Wesfarmers Annual Report 2018Wesfarmers Annual Report WESFARMERS ANNUAL REPORT 2018 CONTENTS Overview 2 2018 year in review 4 Primary objective 5 Group structure 6 Performance overview 8 Chairman’s message 10 Managing Director’s report 12 Leadership Team

Operating and financial review 14 Operating and financial review 26 Retail businesses 26 Bunnings 32 Coles 40 Department Stores 42 – Kmart 44 – Target 46 Officeworks 50 Industrials 52 – Chemicals, Energy and Fertilisers 54 – Industrial and Safety 56 – Resources 57 Other activities

Sustainability 58 Sustainability

Governance 66 Board of directors 68 Corporate governance overview

Directors’ report 72 Directors’ report 77 – Remuneration report

Financial statements About Wesfarmers About this report 97 Financial statements From its origins in 1914 as a Western This annual report is a summary Wesfarmers is committed to reducing Australian farmers’ cooperative, of Wesfarmers and its subsidiary the environmental footprint associated 103 Notes to the financial statements Wesfarmers has grown into one of companies’ operations, activities and with the production of this annual Australia’s largest listed companies. financial performance and position report and printed copies are only Signed reports With headquarters in Perth, its as at 30 June 2018. In this report posted to shareholders who have diverse business operations references to ‘Wesfarmers’, ‘the elected to receive a printed copy. This 145 Directors’ declaration cover: supermarkets, liquor, hotels company’, ‘the Group’, ‘we’, ‘us’ report is printed on environmentally 146 Independent auditor’s report and convenience stores; home and ‘our’ refer to Wesfarmers Limited responsible paper manufactured under improvement; department stores; (ABN 28 008 984 049), unless ISO 14001 environmental standards. office supplies; and an Industrials otherwise stated. Shareholder and ASX information division with businesses in chemicals, References in this report to a ‘year’ energy and fertilisers, industrial and are to the financial year ended 152 Shareholder information safety products and coal. Wesfarmers 30 June 2018 unless otherwise 153 Investor information is Australia’s largest private sector stated. All dollar figures are expressed 154 Five-year financial history employer with approximately 217,000 in Australian dollars (AUD) unless employees (including more than 5,200 otherwise stated. 155 Corporate directory Indigenous team members) and is 156 Wesfarmers brands owned by approximately 495,000 All references to ‘Indigenous’ people shareholders. are intended to include Aboriginal and/ or Torres Strait Islander people.

Wesfarmers 2018 Annual Report 1 Overview

BACK

Bunnings

The 2018 financial year was one of significant change for Wesfarmers, financial review andOperating withContinued decisive growthactions intaken to reposition the Group’s portfolio to deliver 2018 YEAR earnings and sales delivered sustainable growth in earnings and improved shareholder returns. through strong execution of customer-focused strategy IN REVIEW

Divisional performance 26 Sustainability Bunnings 2018 2017 Revenue $m 12,544 11,514 Earnings before interest and tax $m 1,504 1,334 SegmentColes assets Department$m 5,025 4,846 SegmentCustomer liabilities metrics, Stores$m 1,875 1,785 Capitalsales employed momentum (R12) Record$m earnings 3,045 3,192 Returnand on capitalearnings employed (R12) delivered% 49.4for the 41.8 Capital expenditure $m 497 367

performance year Governance Colesimproved over 2018 2017 Revenuethe year $m 39,388 39,217 Earnings before interest and tax $m 1,500 1,609 Segment assets $m 21,180 21,140 Segment liabilities $m 4,561 4,245 DIVIDENDS GOVERNMENT TAXES PAYMENTS TO Capital employed (R12) $m 16,386 16,586 PER SHARE AND ROYALTIES SUPPLIERS Return on capital employed (R12) % 9.2 9.7 Capital32 expenditure $m 762 811 report Directors’

Department Stores 20181 2017 $2.23 $ 2.1B $47.2B RevenueOfficeworks $m 8,837 8,528 Earnings before interest and tax $m 660 543

Continued Segmentgrowth assets through a $m 3,617 3,928 Segment liabilities 40$m 1,482 1,423 Capitalrelentless employed (R12) focus on $m 2,013 2,253 Returnprice, on capital range employed (R12)and % 32.8 24.1 Capitalservice expenditure $m 293 222

LARGEST PRIVATE SALARIES AND COMMUNITY Industrials statements Financial SECTOR EMPLOYER WAGES CONTRIBUTIONS Officeworks Increased2018 earnings2017 Revenue from$m continuing 2,142 1,964 Earnings before interest and tax $m 156 144 operations 217K $9.3B $148M Segment assets $m 1,452 1,401 Segment liabilities $m 532 488 TEAM MEMBERS Capital46 employed (R12) $m 939 980 Return on capital employed (R12) % 16.6 14.7 Capital expenditure $m 45 36 reports Signed IndustrialsSustainability (including Curragh mine) 2018 2017 DEMERGER OF DIVESTED CURRAGH ROB SCOTT BECAME Revenue $m 5,269 5,161

Improvements in COLES PROPOSED COAL MINE AND WESFARMERS’ EIGHTH Earningssafety, before interestemissions and tax $m 867 915 Segment assets $m 3,500 4,229 HOMEBASE MANAGING DIRECTOR Segmentintensity, liabilities ethical $m 758 1,125 Capitalsourcing employed (R12) and $m 3,295 3,393 Returncommunity on capital employed (R12) % 26.3 27.0 Capitalcontributions expenditure $m 167 169 ASX information ASX Shareholder and 1 The 2018 earnings before interest and tax for Department Stores excludes Target’s pre-tax non-cash impairment of $306 million. 58 50

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Overview

BACK GROUP STRUCTURE

The 2018 financial year was one of significant change for Wesfarmers, financial review andOperating with decisive actions taken to reposition the Group’s portfolio to deliver sustainable growth in earnings and improved shareholder returns.

THE PRIMARY OBJECTIVE OF Divisional performance Sustainability Bunnings 2018 2017 WESFARMERS IS TO PROVIDE Revenue $m 12,544 11,514 Earnings before interest and tax $m 1,504 1,334 Segment assets $m 5,025 4,846 Segment liabilities $m 1,875 1,785 A SATISFACTORY RETURN TO Capital employed (R12) $m 3,045 3,192 RETAIL Return on capital employed (R12) % 49.4 41.8 Capital expenditure $m 497 367

OTHER Governance SHAREHOLDERS BUNNINGS COLES DEPARTMENT STORES OFFICEWORKS INDUSTRIALS CORPORATE Coles BUSINESSES2018 2017 Revenue $m 39,388 39,217 Earnings before interest and tax $m 1,500 1,609 Segment assets Chemicals, $m 21,180 21,140 Industrial & BWP Trust BunningsSegment liabilitiesColes* Kmart Target Officeworks Energy and $mResources 4,561 4,245 Safety (24.8%) We believe it is only possible to achieve this over the long term by: Capital employed (R12) Fertilisers $m 16,386 16,586 Return on capital employed (R12) % 9.2 9.7 Capital expenditure Kmart Tyre $m 762Gresham 811 Coles and Auto CSBP Blackwoods Curragh* Partners report Directors’ Online Department Stores Service* 2018(50%)1 2017 anticipating the needs looking after our engaging fairly with Revenue $m 8,837 8,528 of our customers and team members our suppliers, and Earnings before interest and tax $m Wespine660 543

Coles Australian Workwear Bengalla* Industries Segment assetsExpress Vinyls Group $m (40%) 3,617 3,928 delivering competitive and providing a sourcing ethically (50%) goods and services safe, fulfilling work and sustainably Segment liabilities $m 1,482 1,423 Capital employed (R12) $m 2,013 2,253 Australian environment Return on capitalVintage employed (R12) Gold % 32.8 24.1 Coregas Capital expenditureCellars Reagents $m 293 222

(75%) statements Financial Officeworks 2018 2017 Revenue First Queensland $m 2,142 1,964 Choice Nitrates Greencap Earnings before interest and tax $m 156 144 Liquor (50%) supporting the taking care of the acting with integrity Segment assets $m 1,452 1,401 communities in environment and honesty in all of Segment liabilities $m 532 488 NZ Safety Capital employedLiquorland (R12) EVOL LNG $m 939 980 which we operate our dealings Return on capital employed (R12) Blackwoods % 16.6 14.7 Capital expenditure $m 45 36 reports Signed Spirit Industrials (including Curragh mine) Kleenheat 2018 2017 Hotels Revenue $m 5,269 5,161

Earnings before interest and tax $m 867 915 Segment assets $m 3,500 4,229 Coles Quadrant Segment liabilitiesFinancial Energy* $m 758 1,125 Capital employedServices (R12) (13.2%) $m 3,295 3,393 Return on capital employed (R12) % 26.3 27.0 Capital expenditure $m 167 169 ASX information ASX Shareholder and 1 The 2018 earnings before interest and tax for Department Stores excludes Target’s pre-tax non-cash impairment of $306 million.

* In March 2018, Wesfarmers announced its intention to demerge Coles and the completion of the sale of the Curragh coal mine. In August 2018, Wesfarmers announced that it had entered into agreements to sell Kmart Tyre and Auto Service, its 40 per cent interest in Bengalla, and its indirect interest in Quadrant Energy.

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Overview Overview

BACK

The 2018 financial year was one of significant change for Wesfarmers, financial review andOperating PERFORMANCE with decisive actions taken to reposition the Group’s portfolio to deliver OVERVIEW sustainable growth in earnings and improved shareholder returns. CREATING WEALTH AND ADDING VALUE

$47.2b Payments to suppliers $9.3b Employees (salaries, wages and other benefits) Divisional performance Sustainability $2.1b Government (taxes and royalties) Bunnings 2018 2017 1 Wealth creation Value distribution $0.2b Lenders (borrowed funds) Revenue $m 12,544 11,514 Earnings before interest and tax $m 1,504 1,334 $69.9b $15.7b $2.5b Shareholders (dividends) Segment assets $m 5,025 4,846 $1.6b Reinvested in the business Segment liabilities $m 1,875 1,785 $7.0b Payments for rent, services and other external costs Capital employed (R12) $m 3,045 3,192 Return on capital employed (R12) % 49.4 41.8 1 Includes discontinued operations. Capital expenditure $m 497 367 Governance Group performance Coles 2018 2017

Key financial data 2018 2017 Revenue $m 39,388 39,217 Earnings before interest and tax $m 1,500 1,609 Results from continuing operations¹ Segment assets $m 21,180 21,140 Revenue $m 66,883 64,913 Segment liabilities $m 4,561 4,245 Earnings before interest, tax, depreciation and amortisation $m 5,259 5,352 Capital employed (R12) $m 16,386 16,586 Earnings before interest, tax, depreciation and amortisation (excluding significant items)² $m 5,565 5,352 Return on capital employed (R12) % 9.2 9.7 Earnings before interest and tax $m 4,061 4,177 Capital expenditure $m 762 811 Earnings before interest and tax (excluding significant items)² $m 4,367 4,177 report Directors’ Net profit after tax $m 2,604 2,760 Department Stores 20181 2017 Net profit after tax (excluding significant items)2 $m 2,904 2,760 Revenue $m 8,837 8,528 Basic earnings per share cents 230.2 244.7 Earnings before interest and tax $m 660 543

Basic earnings per share (excluding significant items)² cents 256.8 244.7 Segment assets $m 3,617 3,928 Results including discontinued operations¹ Segment liabilities $m 1,482 1,423 Earnings before interest and tax $m 2,796 4,402 Capital employed (R12) $m 2,013 2,253 Earnings before interest and tax (excluding significant items)³ $m 4,288 4,402 Return on capital employed (R12) % 32.8 24.1 Net profit after tax $m 1,197 2,873 Capital expenditure $m 293 222

Net profit after tax (excluding significant items)³ $m 2,772 2,873 statements Financial Basic earnings per share cents 105.8 254.7 Officeworks 2018 2017 Basic earnings per share (excluding significant items)³ cents 245.1 254.7 Revenue $m 2,142 1,964 Return on average shareholders’ equity (R12) (excluding significant items)³ % 11.7 12.4 Earnings before interest and tax $m 156 144

Cash flow and dividends (including discontinued operations)¹ Segment assets $m 1,452 1,401 Operating cash flows $m 4,080 4,226 Segment liabilities $m 532 488 Net capital expenditure on property, plant and equipment and intangibles $m 1,209 1,028 Capital employed (R12) $m 939 980 Free cash flows $m 3,422 4,173 Return on capital employed (R12) % 16.6 14.7 Equity dividends paid $m 2,528 1,998 Capital expenditure $m 45 36

Operating cash flow per share cents 360.1 374.1 reports Signed Free cash flow per share cents 302.0 369.5 Industrials (including Curragh mine) 2018 2017 Dividends per share (declared) cents 223.0 223.0 Revenue $m 5,269 5,161

Balance sheet and gearing Earnings before interest and tax $m 867 915 Total assets $m 36,933 40,115 Segment assets $m 3,500 4,229 Net financial debt $m 3,580 4,321 Segment liabilities $m 758 1,125 Shareholders’ equity $m 22,754 23,941 Capital employed (R12) $m 3,295 3,393 Fixed charges cover (R12) (excluding significant items)3 times 3.0 3.1 Return on capital employed (R12) % 26.3 27.0 Interest cover (R12) (cash basis) (excluding significant items)3 times 30.4 25.0 Capital expenditure $m 167 169 ASX information ASX Shareholder and 1 The 2018 earnings before interest and tax for Department Stores excludes Target’s pre-tax non-cash impairment of $306 million. 1 Discontinued operations relate to the Curragh coal mine and Bunnings United Kingdom and Ireland (BUKI) which were disposed of during the year. 2017 balances have been restated where necessary to reflect these discontinued businesses. 2 Significant items for continuing operations relate to Target’s non-cash impairment of $306 million pre-tax ($300 million post-tax). 3 2018 excludes the following significant items pre-tax (post-tax) amounts: $931 million ($1,023 million) of impairments, write-offs and store closure provisions in BUKI; a $375 million ($375 million) loss on disposal of BUKI; $306 million ($300 million) of non-cash impairments in Target and a $120 million ($123 million) gain on disposal of Curragh.

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Operating and Directors’ Financial Signed Shareholder and Overview Sustainability Governance financial review report statements reports ASX information 9

hard-working team, led by Rob Scott. hard-working to overseeing their look forward We the continued to ensure efforts success of the company. has been extraordinary. His first His first has been extraordinary. as was with the Group involvement to the Wesfarmers principal advisor in 1977 in its protracted, Cooperative takeover of company-making CSBP and the fertiliser company has provided Farmers Ltd. James move advice on every strategic since, initially in a by Wesfarmers but over the last 20 role, professional It is no as a director. years in his role the financial exaggeration to say that described success of Wesfarmers in no small above has been due are We part to James’ involvement. of delighted that the shareholders through Coles will benefit similarly as Chair as it begins its his role company. journey as a re-listed welcome Sir Bill English to We and look Board the Wesfarmers to his contribution; and forward we acknowledge with thanks the substantial contribution which has made as advisor Archie Norman and management to the Board since the Coles takeover in 2007. will continue as advisor to the Archie to and we look forward Coles board welcoming David Cheesewright as and Wesfarmers’ advisor to our board nominee on the Coles board. In closing, I pay tribute to our Michael Chaney AO Chairman Wesfarmers 2018 Annual Report Wesfarmers

such areas. But committee members such areas. be chair need to and the committee not that they do ensure to careful in a managementdefault to acting the through report employees role: not to a management hierarchy, committee. board that focusingAs for the suggestion is incompatibleon financial outcomes with good corporate citizenship, The more. disagree we couldn’t listed companies exist is reason with their shareholders to provide returns. buy shares financial People because they hope it in Wesfarmers returns them with better will provide in another than if they buy shares not give acompany; but that does before profit company licence to put The simple fact is good behaviour. that unless a company behaves as a good corporate citizen, it will not achieve financial success over the long term. Poor behaviour will cause or many people not to buy shares to sell their holding, customers will in fines or bans desert it, it will result for the company and the company will not be invited to join in profitable opportunities. In short, the company will lose its ‘licence to operate’. we have That is why at Wesfarmers always qualified our single financial you see objective with the words words on page four of this report; describing our commitment to take of our employees, customers, care and the suppliers, the environment communities in which we operate. has The fact that Wesfarmers to such principles explains adhered more why it continues to prosper than a century after it was formed. It also explains why it has been so successful since its public listing in 1984. A $1,000 investment in the company at the time of listing, with is now worth dividends reinvested, to $38,000 for $420,000, compared a $1,000 investment in the ASX 50. Notwithstanding the uncertainties facing all businesses in our complex world, and the inevitability of making suboptimal decisions, hopefully as determined well as good ones, we are of success. to continue that record a competent Achieving that will require and managementand dedicated board haveteam, and I believe shareholders to be confident. reason on behalf of I take this opportunity, to thank our my fellow directors, Paul Bassat and outgoing directors on James Graham for their efforts has Paul behalf of the company. valuable insights during provided particularly his time on the Board, digital of issues around in respect disruption; James’ contribution over 40 years to Wesfarmers

objective ‘to provide a satisfactory provide objective ‘to They will to shareholders’. return of the in the size reduction in a result of leave it with a group company but each with good businesses strong a potential and, importantly, growth balance sheet. very strong does not mean That financial strength to make that we feel any urgency the fact from new acquisitions. Apart many opportunities for are that there in our existing businesses, growth occur ifnew investments will only we assess them to have the potentialwe assess them to have to ourto deliver superior returns over the long term. shareholders Managing Director The Group this point on many has reiterated occasions since his appointment. External the Royal events, including Commission into financial services, gave rise during the past year to extensive commentary about of and the role corporate reputation and management. company boards the These have ranged from suggestion that company directors involved in the details should be more of management; to the contention, are on the other hand, that boards overwhelmed with information; that the establishment of board the lines committees has blurred between governing and management; or that the focus of corporate objectives on financial outcomes is incompatible with good corporate directors company’s citizenship. Your have firm views on these issues. is to govern, not of directors The role to manage. The most important aspect is the appointment of the of the role and ensuring chief executive officer that the CEO assembles a competent whose management team. Directors involvement is part time cannot the detail of the possibly be across business. They delegate the running of the company to management; but play directors the second vital role ‘feet to the is holding management’s - ensuring that the company’s fire’ directed are policies and procedures outcomes, achieving desired towards that management understands and values communicates the company’s that bad and codes of behaviour, as fast as news travels upwards good news, that unacceptable behaviour is dealt with expeditiously aligned are and that employee rewards with performance. an important committees are Board element in achieving these goals. to gain a deeper They allow directors understanding of issues, including audit and risk matters, human safety practices and so resources, on; and to give management the benefit of their own experience in

