionally approved’ if non- with safe products. tea and chocolate. critical non-compliances have been identified and notice has been given In May 2015, the ABC’s Four that they must be fixed. If a factory All consumer products we supply Corners program aired an episode then addresses a non-compliance, it must be safe and meet consumer reporting unfair labour conditions can move to becoming an ‘approved’ guarantees under the Australian in Australia’s fresh produce and factory. Consumer Law. We do not sell meat industries related to the use of banned products and ensure that all If critical breaches are identified, they labour hire contractors and workers our products comply with relevant must be addressed immediately. If on temporary visas. Coles does not mandatory standards before they they are addressed satisfactorily, a condone the abuse of workers’ rights. are offered for sale. As well as safety factory can then become approved. We have responded by writing to all testing and compliance with required In this way, our audit process is our fresh produce and meat suppliers standards, our divisions implement contributing to improving conditions reminding them of their obligations product recalls where possible safety for workers by working with factory under Australian workplace laws and issues arise. have commenced inquiries into a owners to address any issues. If a factory is not willing or able to address As part of Coles’ commitment to number of suppliers identified on the delivering great quality affordable Four Corners program. a critical breach, our business will not continue to buy from that factory. products, Coles regularly reviews Coles is working collaboratively with its own brand products and makes At the end of this reporting period, the National Farmers Federation and changes where required. Nearly there were 2,139 approved factories PMA Australia-New Zealand Ltd to 100 improvements were undertaken in our audit program. A further 1,500 develop an industry-accepted best with Coles Brand suppliers, including factories were conditionally approved practice guideline for the management relaunching Coles Little Explorer and 210 factories were due for re- of contracted labour within the nappies with a stronger outer audit. During the year, we identified Australian fresh food supply chain. material. During the year, only one 39 critical breaches across the Coles Brand product was recalled factories in our audit program. Ethical sourcing audit and 163 products received industry These mainly concerned issues programs accolades. This year Patties Foods (or allegations) of bribery, initiated a recall following a concern To mitigate the risk of unethical unauthorised subcontracting and that the Nanna’s mixed berry product practices occurring in our supply forced labour. Twenty-one of these stocked by Coles and other retailers chains, we apply an ethical sourcing issues were immediately resolved and had been linked to potential Hepatitis A audit program to higher risk no further orders were placed at the contamination. suppliers. Suppliers are considered factories where the remaining lower risk if they operate in more 18 breaches occurred. This year Kmart had six voluntary regulated countries, or if they are product recalls for Kmart brand supplying recognised brands. products compared to four last This year, our audit program covered Ethical sourcing audit program year. The six recalls related to 3,888 factories used to manufacture findings mugs, a hammock, a lamp, car seat house-brand products for resale, covers, power boards and an apple in a number of countries with lower cutter. All recalls were undertaken regulation than Australia, including as a precautionary measure, with China, Bangladesh, Thailand, India no major product-related injuries and Cambodia. reported, although minor injuries such as bruising, cuts and burns were Factories in the audit program must reported in relation to the hammock, have a current audit certificate, which apple cutter and mugs. means they have been audited by us or another party whose audits we Throughout this year Target has accept. Those audits identify a range adopted best practice principles to of non-compliances, from minor Approved 2,139 comply with both international and non-compliances such as minor gaps Conditionally approved 1,500 Australian standards. For instance, in record-keeping to critical breaches, Expired audits 210 there are currently no specific such as incidents of bribery or forced legislative requirements in Australia Critical breaches 39 labour. governing the restrictive use of

33 SUSTAINABILITY

Product safety Community contributions (continued) chemicals in the production of apparel We make a positive or home textiles. Target has made the decision to adopt a number of contribution to the apparel/textile standards from the communities in which European Community Regulation. we operate. Safety manuals have been We have an impact on our reformatted and made available to communities in a variety of ways: our supplier base outlining Target’s meeting the basic needs ongoing commitment to providing of the community such as food, safer products. A safety focused clothing and tools; providing culture is being promoted throughout employment for nearly one in every A team from Bunnings in Sydney worked on product development with a particular Marina Abramovic in Residence. 59 working Australians; paying taxes emphasis on early identification and to governments; and providing mitigation of risk. As well as our direct contributions, support to not-for-profit the Group facilitated donations from Bunnings continues to proactively organisations. With 98 per cent of customers and employees totalling engage with suppliers to ensure our revenue earned in Australia and $53 million this year, which went to a adherence to product safety 80 per cent of our shares on issue wide range of community initiatives. standards. Bunnings conducts held in Australia, we have a significant regular product audits to ensure positive impact on the Australian Major initiatives this year conformance with relevant mandatory economy, as well as contributing to This year, in recognition of the standards, and in addition undertakes other economies. independent safety tests on selected importance of the Anzac centenary, Wesfarmers has always believed product to confirm compliance to Wesfarmers was a significant that a strong business environment safety standards and customer supporter of the Australian War is underpinned by a cohesive and expectations. Memorial’s touring exhibition ‘The Lost inclusive community environment. Diggers of Vignacourt’, which assisted This year Officeworks had two Accordingly, Wesfarmers has had a in bringing the exhibition to Western voluntary product recalls for long-term commitment to investing in Australia. Wesfarmers also renewed Officeworks-branded items. The two community initiatives linked to long- its support for Mission Australia’s recalls related to a USB wall charger term social and economic outcomes. Drug and Alcohol Youth Respite and a children’s table and chair set. Our community partnerships program Service, based in Western Australia. The recalls were undertaken as a reflects the divisional autonomy of In addition, we have significant precautionary measure, with no the Group. The Wesfarmers Board partnerships with the Telethon product-related injuries reported. has approved a number of long- Kids Institute, Surf Life Saving WA, Officeworks undertook a review and term partnerships focused on four Curtin Business School, the Juvenile update of its packaging safety marking areas: medical research and health; Diabetes Family Centre, and the Harry manual which is being implemented Indigenous programs, particularly Perkins Institute of Medical Research. for private label products. targeting education and employment As a Group, our collective efforts with Wesfarmers Industrial and Safety outcomes; community and education some of our Indigenous community provides safety products to industry, initiatives; and the Wesfarmers Arts partners are beginning to gain traction. so it is vital that products adhere program. In addition, our divisions Wesfarmers committed to increase to rigorous safety standards. create value for the community in funding for one of its long-term Bullivants is a specialist provider ways that best fit with their core partners, Clontarf Foundation, which of lifting, rigging, safety and related business and geographic spread, runs programs aimed at engaging services to the industrial sector. from the well-recognised Bunnings and retaining Indigenous students As a corporate member of five community barbecues to other at school. Clontarf is also supported Australian and International standards fundraising support for a wide range at a local level by a number of our organisations, Bullivants maintains of activities such as women and divisions, including WesCEF, Bunnings ongoing safety best practice to children in crisis, education programs and Officeworks. provide a comprehensive solution and environmental projects. Wesfarmers also supports the to help customers operate safely Collectively across the Wesfarmers Australian Indigenous Mentoring and efficiently. Group we directly contributed Experience (AIME) through a national $50 million to community organisations sponsorship. Target also supports this year, which equates to 1.5 per cent AIME by helping with the manufacture, of profit before income tax. distribution and promotion of AIME’s signature ‘hoodies’.

34 WESFARMERS ANNUAL REVIEW 2015 Community contributions Climate change resilience (continued) This year, our total scope one and two emissions were

4,009,504 tonnes CO2e. Despite Wesfarmers Arts We strive to reduce an increase in emissions from our The Wesfarmers Arts program the emissions intensity Resources business, this represented provides major ongoing support a total decrease of one per cent from to a number of premier Australian of our businesses and last year, driven by energy efficiency arts companies. The company’s improve their resilience projects at Coles and Target. Over sponsorship of the arts focuses on to climate change. the past five years, we have seen an increasing community access to improvement in emissions intensity of premier quality arts from Australia 37 per cent. and the world in the belief that a As the likelihood of significant climate Adapting for climate change vibrant cultural sector makes a change increases, our businesses positive contribution to the lives need to respond in two ways. Firstly, Forecasting climate changes is of all Australians. we need to actively monitor and complex but ensuring our businesses are robust under potential scenarios A highlight in our Centenary year was manage our own greenhouse gas emissions and reduce them where reduces financial, operational, the BOAB100 creative partnership regulatory and reputational risk. with Waringarri Aboriginal Arts possible. Secondly, we need to Increased weather volatility, increased in which 15 Kimberley artists understand the specific risks created extreme weather events, higher were commissioned to produce by climate change for our businesses average temperatures and drier Wesfarmers’ official centenary gifts. and address those risks. climates all have the potential to impact Inspired by the iconic boab tree and Position on climate change our operations and supply chains, in the traditional art form of boab nut a range of ways. This year, we have engraving unique to the Kimberley, We recognise that the climate is increased our focus on testing the BOAB100 is a collection of 15 changing due to human actions and robustness of our businesses against superbly engraved boab nuts cast we acknowledge that we and Australia climate change and have developed a in white aluminium, produced as a have a part to play in mitigating this climate change scenario to use in the limited edition of 100 sets. Complete climate change. Wesfarmers supports next cycle of our annual risk process. sets of all fifteen sculptures were the Commonwealth Government’s gifted during the year to the National commitment to work towards a global This year, some stakeholders have Gallery of Australia, The Art Gallery of agreement to limit global warming to raised concerns about Wesfarmers’ Western Australia, the National Library less than 2°C above pre-industrial investment in coal assets. Most coal of Australia and Western Australian levels. Long-term policy certainty is from our wholly-owned Curragh coal Parliament where they are now on a pre-requisite for decarbonisation to mine is metallurgical coal, which is a public display. occur efficiently and affordably. We will necessary component in the steel- continue to improve the greenhouse making process. We do produce A number of our arts partners gas efficiency of our operations, which thermal coal at Curragh and in our participated in events to mark our reduces our own business costs and joint venture Bengalla mine. While we centenary during the year, including risk, as well as contributing to climate expect that the energy mix will change Bell Shakespeare Company, West change mitigation. over time, all feasible scenarios show Australian Symphony Orchestra, that it is highly likely that there will be West Australian Opera and Western Managing our emissions a role for thermal coal as a source of Australian Ballet, which we supported We emit greenhouse gases both energy for many years. Wesfarmers during the year to establish two continues to consider its Resources Wesfarmers Young Artist positions. directly and indirectly. Our direct (scope one) emissions primarily business to be a valuable addition to The year also saw the exhibition come from our industrial businesses, its portfolio. ‘LUMINOUS WORLD: contemporary including the use of natural gas, art from the Wesfarmers Collection’ refrigerants, diesel and fugitive Scope 1 and 2 greenhouse gas travel to the Samstag Museum of Art emissions from coal mining. Our emissions intensity in Adelaide, the National Library of main source of indirect (scope two) (tonnes CO2e / $ million revenue) Australia in Canberra, the Academy emissions is electricity used by our tonnes Gallery in Launceston and the Ian operations. Potter Museum of Art in Melbourne. 64.2 We are able to manage our 120 2015 64.2 emissions intensity through 2014 64.9 technology improvements in our 100 2013 70.9 industrial processes and through energy efficiency initiatives in all 80 2012 85.3 2011 101.6 our businesses. 60 11 12 13 14 15

35 SUSTAINABILITY

Waste and water use

timber pallet reuse and recycling and recycling initiative between program using the backload capacity governments, the packaging of vehicles and conducted a trial to industry, retailers and consumer We strive to reduce backhaul plastic strapping. brand owners. our waste to landfill Coles’ food donations via Foodbank Wesfarmers reports annually on its and water use where and SecondBite increased by packaging initiatives and progress to 14 per cent during the year, to more the APC. Our 2015 report is available possible. than 5.2 million kilograms. Coles also on the APC website. expanded donations to SecondBite Reducing waste creates to include frozen meat at more than Managing water use environmental and business benefits 200 stores. Approximately This year, our recorded water use for our divisions. We work to divert 278 tonnes of plastic (including was 15,450 megalitres. To better waste to recycling throughout plastic bags and product packaging) focus sustainability efforts on each the product life cycle. Water use was returned to Coles supermarkets division’s material issues, Kmart, is significant for our industrial by customers for recycling via the Industrial and Safety, Target and businesses and they work to reduce REDcycle program. Officeworks are no longer required its use or find more sustainable water Changes to how products to record water use, as it is not a sources where possible. are packaged can reduce the material issue for them. Across the remaining divisions, this year’s figure Recycling and waste downstream waste associated with our businesses. Wesfarmers is a represents a six per cent reduction on Despite our efforts to reduce our signatory to the Australian Packaging last year’s water use. waste, this year our waste to Covenant (APC), which is a Resources, our largest water user, landfill has increased slightly to voluntary packaging waste reduction achieved a 13 per cent reduction 136,093 tonnes and our recycled in water use this year. This was waste has increased by eight per achieved through a number of cent to 303,387 tonnes. Disposed waste measures, including awareness tonnes This increase in waste disposed campaigns about water use in was largely driven by the growth 136,093 the plant, more regular reporting of Bunnings’ operations during the 2015 136,093 to increase the visibility of water year and improved data collection 200 management and more accurate 2014 134,706 at Kmart. 150 municipal water metering at Curragh. 2013 143,515 We continued to undertake waste 100 2012 159,106 reduction initiatives throughout 50 2011 147,140 the Group. Bunnings continued its 0 11 12 13 14 2015

Corporate governance The corporate governance Our full sustainability report framework has been established by contains numerous case the Wesfarmers Board. A summary studies and is prepared in We maintain robust of the corporate governance accordance with Global framework can be found on pages Reporting Initiative’s G4 corporate governance 41 to 44 of this review, with more standard and assured by policies in all our information available on our website Ernst & Young. It will be businesses. at www.wesfarmers.com.au/cg available in October 2015 at sustainability.wesfarmers. Corporate governance is the system com.au of rules, practices and processes by which a company is directed and controlled. We are very proud of our approach to corporate governance and believe it is vital to ongoing value creation for our shareholders and other stakeholders.