The 2018 financial year was one of year was one The 2018 financial Wesfarmers, change for significant but some difficult, when we took to restructure important decisions in portfolio of businesses the Group’s of long term shareholder the interest returns. after profit On a statutory basis, net $1.2 billiontax fell 58.3 per cent to of impairment charges as a result costs for the Bunnings and closure (BUKI) Ireland United Kingdom and impairmentbusiness and a further of the Target business, partially business, of the Target on sale of the by a profit offset Curragh coal business. items andExcluding significant netdiscontinued operations, continuing operations from profit 5.2 per cent to $2.9 billion, a rose a which reflected pleasing result performance in the Group’s strong businesses, particularly in Bunnings Australia and New Zealand, and Department Stores. a fully-franked declared The directors final dividend of $1.20 per share, bringing the full-year dividend to the same as in 2017. $2.23 per share, Goyder Richard The succession from Managing to Rob Scott as Group in November 2017 was one Director of a number of changes in senior management during a year which also saw Anthony Gianotti appointed Chief Financial Officer as Group and new leaders appointed in the Industrials division and in Business has also Development. Wesfarmers seniorfurther of number a announced leadership changes that will occur in the first half of the 2019 financial that the is confident The Board year. new team assembled by Rob is well equipped to continue the company’s thanks of success. Our great record executives for their go to the retiring on dedication and outstanding efforts behalf of Wesfarmers. These management changes of have paralleled a restructuring portfolio of the conglomerate’s businesses. The BUKI operations sold and Curragh coal mine were of Coles demerger and the proposed was announced during the 2018 year. and the sale of Kmart Tyre Further, Auto Service, our 40 per cent interest in the Bengalla coal mine, and our in Quadrant Energy interest indirect announced in the months were The following the close of the year. is scheduled to Coles demerger be completed in November 2018, and other subject to shareholder approvals. the These disposals reflect and determination of the Board management to prioritise the stated achievement of Wesfarmers’

Wesfarmers 2018 Annual Report Wesfarmers MICHAEL CHANEY AO CHAIRMAN

MESSAGE CHAIRMAN’S CHAIRMAN’S Overview 8 BACK Operating and Directors’ Financial Signed Shareholder and Overview Sustainability Governance financial review report statements reports ASX information

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our dedicated team members across during this period of change. the Group has joined our Leadership Team to our Leadership Team has joined of and brings a wealth succeed Alan, to this important role. experience Anthony Gianotti year, Earlier in the to Chief Financial was promoted and we welcomed David Officer as Managing Baxby to the Group Industrials, and Wesfarmers Director, Director, Ed Bostock as Managing Business Development. Outlook of our on the strength When reflecting and ourbalance sheet, our businesses Wesfarmers’ that teams, I am confident best days lie ahead. to businesses our retail expect We deliver continued earnings growth further investment and through in their customer offers, improvement markets expanding their addressable and even better products and offering service. The focus of our Industrials on improving business will remain safety and operational efficiency while evaluating new opportunities to leverage our capabilities and capital. With the establishment of the we will Advanced Analytics Centre, further develop our digital and data we the Group, capabilities. Across talent focused on building great are and teams, and encouraging an will spirit. These areas entrepreneurial define the competitive advantage of in the decades to come. Wesfarmers approval, Subject to shareholder of Coles will enable the demerger position as its to reaffirm Wesfarmers a diversified conglomerate and higher capital towards reallocate opportunities. growth a 15 per cent will retain Wesfarmers in Coles, and will support shareholding investments in flybuys, our joint with Coles, that will provide venture opportunities to better leverage data and digital capabilities for the benefit of customers. will continue to take a long-term We balance sheet a strong retaining view, and capital discipline to enable us to take advantage of opportunities to value if and when shareholder create they arise. In conclusion, I extend my thanks to Rob ScottRob Director Managing Wesfarmers 2018 Annual Report Wesfarmers and wages. We are also delivering are We and wages. safety, in workplace improvements and in emissions intensity reductions around our processes strengthening businesses made Our ethical sourcing. both directly community contributions, customers and team and through members, of $148 million. People private is the largest Wesfarmers with somesector employer in Australia our across 217,000 team members performance of businesses. The strong the reflects our continuing operations teams. dedication of our hard-working it has Team Within the Leadership with the been a year of renewal of some key executives retirement The Managing the Group. across of Coles, John Durkan, Director will hand over to Steven Cain in September 2018. John has been instrumental in the turnaround of Director Coles, first as Merchandise as Managing recently and more John leaves Coles in great Director. shape and we thank him for his significant contribution. advisor, Our long-time retail will step down as Archie Norman, upon an advisor to Wesfarmers was of Coles. Archie the demerger in the successful a driving force of Coles and I am delightedturnaround that he will continue to advise the post-demerger. Coles Board, after Guy Russo will be retiring during which 10 years at Wesfarmers, turnaround he led the remarkable in the fortunes of Kmart, and more and oversaw the reset recently From Target. of to profitability return 1 November 2018, Ian Bailey will of Managing Director, assume the role in addition to his Department Stores of as Managing Director role current Kmart. Marina Joanou was promoted in of Target to Managing Director August 2018. Ian and Marina are exceptional executives who have the worked closely with Guy through and of Kmart successful turnaround of Target. reset recent as Managing is also retiring Mark Ward after 11 years of Officeworks Director of outstanding service, but will remain working on a number with the Group including the Advanced of projects Advisory Board, Analytics Centre safety project, leading a Group-wide of Bunnings. and on the board as Executive Alan Carpenter is retiring General Manager of Corporate Affairs, a position he has held since he joined advice and in 2009. Alan’s Wesfarmers counsel have been invaluable to many of us during that period, and we wish Naomi Flutter him well in retirement.

Finally, our Industrials Division also our Industrials Finally, returns well, with strong performed and Chemicals, Resources from modest and Fertilisers, and Energy in Industrial andearnings growth Safety. of In addition to the divestment also Homebase, Wesfarmers Curragh. completed the sale of the The sale of Curragh and 2018 announcement in August 40 per of the sale of Wesfarmers’ in the Bengalla mine cent interest coal exit from mark Wesfarmers’ strategic mining following a detailed of these assets. Both have review investments been very successful and I would like to for Wesfarmers thank the dedicated teams, sincerely ably led by Craig McCabe, for their over the years. efforts and Auto The sale of Kmart Tyre was also announced Service (KTAS) in August 2018. It achieved strong Wesfarmers’ under earnings growth ownership and the sale to Continental an opportunity to expand AG provides to customers with the backing its offer of a leading international company. team – we wish Thanks to the KTAS them the best for the future. The most significant transaction announced during the year was the Coles, which we to demerge proposal expect to complete in November 2018, and other subject to shareholder Coles is an iconic Australian approvals. company which has benefited from almost $9 billion of investment and a world-class transformation under ownership. Now a mature Wesfarmers’ business, Coles is well and profitable positioned for life as a separately Coles will provide listed company. to a with exposure shareholders cash-generative business which through is expected to be resilient economic cycles. The changes over the past year of the evidence of the strength are model. Notably our Wesfarmers capacity to move swiftly to manage our portfolio and the flexibility this provides our model of Further, for renewal. our divisional autonomy provides operating businesses with the ability focus on their a laser-like to retain customers and operations and deliver performance outcomes during strong times of change. we have always At Wesfarmers, a that we can only provide recognised to our shareholders satisfactory return long-term value for all by creating our stakeholders – team members, customers, suppliers and the communities in which we operate. we paid our team During the year, members over $9 billion in salaries

2018 financial year update, my first first year update, my 2018 financial It is my pleasure to provide the the to provide It is my pleasure Director. as Managing year of change forThis was a made progress with good Wesfarmers, the portfolio and ensure to reposition in place forwe have the right settings The changes sustained value creation. in progress we have made and those a steadfasthave been guided by objective commitment to our core a satisfactory return to to provide shareholders. these changes, our businesses Through result, with financial a strong delivered continuing operationsearnings from items growing and excluding significant after net profit 5.2 per cent. Reported the trading losses and tax reflected significant items associated with Bunnings United Kingdom and the Group’s and has strengthened financial position. Bunnings in Australia and New Zealand sustained with year, had another strong continued sales momentum reflecting in its customer offer improvement investment in price, range through and service. lower than theColes’ earnings were prior year due to the annualisation of investment in the customer last year’s items in the prior year and one-off offer, lower convenience earnings. It was pleasing to see Coles deliver earnings sales momentum and stronger growth in the second half of the year as a result in customer service of improvements execution. and retail division Our Department Stores earnings under record delivered ownership, with Kmart Wesfarmers’ building on its position as a leading development company global product was Target and discount retailer. earnings on theable to improve better cost and prior year through of its as the reset inventory control, conditions for continued. Trading offer challenging and this was remain Target in the non-cash impairment reflected during the year. recognised continues to build on its Officeworks and consistent performance strong It with another positive result. its is investing in and improving sophisticated omni-channel customer which delivers exceptional value offer and convenience to customers. Ireland and the sale of Homebase Ireland in June 2018. While this was a disappointing investment, the sale has of operating losses Wesfarmers freed capital and lease obligations, and future

Wesfarmers 2018 Annual Report Wesfarmers ROB SCOTT ROB DIRECTOR MANAGING REPORT DIRECTOR’S DIRECTOR’S MANAGING MANAGING Overview 10 BACK Operating and Directors’ Financial Signed Shareholder and Overview Sustainability Governance financial review report statements reports ASX information 13

JENNY BRYANT Resources Human Chief as appointed was Jenny Officer in October and2016 leads theWesfarmers Advanced Analytics team in addition to her human Wesfarmers joined She responsibilities. resources as thein 2011 Human Resources Director for Coles and held this role until when 2015 she took on the role of Business Development Director, Coles. Her previous work experience encompasses Mars, Vodafone and EMI Music in a number of global roles in operations, sales and marketing and resources.human ALAN CARPENTER GENERAL MANAGER, EXECUTIVE AFFAIRS, CORPORATE WESFARMERS* Alan joined Wesfarmers as Executive General Manager, Corporate Affairs in December 2009. Prior to that he was Premier of Western Australia from January 2006 to September 2008 and served years 13 in the Western Australian Parliament. Alan has also worked as a journalist with the Seven Network and the ABC and lectured in Australian politics at the University of Notre Dame, Fremantle. *Alan transitioned to the role of Senior Advisor in August and 2018 will retire in December 2018. FLUTTER NAOMI MANAGER, GENERAL EXECUTIVE AFFAIRS, CORPORATE WESFARMERS Naomi joined Wesfarmers as Executive General Manager, Corporate Affairs in August 2018. Prior to that she worked for Deutsche Bank for 20 years, most recently as the head of the Global Transaction Banking division for Australia and New Zealand. Naomi has honours degrees in Economics and Law from the Australian National University and a Masters of Public Policy from Harvard University’s John F Kennedy School of Government. CHIEF HUMAN OFFICER, RESOURCES WESFARMERS Wesfarmers 2018 Annual Report Wesfarmers

LINDA KENYON LINDA SECRETARY, COMPANY WESFARMERS Linda was appointed Company Secretary of Wesfarmers in April 2002 and is also company secretary of a number of Wesfarmers Group subsidiaries. Linda joined Wesfarmers in as 1987 legal counsel and held that position until 2000 when responsible the of Manager appointed was she entity for the listed BWP Trust (formerly Bunnings of Bachelor holds She PropertyWarehouse Trust). Jurisprudence and Bachelor of Laws degrees from The University of Western Australia and is a Fellow of the Governance Institute of Australia. DAVID BAXBY DAVID DIRECTOR, MANAGING INDUSTRIALS WESFARMERS David commenced as Managing Director, Wesfarmers Industrials Prior in August to 2017. this, he was President and Chief Executive Officer processing transaction shopping international of business, Global Blue. From 2004, David held a number of commercial and leadershiproles within the Virgin Group, and was Co-Chief Executive Officer Earlierto 2014. from 2011 in his career, David was a Partner and Executive Director of Goldman Sachs in both London and Sydney. David was formerly Chairman of Frontier Digital Ventures, and a director of Virgin Australia, Velocity Frequent Limited. Workpac and Unlockd Flyer, ED BOSTOCK DIRECTOR, MANAGING DEVELOPMENT, BUSINESS WESFARMERS Ed joined Wesfarmers in October as 2017 Prior Business Development. Director, Managing to joining Wesfarmers, he was a Director in the Private Equity team at the global investment firm Kohlberg, Kravis & Roberts from July 2007 where his focus was on private equity investment in Australia and New Zealand. From August 2004, Ed worked at Pacific Equity Partners as an Associate Director. He has a Bachelor of Science from the University of Melbourne.

Ian was appointed Managing Director, Kmart in February following 2016 the creation of the Department Stores division. Prior to this, Ian Kmart he Officer, where Operating Chief was was instrumental in Kmart’s turnaround. Ian’s experience covers a number of industries professional retail, services,including consulting, that positions in healthcare and technology business general sales, management, include holds Ian management. project and development Engineering Civil in degree Science of Bachelor a Management Advanced the completed has and School. Business Harvard at Program for responsibility additional the assume will *Ian from Department division the Stores leading 1 November 2018. GUY RUSSO OFFICER, CHIEF EXECUTIVE AND STORES DEPARTMENT TARGET* DIRECTOR, MANAGING Guy joined Wesfarmersin 2008 as Managing Director of Kmart, and was appointed Chief Executive Officer of the Department Stores division inFebruary and 2016 Managing Director, Target in April Prior 2016. to this, Guy worked for McDonald’s, beginning his career He was in 1974. Executive Chief Director Managing appointed and Officer at McDonald’s Australia from1999 before China Greater becoming President, McDonald’s from 2005 He is to 2007. currently on the Board of Guzman y Gomez and is President of global non- profit, OneSky, for orphaned and at-risk children. *Guyretired as Managing Director, Target on 14 August and 2018 will retire as Chief Executive Officer, Department Stores on 1 November 2018, when he will transition to the role of Senior Advisor. IAN BAILEY DIRECTOR, MANAGING KMART*

John was appointed Managing Director of Coles in July and 2014 he will transition to a senior advisor role with the Group in September John 2018. joined Coles in July 2008 as Merchandise Director and was subsequently appointed Chief Operating Officer in June 2013. He brings a wealth of customer, product and buying knowledge having worked years for 17 with Safeway Stores plc and as the Chief Operating Officer for Carphone Kingdom. United the in Warehouse * John will retire as Managing Director, Coles in mid-September and 2018, transition to the role of Advisor. Senior MICHAEL SCHNEIDER DIRECTOR, MANAGING BUNNINGS GROUP Director, Managing appointed was Michael Bunnings Australia and New Zealand in March 2016 and Managing Director, Bunnings Group Michael in May joined 2017. Bunnings in 2005, and prior to that he held a range of senior roles resource human commercial and operational, across regional and national markets, both in retail a Bachelor services. financial holds and Michael of Arts degree from the University of NSW and has at Program Management Advanced the completed INSEAD, and the Advanced Strategic Management Program at IMD. JOHN DURKAN DIRECTOR, MANAGING COLES* MAYA VANDEN DRIESEN VANDEN MAYA COUNSEL, GENERAL GROUP WESFARMERS Maya was appointed Group General Counsel of Wesfarmers in January Prior 2015. to this, Maya held a number of senior roles in the company including Legal Counsel – Litigation, Senior Legal Counsel and General Manager Legal – Litigation. Jurisprudence and of Bachelor holds Maya Bachelor of Laws degrees from The University of Western Australia and was admitted to practise as a barrister and solicitor in 1990. Prior to joining Wesfarmers, Maya practised law at Parker & Parker and Downings Legal.

ANTHONY GIANOTTI CHIEF FINANCIAL OFFICER, WESFARMERS Anthony was appointed Chief Financial Officer of Wesfarmers in November following 2017 his appointment as Deputy Chief Financial Officer Anthonyin July joined 2017. Wesfarmers in 2004 in Business Development and in 2005 and Relations Investor became Manager, Business Projects. In 2006, he was appointed Head of Business Development and Strategy of Wesfarmers Insurance, then Finance Director in 2009 and Managing Director in In 2013. August 2015, he was appointed Finance Director of the Wesfarmers Industrials division and its Deputy Managing Director in February 2017. ROB SCOTT SCOTT ROB DIRECTOR, MANAGING WESFARMERS Rob was appointed Managing Director of Wesfarmers in November following 2017 his appointment as Deputy Chief Executive Officer in February Rob joined 2017. Wesfarmers in 1993, he where banking, investment into moving before held various roles in Australia and Asia. He rejoined Wesfarmers in Business Development in 2004, was appointed Managing Director of Wesfarmers Insurance in 2007 and then Finance Director of Coles in Rob 2013. was appointed Managing Director, Financial Services and in 2014 then Managing Director of the Wesfarmers Industrials division from August until 2015 August 2017.

Wesfarmers 2018 Annual Report Wesfarmers

TEAM LEADERSHIP Overview 12 BACK Operating and Directors’ Financial Signed Shareholder and Overview Sustainability Governance financial review report statements reports ASX information 15 Robust Robust financial financial capacity long‑term long‑term management through responsible responsible through Ensure sustainability sustainability Ensure Entrepreneurial spirit Entrepreneurial Social Social responsibility Wesfarmers 2018 Annual Report Wesfarmers adding adding transactions Accountability directed at achieving the at achieving directed objective of primary Group’s a satisfactory return providing to shareholders. Renew the portfolio Renew the portfolio Innovation through value‑ through OBJECTIVE CORE VALUES GROWTH ENABLERS GROWTH culture Empowering Empowering VALUE CREATING STRATEGIES CREATING VALUE initiatives Openness Secure growth growth Secure entrepreneurial entrepreneurial opportunities through opportunities through chemicals, energy and energy chemicals, andfertilisers; industrial and coal. safety products; businesses Wesfarmers’ operate in predominantly Australia and New Zealand with the portfolio including insome of the leading brands these countries. is the Way The Wesfarmers framework for the company’s business model and comprises enablers values, growth core strategies and value-creating excellence Commercial Commercial To deliver a satisfactory return to shareholders return deliver a satisfactory To Integrity and satisfying and satisfying people customer needs customer needs Strengthen existing existing Strengthen businesses through businesses through operating excellence operating excellence Outstanding Outstanding THE WESFARMERS WAY THE WESFARMERS The Wesfarmers Way origins in 1914 as a our From Australian farmers’ Western has Wesfarmers cooperative, into one of Australia’s grown and listed companies largest withprivate sector employers, than 217,000 employees more and 495,000 shareholders. diverse business Wesfarmers’ review operations in this year’s home cover: supermarkets; department improvement; office supplies; stores;

Anthony GianottiAnthony Officer Financial Chief On behalf of the Board, I’m On behalf of the Board, the operating pleased to present Wesfarmers review of and financial for shareholders. primary objective Wesfarmers’ is to deliver satisfactory returns financial through to shareholders discipline and exceptional management of a diversified portfolio of businesses. A key is ensuring focus of the Group that each of its divisions has a management capability strong that is accountable for strategy development and execution, as well as day-to-day operational performance. Each division is of overseen by a divisional board or steering committee directors that includes the Wesfarmers and Chief Managing Director by and is guided Financial Officer, operating cycle and a Group-wide governance framework. This operating and financial sets out the Group’s review enablers objective, values, growth and strategies. It also outlines a of operational performance review as for the 2018 financial year, well as summarising the Group’s The 2018 risks and prospects. financial performance is outlined for each division, together with its competitive environment, strategies, risks and prospects. in should be read The review conjunction with the financial presented statements, which are on pages 97 to 144 of this annual report.

Wesfarmers 2018 Annual Report Wesfarmers ANTHONY GIANOTTI CHIEF FINANCIAL OFFICER

FINANCIAL REVIEW FINANCIAL OPERATING AND OPERATING Operating and financial review financial and Operating 14 BACK Operating and Directors’ Financial Signed Shareholder and Overview Sustainability Governance financial review report statements reports ASX information 17

planning framework. Wesfarmers uses planning framework. Wesfarmers in objective setting targets stretch and encourages team members to of in driving the creation be proactive value in their businesses. capital in order to allow the Group to allow the Group capital in order culture that encourages innovation, culture initiative entrepreneurial and rewards and creativity. responsibilitySocial Respect for employees, customers and suppliers and a relentless safe workplaces focus on providing fundamental to the way that are operates. Wesfarmers’ Wesfarmers extends to social responsibility of ethical maintaining high standards responsibility conduct, environmental and community contribution. capacity financial Robust balance By maintaining a strong aims to provide sheet, the Group a competitive cost and access to to act when value-creating themselves. opportunities present Innovation seeks to develop a Wesfarmers Wesfarmers 2018 Annual Report Wesfarmers

Deploying capital in its existing portfolio to drive continued growth in existing portfolio to drive continued growth Deploying capital in its markets positions in growing businesses with leading adjacent and capabilities to take advantage of Leveraging existing assets opportunities in opportunistic and value-accretive Disciplined investments (e.g., minority interest, various ownership models transactions through partnerships) full control,

Outstanding people Outstanding seeks to be an employer Wesfarmers of choice. Attracting outstanding people and utilising their individual talents is the most critical element in striving for sustainable success. that while great recognises Wesfarmers critical, it is assets and strategies are people who ultimately drive outcomes. excellence Commercial that it seeks to ensure Wesfarmers financial discipline employs strong the Group. in all its decisions across has a clear bias towards Wesfarmers commercial strong promoting its leadership base. capability across culture Empowering that an recognises Wesfarmers is critical to empowering culture engendering accountability for upon agreed delivering the results corporate the Group’s through • • • attribute of the Wesfarmers A core operating model is that each of our businesses operates with a high Rather than of autonomy. degree mandating detailed strategies or implementation plans, the Group focuses on ensuring that the in following six key enablers are place in our businesses, with a goal of driving operating performance to best practice. GROWTH ENABLERS GROWTH

EXISTING EXISTING ADJACENT ADJACENT PORTFOLIO TRANSACTIONS OPPORTUNITIES VALUE-ACCRETIVE VALUE-ACCRETIVE strengthening existing businesses strengthening operating excellence and through satisfying customer needs; opportunities securing growth initiative; entrepreneurial through the portfolio through renewing value-adding transactions; and ensuring sustainability long-term responsible through management.

APPROACH TO CAPITAL ALLOCATION CAPITAL TO APPROACH The Group evaluates a broad range of investment opportunities, including: range of investment evaluates a broad The Group very long-term horizon to investment decisions and remains applies a the Group in assessing these opportunities Importantly, value filter being whether the investment is going to create to evaluation, with the most important disciplined in its approach over time. for shareholders OUR VALUE-CREATING STRATEGIES Consistent with the Wesfarmers Consistent with the Wesfarmers primary objective the Group’s Way, a satisfactory return to provide is driven by four to shareholders strategies. overarching These are: • • • • each strategy is As shown below, well underpinned by the Group’s established strategic planning framework. A key attribute of this is the maintenance of a approach long-term focus and acting sustainably of value and the building in the creation of businesses. At a divisional level, detailed developed specific to strategies are each of the opportunities to improve our individual businesses. Divisional discussed within their strategies are summaries, starting on respective page 26.

ROC = EBIT/(capital employed).

capital productivity by managing capital productivity as well as existing assets efficiently, on any newmaking an adequate return capital deployed. for each division Minimum ROC targets cost of set based on their pre-tax are ROC targets capital, while satisfactory established based on the Group’s are annually which is reviewed ROE target, to the performance of with reference market. the broader 1 CASH FLOW GENERATION FLOW CASH BALANCE SHEET STRENGTH Given a key factor in determiningGiven a key movement inTSR performance is the can be price, which share Wesfarmers’ by factors outside the control affected marketof the company (including interest sentiment, business cycles, the Group rates and exchange rates), on equity (ROE) as afocuses on return key internal performance indicator. as a While ROE is recognised of financial fundamental measure level, ROC performance at a Group the principalhas been adopted as of divisional performance. measure businesses onROC focuses divisional earnings increasing and/or increasing With a focus on generating strong cash flows and maintaining balance sheet With a focus on generating strong through aims to deliver satisfactory returns to shareholders the Group strength, on invested capital. Recognising the value of franking returns improving Capital also seeks to distribute these to shareholders. Wesfarmers credits, this activity is time to time where management decisions may also be taken from interests. in shareholders’ In generating cash flow and earnings, the Group seeks to employ excellentIn generating cash flow and earnings, the Group to drive long-term earnings This growth. empowered management teams who are execution deploying best practice principles in operational is achieved through to strategy and results. and maintaining a long-term focus in regards of its the working capital efficiency continuously looks to improve The Group to capital discipline in relation strong ensures businesses. In addition, the Group and investment decisions. expenditure endeavours to achieve a cost of capital advantage while The Group act to be able to and flexibility in order maintaining balance sheet strength when opportunities arise. of funding, including bank This includes maintaining access to diverse sources facilities and global bond markets, and optimising funding costs. The Group ratings, investment grade credit metrics, in line with strong credit maintains strong supported by good cash flow generation and disciplined capital management. Risk is managed by smoothing debt maturities over time, limiting the total in any given year. repayments

DELIVERY OF LONG-TERM SHAREHOLDER RETURNS OF LONG-TERM DELIVERY . 1

Wesfarmers 2018 Annual Report Wesfarmers continue to invest in Group businesses where capital investment opportunities exceed return capital investment opportunities exceed requirements; businesses where continue to invest in Group wealth; and long-term shareholder doing so is expected to increase or divest businesses where acquire an optimised cost of capital and flexibility to risk profile, balance sheet to achieve an appropriate manage the Group’s take advantage of opportunities as they arise.

Improve returns on invested capital Improve distribution of franking Efficient credits to shareholders credits capital management Effective Diversity of funding sources Optimise funding costs metrics credit Maintain strong Risk management of maturities Drive long-term earnings growth Manage working capital effectively processes capital expenditure Strong Invest above the cost of capital Financial discipline APPROACH TO DELIVERING SATISFACTORY RETURNS TO SHAREHOLDERSRETURNS TO DELIVERING TO SATISFACTORY APPROACH The Group seeks to: • • • Growth in TSR relies on improving on improving in TSR relies Growth to relative invested capital from returns the and growing the cost of that capital rate ofcapital base at a satisfactory on capital (ROC) return Performance measuresPerformance OUROBJECTIVE objective of Wesfarmers The primary to a satisfactory return is to provide used by the The measure shareholders. to assess satisfactory returns Group over (TSR) return is total shareholder by our performance measure time. We against TSR comparing Wesfarmers’ Australian that achieved by the broader market index. Operating and financial review financial and Operating 16 BACK Operating and Directors’ Financial Signed Shareholder and Overview Sustainability Governance financial review report statements reports ASX information 19

Wesfarmers 2018 Annual Report Wesfarmers Maintain a strong focus and capability to evaluate focus and capability Maintain a strong long-term shareholder opportunities where growth value can be created. to Consider innovative investment approaches and provide models complement traditional growth optionality. future to approach a patient and disciplined Ensure investment opportunities is maintained. due diligence and post-acquisition Apply rigorous integration processes. to enable the Group balance sheet Maintain a strong to act opportunistically. fullConsider opportunities to divest assets either in value can long-term shareholder or in part, where be created. Continue to foster a more inclusive work Continue to foster a more particular focus on diversity with environment, age and ethnicity). (gender, the number of women in leadership Increase the Group. positions across Continue to look after the health, safety and development of our people. footprint. Minimise our environmental Contribute positively to the communities in which we operate. governance to structures appropriate Provide value creation. future safeguard in a products Continue to strive to source manner and work with suppliers responsible they meet our ethical, social and to ensure standards. environmental Invest in the local communities in which we operate. Continue to build and leverage the Group’s digital the Group’s Continue to build and leverage and data capabilities. enabler. innovation as a growth Continue to reinforce apply financial disciplines and Continue to rigorously financial evaluation methodologies. and encourage collaboration across Increase appropriate. divisions, where

Our focus for the coming years • • • • • • Our focus for the coming years Our focus for the coming years Our focus • • • • • • • • • • • •

Announced the intention to demerge Coles, subject Announced the intention to demerge A successful and other approvals. to shareholder set Coles up for success and will demerger on growth focus by Wesfarmers facilitate greater businesses as opportunities within its remaining transactions. well as the pursuit of value-accretive a very Divested the Curragh coal mine, realising over the successful investment for shareholders ownership. 16 years of Wesfarmers Divested BUKI, exiting a disappointing investment a compelling financial on terms that represent to the alternative outcome relative of retained ownership. announced the Subsequent to year-end, and Auto as well as the divestment of Kmart Tyre interest in Bengalla and indirect interest Group’s cases crystallising the in all in Quadrant Energy, under the period of significant value created ownership. Wesfarmers Further strengthened the Group’s balance sheet. the Group’s Further strengthened in our safety Achieved good improvements performance. focus on the development Maintained a very strong and management of our teams. diversity in our workplaces, Continued to promote self-identified Indigenous with 24 per cent more than 700 new including more employees this year, Indigenous employees at Coles. Advanced our executive development, retention and succession programs. Continued to actively contribute to the communities we in which we operate. In the 2018 financial year, and made community contributions, both direct of $148 million. indirect, Provided even greater value for customers even greater Provided of innovation-led reinvestment price through gains. productivity ranges and product Continued to innovate our value providing all businesses, categories across and quality to customers. channel and brand and extended Further improved format portfolio, focusing on store the retail in reach of online offers. innovation and the expansion particularly the Expanded customer programs, and the PowerPass offer flybuys loyalty program at Bunnings. use of data, supported Improved the Advancedby the establishment of Analytics Centre.

• • • • Our achievements • • • • • • • • • • • Our achievements Our achievements RENEWING THE PORTFOLIO RENEWING THE OPERATING SUSTAINABLY OPERATING SECURE GROWTH OPPORTUNITIES Our strategies Renew the portfolio value-adding through transactions Our strategies sustainability Ensure responsible through long-term management Our strategies growth Secure opportunities through entrepreneurial initiative SPIRIT ENTREPRENEURIAL Adopt an owner mindset Adopt an owner mindset encouraging teams to identify opportunities and apply and financial commercial acumen to support calculated risk-taking take Encourage our team to the initiative and pursue of new and innovative ways delivering value ACCOUNTABILITY will maintain its focus on driving long-term value Bunnings will maintain its focus on driving long-term value better customer value, creating by delivering more creation investing experiences for customers and the wider community, digital reach greater delivering in new and existing stores, of the business. The business will the core and strengthening customers and also deepen its engagement with commercial innovation. continue its merchandise strategy committed to its customer-led Coles remains service. Continued better value, quality and to provide the investment in value will be supported by simplifying The division has use of technology. greater business through and food offer of its fresh the quality plans to further increase convenient shopping alternatives for even more providing and returns-customers. Coles will also maintain a disciplined and both in-store to capital investment focused approach the business. throughout continued price leadership, better through Kmart aims to grow and a high performance culture. network growth ranges, store increased The business will continue to focus on delivering chain. and supply stores across operational efficiency will continue to focus on delivering quality fashion at Target easier customer experiences the best everyday price, creating network. These initiatives will be and optimising the store improved sourcing, supported by higher levels of direct disciplines and planning systems, and merchandise operational simplification. will continue to deliver a unique ‘one-stop shop’ Officeworks across It will extend its reach via its ‘every channel’ strategy. new categories and services, and drive all channels through improvements. further productivity will continue Chemicals, Energy and Fertilisers (WesCEF) operational performance while to focus on maintaining strong to its customers. delivering new and innovative products business Industrial and Safety continue to improve lowering the cost of doing business, performance through to customers and investing in core the offer improving systems and digital. • • • • • • • Our focus for the coming years Significant delegation of of Significant delegation authority and decision-making to divisions Accountability for performance and enhancing our Protecting reputation OPENNESS Openness and honesty in in Openness and honesty feedback and ideas reporting, make Accepting that people learnmistakes and seeking to them from Continued improvements in our in our Continued improvements including reinvesting customer offers, and in value to drive business growth ranges. merchandise improving Further optimised and invested in and digital networks store our retail channels. plant efficiency Focused on production customer and maintaining and growing in our Industrials division. relationships Further operational productivity costs and reduced improvements our businesses. across • • • • Our achievements

OPERATING EXCELLENCE OPERATING INTEGRITY

Wesfarmers 2018 Annual Report Wesfarmers Our strategies existing Strengthen businesses through operating excellence and satisfying customer needs Acting honestly and ethically Acting honestly and ethically in all dealings of doing a culture Reinforcing what is right CORE VALUES Operating and financial review financial and Operating 18 BACK Overview Operating and financial review

BACK YEAR IN REVIEW financial review andOperating Overview Divisional financial performances are Proceeds from disposals of Balance sheet Debt management and The Group maintained strong and outlined in pages 26 to 57. $606 million were $47 million financing stable credit ratings during the year. The Group reported a net profit after below last year which included the The Group further strengthened Moody’s Investors Services’ rating tax (NPAT) of $1,197 million for the year Operating cash flow divestment of Coles’ interest in a its balance sheet during the year. The Group’s strategy is to diversify its remained unchanged at A3 (stable) and ended 30 June 2018. The reported Net financial debt at the end of the funding sources, pre-fund upcoming Operating cash flows of $4,080 million number of joint venture properties to Standard and Poor’s revised its outlook profit includes a loss from discontinued ISPT, and the sale of land by WesCEF. period, comprising interest-bearing maturities and maintain a presence in for Wesfarmers’ A- rating from negative

were 3.5 per cent below the prior year, operations of $1,407 million, which The resulting net capital expenditure liabilities net of cross-currency key markets. to stable. reflects the trading results and primarily due to higher tax payments interest rate swaps and cash at bank of $1,209 million was $181 million or In March 2018, US$750 million significant items for BUKI and during the financial year, relating to tax and on deposit, was $3,580 million, 17.6 per cent higher than the prior year. ($728 million, including associated Curragh, which were divested payable for earnings from Resources in $741 million below the net financial the prior year. cross-currency interest rate swaps)

during the financial year. NPAT from debt position at 30 June 2017. In Sustainability Free cash flow of bonds were repaid using existing continuing operations, excluding a The Group maintained a strong focus addition to a reduction in net financial cash balances and bank facilities. $300 million non-cash impairment on working capital management Stable operating cash flows, higher debt, the Group’s balance sheet was In addition, more than £705 million in Target, increased 5.2 per cent to resulting in a cash realisation ratio net capital expenditure and lower other also significantly strengthened by a ($1,240 million) of bank facilities were $2,904 million. of 100.6 per cent. In aggregate, the investing cash flows resulted in free reduction in off-balance sheet lease cancelled as part of the divestment of Group achieved a neutral working cash flows of $3,422 million. liabilities as a result of the disposal The 2018 financial year was one of BUKI in June 2018. significant change for Wesfarmers, with capital result, reflecting increased net Other investing cash flows were of BUKI. Finance costs, including discontinued decisive actions taken to reposition the working capital investment in BANZ $551 million which included proceeds Capital employed at year-end operations, decreased 16.3 per cent Group’s portfolio to deliver sustainable to support the growth in the store from the disposal of Curragh, was $25,941 million. This was to $221 million as a result of a lower growth in earnings and improved network, offset by improved working partially offset by cash within BUKI $1,641 million lower than last year average net debt balance. The shareholder returns. These actions, capital management in Target as well that was retained by the business mainly due to the divestments of

Group’s ‘all-in’ effective borrowing Governance including the proposed demerger of as inventory clearance in BUKI prior on divestment to support working BUKI and Curragh and impairments cost increased 14 basis points to Coles, and the divestments of Curragh to divestment. capital requirements and other in Target. These divestments resulted 4.18 per cent due to the repayment and BUKI, demonstrate a disciplined financial obligations. This result was in lower working capital balances, of lower cost bank debt as the approach to capital allocation and Capital expenditure $424 million lower than last year which lower property, plant and equipment Group’s net debt balance declined portfolio management. included the proceeds on disposal balances as well as a reduction in Strict capital disciplines were throughout the year. Lower finance of Coles’ credit card receivables of provisions and other liabilities primarily Retail earnings (from continuing maintained while investment in organic costs contributed to strong liquidity $947 million. due to the de-recognition of employee operations and excluding significant growth opportunities continued. Gross metrics, with cash interest cover (R12) and other provisions in BUKI and mine items) increased 5.2 per cent during capital expenditure of $1,815 million increasing to 30.4 times and fixed site rehabilitation provisions in Curragh. the year, with Bunnings Australia and was $134 million higher than last year, charges cover (R12) relatively stable The proceeds from the divestment New Zealand (BANZ), Department reflecting an increase in BANZ store at 3.0 times. of Curragh also contributed to the Stores and Officeworks achieving very openings relative to the prior year and report Directors’ strong results. Industrial earnings from the acquisition of the Kmart brand improvement in net financial debt. continuing operations were also higher, name in Australia and New Zealand for supported by strong contributions from $100 million, partially offset by lower WesCEF and Bengalla. capital expenditure in Coles.

Net profit after tax Earnings per share Group capital employed Cash capital expenditure

2018 2017 2018 2017 $2,772m 245.1 cents 1 Year ended 30 June $m $m Year ended 30 June $m $m statements Financial (excluding significant items) (excluding significant items)

3,000 300 Inventory 6,011 6,530 Coles 715 805 FY18 EXCLUDING SIGNIFICANT ITEMS 2,500 FY18 2,772 250 FY18 245.1 Receivables and prepayment 1,939 1,936 BANZ 497 367 EXCLUDING SIGNIFICANT ITEMS

2,000 FY17 2,873 200 FY17 254.7 REPORTED Payables (6,552) (6,616) Department Stores 293 225 Other 492 410 Officeworks 36 1,500 FY16 2,353 150 FY16 209.5 45 Net working capital 1,890 2,260 WesCEF 60 44 1,000 FY15 2,440 100 FY15 216.1 500 50 Industrial and Safety 50 34 FY14 2,253 FY14 196.6 Property, plant and equipment 8,408 9,440 0 0 • 2017 and 2018 includes the operational results of Resources 14 14 discontinued operations (Curragh and BUKI which Goodwill and intangibles 17,860 18,936 14 15 16 17 18 14 15 16 17 18 Other & Discontinued 141 156 reports Signed were disposed of during the financial year). Other assets 970 622 Total cash capital • 2018 excludes the following post-tax amounts: Provisions and other liabilities (3,187) (3,676) Return on equity Free cash flow $1,023 million of BUKI impairments, write-offs expenditure 1,815 1,681

and store closure provisions; a $375 million loss Total capital employed 25,941 27,582 on disposal of BUKI and $300 million of Target Sale of property, plant impairments, partially offset by a $123 million gain 11.7% $3,422m 2 and equipment (606) (653) (excluding significant items) on sale of Curragh. Net financial debt excluding financial services debt (3,580) (4,321) • 2016 excludes the following post-tax significant Net cash capital 15 5,000 Net tax balances 393 680 items: $1,249 million non-cash impairment of expenditure 1,209 1,028 FY18 11.7 FY18 3,422 Target; $595 million non-cash impairment of Total net assets 22,754 23,941 4,000 12 Curragh; and $102 million of restructuring costs FY17 12.4 FY17 4,173 and provisions to reset Target. 9 3,000 1 Balances reflect the management balance sheet, which is based on different classification and groupings • 2014 excludes $1,179 million in discontinued than the balance sheet in the financial statements. FY16 9.6 FY16 1,233 information ASX Shareholder and 6 2,000 operations relating to the disposal of the 2 Net financial debt is net of cross-currency interest swaps, interest rate swap contracts and cash at bank FY15 9.8 FY15 1,893 Insurance division and WesCEF’s interest in and on deposit. 3 1,000 Air Liquide WA Pty Ltd along with ($743 million) FY14 8.8 FY14 4,178 in non-trading items relating to the impairment of 0 0 Target’s goodwill and Coles Liquor restructuring 14 15 16 17 18 14 15 16 17 18 provision.