36 WESFARMERS ANNUAL REVIEW 2015 Board of Wesfarmers has a talented, hard-working and increasingly diverse board committed to providing directors satisfactory returns to shareholders while adhering to the highest ethical standards.

Bob Every AO, age 70 Michael Chaney AO, age 65 Richard Goyder AO, age 55 Chairman Chairman-elect Managing Director BSc (Hons), PhD, Hon DSc, FTSE, FAICD, FIE Aust BSc, MBA, Hon. LLD W.Aust, FAICD, FTSE BCom, FAICD

Term: Chairman since November Term: Rejoined the Board and Term: Director since July 2002. 2008, director since February 2006. a Director since June 2015 and Skills and experience: Skills and experience: Chairman-elect. Richard joined Wesfarmers in 1993 Bob was the Chairman of both Skills and experience: after working in various commercial Steel and Tube Holdings Limited After an early career in petroleum roles at Tubemakers of Australia and Iluka Resources Limited, as geology and corporate finance, Limited. He was Managing Director well as Managing Director and Chief Michael joined Wesfarmers in of Wesfarmers Landmark Limited Executive Officer of OneSteel Limited. 1983 as Company Secretary and in 1999 until he became Finance Other executive positions previously Administration Manager. He became Director of Wesfarmers Limited in held include Chief Executive Officer Finance Director in 1984 and was 2002 and then Deputy Managing of Steel and Tube Holdings Limited, appointed Managing Director in Director and Chief Financial Officer Managing Director of Tubemakers July 1992. He retired from that in 2004. Richard assumed the role of Australia Limited and President of position in July 2005. of Managing Director and Chief BHP Steel. Directorships of listed entities (last Executive Officer in July 2005. Directorships of listed entities (last three years), other directorships/ Directorships of listed entities (last three years), other directorships/ offices (current and recent): three years), other directorships/ offices (current and recent): –– Chairman of National offices (current and recent): –– Chairman of Boral Limited (since Australia Bank Limited –– Gresham Partners Holdings Ltd May 2010) (since September 2005) –– Australian Football League –– Harry Perkins Institute of Medical –– Chairman of Woodside Petroleum Commissioner Research Incorporated (formerly Limited (since July 2007) –– Chairman of Australian B20 WAIMR) –– Chancellor of The University (appointment expired –– UNSW Foundation Limited of Western Australia December 2014) (since December 2005) –– Member, Prime Minister’s Business Advisory Council (since December 2013) –– Member, Commonwealth Science Council (since October 2014) –– Chairman of Gresham Partners Holdings Limited (retired May 2015)

37 BOARD OF DIRECTORS

Terry Bowen, age 48 Paul Bassat, age 47 James Graham AM, age 67 Finance Director B.Comm, LL.B. BE (Chem)(Hons), MBA, FIE Aust, FTSE, FAICD, BAcct, FCPA SF Fin

Term: Director since May 2009. Term: Director since November 2012. Term: Director since May 1998. Skills and experience: Skills and experience: Skills and experience: Terry has held a number of finance Paul commenced his career as a James has had an active involvement positions with Tubemakers of lawyer in 1991. He co-founded in the growth of Wesfarmers since Australia Limited. Terry joined SEEK Limited in 1997, and served as 1976 as Chairman and Managing Wesfarmers in 1996 and undertook Chief Executive Officer and then as Director of Gresham Partners Limited, various roles with Wesfarmers joint Chief Executive Officer until 2011. and previously as Managing Director Landmark Limited, including Chief He is a co-founder and director of of Rothschild Australia Limited. Financial Officer until 2003. He then Square Peg Capital Pty Ltd, a venture James was also previously Chairman became Chief Financial Officer for capital fund that invests in early of Rabobank Australia Limited, Jetstar Airways, prior to rejoining stage and growth stage technology Chairman of the Darling Harbour Wesfarmers as Managing Director, companies. He is also a director of the Authority and a director of Hill Samuel Wesfarmers Industrial and Safety in Peter MacCallum Cancer Foundation, Australia Limited. 2005. Terry became Finance Director, The Prince’s Charities Australia Trust Directorships of listed entities (last Coles in 2007 and Wesfarmers and the P&S Bassat Foundation. three years), other directorships/ Finance Director in 2009. Directorships of listed entities (last offices (current and recent): Directorships of listed entities (last three years), other directorships/ –– Chairman of the Advisory Council three years), other directorships/ offices (current and recent): of the Institute for Neuroscience offices (current and recent): –– Australian Football League and Muscle Research –– Gresham Partners Holdings Ltd Commissioner –– Wesfarmers General Insurance –– Chairman of the Western Australian Limited (resigned June 2014) Opera Company Incorporated –– President of the National Executive of the Group of 100 Inc. (retired December 2013) –– Harry Perkins Institute for Medical Research Incorporated (retired May 2013)

38 WESFARMERS ANNUAL REVIEW 2015 Tony Howarth AO, age 63 Wayne Osborn, age 64 Diane Smith-Gander, age 57 CitWA, Hon.LLD, SF Fin, FAICD Dip Elect Eng, MBA, FAICD, FTSE B.Ec, MBA, Hon.DEc W.Aust, FAICD, FGIA

Term: Director since July 2007. Term: Director since March 2010. Term: Director since August 2009. Skills and experience: Skills and experience: Skills and experience: Tony has more than 30 years’ Wayne commenced working in the Diane has extensive experience in experience in the banking and finance iron ore industry in the mid-1970s corporate governance and providing industry. He was Chairman of Home and joined Alcoa in 1979. He worked strategic advice to corporations in Building Society Limited and Deputy in various roles across the Australian Australia and overseas. She was a Chairman of Bank of Queensland business, including accountability for partner with McKinsey & Company in Limited. Tony has held several senior Alcoa’s Asia Pacific operations, prior the USA and has more than a decade management positions during his to being appointed Managing Director of executive experience in the banking career, including Managing Director in 2001, retiring in 2008. industry. of Challenge Bank Limited and Chief Directorships of listed entities (last Directorships of listed entities (last Executive Officer of Hartleys Limited. three years), other directorships/ three years), other directorships/ Directorships of listed entities (last offices (current and recent): offices (current and recent): three years), other directorships/ –– Alinta Holdings –– Chairman of Transfield offices (current and recent): –– Iluka Resources Limited (since Services Limited (director since –– BWP Management Limited March 2010) October 2010, Chairman since –– Chairman of MMA Offshore Limited –– South32 Limited (since May 2015) October 2013) –– Chairman of St John of God Health –– Chairman of the Australian –– Commissioner of Tourism WA Care Inc. Institute of Marine Science (retired (appointment expired 30 June 2015) –– Chairman of the West Australian December 2014) –– Co-operative Bulk Handling Limited Rugby Union Inc. –– Leighton Holdings Limited and CBH Grain Limited (resigned –– Alinta Holdings (resigned March 2013) February 2014) –– Chairman of Thiess Pty Ltd –– Deputy Chairman of NBN (resigned September 2012) Co Limited (National Broadband Network) (resigned September 2013)