20 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 21

Operating and Directors’ Financial Signed Shareholder and Overview Sustainability Governance financial review report statements reports ASX information 23 Governance has of Wesfarmers The Board the highest level of oversight and for climate change within responsibility and Each divisional board the Group. for management team has responsibility identifying and managing any material business risks and opportunities, including climate change, in accordance Risk Management with the Group’s Framework. Divisional management an annual risk report teams provide divisional boards to their respective CLIMATE-RELATED DISCLOSURES FINANCIAL the transition supports Wesfarmers This to a low carbon economy. both risks and opportunities presents this facilitate for our businesses. To is committed to transition, Wesfarmers of implementing the recommendations Taskforce Board the Financial Standards Disclosures on Climate-Related Financial project (TCFD). This will be a multi-year our capabilities,as we continue to build and improve capitalise on opportunities recognise We in this area. disclosures substantialthat while we have made still have further we this year, in-roads work to do. the importance recognises Wesfarmers financial disclosures of climate-related allocation of capital to enable efficient within markets and to drive the transition to a sustainable global economy for is working towards all. Wesfarmers embedding our climate change strategy in all aspects of our business, in an our environmental to reduce effort footprint while also achieving long Wesfarmers term sustainable growth. supports the UN Sustainable Development Goals and aims to make against these goals, because it progress is good for our businesses, employees, suppliers and investors, but also outcomes for all in because it improves our local communities, industries, across Australia and in the global community. During the 2018 financial year, we completed detailed gap and benchmarking analysis to ascertain achieving good outcomes we are where we need to improve. and where the complex recognises Wesfarmers of many of the challenges facing nature our businesses, our communities and our world, because of global look forward change. We environmental to facing the challenges ahead and being part of the solution to achieve a low carbon economy. Wesfarmers 2018 Annual Report Wesfarmers

demerger capital structure, structure, capital demerger Following decisive actions taken to actions taken Following decisive of underperformance areas address portfolio in the Group’s and reposition Wesfarmers the 2018 financial year, sustainableis well placed to deliver in earnings and improved growth returns. shareholder has been Significant progress of Coles, made on the demerger completedwhich is expected to be toin November 2018, subject and other approvals. shareholder The post- is expectedannounced in July 2018, andto set Coles up for success the business with significant provide operational and strategic flexibility. Coles’ balance sheet will have and allow it to make headroom additional investments in new stores, renewals, the next evolution of store supply chain and online capability, Tomorrow’ deliver on its ‘Fresh strategic initiatives. Wesfarmers Following the demerger, will have a portfolio of cash-generative businesses with good momentum and markets. leading positions in growing is expectedContinued earnings growth businesses. retail the Group’s across will markets addressable Growing a focus, along with ongoing remain and in merchandising improvements service, further enhancements to the customer experience both in-store and online, and investments in value supported by operational efficiencies. Industrial businesses The Group’s will continue to focus on operational and capital cost control efficiencies, discipline. Industrial earnings will continue to be influenced by international prices, commodity exchange rates, competitive factors and seasonal outcomes. Earnings for the Chemicals business in the expected 2019 financial year are by an oversupply of to be affected explosive-grade ammonium nitrate in Australian market, subject the Western to competitive factors. Wesfarmers In the coming year, will continue to focus on leveraging its data and digital capabilities, talent and teams, and developing great initiative. The driving entrepreneurial generally optimistic and remains Group balance sheet position, cash its strong flow generation and capital discipline will continue to be prioritised to take opportunities, if advantage of growth value for and when they arise, to create over the long term. shareholders PROSPECTS

Non-compliance with applicable and standards laws, regulations or legislative Adverse regulatory change or implications of policy instability volatility Currency Adverse commodity price movements Reduced access to funding Climate change Increased competition Increased execution of strategy Ineffective Loss of key management personnel Damage or dilution to brands Wesfarmers’ Digital disruption to industry structures Geopolitical uncertainty Loss of critical supply inputs or including IT systems infrastructure, Loss of data Business interruption arising industrial disputes and from work stoppages in distribution and Risks inherent sale of products People safety

Regulatory • • Financial • • • Emerging • RISKS the recognises Wesfarmers of, and is committedimportance monitoringto, the identification, risksand management of material across associated with its activities the Group. sets out theThe following information are risks. These major Group-wide and do not not in any particular order as changesinclude generic risks such conditions or the to macroeconomic affecting political or security situation in Australia,business and households all companies with which would effect and which presence domestic a large on the effect could have a material performance of the Group. future Further information on risk management can be found on page 71 and in the 2018 Corporate Governance Statement available in the corporate governance website at section of the company’s www.wesfarmers.com.au/cg Strategic • • • • • • Operational • • • • • 18 223 223 186 200 200 17

1 16

1

15 FY18 FY17 FY16 FY15 FY14

14 18 13 17 12 16 11 10 15 09 14 08 0 Assumes 100 per cent dividend reinvestment Assumes 100 per cent dividend reinvestment on the ex-dividend date, and full participation in capital management initiatives (e.g., rights buybacks). issues and share Bloomberg. Source: 2014 includes a 10 cents per share special special 2014 includes a 10 cents per share ‘Centenary’ dividend. 50 250 200 150 100 WESFARMERS LIMITED TSR INDEX WESFARMERS ASX 200 ACCUMULATION INDEX ASX 200 ACCUMULATION 50

1 300 250 200 150 100 TSR: Wesfarmers and TSR: Wesfarmers ASX 200 Dividends per share 1 223 cents 23 21.4% 43.0% 35.6% 1 22 21 20 1 19 18 Bank Bilaterals Bonds Euro Domestic Bonds 0 As at 30 June 2018. As at 30 June 2018. As at 30 June 2018. As at 30 June 2018. 800 400 BANK FACILITIES BANK AND ON DEPOSIT CASH AT CAPITAL MARKETS CAPITAL

1200 (400) 1 shares issued under the Plan will be shares of the dailycalculated as the average price ofvolume weighted average the 15 on each of shares Wesfarmers and from consecutive trading days trading day after the including the third date, being 24 August 2018 to record 13 September 2018. of applications The last date for receipt cease or varyto participate in, or to is 22 Augustparticipation in the Plan, apply to the2018. No discount will Plan will not beallocation price and the to be allocated underwritten. Shares to under the Plan will be transferred participants on 27 September 2018. metrics credit strong Given the Group’s and stable cash flow performance for to be issued under any shares the year, on-market the Plan will be acquired to participants. and transferred 1 Debt maturity profile ($m) Debt maturity profile Debt sources 9 8 6 4 2 0 18

17

16

15

14 Wesfarmers 2018 Annual Report Wesfarmers 0 FINANCE COSTS (LHS) FY18 FINANCE COSTS (LHS) WEIGHTED AVERAGE COST OF DEBT (RHS) WEIGHTED AVERAGE 500 400 300 200 100 of debt (%) Finance costs ($m) and weighted average cost YEAR IN REVIEW IN YEAR Dividends shareholder A key component of total dividends paid to is the return shareholders. dividend policy considers The Group’s current available franking credits, cashearnings and cash flows, future credit and targeted requirements flow metrics. a fully-franked has declared The Board dividend of 120 cents per final ordinary This takes the full-year ordinary share. in line per share, dividend to 223 cents The final dividend with the prior year. will be paid on 27 September 2018 on the company’s to shareholders on 21 August 2018, the record register date for the final dividend. of many Given the preference dividends in to receive shareholders have the directors the form of equity, decided to continue the operation of the Dividend Investment Plan (the ‘Plan’). The allocation price for Operating and financial review financial and Operating $3,580 million. $741 million to Net financial debt reduced 22 BACK Operating and Directors’ Financial Signed Shareholder and Overview Sustainability Governance financial review report statements reports ASX information 25 e) 2

Total 5,119 5,145 5,060 5,168 5,360 (’000 tCO 1 e) 2 1,098 1,048 1,253 1,282 1,174 (’000 tCO Scope 3 GHG Wesfarmers 2018 Annual Report Wesfarmers e) 2

3,945 4,047 4,012 3,915 4,078 (’000 tCO Scope 1 & 2 GHG 2 Scope 3 GHG includes emissions from joint ventures. from Scope 3 GHG includes emissions mine during FY18. FY18 data includes divested its Curragh Wesfarmers March the Curragh mine for the period 1 July 2017 to 29 emissions from have been estimated for the business. 2018. Some emission sources

FY14 FY15 FY16 Officeworks has reduced electricity usage by 11 per cent since 2015 equating has Officeworks emissions. gas to 17 per cent less greenhouse all facilities licence compliance requirements As part of ongoing environmental and air water efficiency must comply with stringent emissions, water quality, quality requirements. to below baseline and forecast facilities are Mechanism all Under the Safeguard enacted. based on legislation as it is currently below, remain been completed. A business-wide already have Significant abatement projects that opportunities are ensures efficiency water and waste focus on energy, at all facilities. improvements process as part of ongoing constantly reviewed renewable to source a ten-year 30MW PPA into During 2018, Kleenheat entered for its customers. energy Air Separation Unit in Since 2015, Industrial and Safety (excluding Coregas solar in electricity through Mackay) has achieved a 25 per cent reduction projects. installations and LED retrofit During 2018, nine stores had solar PV systems installed, taking the total number During 2018, nine stores area. of roof metres covering 25,000 square of solar PV systems to 23 stores, during the same LED lighting into 12 existing stores Bunnings also retrofitted to date. retrofitted period, with 26 stores four years early in 2016. Since 2009, Coles has achieved Coles met this target gas emissions, including a 74 per cent in greenhouse a 35 per cent reduction due sources refrigerant gas emissions from in scope one greenhouse reduction upgrades. and HVAC to ongoing refrigeration strategy of lowest cost abatement first, combined with An overarching specifically around data collation, analytics, systems and processes, improved to drive demand management, has enabled our Department Stores energy projects. efficiency energy their electricity usage by 15 per cent since 2015 have reduced Kmart stores of store gas emissions per metre equating to 20 per cent less greenhouse building area. electricity usage by 32 per cent since 2015 their have reduced stores Target of store gas emissions per metre equating to 36 per cent less greenhouse building area. FY17 1 2 FY18 Progress 250 200 150 100 50 0 ) (LHS) 18 e 2 ) (LHS) e 2 17 16 15 Officeworks has set a target of a 15 per cent reduction of a 15 per cent has set a target Officeworks electricity usage gas emissions from in greenhouse to 2015. compared been realised have already Most abatement projects business. The focus is on ongoing for the WesCEF of continuous review a process through improvements and action. of a Industrial and Safety has an internal target year on year. in electricity used 10 per cent reduction Bunnings is accelerating energy reduction through through reduction Bunnings is accelerating energy installations and lighting energy renewable more roll out 25 solar PV systems and and will efficiencies, in the 2019 financial year. 19 LED retrofits its greenhouse to reduce In 2009, Coles set a target gas emissions by 30 per cent by 2020. of target efficiency Kmart has set an energy metre per square of energy 20 per cent reduction to 2015. by December 2020 compared of target efficiency has set an energy Target by metre per square of energy 25 per cent reduction to 2015. December 2019 compared Targets and business priorities Targets e PER $M OF REVENUE (RHS) 2 14 0 TONNES CO

SCOPE 1 & 2 GHG (THOUSAND TONNES CO SCOPE 3 GHG (THOUSAND TONNES CO EARNINGS PER SHARE (CENTS) (RHS) 6000 5000 4000 3000 2000 1000 Officeworks Industrials and performance can be found on pages 58 to 65 of this sustainability initiatives, projects Additional detail on Wesfarmers’ or in the online Sustainability Report at sustainability.wesfarmers.com.au report Greenhouse gas emissions Greenhouse Division Bunnings Coles Department Stores The Wesfarmers conglomerate model allows for management and accountability targets within individual businesses and as within individual targets conglomerate model allows for management and accountability The Wesfarmers business model has been set. Each business tailors its emissions management to its target no single Group-wide a result in strategies to resulting have been set per source, setting. In some instances targets to target in varied approaches resulting portfolio, the risks and of the businesses in the Wesfarmers of the diverse nature As a result and emissions. energy reduce to a similar outcome in another. in one business do not necessarily translate opportunities presented Metrics and targets and Metrics purposes. voluntary reporting obligations and compliance regulatory carbon emissions for monitors Wesfarmers analysis. and drive our risk of our climate strategy support the effectiveness of emissions will The monitoring

Mitigation and opportunity The rate of technological advancement in renewable energy generation and energy The rate of technological advancement in renewable both risks and opportunities to all our low-cost abatement technologies present looking to capitalise on technologies actively businesses. Our businesses are data improving are We available as well as looking at new opportunities presented. allocation and efficiency which is driving better resource processes, and reporting accountability and ownership. of increased as a result The importance and power of data and analytics will be part of the sustainable technological drive to a low-carbon economy. opens up a range of opportunities Lower cost generation achieved by renewables Power Purchase Similarly, sources. renewable from cheaper energy to source an opportunity to hedge provide evolving in this area currently (PPAs) Agreements alternate contract arrangements. commodity supply risk through along with lowest sources, Emphasis is placed on ‘behind-the-meter’ renewable well placed to enter into first, ensuring the businesses are cost abatement projects viable. commercially as they become more PPAs and analysis of investment opportunities, including the research Thorough application of an internal carbon price, mitigates poor investment decisions being made while capitalising on opportunities presented. to mitigate legal and investor activism risks. Refer above under Legal for efforts Ensuring energy efficiency across all store networks and facilities will help mitigate all store across efficiency Ensuring energy cost and usage requirements. energy increased in supply chains will Further analysis of embedded carbon and water costs as well as exploration of opportunities to meet drive additional mitigation efforts changing consumer demands. of a Mechanism make the introduction Legislative levers built into the Safeguard possible. Application of an internal enables carbon price carbon pricing regime facilities and projects management of potential carbon liability risks for existing or acquisitions. reduction and water and carbon footprint efficiency, a focus on energy Through risk. to regulatory initiatives, we aim to manage our exposure Further analysis of carbon and water within supply chains will enable a proactive forward. to managing these risks going approach our these risks from options to remove Analysis of stranded assets has provided industries. in lower-risk business while highlighting opportunities for growth risks, enables of all climate-related analysis and disclosure reporting, Improved to mitigate this risk. efforts to accurately assess our shareholders Improving resilience within our businesses to enable a rapid return to normal resilience Improving or acute climate events. operations with minimal impact following any extreme performance will on environmental monitoring and reporting controls, Improving and adapt to climate in operations to further prepare also drive improvements change.

Risk The risks of disruptive technologies affecting The risks of disruptive technologies affecting demand for our products. The integration of new and old technologies can be complex, while the implementation of new or in in a decrease technologies can result unproven if not managed correctly. productivity The supply and demand for consumables and commodities will change as consumer and demand shifts to lower carbon products insecurity technologies evolve. Environmental water costs for electricity, in increased resulting and other raw materials, could impact market penetration and share. of effects on managing the A lack of direction risk of an increased climate change creates stakeholder and damage through reputational of incorrect investor activism or as a result investment decisions being made. Changes in mean temperatures and rainfallChanges in mean temperatures patterns and will lead to changing consumer of materials couldbusiness needs. Sourcing expensive due to water scarcity become more and a move to phase-out unsustainable products. Government carbon) policy (including pricing mechanism may and any other regulatory costs for companies with carbon or increase exposure. other climate and environmental to water and in relation Additional regulation over stringent biodiversity may become more and pollution of resources time as scarcity concerns continue to escalate. attention by stakeholders, particularly Greater litigation. investors, could lead to increased Litigation is likely to be a higher risk for heavily on revenue companies which rely unlikely to be that are products from sourced in a carbon-constrained world. required Extreme weather events such as fires, floods weather events such as fires, Extreme supply and logistics and cyclones could affect chains and manufacturing facilities within many of our businesses.

Market Reputation Technology Legal Chronic Policy Acute Impact

Wesfarmers 2018 Annual Report Wesfarmers

Transition risks Transition Physical risks Physical security and pricing of energy supply; and energy security and pricing of associated with climate change. and competitive risks reputational physical, regulatory, Topic

Wesfarmers’ climate strategy drives our environmental, energy, waste and water initiatives. By taking a proactive approach approach waste and water initiatives. By taking a proactive energy, climate strategy drives our environmental, Wesfarmers’ to maximise lowest cost abatement the portfolio, we aim risks and opportunities throughout to managing climate-related has applied an internalWesfarmers carbon price chain systems. waste and supply our energy, opportunities first and improve the findings high level risk analysis has commenced, part of the risk procedure, to capital allocation decisions since 2014. As set out below. of which are Strategy Risks and opportunitiesRisks and Through the TCFD project Wesfarmers Wesfarmers the TCFD project be developed. Through including risk mitigation opportunities, will Further impact analysis, and matures As the project risks and opportunities within the businesses. of climate-related will expand our understanding granular analysis, more our businesses, we will move towards within and controls processes reporting we embed improved to be in a expect We disclosures. in improved scenario analysis, resulting one, two, and four degree including comprehensive annual report. next year’s position to include this scenario analysis in Risk management Risk with the Wesfarmers in accordance annual risk review and its businesses undertake a thorough Wesfarmers vehicle for the most efficient our businesses and provides This is well established throughout Management Framework. Risk Management information on the Wesfarmers management and mitigation. Further climate change risk assessment, on page 71 of this report. Framework is available Wesfarmers’ divisions assessed: review, year risk For the 2018 financial • • for review and approval, prior to providing the report to the Wesfarmers Leadership Team at the annual planning forum. A at the annual Team Leadership to the Wesfarmers the report to providing prior and approval, for review for further Wesfarmers of and the Board and Risk Committee to both the Audit is provided report risk Group consolidated the full and governance information on corporate Additional to 71 of this report on pages 68 is available approval. and review website at Governance2018 Corporate corporate governance is available on the Statement section of the company’s Operating and financial review financial and Operating www.wesfarmers.com.au/cg 24 BACK Overview Operating and financial review — Retail businesses Operating and financial review — Retail businesses BUNNINGS AUSTRALIA AND NEW ZEALAND

BACK

PROSPECTS financial review andOperating Bunnings’ strategic pillars of price, range and service remain as relevant as ever and continue to BUNNINGS underpin our focus on delivering a winning offer to customers. Our customers value convenience and Founded in 1886 in service and we are focused on WA, Bunnings opened offering a wide range of products

YEAR IN REVIEW and services to meet their needs. Sustainability its first warehouse in Our focus on growth remains Sunshine, Melbourne Revenue EBIT strong and we are confident that there is significant scope in 1994. Bunnings is for further growth in consumer the leading retailer of $12,544m $1,504m and commercial markets. Leveraging our physical network, home improvement 2018 12,544 2018 1,504 embracing technology, and a strong commitment to making and outdoor living 2017 11,514 2017 1,334 our business simpler to run are products in Australia 2016 10,575 2016 1,212 focus areas that strengthen our Governance and New Zealand and a 2015 9,534 2015 1,088 core and allow us to continue 2014 8,546 2014 979 to invest in service, value and major supplier to project growth initiatives. builders, commercial We are accelerating and significantly evolving our digital tradespeople and the capabilities to ensure that the housing industry. Key financial indicators experiences our customers and local communities know us for For the year ended 30 June 2014 2015 2016 2017 2018 are even stronger and more Revenue ($m) 8,546 9,534 10,575 11,514 12,544 accessible than ever. Earnings before interest and tax ($m) 979 1,088 1,212 1,334 1,504 We see an opportunity to broaden report Directors’ Capital employed (R12) ($m) 3,343 3,244 3,312 3,192 3,045 our addressable market. We are Return on capital employed (%) 29.3 33.5 36.6 41.8 49.4 challenging ourselves to think more about seasonality in the Capital expenditure ($m) 531 711 533 367 497 business, which will open up new category opportunities and enable further improvements in existing categories. Doing more to tailor product ranges to suit different PERFORMANCE DRIVERS regions will make us even more relevant to our customers in the statements Financial Operating revenue from Bunnings Sales growth was achieved in markets where they live or run Australia and New Zealand both consumer and commercial their business. increased 8.9 per cent to $12,544 markets with a continued focus million. Total store sales growth on improving the core drivers of

of 8.9 per cent was achieved price, range and service. during the year, underpinned by Further investments in customer an increase of 7.8 per cent in value, the introduction of store-on-store sales. Bunnings online transactional capability Australia and New Zealand for special orders, deeper recorded EBIT of $1,504 million, commercial engagement an increase of 12.7 per cent on and continued merchandise reports Signed last year. innovation were highlights.

Growing talent Michael Schneider Bunnings team member Managing Director, Aaron Boatwright began Bunnings Group his career at Bunnings as a casual employee

and after more than information ASX Shareholder and 20 years is now the IT Operations Manager, Western Australia.

26 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 27

Overview Operating and financial review — Retail businesses Operating and financial review — Retail businesses

BACK Our business The immediate focus has been to implement more energy efficient BUNNINGS’ CUSTOMER- Bunnings is the leading retailer of ways to operate by reducing

home improvement and outdoor reliance on grid-sourced energy. FOCUSED APPROACH financial review andOperating BUNNINGS living products in Australia and By the end of the year, 23 CONTINUED TO UNDERPIN New Zealand. Bunnings is a Bunnings stores in Australia were AUSTRALIA AND major supplier to project builders, installed with solar systems. PERFORMANCE GAINS commercial tradespeople and the housing industry. Bunnings continues to drive IN AUSTRALIA AND NEW ZEALAND product stewardship initiatives on Bunnings is focused on creating a local level for products such as NEW ZEALAND. value for its customers over the paint and batteries, and during long term. The long-term value the year a number of locations creation approach is based on hosted ‘Paintback’ drop-off days, THE INTRODUCTION OF four interlinked principles: a allowing customers to bring in ONLINE TRANSACTIONAL Sustainability winning offer to customers; an unwanted paint and packaging Growing talent engaged, focused and committed for recycling. CAPABILITY FOR SPECIAL workforce; business behaviour PERFORMANCE DRIVERS Bunnings team member Hayley Coulson Bunnings strives to ensure that has worked in the business for nine that builds trust; and sustainable ORDERS, CONTINUED satisfactory shareholder returns. products meet or exceed the Sales growth was achieved in market conditions led to years. Hayley began her career as an requirements of local and global MERCHANDISE INNOVATION, both consumer and commercial positive outcomes on property Administrative Coordinator and is now Bunnings employs more than standards, and continues to markets, across all trading divestments. A higher level of State Operations Manager for Western 43,000 team members across Australia. proactively engage its service DELIVERY OF MORE regions and product categories. one-off costs relating to store Australia and New Zealand. providers to strengthen social, Continued increases in customer closure provisioning and Bunnings stores stock around labour and environmental CUSTOMER VALUE AND numbers reflected ongoing asset writedowns in the prior 45,000 products and an expanded practices. In January 2018,

DEEPER COMMERCIAL Governance actions to improve the core corresponding period assisted range of over 20,000 products is Bunnings announced its drivers of the consumer and EBIT growth. available through a special order commitment to remove ENGAGEMENT WERE commercial offers: price, range Further investment in new stores service both online and in-store. neonicotinoid-based insecticide and service. and store refurbishments was REVENUE EXCEEDED garden care products from retail HIGHLIGHTS OF THE YEAR. The good trading performance offset by funds released from Our market shelves by the end of 2018. is a direct outcome of a strategic the property recycling program. In Australia and New Zealand, Bunnings’ highest priority is agenda focused on multiple The combination of strong Bunnings caters for consumers to maintain a positive safety growth drivers and ongoing earnings growth and disciplined $12.5b as well as light and heavy performance trend as the improvements to the underlying capital management resulted in commercial customers across business grows, the store strength of the business. a significant increase in return the home improvement and network increases and more Highlights included the delivery on capital. outdoor living market, operating team members are employed. report Directors’ of more customer value, the During the period, there were EBIT GREW TO from a network of large warehouse introduction of online transactional 10 net new store openings. stores, smaller format stores, Community involvement capability for special orders, trade centres, and frame and At the end of the year, there were Bunnings remains committed to deeper commercial engagement 259 warehouses, 78 smaller truss sites.

$1,504m growing community support in a and continued merchandise format stores and 32 trade centres Bunnings Australia and New innovation. sincere, localised and meaningful in the Bunnings network. Zealand is expanding its brand manner by contributing to A continued focus on productivity reach across its market through thousands of causes, charities led to further operating cost RETURN ON CAPITAL the opening of new stores and and organisations throughout leverage and favourable property flexible formats, along with more Australia and New Zealand. EMPLOYED OF 49.4% digital engagement. The focus is on delivering the best offer During the year, Bunnings stores statements Financial everywhere, be that digital, supported a wide variety of local, in-home, in-store or on-site. regional and national community organisations through a INTRODUCTION number of different activities Sustainability OF ONLINE including fundraising sausage Bunnings defines sustainability sizzles, hands-on projects, TRANSACTIONAL within its operations as actions local fundraising initiatives and that are socially responsible, product contributions. CAPABILITY FOR environmentally aware and As part of this, Bunnings economically viable. SPECIAL ORDERS supported Share the Dignity’s Safety continued to be a key ‘It’s in the Bag’ collections, reports Signed focus with Bunnings striving to aimed at making a real, on-the- ensure everyone goes home safe, ground difference to homeless

every day. This was reflected in women and victims of domestic a 19.2 per cent reduction in the violence. During a two-week number of injuries recorded and a period more than 107,000 bags 24.5 per cent reduction in the total filled with personal hygiene recordable injury frequency rate. products were collected Additionally, the lost time injury through Bunnings stores across frequency rate reduced by Australia, which were then distributed to local women in

23.6 per cent. information ASX Shareholder and need in time for Christmas.

28 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 29

Overview Operating and financial review — Retail businesses Operating and financial review — Retail businesses BUNNINGS AUSTRALIA AND NEW ZEALAND BUNNINGS AUSTRALIA AND NEW ZEALAND

BACK financial review andOperating

Strategy Risk Bunnings provides its customers with the widest range of home improvement and outdoor living products and is committed Bunnings recognises that taking appropriate business risks is a critical aspect of generating acceptable business returns. to delivering the best service supported by our policy of lowest prices every day. Bunnings sets out to attract high quality In doing so, it seeks to appropriately manage risks to minimise losses and maximise opportunities.

team members and to provide them with a safe and rewarding working environment. Risks deemed unacceptable in terms of the business’ risk appetite are subject to appropriate control and mitigation measures to reduce the negative impact on the business. Growth strategies Achievements Focus for the coming years The level of controls implemented is commensurate with the impact (likelihood and consequence) on the business from the

risk occurring. Sustainability More customer value • Continued investment in lowest prices • Ongoing focus on delivering even more value Risk Mitigation Better customer • Consistency in service basics lifted • Better customer experiences and deeper engagement: in-store, experiences • Improved stock availability online and in-home Safety • Continued focus and targeted in-store awareness campaigns • Greater product and project knowledge Talent recruitment • Strategies directed at creating and maintaining status as employer of choice Greater brand reach • Opened 10 net new trading locations • More stores, with increased format innovation and retention • Succession planning, retention and development plans • Significantly expanded digital ecosystem • Further expansion of online transactional capabilities • Existing store reinvestment • Targeted store reinvestment New and existing • Relentless focus on strategic pillars of ‘lowest price, widest range and best service’

competitors • Ongoing strategies to increase customer centricity and deepen customer engagement Governance Deeper commercial • Created more value and deeper • Continue to leverage core strengths of a total market capability: engagement relationships stores, trade centres, in-field and digital Reputation • Strong culture of ‘doing the right thing’ • Leveraged the network for customer • Wider market focus to expand selling opportunities • Focus on ethical sourcing and product standards convenience – stores and trade centres • Progress ‘near-neighbour’ export opportunities • Ongoing regulatory compliance training • Improved service with more localised engagement, easier to deal with

More merchandise • Expanded ranges and products and made • Creating, leveraging and responding to lifestyle trends, technology innovation DIY easier trends and environmental and economic changes

• Further product and project innovation • Development and implementation of services that complement the BUNNINGS UNITED KINGDOM AND IRELAND report Directors’ with wider ranges and new products core DIY offer In June 2018, Wesfarmers completed the divestment of the BUKI/Homebase business to a company associated with Hilco Capital. Under the terms of the agreement, all Homebase assets were acquired, including the Homebase brand, store

network, freehold property, property leases and inventory for a nominal amount. The 24 Bunnings pilot stores have been converted back to the Homebase brand. Wesfarmers will participate in a value share mechanism, which is not limited by time, whereby it is entitled to 20 per cent of any equity distributions from the business. The agreement to divest the business followed a comprehensive review of the BUKI business which considered a range of options to improve shareholder returns. A divestment under the agreed terms was considered to be in the best interests of Wesfarmers shareholders as the materiality of the turnaround opportunity and risks associated with turnaround were not

considered to justify the additional capital and management attention required from Bunnings and Wesfarmers. statements Financial

reports Signed

ASX information ASX Shareholder and

30 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 31

Overview Operating and financial review — Retail businesses Operating and financial review — Retail businesses COLES

BACK YEAR IN REVIEW PROSPECTS In an ever-changing competitive financial review andOperating Revenue EBIT landscape, Coles remains committed to its customer-led strategy to provide better value, quality and service to its $39,388m $1,500m customers across Australia. COLES Coles is a great business, supported 2018 39,388 2018 1,500 by more than 112,000 passionate

2017 39,217 2017 1,609 team members, and is well-placed to grow in the future. Coles aims to Coles opened its first 2016 39,242 2016 1,860 create a strong point of difference store in Collingwood, 2015 38,201 2015 1,783 in the marketplace as it invests in

2014 37,391 2014 1,672 improving the quality of its fresh food Sustainability Melbourne in 1914, offer, tailoring stores to the shopping and has grown into an missions of local communities, and providing a suite of convenient iconic Australian retailer. shopping alternatives for customers. Today, it operates Coles Key financial indicators Coles is focused on making life easier

1 for customers and creating unparalleled Supermarkets, Coles For the year ended 30 June 2014 2015 2016 2017 2018 convenience through its many channels Express, Liquorland, Revenue ($m) 37,391 38,201 39,242 39,217 39,388 and services such as Coles Online, Earnings before interest and tax ($m) 1,672 1,783 1,860 1,609 1,500 Financial Services and Australia’s Vintage Cellars, First number one loyalty program, flybuys. Capital employed (R12) ($m) 16,272 16,276 16,541 16,586 16,386 Governance Choice Liquor, Liquor Return on capital employed (%) 10.3 11.0 11.2 9.7 9.2 At a time when Australian household Capital expenditure ($m) 1,018 937 763 811 762 budgets remain under pressure, Coles Market, Spirit Hotels, will continue to lower the cost of the Coles Financial Services 1 2014 excludes a $94 million provision relating to future Liquor restructuring activities weekly shop for customers and build (reported as an NTI). on its trusted value position. Such and Coles Online. investment is expected to be funded by ongoing productivity savings. There are significant cost-of-doing business opportunities that exist within PERFORMANCE DRIVERS the business and these will be realised over time through productivity initiatives report Directors’ Coles’ revenue of $39,388 million at 30 June 2018 there were and greater use of technology across for the year was broadly in line approximately 4,500 products the business. with last year, with earnings on ‘Everyday Low Pricing’. Coles Liquor continues to execute before interest and tax declining Coles Online delivered strong well on its transformation plan, with 6.8 per cent to $1,500 million. double-digit sales growth for opportunities to improve range, Food and Liquor recorded sales the year, as further investments convenience and drive further growth of 2.1 per cent driven were made to improve fulfilment efficiencies across the business. by continued investment in capabilities, reduce delivery Coles Express remains committed to value, quality and service. times and provide innovative growth through providing a market- Sales momentum steadily pick-up solutions. leading shop offer in conjunction with statements Financial improved during the year, The Liquor transformation a competitive fuel offer. underpinned by growth in continued to build on an improved Driving innovation remains a focus customer transactions, number and more consistent customer in the food offer in-store and will of units sold and basket size. offering as pricing, range and increasingly influence the business Coles’ focus to deliver a better store investment were further going forward. customer experience was enhanced. Liquor has achieved reflected in improved customer 11 consecutive quarters of satisfaction scores, to the highest comparable sales growth and level in two years, particularly continues to gain momentum.

in the areas of quality, range Coles Express recorded revenue reports Signed and availability. (including fuel) of $5,761 million Fresh food remains a substantial for the year, 6.1 per cent lower

growth opportunity and Coles than the previous year due to made significant progress during lower fuel volumes. the year in improving the quality Despite a decline in fuel and range of its fresh products, Growing talent transactions, convenience store especially in produce, meat and Shirin Behrouzi has sales increased by 1.6 per cent for bakery, increasing its fresh market the year. worked at Coles for share and sales contribution. 15 years in various Flybuys achieved 5.6 per cent John Durkan Coles lowered prices by Managing Director, roles and has recently growth in active households and information ASX Shareholder and been appointed as a 1.2 per cent for customers during double-digit growth in points Coles Regional Manager in the year. Trusted value remains redeemed as new partnerships (John will retire as Managing Director Geelong, Victoria. paramount for Coles, and as and initiatives provided customers of Coles in mid-September 2018, and with even greater value. transition to a Senior Advisor role)

32 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 33

Overview Operating and financial review — Retail businesses Operating and financial review — Retail businesses COLES

BACK more than 49,000 checks certifications ensure potential Coles recognises that investing in covering allergens, imported impacts on marine health and energy efficiency initiatives helps food, residue, organic products, the environment are carefully to minimise its environmental

authenticity and microbiology. monitored. All Coles own brand impact while also reducing costs. financial review andOperating Coles also performed seafood products have Marine In the 2018 financial year, Coles quality checks on more than Stewardship Council (MSC) invested $25.4 million in energy COLES 5,000 products in the 2018 or Aquaculture Stewardship efficiency projects. Solar panels financial year and conducted Council certification, or meet were installed on 20 supermarkets more than 130,000 arrival checks Coles Responsibly Sourced during the 2018 financial year,

at its fresh produce distribution Seafood criteria. taking the total number of centres and 38,000 checks for Coles was awarded the MSC’s supermarkets with solar to 26. chilled products. Best Sustainable Seafood Diversity Ethical sourcing Supermarket in Australia in September 2017. Coles recognises the importance Coles understands that of providing an inclusive Sustainability Where Coles sources transparently sourcing goods environment for its team members Our business Supplier relationships Coles has donated more than Growing talent commodities such as tea, in a responsible and ethical and customers that encourages 31 million kilograms of unsold Brenda Palmer coffee, cocoa and palm oil, it is Coles provides fresh food, Coles supports small business manner is a global concern and diversity. Launched in September edible food to SecondBite, has been a team committed to using independent groceries, general merchandise, to innovate and grow through something customers demand. 2017, Coles’ Better Together the $50 million Coles Nurture equating to more than 63 million member for more and internationally recognised liquor, fuel and financial services than 50 years at the Coles uses more than 750 Coles program aims to promote diversity Fund. This was established in meals. Between 2010 and certification programs in order through its national store network Coles Malvern store, own brand suppliers, with over by creating a supportive and 30 June 2018, Coles donated the to support ethical practices and and online channels. Coles April 2015, and supports small- Victoria. 2,200 sites located in more than inclusive environment for team equivalent of more than 17 million environmental protection in these employs more than 112,000 team to-medium businesses in the 40 countries. Coles acknowledges members and customers. The meals to Foodbank. supply chains. members across Australia. food and grocery sector with the the importance of safeguarding program incorporates five pillars: development of new market- Coles partners with national