39 BOARD OF DIRECTORS

Vanessa Wallace, age 52 Jennifer Westacott, age 55 B.Comm, MBA, MAICD BA (Honours), FAICD, FIPAA

Term: Director since July 2010. Term: Director since April 2013. Skills and experience: Skills and experience: Vanessa is an experienced Jennifer is Chief Executive of the management consultant who has Business Council of Australia. Prior been with Strategy& (formerly Booz to that, she was a Board Director & Company) for more than 25 years. and lead partner at KPMG. Jennifer She has deep expertise in the financial has extensive experience in critical services sector across the spectrum leadership positions in the NSW and of wealth management, retail banking Victorian Governments. and insurance, with particular Directorships of listed entities (last functional depth in risk management, three years), other directorships/ post-merger integration and capturing offices (current and recent): business opportunities associated with channels, customers and markets. –– Adjunct Professor at the City Vanessa is based in Japan, focused on Research Futures Centre of the the Japanese market and continues University of NSW post the PwC merger as the Executive –– Chair of the Mental Health Council Chairman of Strategy& (Japan). of Australia –– Member of the Prime Minister’s Directorships of listed entities (last Cyber Security Review Panel three years), other directorships/ offices (current and recent): –– Member of the Prime Minister’s Expert Advisory Panel on the –– Executive Chairman of Strategy& Reform of the Federation (Japan) Inc. (April 2013 – current) –– Urban Renewal Authority South –– Director of Booz & Company Australia (retired July 2013) entities in Australia, New Zealand, Thailand and Indonesia (varied tenure through to February 2013)

40 WESFARMERS ANNUAL REVIEW 2015 Corporate governance summary

The Board of Wesfarmers Limited is committed to providing a satisfactory return to its shareholders and fulfilling its corporate governance obligations and responsibilities in the best interests of the company and its stakeholders. Set out below is an overview of selected aspects of Wesfarmers’ corporate governance framework and key focus areas of the Board and its committees in 2015. A copy of Wesfarmers’ full 2015 Corporate Governance Statement, which provides detailed information about governance, and a copy of Wesfarmers Appendix 4G which sets out the company’s compliance with the recommendations in the third edition of the ASX Corporate Governance Council’s Principles and Recommendations (ASX Principles) is available on the corporate governance section of the company’s website at www.wesfarmers.com.au/cg The Board believes that the governance policies and practices adopted by Wesfarmers during 2015 are in accordance with the recommendations contained in the ASX Principles. Roles and responsibilities of the Board and management The role of the Board is to approve the strategic direction of the Group, guide and monitor the management of Wesfarmers and its businesses in achieving its strategic plans and oversee good governance practice. The Board aims to protect and enhance the interests of its shareholders, while taking into account the interests of other stakeholders, including employees, customers, suppliers and the wider community. In performing its role, the Board is committed to a high standard of corporate governance practice and fostering a culture of compliance which values ethical behaviour, personal and corporate integrity, accountability and respect for others. The Wesfarmers Managing Director has responsibility for the day-to-day management of Wesfarmers and its businesses, and is supported in this function by the Wesfarmers Leadership Team. Details of the members of the Leadership Team are set out on pages 8 and 9 of the 2015 annual report. The Board maintains ultimate responsibility for strategy and control of Wesfarmers and its businesses. In fulfilling its roles and responsibilities, some key focus areas for the Board during the 2015 financial year are set out below.

Key focus areas of the Board during the 2015 financial year included:

–– Overseeing management’s performance in strategy implementation and monitoring the financial position of the Group –– Reviewing business operations and development plans of each division likely to impact long-term shareholder value creation –– Reviewing talent management and development underpinning the Group’s operations –– Managing Chairman succession planning, resulting in the appointment in June 2015 of Mr Michael Chaney as a non-executive director and Chairman-elect to succeed the current Chairman, Dr Bob Every, at the conclusion of the 2015 Annual General Meeting –– Approving the capital management distribution of $1.00 per fully-paid ordinary share which returned $1,148 million to shareholders, comprising a capital return of 75 cents per share and a fully-franked dividend of 25 cents per share. The capital return component was accompanied by an equal and proportionate share consolidation through the conversion of one share into 0.9827 shares –– Approving growth opportunities to complement the existing portfolio, including the acquisition of the Workwear Group from Pacific Brands Limited, the acquisition of the remaining 50 per cent of the Coles credit card joint venture and the investment of a 13.7 per cent interest in Quadrant Energy –– Monitoring the implementation of risk management plans to address identified operational, financial and reputational risks for Group businesses –– Approving revisions to the Board and committee charters to align with the recommendations and commentary of the third edition of the ASX Corporate Governance Council’s Principles and Recommendations (ASX Principles) –– Reviewing policies to improve the Group’s system of corporate governance, including approving amendments to the Code of Conduct, Whistleblower, Anti-bribery, Securities Trading and Market Disclosure policies

Structure and composition of the Board Wesfarmers is committed to ensuring that the composition of the Board continues to include directors who bring an appropriate mix of skills, experience, expertise and diversity (including gender diversity) to Board decision-making. The Board currently comprises 11 directors, including nine non-executive directors. Detailed biographies are set out on pages 37 to 40 of this annual review. The current directors possess an appropriate mix of skills, experience, expertise and diversity to enable the Board to discharge its responsibilities and deliver the company’s strategic priorities as a diversified corporation with current businesses operating in supermarkets; home improvement and office supplies; department stores; chemicals, energy and fertilisers; coal; and industrial and safety products.

41 Corporate governance summary

The Board skills matrix set out below describes the combined skills, experience and expertise presently represented on the Board.

Skills, experience and expertise

–– CEO level experience –– Capital markets

–– ASX listed company experience –– Finance and banking

–– Strategy and risk management –– E-commerce and digital

–– Governance –– Human resources and executive remuneration

–– Financial acumen –– Marketing/Customers/Retail

–– Regulatory and government policy –– Resources and industrial

–– International experience –– Corporate sustainability

To the extent that any skills are not directly represented on the Board, they are augmented through management and external advisors. Mr Archie Norman, who has significant retail experience, was appointed in 2009 as an advisor to the Board on retail issues. In this role, Mr Norman attends Wesfarmers Board meetings as required and is a director of Coles and Target divisional boards. Director independence Directors are expected to bring views and judgement to Board deliberations that are independent of management and free of any business or other relationship or circumstance that could materially interfere with the exercise of objective, unfettered or independent judgement, having regard to the best interests of the company as a whole. The Board’s assessment of independence and the criteria against which it determines the materiality of any facts, information or circumstances is formed by having regard to the ASX Principles, in particular, the factors relevant to assessing the independence of a director set out in recommendation 2.3; the materiality guidelines applied in accordance with Australian Accounting Standards; any independent professional advice sought by the Board at its discretion; and developments in international corporate governance standards. The Board has reviewed the position and relationships of all directors in office as at the date of this review and considers that: –– Eight of the nine non-executive directors are independent. –– The Chairman is independent. –– Mr James Graham is not independent, by virtue of his position as Chairman of Gresham Partners Limited (Gresham), which acts as an investment advisor to the company. Details of Mr Graham’s association with Gresham are set out in note 25 on page 126 of the 2015 annual report. –– Ms Vanessa Wallace is independent. Ms Wallace was previously considered not to be independent, given her senior roles within Strategy&, which forms part of the PwC network, which is a provider of material professional services to the Group. Within the last three years, Ms Wallace’s role was based in Japan and focused on the Japanese market. Ms Wallace had no decision rights and no day-to-day involvement in the Australian operations of PwC. The Board is of the opinion that Ms Wallace’s past relationship with Strategy& and PwC does not compromise Ms Wallace’s exercise of objective or independent judgement in relation to the company’s affairs. Effective from 1 July 2015, Ms Wallace retired from Strategy&, Japan. Committees of the Board The Board has established an Audit and Risk Committee, a Nomination Committee, a Remuneration Committee and a Gresham Mandate Review Committee as standing committees to assist with the discharge of its responsibilities. Details of the current membership and composition of each committee are set out in the 2015 Corporate Governance Statement. Role of the Nomination Committee As part of the Nomination Committee’s oversight of Board succession planning, it is responsible for identifying suitable candidates to fill Board vacancies as and when they arise, or to identify candidates to complement the existing Board, and make recommendations to the Board on their appointment. Where appropriate, external consultants are engaged to assist in searching for candidates. The Nomination Committee is responsible for scheduling formal performance reviews of the Board and its committees at least every two years. The Board then undertakes an evaluation process to review its performance which is facilitated by an external consultant. More details about Wesfarmers’ review process for both the Board and its committees is set out in the 2015 Corporate Governance Statement.

42 WESFARMERS ANNUAL REVIEW 2015 Corporate governance summary

Key focus areas of the Nomination Committee during the 2015 financial year included:

–– Chairman succession planning resulting in the appointment of a new non-executive director to succeed the Chairman at the conclusion of the 2015 Annual General Meeting –– Scheduling of performance reviews of the Board, its committees and individual directors –– Consideration of feedback from major shareholders during the Chairman’s Roadshow conducted prior to the 2014 Annual General Meeting –– Endorsing revisions to the Nomination Committee Charter for Board approval

Role of the Remuneration Committee The role of the Remuneration Committee is to review and make recommendations to the Board in relation to overall remuneration policy. Full details of the remuneration paid to non-executive and executive directors, and senior executives, are set out in the remuneration report on pages 73 to 86 of the 2015 annual report. Senior executives comprising members of the Wesfarmers Leadership Team have an annual and long-term incentive or ‘at risk’ component as part of their total remuneration package. The mix of remuneration components and the performance measures used in the incentive plans have been chosen to ensure that there is a strong link between remuneration earned and the achievement of the Group’s strategy and business objectives and, ultimately, generating satisfactory returns for shareholders. Annual performance reviews of each member of the Wesfarmers Leadership Team, including the executive directors, for the 2015 financial year have been undertaken. More details about Wesfarmers’ performance and development review process for senior executives is set out in the 2015 Corporate Governance Statement.

Key focus areas of the Remuneration Committee during the 2015 financial year included:

–– Reviewing and making a recommendation to the Board in relation to the fixed remuneration, annual incentive and long-term incentive awards for the Group Managing Director and his direct reports –– Reviewing the senior executive remuneration framework and policies, including terms of employment such as notice periods –– Reviewing the performance metrics and structure of the Wesfarmers variable remuneration plans and recommending to the Board vesting of the 2011 Wesfarmers Long Term Incentive Plan shares, based on the achievement of the performance conditions –– Reviewing and making a recommendation to the Board in relation to non-executive director fees and the maximum aggregate amount of remuneration that may be paid to non-executive directors –– Endorsing revisions to the Remuneration Committee Charter for Board approval –– Reviewing and monitoring diversity targets and gender pay equity

Role of Audit and Risk Committee Risk is an accepted part of doing business and Wesfarmers is committed to the identification, monitoring and management of material risks associated with its business activities across the Group to create long-term shareholder value. The Audit and Risk Committee monitors internal control policies and procedures designed to safeguard Group assets and to maintain the integrity of financial reporting.

Key focus areas of the Audit and Risk Committee during the 2015 financial year included:

–– Reviewing and assessing the Group’s processes which ensure the integrity of financial statements and reporting, and associated compliance with accounting, legal and regulatory requirements –– Reviewing the processes and controls around the recognition of commercial income and the accrual of costs by the retail divisions to ensure recognition is in accordance with Accounting Standards and accepted industry practice –– Monitoring the ethical sourcing of products for resale through the Group’s retail networks to ensure that there are appropriate safeguards and processes in place –– Monitoring the Group’s cyber security framework and the reporting structure and escalation process on information security risks –– Reviewing and evaluating the adequacy of the Group’s insurance arrangements to ensure appropriate cover for identified operational and business risks

43 Corporate governance summary

Role of the external auditor The company’s external auditor is Ernst & Young. The effectiveness, performance and independence of the external auditor is reviewed annually by the Audit and Risk Committee. Mr Darren Lewsen is the lead partner for Ernst & Young and was appointed on 1 July 2013. Ernst & Young provided the required independence declaration to the Board for the financial year ended 30 June 2015. The independence declaration forms part of the directors’ report and is provided on page 72 of the 2015 annual report. Risk Management Framework The Risk Management Framework of Wesfarmers is reviewed by the Board on an annual basis and was approved in May 2015. This framework details the overarching risk management controls that are embedded in the Group’s risk management processes, procedures and reporting systems, and the division of the key risk management functions between the Board, Wesfarmers Managing Director and Finance Director, Audit and Risk Committee, divisional management and Group Assurance and Risk, including: –– guidelines and limits for approval of all expenditure, including capital expenditure and investments; –– a Group compliance program supported by approved guidelines and standards covering safety, information technology, the environment, legal liability, risk identification, quantification and reporting, and financial reporting controls; –– a comprehensive risk financing program, including risk transfer to external insurers and reinsurers; –– policies and procedures for the management of financial risk and treasury operations; –– annual budgeting and monthly reporting systems for all businesses; –– appropriate due diligence procedures for acquisitions and divestments; and –– crisis management systems for all key businesses in the Group. Investor engagement Wesfarmers recognises the importance of providing its shareholders and the broader investment community with facilities to access up-to-date high quality information, participate in shareholder decisions of the company and provide avenues for two-way communication between the company, the Board and shareholders. Wesfarmers has developed a program on investor engagement for engaging with shareholders, debt investors, the media and the broader investment community. In addition, the company’s shareholders have the ability to elect to receive communications and other shareholder information electronically. Governance policies The corporate governance section of the company’s website (www.wesfarmers.com.au/cg) contains access to all relevant corporate governance information, including Board and committee charters and Group policies referred to in the 2015 Corporate Governance Statement. Company Secretary Linda Kenyon is the Company Secretary of Wesfarmers and a member of the Leadership Team. Ms Kenyon’s qualifications and experience are set out in the directors’ report on page 70 of the 2015 annual report. Diversity As a diverse workforce is of significant social and commercial value, Wesfarmers recognises the importance of being an inclusive employer. Wesfarmers strives to create a work environment which is inclusive to all people regardless of gender, age, race, disability, sexual orientation, cultural background, religion, family responsibilities or any other areas of potential difference. All areas of diversity are important and Wesfarmers pays particular attention to gender diversity and the inclusiveness of Indigenous people. Wesfarmers prepared and committed to its first Reconciliation Action Plan (RAP) in 2009, which outlines specific measurable actions to be undertaken across the Group, targeting Indigenous employment, business engagement, community partnerships and staff secondments to Indigenous organisations. Wesfarmers Gender Diversity Policy outlines four core objectives which are used to measure performance in this area – to foster an inclusive culture; to improve talent management; to enhance recruitment practices; and to ensure pay equity. Further details on diversity are set out on page 31 of this annual review and in the 2015 Corporate Governance Statement.