human rights through ethical accessibility, gender balance, Governance cancer charity Redkite to provide Environmental impact Our market leading products, technologies business practices throughout its pride, flexibility and Indigenous. support to children and young and processes. Since its launch, supply chain. Coles is committed to reducing its Coles operates a national 27 different producers have people with cancer and their impact on the environment. During Coles is one of Australia’s largest network of 809 supermarkets, benefited from grants or interest- families. In the 2018 financial year, Coles is committed to ensuring 2017, it announced its strategy corporate sector employers 711 convenience outlets, 899 free loans. Coles, its team members and that all workers in its supply to reduce waste and enhance of Indigenous Australians with liquor stores and 88 hotels. Each chains are treated fairly. Coles’ almost 3,600 team members Coles also supports Australian customers provided Redkite with packaging. This included plans to week, 21.7 million customer Ethical Sourcing Policy covers a nationally, representing producers and growers with $5.3 million in support, equating halve food waste in supermarkets transactions are recorded across range of key labour indicators, 3.2 per cent of total headcount. long-term contracts which provide to more than $28 million since the by 2020, make all Coles Brand the Coles businesses. partnership began in 2014. including wages and benefits, packaging recyclable by 2020 This is a significant achievement certainty around future demand. working hours, freedom of considering that when the original Coles also operates in the financial In April 2018, Coles signed a and divert 90 per cent of all waste Product quality association, safe working from landfill by 2022. plan was launched in 2011, there services market, offering home, 10-year agreement with Laurent report Directors’ car and landlord insurance, and Coles is committed to providing conditions, and discrimination were only 65 Indigenous team to provide Coles supermarkets and forced or bonded labour, On 1 July 2018, Coles removed members across Coles. credit cards. with a range of artisan-style its customers with safe, high single-use plastic shopping quality Coles own brand products. child labour and illegal labour. In June 2018, Coles launched its stone-baked sourdough bread. The policy applies to all suppliers bags across all its businesses. Sustainability In recent years, Coles has also Coles’ range of own brand The move brought stores in 2018-2020 Accessibility Action products comprises Coles Brand providing Coles own brand Plan which aims to improve the Coles’ sustainability focus falls signed 10-year agreements Queensland, New South Wales, (which includes grocery, non- products, fresh produce and meat accessibility of Coles’ stores, broadly under three pillars: with TOP Pork Pty Ltd and Victoria and Western Australia grocery, fresh produce, meat, sold in Coles supermarkets. sites, workplaces and digital supporting farmers, suppliers, the Sundrop Farms, a nine-year in line with Tasmania, South deli and dairy), Coles Finest and assets for people with disability. community and team members; contract with milk supplier Norco Responsible sourcing Australia, the Northern Territory and an eight-year agreement Mix apparel. and the ACT, where Coles already offering customers great products; Coles understands the importance Health and safety with Manbulloo Mangoes. In the 2018 financial year, complied with legislated bans on and reducing environmental of having mechanisms in place Coles also has a long-term Coles own brand products were single-use bags. Maintaining a safe workplace statements Financial impacts. Information regarding all to responsibly source Coles own contract with Simplot to supply recognised with 168 awards. for team members and keeping of these topics can be found in the brand products and ingredients Coles was also able to offer Australian-grown vegetables, customers, suppliers and other Wesfarmers sustainability report at Coles’ Manufacturing Supplier in order to protect human rights, REDcycle recycling bins for soft previously sourced overseas. visitors safe across all Coles’ sustainability.wesfarmers.com.au Standards for food were updated safeguard animal welfare and plastics at all Coles supermarkets

businesses is paramount. Coles’ and then relaunched to suppliers in the 2018 financial year. Through Community support minimise environmental impacts. total recordable injury frequency Australian sourcing in the 2018 financial year. These the program customers can Coles’ Animal Welfare Policy rate for the 2018 financial Coles is committed to building Coles is proud of its 104-year standards cover product safety recycle plastic bags as well as sets out Coles’ expectations year was 33.3, a 14.2 per cent strong and collaborative contribution to serving and quality, packaging and all wide range of other soft plastic regarding the treatment of improvement on the previous relationships with Australian communities across Australia. claims, such as animal welfare packaging that cannot be animals and aquaculture species year. In the reporting period, there farmers, producers and growers. and sustainability. They are recycled through most kerbside In the 2018 financial year, Coles in the meat, fresh produce was continued focus on safety

based on world’s best practice recycling services. reports Signed Coles has an Australian-first direct community investment and grocery products supply under the pillars of leadership and and surpass Australian sourcing policy to provide was more than $67.7 million chains for all Coles own brand Coles has replaced some culture, critical risk reduction, and regulatory standards. Australian-grown food as a first with an additional $9.3 million products. The policy details corrugated cardboard, waxed mind your health. contributed by customers, team 1 priority. In the 2018 financial All factories supplying Coles commitments to source animal cardboard and expanded year, more than 88 per cent of members and suppliers. Brand products are regularly and aquaculture products from polystyrene boxes with Coles-branded food and drink In partnership with SecondBite, audited by Coles or external farming operations that have a reusable plastic crates across was sourced from Australian Coles donates unsold edible auditors to confirm compliance high standard of animal welfare its supply chain. At the end suppliers, including 96 per cent of food from its supermarkets and with product safety and quality and, where appropriate, hold of the 2018 financial year, it fresh produce and 100 per cent distribution centres to 1,300 standards. During the 2018 animal welfare certification. had six million reusable plastic of fresh lamb, pork, chicken, beef, financial year, Coles' rigorous crates in circulation with more community groups supporting All Coles own brand seafood milk and eggs. disadvantaged Australians. supplier-testing program for than 400 suppliers for fruit,

has been responsibly sourced information ASX Shareholder and Coles own brand completed vegetables, poultry, red meat and Between 2011 and 30 June 2018, since 2015. Programs and pre-packaged salads.

1 Factories include supplier sites.

34 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 35

Overview Operating and financial review — Retail businesses Operating and financial review — Retail businesses COLES COLES

BACK Strategy Growth strategies Achievements Focus for the coming years

In June 2018, Coles unveiled its ‘Fresh Tomorrow’ strategy in response to the shifting retail landscape and changing customer Land the right offer • 20 supermarkets opened, 12 closed and • Coles will continue to improve its extensive national store network

trends. The five-year vision builds on its previous customer-led strategy and involves six key priorities centred on driving in every location 51 renewals completed and reinvent the in-store experience by leveraging customer financial review andOperating greater convenience and innovation for customers. • 2.2 per cent growth in supermarkets net insights, innovations and technologies to tailor stores and product Fresh remains a significant growth opportunity for Coles and can provide a key point of differentiation in the marketplace. selling area during the year ranges to the shopping missions of local customers Coles is focused on becoming the ‘Destination for Fresh’ through offering the best quality, Australian grown produce at • 31 new liquor stores were opened, and • Coles will develop flexible store blueprints that allow it to fill trusted prices. This will involve deepening long-term supplier partnerships to ensure produce is not only fresh, but also fully 16 closed network gaps with smaller formats in inner city locations • The next evolution of renewals will be primarily focused on range traceable and sustainable. innovation, particularly in the fresh food space

Coles is committed to becoming an Own Brand powerhouse as it focuses on step-changing quality and injecting innovation • Coles will continue to target supermarket net space growth of into new products across all price points, to ensure the needs of all customers are met. between 2-3 per cent per annum Coles will continue to transform the customer experience with its ‘anytime, anywhere’ customer offer, creating unparalleled Reduce costs • OneTeam is now live in 550 stores, • Coles will continue to streamline its cost base and leverage convenience with innovative home delivery and pick-up solutions, as well as evolving store formats and renewals to the delivering better rostering solutions and technology and data analytics to deliver a simplified store and

different shopping missions of customers. improved customer service supply chain model Sustainability Over the longer term, the cost base will be transformed through greater use of technology and data analytics across the • Stockless Stockrooms are now live in • Coles will continue to improve direct sourcing capabilities, supply chain to improve forecasting, availability and overall efficiencies from suppliers to stores. around half the network, driving overall customer-led range simplification and trading terms with suppliers better inventory management • Coles is currently in the development phase for a new Easy Liquor will continue to execute on its transformation plan, with significant opportunities to create a point of difference through Inventory program which, over the medium-term, will provide growing the Exclusive Brand portfolio and Liquor Direct channel. Productivity efficiencies will be further realised as store and significant opportunities to reduce stock loss in-store supply chain processes are simplified. Coles Express will play a key role in improving the convenience proposition for customers as it expands its footprint, rolls out Win Together • Better store retention for permanent team • New leadership framework to build the right culture and members capabilities for team members, as well as to build relationships Click & Collect across the network, and drives innovation in its market-leading shop offer. • An increase in job satisfaction with suppliers and customers Investing in the capability of team members, aiming to be a social responsibility leader, and ensuring Coles is the best and • Continued investment in Coles’ renowned • Continue to instil behaviours that ensure safety is always front of safest workplace will continue to be integral to the Coles culture. Key programs, such as the 400-strong Coles Graduate graduate program mind Governance Program, Women in Leadership Initiative and increased Indigenous recruitment, will continue to deliver a world-class • Nearly 3,600 Indigenous team members • Continue to nurture talent through the Retail Leaders Program and diverse workforce. • Sports for Schools the Graduate Program • Proud partnerships with Redkite, • Aim to be a corporate social responsibility leader on global Food and Liquor SecondBite, Little Athletics challenges such as ethical sourcing, animal welfare, and food standards • Coles Nurture Fund Growth strategies Achievements Focus for the coming years • Continue to engage with customers and communities through partnerships, community events and sponsorships and investment Transform food offer • Proportion of sales from fresh food • Coles aims to be the Destination for Fresh, with a focus on offering in innovation categories continued to rise the best quality Australian-grown products and utilising exclusive • Improved quality and range has supplier partnerships contributed to market share gains • Continue to invest in team member capabilities to improve service Liquor transformation • Strong execution of five-year • Entering last year of transformation plan

• Ten-year partnership with Laurent offers • Coles will also continue to grow its own brand portfolio by transformation plan • Next evolution of Liquorland store renewals to be rolled out, along report Directors’ customers high quality artisan breads at increasing quality and injecting innovation into new products • 11 consecutive quarters of comparable with the rollout of Liquor Market concepts into First Choice stores affordable prices across all price points sales growth underpinned by growth in • Expand the exclusive brand portfolio and liquor-direct channel to • Coles will leverage new and strategic global partnerships transactions, units and basket size provide greater choice and convenience for customers • 163 Liquorland renewals in FY18 • Realise greater productivity efficiencies as systems and processes

Move towards Everyday • Approximately 4,500 items on ‘Everyday • Coles is committed to providing trusted value to customers, with • Focus on greater convenience; all banners are simplified Low Prices Low Pricing’ a focus on offering more key value products at ‘Everyday Low now offering Click & Collect, and same • Deflation excluding Tobacco at Prices’ and next day delivery 2.0 per cent for the year • Own Brand, particularly at the entry price point, will also play a • Nine consecutive years of price deflation critical role in providing value for money, and lowering the total cost of the shop for customers Convenience Growth strategies Achievements Focus for the coming years Offer anytime, anywhere • Coles Online achieved close to • Deliver profitable growth in Coles Online statements Financial shopping 30 per cent sales and transaction growth • Coles will continue to invest in a suite of convenient shopping Deliver a better store • Opened 17 new Coles Express sites • Extend and optimise the existing store network with Coles’ • Opened Australia’s largest Online alternatives including digital channels such as Coles Online and network • 402 sites upgraded during the year, with Alliance Partner Supermarket in NSW the Coles mobile application, as well as a range of convenient a focus on expanding and improving the • Leveraging technology to reduce cost and deliver efficiencies delivery options such as home delivery and an extensive Click food-to-go offer • Trialling a standalone convenience format • Approximately 1,000 Click & Collect locations & Collect network – across all brands – to ensure a seamless • More than six million active flybuys customer experience that facilitates easy ordering and payment Inspire customers • Provided greater value to customers by • Extend the ‘Everyday’ value offer across a greater range of customers, double-digit growth in points • Grow flybuys by providing more personalised offers that are through greater value extending Coles’ ‘Everyday’ value to more products redeemed meaningful for customers and provide choices in how customers products throughout the store, resulting in • Continue to provide a competitive fuel offer to customers earn and convert their points • New ebay partnership, launched flybuys stronger sales • Key Alliance initiative includes V-Power Diesel rollout app (more than one million downloads) • Rolled out Click & Collect service to • Click & Collect to be fully rolled out across the network in the 2019 a number of sites to further increase

financial year reports Signed convenience for customers

Focus on freshness, • Extended the range of everyday essentials • Continue to improve product quality and freshness across its food- quality and additional and convenience products to-go offering range • Upgraded sites, which included installing • Rollout of food-to-go offer to more than 500 stores by the first half ovens, chillers, bakery and sandwich of the 2019 financial year cases to enable a full food-to-go offer • Trialling a small format fresh offer which will entail a tailored meat, produce, deli, dairy, and bakery range ASX information ASX Shareholder and

36 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 37

Overview Operating and financial review — Retail businesses Operating and financial review — Retail businesses

BACK Risk Food and Liquor Coles’ risks primarily relate to issues that may affect business operations or the competitive environment within which it Risk Mitigation

operates. Key risks include changes to the competitive landscape and consumer trends, disruption to product availability, financial review andOperating retention of personnel, and regulatory changes. Low economic growth affecting Coles’ key markets or continued global Increased competitive Coles responds to competitive pressure by monitoring the retail market, putting in place programs to realise lower economic uncertainty may also significantly impact the Coles Group’s businesses and key markets. intensity limiting Coles’ operating costs and continuing to execute its strategy to redefine its proposition to customers, improve its price ability to achieve competitiveness and differentiate itself from competitors. Changing competitive landscape and consumer trends profitable growth Coles has appropriate lease structures and management practices in place to protect tenure of existing stores. A new store pipeline focused on priority network gaps is governed by a disciplined approach to capital investment. Increased competition is expected to continue to be a feature of the market in which Coles operates, due to strong In terms of customer trends, Coles monitors customer insights and continues to invest in trials for emerging and performance by current competitors and new entrants, particularly international discount retailers that have grown

digital technologies and new in-store initiatives. successfully in recent years. In the future, Coles may need to compete with a more diverse range of retailers operating different models, including pure play online retailers. Product availability Coles seeks to mitigate supply chain risks by maintaining a high degree of rigour around ongoing contract and supplier management, moving some key services in-house. Customer expectations are also rapidly evolving, for example in relation to increased integration with multiple digital issues may cause widespread business Coles seeks to mitigate information technology risks by regularly testing and reviewing its infrastructure and platforms, increased appetite for convenience and ongoing expectation of lower prices. If Coles fails to compete effectively or disruption systems, strong resilience processes, planning and testing, and continually seeking to strengthen data and cyber Sustainability execute on its strategy, this could result in a loss of market share or missed growth opportunities. security.

Product availability Attraction, retention Coles seeks to mitigate industrial relations risks with a targeted strategy. In addition to its directly Coles is generally dependent on the supply of products by an extensive, diversified network of primary producers, and succession of team employed workforce, Coles has a number of third party logistics providers which have site-specific enterprise suppliers and distributors. If the supply of products is disrupted by any number of factors (such as natural disasters, members agreements. transport or shipping delays or labour disruptions), then Coles may be impacted by increased running costs and disruption The expansion of the leadership program at Coles has promoted talent within the business and enabled effective to its everyday operations. succession planning and career development. Disruption to Coles’ information technology infrastructure and systems may also impede the day-to-day running of Regulatory change Coles mitigates the risk of non-compliance through a robust compliance framework, and works constructively with its operations. may limit growth government, regulatory and industry bodies to promote good faith, commercial conduct.

Retention of personnel Governance Convenience Coles is a people-intensive business with more than 112,000 team members. A failure to successfully manage industrial relations or ensure proper processes, security and culture at stores or sites Risk Mitigation could result in industrial disputes, work stoppages or accidents that cause adverse reputational, financial, legal, Changing consumer Coles Express will focus on maintaining a convenience store network with high quality sites and will continue to productivity and/or morale impacts. Industrial action in operations in Coles’ supply chain in particular has the potential preferences leading to invest in the store offering to drive continued growth. to cause widespread disruption to the business. lower fuel consumption Coles will continue to review underperforming stores and assess new opportunities for growth such as new Regulatory changes standalone (non-fuel) sites. Coles is subject to a wide range of laws and regulations in key areas such as planning and environment regulation, packaging Disruption to fuel supply Coles has an exclusive fuel supply agreement with its alliance partner, Viva Energy, until 2024. Either party has the and labelling regulation, regulation of the transportation, handling, storage and distribution of fuel, food hygiene standards, option to extend for a term up to five years.

health and safety laws, tobacco and alcohol regulation, employment and consumer law. report Directors’ Increases in cost of fuel Coles is continually in negotiations with its Alliance partner to provide a competitive and sustainable fuel offer to customers.

Regulatory change may Coles mitigates the risk of non-compliance through a robust compliance framework, and works constructively with limit growth government, regulatory and industry bodies to promote good faith, commercial conduct.

statements Financial

reports Signed

ASX information ASX Shareholder and

38 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 39

Overview Operating and financial review — Retail businesses Operating and financial review — Retail businesses DEPARTMENT STORES

BACK YEAR IN REVIEW PROSPECTS The Department Stores division financial review andOperating Revenue EBIT is well positioned for the future. Kmart will continue to drive sustainable growth through a $8,837m $660m focus on making it a great place DEPARTMENT to shop that is simple to run and 2018 8,837 2018 660 delivering better products at

2017 8,528 2017 543 lower prices. Kmart will continue to invest in price to further drive 2016 8,646 2016 275 volume and maintain Kmart’s 2015 7,991 2015 522 price leadership position in the

2014 7,710 2014 452 market. The business is well Sustainability positioned for the 2019 financial STORES year, with a continued focus on category growth opportunities The Department Stores division, and the delivery of ongoing Key financial indicators operating efficiencies in stores comprising Kmart, Kmart Tyre and the supply chain. Continued 1 2 3 and Auto Service, and Target, was For the year ended 30 June 2014 2015 2016 2017 2018 investment in the store network Revenue ($m) 7,710 7,991 8,646 8,528 8,837 is expected to deliver five new formed in February 2016. The division Earnings before interest and tax ($m) 452 522 275 543 660 stores and the completion of 33 store refurbishments in the

Capital employed (R12) ($m) 4,340 3,778 3,629 2,253 2,013 Governance operates 787 stores across Australia 2019 financial year. Return on capital employed (%) 10.4 13.8 7.6 24.1 32.8 and New Zealand and employs more Target will continue to advance its than 48,000 team members. Capital expenditure ($m) 243 295 293 222 293 business transformation, building on the momentum created by 1 2014 excludes a $677 million impairment of Target’s goodwill (reported as an NTI). changes over the past two years 2 The 2016 earnings before interest and tax for Department Stores includes $145 million of restructuring and provision costs to reset the Target business, but excludes the non-cash with a strong focus on quality Target impairment of $1,266 million. and fashion at the best price. 3 The 2018 earnings before interest and tax for Department Stores excludes the pre-tax Improvements in fashion and non-cash impairment of $306 million for Target. quality across the range will be supported by an improved online

experience. Target will also drive report Directors’ productivity by continuing to optimise the store network and PERFORMANCE DRIVERS focusing on end-to-end costs, in particular through more direct sourcing, and improving working Revenue for the Department Target recorded a pre-tax non-cash capital management. Stores division was $8,837 million impairment of $306 million, reflecting for the year. This was an increase a moderated outlook for the business. of 3.6 per cent with continued Total sales decreased 4.7 per cent, strong growth in Kmart partially however the quality of the sales mix

offset by lower revenue in Target. improved and growth was achieved statements Financial Target’s sales were affected in online, menswear and homewares. by the reset of product, range The online proposition was further and price across the business. advanced via expanded ranges and Kmart’s strong sales growth was improved customer convenience, supported by double-digit growth which supported increased rates in customer transactions and of conversion and improved sales units sold. growth. Kmart’s total sales increased Earnings for the Department Stores 8.0 per cent, with comparable division increased 21.5 per cent to sales increasing 5.4 per cent. This $660 million, representing record Guy Russo reflected strong performances in earnings under Wesfarmers’ Chief Executive Officer, reports Signed Growing talent all categories, particularly in home ownership. This reflected continued Department Stores and kids general merchandise. strong growth from Kmart, along Kmart team member Tessa (Guy was Chief Executive Wijeyesinghe has worked at with improved trading margins and Kmart continued to invest in its Officer, Department Stores, and Kmart for more than six years store network, opening 10 new productivity improvements in Target. and is currently employed Managing Director, Target, for stores including one Target store in the kids department the reporting period and will at the Chadstone store, conversion, closing two stores transition to a Senior Advisor role Victoria. Target team member and completing 20 store in November 2018) Nathan Palenkas has been refurbishments during the year. with the business for 10 years Kmart Tyre and Auto Service also

and is now a Department invested in its network, finishing information ASX Shareholder and Manager in toys, digital and the year with 256 service centres general merchandise at the Chadstone store, Victoria. after opening six new centres and closing one during the year.