44 WESFARMERS ANNUAL REVIEW 2015 Remuneration overview

Introduction This summary provides an overview of how Wesfarmers’ performance for the 2015 financial year has driven remuneration outcomes for senior executives. During the year the Board reviewed the remuneration framework to ensure it aligns with the Group’s strategy and business objectives. The outcome of this review was that the Board decided to reweight the performance conditions under the Wesfarmers Long Term Incentive Plan (WLTIP) (to be granted in the 2015 financial year) such that relative Total Shareholder Return (TSR) and growth in Return on Equity (ROE) will each have a 50 per cent weighting.

Key messages The Wesfarmers Limited Board is committed to an executive remuneration framework that is focused on driving a performance culture and linking executive pay to the achievement of the Group’s strategy and business objectives and, ultimately, generating satisfactory returns for shareholders. Senior executive remuneration is set at levels which are competitive with executives in comparable companies and roles. This is vital to attracting and retaining the best people, and reflects the executive’s contribution, competencies and capabilities, and at a level that enables Wesfarmers to attract and retain the best people. The remuneration report, which can be found on pages 73 to 86 of the 2015 annual report, explains how Wesfarmers’ performance for the 2015 financial year has driven remuneration outcomes for senior executives. The audited remuneration table can be found on page 81 of the 2015 annual report. A summary of the key changes to remuneration-related matters is set out below: (a) Financial highlights for FY2015 The Group’s retail portfolio delivered strong earnings growth, which the Group attributes to improved merchandise offers and our continued focus on delivering value to customers. In the Group’s industrial businesses, despite good outcomes in cost control and operational productivity, lower commodity prices and customer project activity provided a challenging sales environment, with lower overall earnings recorded. The Group reported net profit after tax of $2,440 million for the full-year ended 30 June 2015, an underlying increase of 8.3 per cent on the prior corresponding period when excluding discontinued operations and non-trading items. (b) Annual incentive At or above target awards were delivered to most executives of the retail divisions reflecting generally strong earnings growth in the Group’s retail portfolio. While good cost control and operational productivity was achieved within the Group’s industrial businesses, lower earnings in the Resources and Industrial Safety divisions resulted in the annual incentive plans for these businesses delivering below target awards. Pages 76 and 77 of the 2015 annual report provide details on group and divisional performance and total amounts awarded this year. (c) Long-term incentives vesting in the year Over the four-year measurement period of the 2011 WLTIP (1 July 2011 to 30 June 2015), Wesfarmers delivered 6.18 per cent compound annual growth in ROE, placing it at the 71st percentile relative to the ASX 50 Index, which came close to meeting the ROE performance condition (with a 75 per cent weighting) in full. The Group delivered a TSR over the four-year period of 58.5 per cent, placing it at the 51st percentile relative to its ASX 50 peers and partially meeting the TSR performance condition (with a 25 per cent weighting). These strong outcomes resulted in 82.71 per cent of the WLTIP vesting. (d) Fixed remuneration Fixed remuneration did not increase for a number of senior executives during the 2015 financial year, as the current levels of remuneration were considered appropriate. The average fixed remuneration increase for key management personnel for the 2015 financial year was three per cent. (e) Managing Director’s remuneration Mr Goyder’s fixed remuneration has not increased since October 2011. His total reported remuneration for the 2015 financial year was $9.9 million (2014: $9.4 million). This includes an accounting expense of $2.6 million (2014: $2.4 million) in relation to his performance shares granted under the 2011 WLTIP and unvested performance rights granted under the 2012, 2013 and 2014 WLTIP, and $1.5 million (2014:$1.3 million) from the deferred share component of his 2013, 2014 and 2015 annual incentive. 45 Remuneration overview

Excluding these accounting charges, Mr Goyder’s remuneration for the year was $5.7 million (2014: $5.7 million) which comprised fixed remuneration, non-monetary benefits, post-employment benefits (including superannuation) and his annual cash incentive payment. Framework Wesfarmers is committed to an executive remuneration framework that is focused on: –– driving a performance culture, and –– linking executive pay to the achievement of the Group’s strategy and business objectives. The overriding objective is to provide satisfactory returns to shareholders and the remuneration principles are focused on driving the leadership performance and behaviours consistent with achieving this objective. The executive key management personnel (KMP) includes the executive directors (the Group Managing Director and Finance Director) and those executives who have authority and responsibility for planning, directing and controlling the activities of a major profit-generating division of Wesfarmers. Our executive remuneration framework comprises fixed annual remuneration, an annual incentive and a long-term incentive. The graphs below show each of the components as a percentage of total target annual remuneration for the 2015 financial year.

Group Managing Director Other senior executives

% % FAR 34 FAR 42 Fixed annual remuneration (FAR) STI 33 STI 25 At risk pay – annual incentive (STI) LTI 33 LTI 33 At risk pay – long-term incentive (LTI)

Guiding principles The Remuneration Committee has adopted four guiding principles when considering remuneration plans and policies. The principles used to guide Wesfarmers’ remuneration policy for senior executives are: –– ownership aligned – remuneration arrangements generally encourage Wesfarmers’ senior executives to behave like long-term ‘owners’. There should be a strong link between remuneration earned and the achievement of sustainable performance that leads to satisfactory returns for shareholders; –– performance focused –remuneration arrangements should reward strategic, operational and financial performance of the business. A significant proportion of each executive’s remuneration is dependent upon Wesfarmers’ success and individual performance; –– consistency and market competitiveness – a common set of remuneration practices will generally apply to all senior executive roles. Wesfarmers positions remuneration to be competitive, with an opportunity for highly competitive total remuneration for superior performance; and –– open and fit for purpose – remuneration arrangements can be innovative to respond to business and operational needs. However, all remuneration arrangements for KMP will be communicated to key stakeholders in an open and transparent manner.

46 WESFARMERS ANNUAL REVIEW 2015 Remuneration overview

Remuneration framework The diagram below provides a snapshot of our framework and the way in which each element of remuneration has been structured to support our Group business objectives and to align with the generation of shareholder wealth.

Component Performance measure At risk weight Strategic objective/performance link

FIXED ANNUAL Key result areas –– Remuneration set at competitive levels, to REMUNERATION for the role: attract, retain and engage key talent. (FAR) As outlined in the position Considerations: Salary and description –– Role and responsibility other benefits (including statutory –– Business and individual performance superannuation) –– Internal and external relativities –– Contribution, competencies and + capabilities.

ANNUAL Group Financial measures Target: –– Rewards performance at Group level. INCENTIVE (STI) (for Group executives): 60% of FAR The financial performance measures were chosen principally because Group profit Cash for target Group Net Profit After Tax (100% of FAR performance (NPAT) and Return on Equity and ROE should drive dividends and share Group MD) price growth over time. Restricted shares (ROE) for performance Maximum: –– Recognises and rewards achievement of Divisional measures above target 120% of FAR divisional goals in the areas of earnings, (for divisional executives): return on capital employed in the division Voluntary deferral Divisional Earnings Before and business-specific financial targets. (of portion of cash Interest and Tax (EBIT), award into shares) –– Drives leadership performance and Divisional Return on Capital behaviours consistent with achieving the (ROC) and where appropriate, Group’s long-term objectives in areas store sales growth, coal sales including safety, diversity, succession and mine cash costs planning and talent management. Non-financial measures –– Aligns to the Group’s material business (for both): risks, including strategy execution Including diversity, talent (earnings delivery) and loss of key management, safety and management personnel (succession + agreed key objectives planning).

LONG-TERM FY15: Group MD: –– Ensures a strong link with the creation of INCENTIVE (LTI) Wesfarmers’ Compound 100-200% shareholder value. Performance Annual Growth Rate (CAGR) of FAR –– CAGR in ROE was chosen as a rights in ROE (75% weighting) performance hurdle as it is: and Others: Total Shareholder Return –– Used by Wesfarmers to measure the (TSR) (25% weighting) 80-160% return on its portfolio of businesses. of FAR Relative to ASX 50 Index –– A key metric to measure Wesfarmers’ Measured over a four-year long-term success as it contains clear performance period links to shareholder value creation. –– TSR was chosen because it: FY16 key change: CAGR in ROE –– Provides a relative, external market (50% weighting) performance measure having regard to and Wesfarmers’ ASX 50 peers. TSR (50% weighting) Relative to ASX 50 Index

= The remuneration mix is designed to reflect the diversified nature of the Wesfarmers business and is TOTAL structured to reward executives for performance at a Group level and, for divisional executives, also at a REMUNERATION divisional level, and to align executive and stakeholder interests through share ownership.

47 Remuneration overview

Company performance and remuneration outcomes Overview of company performance Wesfarmers has continued to demonstrate strong performance against key measures and relative to our peers. The table below summarises details of Wesfarmers’ performance for key financial measures over the past five financial years.

Financial year ended 30 June 2011 2012 2013 2014 2015 Net profit after tax (NPAT) ($m) 1,922 2,126 2,261 2,6891 2,440 Total dividends per share (declared) (cents) 150 165 180 200 200 – Ordinary 150 165 180 190 200 – Special ‘Centenary’ - - - 10 - Closing share price ($ as at 30 June) 31.85 29.90 39.60 41.84 39.03 Capital management distribution (paid) (cents) - - - 50 100 Earnings per share (cents) 166.7 184.2 195.9 234.62 216.1 Return on equity (rolling 12) (%) 7.7 8.4 8.9 10.5 9.8

1 2014 includes $1,179 million in discontinued operations relating to the disposal of the Insurance division and WesCEF’s interest in Air Liquide WA Pty Ltd along with ($743) million in non-trading items relating to the impairment of Target’s goodwill and Coles Liquor restructuring provision. 2 2014 earnings per share includes the items outlined above; excluding these items, earnings per share were 196.6 cents per share.

Annual incentive overview The details of Wesfarmers’ annual incentive plan is set out on page 82 of the 2015 annual report. The plan is designed to reward performance against measures developed for each of the KMP based upon their areas of responsibility (refer to the divisional performance graph below and the table on the following page). For the Group Managing Director and Finance Director, these include measures of Group performance – specifically Group NPAT and Group ROE. The table above illustrates the strong growth in both, over the past five years.

Wesfarmers divisional performance by 2015 EBIT and ROC

Group NPAT Group ROE $M % EBIT ROC 2,440 9.8 $m % Home Improvement and Office Supplies Wesfarmers – Bunnings 1,088 33.5 EBIT ROC 2015 divisional $m % performance – Officeworks 118 11.4 Coles 1,783 11.0 Resources 50 3.4 Kmart 432 32.9 Industrial and Safety 70 5.5 Target 90 3.6 Chemicals, Energy and Fertilisers 233 15.2

48 WESFARMERS ANNUAL REVIEW 2015 Remuneration overview

The table below sets out the performance conditions for the 2015 annual incentive and the weighting between these measures for each of the executive directors and senior executives. The strong performance of Home Improvement and Office Supplies, Kmart and Coles divisions resulted in ‘at or above’ target awards for the executives of those divisions. Specific information relating to the actual incentive awards for the 2015 financial year are shown on page 77 of the 2015 annual report.

WEIGHTING OF WEIGHTING OF NON- FINANCIAL MEASURES (%) FINANCIAL MEASURES (%) Group Balance Other specific Agreed objectives Name NPAT (with sheet Divisional Divisional divisional include diversity, talent Division ROE gate) management EBIT ROC objectives1 management and safety R J B Goyder 60 - - - - 40 Group

T J Bowen Group, Industrial 35 10 5 - - 50 and Safety

Agreed Safety objectives S A Butel - 20 20 10 20 20 10 Resources J P Durkan - 40 20 10 10 10 10 Coles J C Gillam - 35 35 - 20 10 HIOS S B Machin - 40 10 30 15 5 Target

T J P O’Leary Chemicals, Energy - 35 35 - 20 10 and Fertilisers

G A Russo - 40 20 10 20 10 Kmart

Threshold not met Threshold met or exceeded Target met or exceeded Maximum achieved

1 Other specific divisional objectives include – for Resources division, coal sales and mine cash costs; for Coles and Kmart divisions, stores sales growth and transaction growth; and for Target division, stock keeping unit reduction, inventory and space.