40 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 41

Overview Operating and financial review — Retail businesses Operating and financial review — Retail businesses KMART

BACK Strategy Kmart’s vision is to provide families with everyday products at the lowest prices. Kmart will continue to drive sustainable

growth through a focus on making Kmart a great place to shop that is simple to run and delivering better products at lower financial review andOperating prices. Kmart is focused on delivering growth and improving productivity and efficiencies to maintain its price leadership position in a highly competitive market. It will continue to invest in the store network by opening new stores to extend KMART customer reach and refurbishing existing stores to optimise category mix and enhance the customer shopping experience. Kmart’s high calibre team and strong culture support the success of the business.

Growth strategies Achievements Focus for the coming years

A great place to shop • Delivered strong sales growth (total sales increased • A rewarding self-serve experience that is simple to run 8.0 per cent), supported by increased customer • Simplifying ways of working to deliver improved transactions and units sold productivity • Increased focus on customer experience, with over • Kmart products available everywhere, including further Sustainability 70 per cent of stores in the Plan C format expansion of online channel Our business Sustainability Growing talent • Implementation of productivity and cost reduction • Ongoing investment in the store network through initiatives Kmart team member Ethan Williams has refurbishments and new store openings • Growth of the online channel Kmart was established in Kmart continues to drive its worked in the business for three years 1969, with the opening of its ‘Better Together’ sustainable and was recently promoted to the role • Opened 10 new stores and completed 20 store first store in Burwood, Victoria. development program focused on of Department Manager, Home, at refurbishments during the year In April 2019, Kmart will celebrate people, partners and planet. This Chadstone, Victoria. its 50th anniversary. Kmart includes the continued rollout of Better products at • Improved product quality and standards • Leading the lowest price in a highly competitive market even lower prices operates 228 stores throughout its sustainable materials strategy • Continued improvement in customer price • Profitable growth through increased volumes and perception improved product offering Australia and New Zealand, and a review of the environmental • Increased proportion of products sourced through • Maintaining strong brand perception for on-trend

offering customers a wide risks and opportunities across strategic relationships with the right factories everyday items Governance range of apparel and general the factories where suppliers • Leveraging data insights to drive better decisions merchandise products at low operate. Kmart is partnering with prices, every day. the Better Cotton Initiative as part Kmart employs more than of its commitment to sustainable Risk cotton, and over the course of the 33,000 team members, who are Kmart’s risks include foreign exchange rate fluctuations, maintaining price leadership, new market entrants and the expansion focused on the Kmart vision of 2019 financial year will remove single-use plastic bags from all of existing competitors. Price is a key differentiator between Kmart and its competitors, given high levels of product delivering the lowest prices on substitution exist within the market. everyday items for Australian check outs across Australia and New Zealand. Kmart is focused on and New Zealand families. On Risk Mitigation 13 August 2018, Wesfarmers enhancing working conditions and announced that it had entered empowering workers throughout Competitor activity • Monitoring of competitor activity and consumer trends report Directors’ into an agreement with the supply chain, shown through • Maintaining price leadership position in the market by making use of extensive overseas sourced ranges, Continental A.G. to sell Kmart its commitment to: the Accord in-house design capabilities and volume-driven efficiencies Tyre and Auto Service, subject on Fire and Building Safety in Ian Bailey • Continuing to innovate the store format to improve the customer experience, through new layouts and Bangladesh; the International leveraging technology

to certain conditions including Managing Director, regulatory approvals. Labour Organization and the Kmart • Continuing to improve consistency of product quality International Finance Corporation Our market Better Work program in Indonesia, Ian will assume the additional Exchange rate volatility • Hedging and product and pricing frameworks will be used to effectively manage foreign exchange movements Cambodia and Bangladesh; responsibility of leading the Kmart operates in the clothing, and Action, Collaboration, Department Stores division from Ethical sourcing and • Ongoing improvements to Kmart’s environmental compliance across all factories, including setting targets homewares and general Transformation, a collaboration 1 November 2018. sustainability for improvements with strategic suppliers merchandise retail sector, both between international retailers and • Developing a capital works plan to support energy efficiency and cost optimisation activities statements Financial locally and internationally. IndustriALL, the global union, to • Development of ‘Better Together’ program focused on making a positive difference to our people, partners and planet This sector is competitive address the issue of living wage. and comprises department Kmart continues to support

stores, specialty retailers and a growing online channel. It is also organisations such as Salaam characterised by an expanding Baalak in Delhi, OneSky in China, presence of international and Graeme Dingle Foundation in retailers, an increasing level New Zealand, and fundraise for of direct sourcing and online Headspace, Reach Foundation growth. Kmart sources from both and The Salvation Army (through local and international suppliers, the Kmart Wishing Tree Appeal) in reports Signed with product-sourcing offices in Australia and New Zealand. Hong Kong, China, Bangladesh, Safety

India and Indonesia. Kmart remains committed to the safety of its team members, customers and suppliers. Kmart’s total recordable injury frequency rate (TRIFR) reduced by 8.1 per cent to 19.4 and lost time injury frequency rate (LTIFR) also decreased to 4.3 this year. information ASX Shareholder and

42 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 43

Overview Operating and financial review — Retail businesses Operating and financial review — Retail businesses TARGET

BACK Strategy Target is focused on delivering fashion that excites and quality that endures at the best price.

Target’s strategy remains unchanged and incorporates: financial review andOperating • Product: volume, quality, fashion and basics; • Customer: easiest customer experience; TARGET • Price: low prices every day; • Place: great stores and locations; and • Promotion: brand love with mass reach; • People: inspired team living Target’s values. Within this, Target is focused on three key areas over the next 12 months: fashion acceleration, a seamless and engaging online proposition and continuing to optimise the store network. Growth strategies Achievements Focus for the coming years

Product: volume, • Improved processes and disciplines across • Improve fashionability and quality of product ranges through Sustainability quality, fashion merchandise and sourcing functions focus on better and best ranges and reset of quality and Growing talent Our business Target continues to focus and basics • Reduced stock levels and improved fashion standards on improving conditions for Team member Erika Kilpady has inventory health • Invest in people and customer channels including design, online Target operates a national workers in supplier factories worked at Target for eight years and user experience and visual merchandising network of 303 stores as well as • Further progressed range reduction through a transparent supply was recently promoted to Department • Ongoing reset of product, price and range online. Its objective is to provide chain. Target is committed Manager, Ladies at the Chadstone • Upweighting visual merchandising and improving design overlays quality and fashion at the best to ensuring the safety and store, Victoria. in store prices. Target employs more than wellbeing of workers in supplier Price: low prices • Increased levels of direct sourcing • Develop a strategic framework to deliver customer segmentation 13,000 team members across its factories, and is a signatory stores, support offices and direct every day • Progressed the strategic supply base plan and price architecture to the Accord on Fire and • Execute the strategic supply base plan

sourcing operations – all focused Governance Building Safety in Bangladesh, • Continue to lower end-to-end costs on delivering fashion that excites and a member of Action, and quality that endures. Collaboration, Transformation Promotion: • Improved effectiveness of marketing spend and • Continue to improve effectiveness and evolve the marketing mix (ACT), a collaboration between brand love with evolved marketing mix • Develop and implement a single view of the total customer Our market international retailers and mass reach • Evolved the brand strategy journey across all touch points built on customer insights Like Kmart, Target participates IndustriALL, the global union, to in the Australian clothing, address the issue of living wage. Customer: • Improved store presentation and simplified • Improve the customer experience and ease of shop homewares and general Target supports Uniting Care easiest store environment • Further improve store remuneration efficiency merchandise retail sector. The Australia (through the Christmas customer • Commenced rollout of assisted check outs • Further progress store renewal trials and reset space and grades addressable market exceeds Appeal) and the Alannah and experience • Progressed store renewal trials $80 billion and within this market Madeline Foundation. • Lowered supply chain and store operating costs Target has a sound competitive report Directors’ Place: great • Completed review of Target’s store network • Optimise the store network (reduce selling floor and improve position supported by a strong Safety stores and • Focused on reducing unproductive space sales density) brand heritage characterised by Target remains committed to Marina Joanou locations • Progressed store renewal trials • Execute a seamless and engaging online proposition via an quality, fashion and value. the safety of its team members, Managing Director, • Accelerated growth of the online proposition enhanced customer experience, improved fulfilment model

and improved convenience Sustainability customers and suppliers, Target including improved availability, increased store recording its lowest ever LTIFR fulfilment and reduced customer delivery times and number of injury claims. On 14 August 2018, Marina Joanou, Target is committed to People: inspired • Embedded vision and values • Create a talent pipeline, leveraging learning and development Target’s TRIFR reduced Chief Financial Officer of the proactively managing team team, living our • Improved safety performance programs 32.1 per cent to 19.4 and its Department Stores division was member safety, embracing values • Developed clear accountabilities • Develop an inclusion strategy LTIFR dropped to 2.8. promoted to Managing Director diversity and supporting • Advanced relocation of store support office

the communities in which it of Target. statements Financial operates, as well as maintaining a strong focus on environmental Risk practices and ethical supply Target’s strategy to reset the business is well progressed and the business is focused on making further changes to the chain transparency. Target is also operating model to better position the business to grow earnings into the future. This journey is being undertaken in an partnering with the Better Cotton increasingly competitive apparel and general merchandise market. Initiative as part of its commitment to sustainable cotton, and over Risk Mitigation the course of the 2019 financial year will remove single-use Business • Focused strategy with operational plans that underpin key strategic initiatives plastic bags from all check outs reset and • Clear accountabilities, objectives and performance indicators

transformation reports Signed across Australia. • Merchandising and operating processes and discipline including establishing a strategic framework to deliver customer segmentation and improved price and range architecture • Acceleration of online growth plan through operating model reset • Business simplification and cost base reset

Competitor • Monitoring of competitor activity and consumer trends activity • Clear pricing strategy and reset of fashion and quality to provide differentiated offer and access and capture large addressable market • Online proposition advancement to enhance customer experience, support in-store traffic and leverage store network Team member • Improved culture, ways of working and values embedded across the business attraction and • Short-term incentive plan launched and implementation of learning and development strategies and talent and

retention succession cycle information ASX Shareholder and

Exchange rate • Hedging and product and pricing frameworks will be used to effectively manage foreign exchange movements volatility

44 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 45

Overview Operating and financial review — Retail businesses Operating and financial review — Retail businesses OFFICEWORKS

BACK YEAR IN REVIEW PROSPECTS Officeworks will continue to financial review andOperating Revenue EBIT drive growth and productivity by executing its strategic agenda. Competitive intensity is expected $2,142m $156m to remain high as the landscape OFFICEWORKS evolves, but Officeworks is well 2018 2,142 2018 156 placed to continue to drive growth in this environment. 2017 1,964 2017 144 Key focus areas in the 2019 2016 1,851 2016 134 Officeworks is Australia’s financial year will include leading retailer and 2015 1,714 2015 118 strengthening and expanding 2014 1,575 2014 103 the customer offer by adding Sustainability supplier of office products new products and ranges as and solutions. Officeworks well as adding more services to complement the existing range. seeks to be a one-stop This will strengthen Officeworks’ shop for micro-, small- and Key financial indicators position as a one-stop shop for micro-, small- and medium- medium-sized businesses, For the year ended 30 June 2014 2015 2016 2017 2018 sized businesses, students and students and households. Revenue ($m) 1,575 1,714 1,851 1,964 2,142 households. Earnings before interest and tax ($m) 103 118 134 144 156 Investment in the store network

Capital employed (R12) ($m) 1,097 1,034 994 980 939 will continue through more Governance Return on capital employed (%) 9.4 11.4 13.5 14.7 16.6 store openings and ongoing enhancements to merchandise Capital expenditure ($m) 26 39 41 36 45 layouts and store design. Likewise, enhancements to the online offer will continue to make it easier and more convenient for customers to shop whenever, PERFORMANCE DRIVERS wherever and however they choose. Officeworks delivered revenue Strong momentum in the Enhancing productivity and of $2,142 million for the year, business-to-business segment efficiency across all elements report Directors’ an increase of 9.1 per cent on was maintained as Officeworks’ of the business will remain a the prior corresponding period. ‘every channel’ offer continued priority with the focus on working Earnings increased 8.3 per cent to resonate with an increasing capital optimisation, better space

to $156 million. number of micro-, small- and utilisation, effective cost control Customers continued to respond medium-sized business and more effective use of data to favourably to Officeworks’ ‘every customers. improve decision-making. channel’ strategy, with sales Strong sales growth, effective Officeworks remains committed growth achieved across both management of gross margin to investing in the safety, talent stores and online. and cost of doing business and and diversity of the team, and

Providing a compelling disciplined capital management making a positive difference in statements Financial customer offer remained a delivered an increase in return on the community. strong focus throughout the capital of 1.9 percentage points year. The growth in sales and to 16.6 per cent.

earnings was underpinned by Ongoing investment in stores new and expanded product and online to support the future ranges, merchandise layout and growth of the business was store design changes, online further reflected in a strong enhancements, and a relentless capital expenditure program focus on price, range and great during the year. customer service across all

Six new stores were opened reports Signed channels to market. during the year, and at the end of June 2018 there were 165 stores operating across Australia.

Mark Ward Managing Director, Growing talent Officeworks Officeworks team member (Mark will retire as Managing Michelle Cole commenced Director of Officeworks at the work as a night filler and end of 2018 and remain with the

after 17 months is the information ASX Shareholder and Business Specialist in-store, Wesfarmers Group working on a at the Malaga store, in number of projects) Western Australia.

46 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 47

Overview Operating and financial review — Retail businesses Operating and financial review — Retail businesses OFFICEWORKS

BACK Strategy Officeworks aims to provide a one-stop shop for its core customers’ needs and wants. Officeworks does this by delivering

customers the widest range of products and great service at low prices, while providing a safe, rewarding and engaging place financial review andOperating to work for team members. OFFICEWORKS Officeworks will continue to drive growth by: • Strengthening and expanding the customer offer; • Extending its ‘every channel’ reach to even more customers both physically and digitally; • Doing things better by enhancing productivity and efficiency;

• Investing in the talent and diversity of the team while providing a safe place to work and shop; and • Making a positive difference in the community. Growth strategies Achievements Focus for the coming years Sustainability Strengthen and • Introduced new and expanded ranges • Continue to add inspiration, innovation and differentiation Growing talent Our business 38 stores, bringing this to a increased from 37.4 per cent as at expand the • Implemented store design changes across to products total of 88 per cent of the store June 2017, to 41.2 per cent as at Officeworks team customer offer selected stores • Continue to expand the services range to help more Officeworks is Australia’s network. In addition, a building June 2018. In addition, the number member Paul Tan customers start, run and grow their business leading retailer and supplier of energy monitoring system was of Indigenous team members at has worked in the • Relentless focus on providing great customer service office products and solutions installed in another 67 stores, Officeworks has increased from business for 11 years • Ongoing investment in price for micro-, small- and medium- taking the total to 129 stores. 2.3 per cent to 2.7 per cent. and is the Customer sized businesses, students Fulfilment Centre Extend our ‘every • Six new stores opened • Make customer engagement easier channel’ reach and households, committed This year Officeworks increased Officeworks continued to focus (CFC) Coordinator • Introduced free two-hour ‘click and collect’ • Continue to improve the online experience to helping customers make recycling rates from 73 per cent on making Officeworks safer than at the Perth CFC, • Ongoing enhancements to the online offer • Ongoing investment in a seamless multi-channel offer: in 2017, to 76 per cent, and ever and rolled out the ‘Safety in Western Australia. • Integrated with Google Home Assistant ‘clicks and bricks’ working together

bigger things happen. Operating Governance • Accelerate business-to-business customer growth through a nationwide network of helped customers recycle FIRST’ framework via the ‘Safety • More business specialists driving business-to-business customer growth 165 stores, an online platform, a 692 tonnes of unwanted ink and Starts with You’ training program call centre and a team of business toner cartridges, IT equipment and to 85 per cent of team members, Enhance productivity • Improvement in working capital metrics • Continue investing to improve working capital outcomes specialists, Officeworks is focused mobile phones and accessories. which helped to reduce the rolling and efficiency • Improved space utilisation in stores • Continue to invest in an efficient, cost-effective and agile 12-month all injury frequency rate • Effective cost control supply chain on delivering a one-stop shop Responsible sourcing for customers by delivering the to 10.2 injuries per one million • Invested in supply chain enhancements to support • Improve space utilisation widest range, low prices and great This year, Officeworks continued hours worked. future growth • Improve cost of doing business and productivity service. to focus on responsible sourcing, As a supporter of education, • Use data to enhance decision making ensuring that all suppliers are Officeworks continued to partner Invest in talent, • Delivered a range of development programs to the team • Ongoing investment in leadership development programs Our market adhering to the Ethical Sourcing with The Smith Family and diversity and safety • Remained committed to diversity, with a specific focus • Continued focus on team member diversity, including on balanced leadership and Indigenous engagement balanced leadership Australian Literacy and Numeracy report Directors’ Officeworks’ current addressable Policy and Sustainable Wood- Foundation throughout the year. • Reduced the rolling 12 AIFR by 14.3 per cent • Rigorous approach to safety behaviours and outcomes market in Australia is approximately Fibre Policy. During the Officeworks Back Make a positive • Approximately 85 per cent of Officeworks products from • Lift recycling levels, reduce energy consumption further $20 billion. The market remains To ensure the products sold by to School Appeal, supporting difference in the FSC certified or 100 per cent recycled sources • Continue to find ways to do things that are better for highly competitive, with a wide Officeworks are ethically sourced, The Smith Family, Officeworks community • Collected more than one million printer cartridges the environment

variety of participants, some of all suppliers of products and customers donated $461,764, • Installed LED lighting in an additional 38 stores and • Continue to foster community partnerships whom participate across multiple services are required to adhere which resulted in more than energy monitoring systems in an additional 67 stores categories while others seek to to Officeworks’ Ethical Sourcing 800 students being supported • Planted 200,000 trees as part of the Restoring specialise in certain areas. Policy. Officeworks reviewed Australia initiative audits from 441 suppliers, working through Learning for Life Officeworks has continued to sponsorships. • Continued to partner with restoring Australia, expand its addressable market with suppliers to improve the The Smith Family and the Australian Literacy and working conditions at the sites Numeracy Foundation through range and category statements Financial expansion, and to drive innovation that were reviewed. in core office products. Officeworks continued to Risk transition paper products to SALES GROWTH Officeworks accepts that risk is an important part of exploring opportunities to operate successfully and that there is a need Sustainability Forest Stewardship Council (FSC) ACHIEVED IN BOTH to understand and manage risk with a view to minimising unintended consequences. Risks deemed unacceptable to the certified or 100 per cent recycled, The Positive Difference Plan is business are subject to appropriate control and mitigation measures aimed at reducing their likelihood or minimising their with 85 per cent of all private STORES AND ONLINE Officeworks’ commitment to consequences, including risk transference through contractual arrangements, insurance or avoidance. label paper products meeting sustainability. Officeworks strives this requirement. In addition, to make a positive difference by Risk Mitigation Officeworks planted 200,000 trees reducing environmental impacts, as part of the Restoring Australia Changing consumer • Regular reviews of product range to ensure it meets the evolving demands and preferences of Officeworks’ supporting the aspirations of our 8.3% INCREASE IN behaviours target customers initiative, planting two trees for reports Signed team and the communities in • Innovation within existing product categories and expansion into new categories every one used, based on the EARNINGS TO $156M which we operate, and through • Continued focus on providing great customer service weight of paper products they the responsible and sustainable • Continue investment in the ‘every-channel’ model, making it easier and more convenient for customers to shop

purchased at Officeworks. sourcing of products and services. whenever, wherever and however they choose. People and community New and existing • Relentless focus on key strategic pillars – low prices, widest range, great service Environment competitors • Continue to build customer loyalty and strengthen the customer offer Officeworks believes a diverse Officeworks has continued • Effective cost control and disciplined inventory management culture that supports balanced to improve energy efficiency, • Continue to focus on innovative range, service and marketing formats hiring decisions and opportunities reducing energy intensity by Unfavourable • Continued focus on providing a compelling offer to customers for career growth makes good 12 per cent during the year, on the economic conditions • Effective cost control while continuing to invest for the future

business sense. Over the past information ASX Shareholder and 2014 baseline. This was achieved • Relentless focus on driving continuous improvement across all elements of the business to remain competitive 12 months, the number of through the continued rollout females in leadership positions Data and IT security • Dedicated internal capability focused on IT systems and security of LED lighting to an additional • A vast array of IT-related controls are in place which include appropriate firewalls, disaster recovery plans, periodic testing to ensure an appropriate level of security is maintained, and a security awareness program to keep all team members informed of their responsibilities