49 Remuneration overview

Long-term incentive overview The long-term incentive is issued as performance rights granted under the WLTIP. Key terms of this scheme are detailed on page 82 of the 2015 annual report. The graphs below show our performance against both relative TSR and relative CAGR in ROE over the past four years to 30 June 2015. These graphs reflect the strong performance of Wesfarmers relative to the ASX 50 Accumulation Index over this period.

TSR: Wesfarmers and ASX 50 Wesfarmers Limited S&P/ASX 50 Index 80% 70% 60% 50% 40% 30% 20% 10% 0% (10%) (20%) (30%) July 11 Dec 11 July 12 Dec 12 July 13 Dec 13 July 14 Dec 14 June 15

CAGR in ROE Ranking ASX 50* 1 2 3 4 5 6 7 8 9 75th percentile 10 11 12 13 14 15 Wesfarmers (71st percentile, 6.18%) 16 17 18 Median (0.95%) 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43

(40%) (30%) (20%) (10%) 0% 10% 20% 30% 40% * The initial peer group comprises all companies within the Standard and Poor’s (S&P) ASX 50 determined as at the beginning of the performance period. At the testing date however, some companies are excluded from the calculation, for example, if a company in the comparator group is taken over, merged with, or acquired (unless the acquiring/merging company is in the comparator group). Note the graph was scaled to show growth between –40% and +40%. A number of companies achieved growth outside these parameters.

As can be seen, the Group outperformed the majority of its peers over the vesting period, leading to a majority of the awards vesting (82.71 per cent of the potential total award). The shares vested per individual are shown on page 79 of the 2015 annual report. Shares remain subject to a trading restriction to 23 November 2015. Remuneration governance Responsibility for setting remuneration policy and determining non-executive director, executive director and senior executive remuneration rests with the Board. The Remuneration Committee is delegated responsibility to review and make recommendations to the Board. Management and remuneration consultants provide information to assist the Board and Remuneration Committee, but do not substitute for the Board and committee processes. Detail of the composition of the Remuneration Committee is set out on page 83 of the 2015 annual report. Further information regarding the objectives and role of the Remuneration Committee is contained in its Charter, which is available on the Corporate Governance section of the company’s website at www.wesfarmers.com.au

50 WESFARMERS ANNUAL REVIEW 2015 Five-year financial history

20141 20132 All figures in $m unless shown otherwise 2015 Restated Restated 2012 2011

SUMMARISED INCOME STATEMENT Sales revenue 62,129 59,903 57,466 57,685 54,513 Other operating revenue 318 278 283 395 362 Operating revenue 62,447 60,181 57,749 58,080 54,875 Operating profit before depreciation and amortisation, 4,978 3,877 4,486 4,544 4,155 finance costs and income tax Depreciation and amortisation (1,219) (1,082) (1,033) (995) (923) EBIT 3,759 2,795 3,453 3,549 3,232 Finance costs (315) (346) (417) (505) (526) Income tax expense (1,004) (939) (908) (918) (784) Profit after tax from discontinued operations - 1,179 133 n/a n/a Operating profit after income tax attributable to members of 2,440 2,689 2,261 2,126 1,922 Wesfarmers Limited

CAPITAL AND DIVIDENDS Ordinary shares on issue (number) 000's as at 30 June 1,123,753 1,143,275 1,157,194 1,157,072 1,157,072 Paid up ordinary capital as at 30 June 21,844 22,708 23,290 23,286 23,286 Fully-franked dividend per ordinary share declared (cents) 200 200 180 165 150 Capital management: capital return and fully franked 100 50 - - - dividend components

FINANCIAL PERFORMANCE Earnings per share (weighted average) (cents) 216.1 234.6 195.9 184.2 166.7 Earnings per share growth (7.9%) 19.8% 6.4% 10.5% 22.8% Return on average ordinary shareholders' equity (R12) 9.8% 10.5% 8.9% 8.4% 7.7% Fixed charges cover (R12, times) 3.0 3.2 3.0 2.9 2.7 Interest cover (cash basis) (R12, times) 20.5 15.9 12.2 10.8 9.5

FINANCIAL POSITION AS AT 30 JUNE Total assets 40,402 39,727 43,155 42,312 40,814 Total liabilities 15,621 13,740 17,133 16,685 15,485 Net assets 24,781 25,987 26,022 25,627 25,329 Net tangible asset backing per ordinary share $4.85 $6.14 $4.69 $4.45 $4.12 Net debt to equity 25.1% 13.1% 20.2% 19.1% 17.1% Total liabilities/total assets 38.7% 34.6% 39.7% 39.4% 37.9%

STOCK MARKET CAPITALISATION AS AT 30 JUNE 43,860 47,835 45,936 34,846 36,913

1 The 2014 numbers have been restated to reflect the disposal of WesCEF’s interest in Air Liquide WA Pty Ltd as a discontinued operation. 2 The 2013 numbers have been restated to reflect the classification of the Insurance division as a discontinued operation.

51 Corporate directory Wesfarmers Limited ABN 28 008 984 049

Registered office Financial calendar+ Level 11, Wesfarmers House Record date for final dividend 27 August 2015 40 The Esplanade, Perth, Western Australia 6000 Final dividend paid 30 September 2015 Telephone: (+61 8) 9327 4211 Annual general meeting 12 November 2015 Facsimile: (+61 8) 9327 4216 Website: www.wesfarmers.com.au Half-year end 31 December 2015 Email: [email protected] Half-year profit announcement February 2016 Executive directors Record date for interim dividend February 2016 Richard Goyder AO Interim dividend payable April 2016 Group Managing Director and Chief Executive Officer Year end 30 June 2016 Terry Bowen +Timing of events is subject to change. Finance Director Annual general meeting Non-executive directors The 34th Annual General Meeting of Wesfarmers Limited Bob Every AO, Chairman will be held at the Perth Convention and Exhibition Centre, Mounts Bay Road, Perth, Western Australia on Thursday, Michael Chaney AO, Chairman-elect 12 November 2015 at 1:00pm (Perth time). Paul Bassat James Graham AM Website Tony Howarth AO To view the 2015 annual report, shareholder and company information, news announcements, background information Wayne Osborn on Wesfarmers’ businesses and historical information, visit Diane Smith-Gander the Wesfarmers website at www.wesfarmers.com.au Vanessa Wallace Jennifer Westacott Company Secretary Linda Kenyon Share registry Computershare Investor Services Pty Limited Yarra Falls, 452 Johnston Street, Abbotsford, Victoria 3067 Telephone Australia: 1300 558 062 International: (+61 3) 9415 4631 Facsimile Australia: (03) 9473 2500 International: (+61 3) 9473 2500 Website: www.investorcentre.com/wes

52 WESFARMERS ANNUAL REVIEW 2015 Wesfarmers brands

Wesfarmers owns some of the best-known businesses in Australia and New Zealand.

Retail operations Coles

Home Improvement and Office Supplies

Kmart

Target

Industrials and other businesses

Chemicals, Energy and Fertilisers

Resources

Industrial and Safety

Other businesses

53 www.wesfarmers.com.au