48 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 49

Overview Operating and financial review — Industrials Operating and financial review — Industrials INDUSTRIALS

BACK YEAR IN REVIEW PROSPECTS

The performance of the financial review andOperating Revenue EBIT Chemicals, Energy and Fertilisers business will continue to be impacted by international $5,269m $867m commodity prices, exchange INDUSTRIALS rates, competitive factors and 2018 5,269 2018 867 seasonal outcomes. Earnings for

2017 5,161 2017 915 the Chemicals business in the 2019 financial year are expected The Industrials division includes 2016 4,672 2016 47 to be affected by an oversupply Wesfarmers’ three industrial 2015 4,985 2015 353 of explosive-grade ammonium

2014 4,977 2014 482 nitrate (EGAN) in the Western Sustainability businesses: Chemicals, Energy Australian market, resulting in and Fertilisers; Industrial and lower margins as production is diverted to other customers and Safety; and Resources. The markets. To mitigate this, the Key financial indicators business remains focused on businesses, under focused securing commitments for future leadership, continue to invest in For the year ended 30 June1 2014 2015 2016 2017 2018 uncontracted volumes. Natural digital systems and supply chain Revenue ($m) 4,977 4,985 4,672 5,161 5,269 gas retailing is expected to Earnings before interest and tax ($m) 482 353 47 915 867 grow albeit at a lower rate due improvements and improve to competition. Capital employed (R12) ($m) 4,125 4,245 4,244 3,393 3,295 Governance The continued transformation customer service, all to position Return on capital employed (%) 11.7 8.3 1.1 27.0 26.3 of Blackwoods and the almost each business within the Capital expenditure ($m) 386 258 220 169 167 completed turnaround of the Workwear Group business will division for future growth. 1 Refer to individual businesses key financial indicators for footnotes. provide a platform to support future growth for both businesses. The investment focus is on improving systems, supply chain efficiencies, optimising category PERFORMANCE DRIVERS management and enhancing

customer service. While Coregas report Directors’ Reported EBIT in the Industrials Workwear Group earnings will experience ongoing margin businesses decreased during the improved on the prior year due to pressure from pricing and input period to $867 million compared improved margins from sourcing costs, the business is focused on to $915 million in the prior year, initiatives offset by restructuring growth opportunities in healthcare primarily due to the completion of costs in the supply chain and and the Trade N Go business. the sale of the Curragh coal mine remediation costs following a fire Subsequent to year-end, on 29 March 2018. at a major Distribution Centre. Wesfarmers announced the sale The Chemicals, Energy and Coregas earnings were lower than of its 40 per cent interest in the Fertilisers business generated the prior year despite stronger Bengalla mine which, subject $390 million in reported earnings sales due to margins being to completion, will complete 1.3 per cent below the prior year, impacted by higher energy costs Wesfarmers’ exit from coal mining statements Financial which included one-off gains of and increased competition. following a detailed strategic $55 million. Underlying earnings Resources generated $359 million review of these assets. improved by 14.7 per cent. The in reported earnings, down result was favourably impacted $46 million on the prior year. This by higher EGAN sales volumes decline was primarily due to the due to production issues at the completion of the sale of Curragh competing Burrup ammonium metallurgical coal mine on 29 nitrate plant. Energy earnings also March 2018. This was partially increased with a higher Saudi offset by higher production and CP (the international benchmark sales volumes from the Bengalla reports Signed indicator for LPG) and continued thermal coal mine (in which growth in natural gas retail Wesfarmers holds a 40 per cent customers. joint venture interest) taking

The Industrial and Safety business advantage of the favourable price generated $118 million in reported environment. earnings, an increase of $3 million Growing talent on the prior year. Blackwoods’ David Baxby CSBP Business Improvement earnings were impacted by the Managing Director, Superintendent Gemma Jones continued investment in the Industrials commenced work for the transformation of customer

company as a Human Resources service, supply chain and digital. information ASX Shareholder and Manager seven years ago and is now based at the Kwinana operation, in Western Australia.

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Overview Operating and financial review — Industrials Operating and financial review — Industrials CHEMICALS, ENERGY AND FERTILISERS

BACK Growing talent Kleenheat Strategy Apprentice Mechanical Fitter WesCEF’s objective is to develop a portfolio of successful and innovative industrial businesses that deliver satisfactory INDUSTRIALS Corey Collard shareholder returns and continually strengthen its reputation for the management of health, safety and the environment. financial review andOperating commenced work at the business Growth strategies Achievements Focus for the coming years CHEMICALS, ENERGY in Kwinana, Western Australia, Invest in business • Utilised asset flexibility to realise AN market • Secure AN contract extensions and pursue new three years ago. capacity to meet the opportunity as a result of competing Burrup AN volumes AND FERTILISERS needs of customers plant disruption • Continue to focus on plant reliability, process • Extended the terms of EGAN and ammonia contracts efficiency, product quality and productivity with key customers improvements • Further incremental debottlenecking of sodium • Continue to invest to grow and expand fertiliser cyanide capacity services and natural gas retailing offer • Commissioned automated AN bagging plant and driver self-service at Kwinana Sustainability • Kleenheat won the Canstar Blue Most Satisfied YEAR IN REVIEW Our business Customer Award for the second year running WesCEF operates eight businesses in Australia and Execute opportunities for • Commissioned a new AN emulsion facility • Continue the development of Decipher employs approximately 1,200 team members. WesCEF’s growth in existing and at Kwinana business units are Chemicals, Energy (Kleenheat), and • Ongoing evaluation of opportunities to grow in existing Revenue EBIT new markets • Continued market-share growth of natural gas and new markets CSBP Fertilisers. retailing business in WA • Continue to evaluate alternative energy opportunities Our market • Continued development of Decipher and launch of • Prepare for Full Retail Contestability in the WA $1,830m $390m a paid subscription service electricity market Chemicals includes: Foster a culture that • Significant investment in the Aboriginal Engagement • Implement and measure success of further targeted 2018 1,830 2018 390 Governance • the manufacture and supply of ammonia, AN and recognises that people and Employment Plan with an emphasis on job programs to attract, develop and retain an engaged, 2017 1,639 2017 395 industrial chemicals primarily to the Western Australian are central to the creation, skill building, creating an inclusive culture diverse workforce 2016 1,820 2016 294 resources and industrial sectors through CSBP success of the business and supplier engagement • Continue a strong focus on leadership development 2015 1,839 2015 233 • Queensland Nitrates (QNP), CSBP’s 50 per cent • Delivery of structured programs for employees across and a more inclusive culture leadership, management essentials, wellness and 2014 1,812 2014 221 joint venture with Dyno Nobel Asia Pacific which • Ongoing development of technical competence manufactures and supplies AN to the resources sector inclusivity through training and skills enhancement across our in the Bowen Basin coal fields • Programs for vacation students, cadets and graduates complex and diverse operations across disciplines but with a focus on engineering and • Development of data analytics and digital capability • Australian Gold Reagents (AGR), CSBP’s 75 per cent data science • Expand learning management system to cover Key financial indicators joint venture with Coogee Chemicals which • Trialling and implementing new ways to attract and contractors manufactures and supplies sodium cyanide retain female employees, especially in leadership and

1 2 3 4 For the year ended 30 June 2014 2015 2016 2017 2018 • Australian Vinyls, which supplies PVC resin and non-traditional roles report Directors’ • Launched a new learning management system Revenue ($m) 1,812 1,839 1,820 1,639 1,830 specialty chemicals to the Australian industrial sector Earnings before interest and tax ($m) 221 233 294 395 390 • ModWood, which manufactures wood-plastic Focus on sustainable • Significant reduction in environmental internal limits • Ongoing commitment to improve safety performance Capital employed (R12) ($m) 1,539 1,535 1,554 1,443 1,407 composite decking and screening products operations for the benefit non-conformances compared to previous year and capability Kleenheat extracts LPG from natural gas and distributes of employees, customers • Commissioned a reverse osmosis (RO) plant at CSBP • Continue focus on regulatory compliance Return on capital employed (%) 14.4 15.2 18.9 27.4 27.7 and communities in bulk and bottled LPG to the residential and commercial Kwinana to increase water supply options and offset • Develop long-term water supply strategy to inform Capital expenditure ($m) 1725 56 60 44 60 which we operate markets in Western Australia and the Northern Territory. losses from an existing source future investment decisions Kleenheat is also a retailer of natural gas to residential • Direct community contributions of $377,000 supporting • Continue to support the CSIRO-led Western Trade 1 2014 excludes a $95 million gain on sale of the 40 per cent interest in ALWA (reported the Clontarf Gilmore College, Moorditj Koort, and the and commercial markets, and electricity to businesses in Coast recycled wastewater Managed Aquifer Recharge as an NTI). WACA Regional Junior Cricket Program, as well as project for sustainable long-term water supply options 2 Western Australia. 2015 includes a net $10 million gain comprising insurance proceeds and the gain on sale STEM-based initiatives delivered with the Kwinana • Continue to deliver on community investment strategies of Kleenheat’s east coast LPG operations, partially offset by asset writedowns. CSBP Fertilisers manufactures, imports and distributes Industries Council and various universities statements Financial 3 2016 includes $32 million of one-off restructing costs associated with the decision to fertilisers for the Western Australian agricultural sector. cease PVC manufacturing. CSBP Fertilisers also provides technical support services 4 2017 includes $33 million relating to WesCEF’s share of revaluation gains in Quadrant for growers. Fertilisers recently launched its agricultural Energy and profit on sale of land of $22 million. Risk

technology business, Decipher, which allows growers 5 Excludes capitalised interest. and their advisors to visualise farm data and make more WesCEF manages risk as an intrinsic part of its business and is committed to conducting its activities in a way that ensures informed nutritional decisions. the continued and sustainable growth of shareholder value. Risks deemed unacceptable are transferred (through contractual arrangements or insurance), mitigated or avoided. PERFORMANCE DRIVERS Wesfarmers announced an agreement to divest its 13.2 per cent indirect interest in Quadrant Energy on Revenue of $1,830 million was 11.7 per cent above last year with 22 August 2018. Risk Mitigation Chemicals, Energy and Fertilisers all contributing to revenue growth. Serious injury, safety or • Continue to invest in improving safety culture and performance for the safe operation of facilities and distributing Chemicals revenue increased primarily due to higher EGAN sales reports Signed Sustainability environmental incident products in a way that minimises any adverse effect on employees, contractors, local communities or the volumes as a result of production disruptions to the competing Burrup environment ammonium nitrate (AN) plant and higher PVC sales volumes. Energy WesCEF continues to manage its safety performance through its ‘Safe Person, Safe Process, Safe Place’ • Maintain a strong focus on operating facilities and distribution systems in a manner which minimises the effect on revenue increased due to higher Saudi CP (the international benchmark the environment indicator for LPG) and continued growth in the number of natural program, investing in leadership capability, operating gas retail customers. responsibly, contributing positively to the communities Increased competition • Maintain brand awareness, focus on satisfying the needs of customers and continue to invest in initiatives that in which it operates, and maintaining a commitment to improve the customer experience Reported earnings of $390 million were 1.3 per cent lower than the prior environmental stewardship. year. The prior year earnings include one-off benefits of $55 million. • Continue to review and expand product and service offering In addition to supporting grass-roots organisations, Excluding these one-off items, earnings increased 14.7 per cent. • Positive contributions to the communities in which we operate WesCEF sponsors a number of community groups An ongoing focus on safety, particularly high potential incidents, has including, the Clontarf Gilmore College, Moorditj Reducing market • Establishing a balance of long-term contracts with minimum volume requirements and established pricing

seen the lost time injury frequency rate maintain at historically low levels Koort and the Western Australian Cricket Association demand for products mechanisms (predominantly with domestic customers) with short-term spot agreements, including placing information ASX Shareholder and with LTIFR at 1.3 compared to 0.7 last year. (WACA) Regional Junior Cricket Program. WesCEF has products into export markets from time to time partnerships with Scitech, Murdoch University, Edith Cowan University and the Kwinana Industries Council to progress STEM education in the communities in which it operates.

52 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 53

Overview Operating and financial review — Industrials Operating and financial review — Industrials INDUSTRIAL AND SAFETY

BACK Growing talent Industrial and Safety Strategy team member Christian Industrial and Safety continues to optimise the businesses through lowering the cost of doing business, improving the offer to Whitfield commenced

customers and investing in core systems and digital. financial review andOperating in the business eleven INDUSTRIALS months ago as a Across Blackwoods the transformation continues with initiatives focused on the four core areas of: sales and customer graduate and is now an service; merchandising and sourcing; supply chain; and, digital and systems which are focused on delivering a more Analyst, Commercial at customer-centric and competitive business. INDUSTRIAL AND SAFETY Macquarie Park, New Other strategic priorities include further enhancing the product offer in Workwear Group and growing Coregas through new South Wales. distribution channels and markets.

Growth strategies Achievements Focus for the coming years

Implementation of a • Improved supply chain processes • Investment in core systems including a new more customer-centric and performance website, customer relationship management tool and competitive • Greater investment in customer service, and ERP system Sustainability Blackwoods platform merchandising and digital capabilities • Supply chain initiatives to drive efficiencies and Our business YEAR IN REVIEW • Building preferred supplier arrangements and own improve delivery speed and accuracy Industrial and Safety operates four main businesses: brand development • Leverage the platform to increase share of wallet • National strategic relationships with local delivery with existing customers and grow medium-size Blackwoods, Workwear Group, Coregas and Greencap. customer segment Revenue EBIT Blackwoods is the market leader in B2B industrial suppliers and safety products to businesses of all Optimisation of • Supply chain optimisation completed • Improve range and pricing architecture sizes across Australia and New Zealand. It distributes Workwear Group • Sourcing rationalisation program progressed • Further refinement of the operating model to reduce $1,750m $118m its products through an extensive national supply • Customised apparel offer introduced cost of doing business chain, branch network and online platforms. Its broad • Drive a results-focused culture

2018 1,750 2018 118 product range is supported by expert technical advice Governance Grow Coregas through • Increased market share • Further develop new distribution channels and 2017 1,776 2017 115 and solutions. new distribution channels • Continued to leverage Blackwoods and market opportunities 2016 1,844 2016 63 Workwear Group is Australia’s largest provider of Bunnings distribution channels in Australia 2015 1,772 2015 70 industrial and corporate workwear, featuring iconic and New Zealand • Cylinder tracking technology implemented 2014 1,621 2014 131 Australian brands Hard Yakka and King Gee. Workwear Group also supplies bespoke and catalogue uniforms • Growth in medical gases offer and customers to leading airlines, financial services providers, retailers and other large corporates through NNT and Risk Key financial indicators Incorporatewear (UK), as well as specialised garments to defence and emergency services customers in As a supplier of industrial, safety and work wear products, the business is exposed to the performance of customers’ industry Australia and New Zealand. For the year ended 30 June 2014 20151 20162 2017 2018 sectors as well as macro-economic factors such as capital investment, employment, exchange rates and interest rates. report Directors’ Revenue ($m) 1,621 1,772 1,844 1,776 1,750 Coregas is a supplier of industrial, specialty and medical gases in Australia and New Zealand, serving Risk Mitigation Earnings before interest and tax ($m) 131 70 63 115 118 customers of all sizes through multiple sales channels Capital employed (R12) ($m) 1,127 1,257 1,339 1,363 1,409 and distribution networks, including Blackwoods and Subdued investment • Continue development of the new Blackwoods platform in Australia and New Zealand to support growth into

activity in traditional different market sectors Return on capital employed (%) 11.6 5.5 4.7 8.4 8.4 Bunnings. customer segments • Continue to execute performance improvement plans in Blackwoods and Workwear Group Capital expenditure ($m) 51 65 44 34 50 Greencap is an expert risk management and • Further develop new distribution channels for Coregas digital compliance solutions business. 1 2015 includes restructuring costs of $20 million related to branch closures, business Growth of new and • Develop a more customer-centric and relevant platform consolidation and organisational redesign. Our market existing competitors, • Launch new digital capabilities 2 2016 includes $35 million of restructuring costs associated with the ‘Fit for Growth’ including supplier sales • Continue to optimise range and price transformation. Industrial and Safety service customers across diverse direct to customer statements Financial industries such as construction, mining, manufacturing, retail, food and beverage, utilities, transport, facilities Safety or • Continue to focus on quality systems and ensuring compliance with standards maintenance and government. The businesses also environmental incident • Fully operational safety program including regular monitoring and the continuation of the safety culture • Active safety engagement by senior management

service a wide range of customer groups including PERFORMANCE DRIVERS large corporate enterprises, government organisations Revenue of $1,750 million was 1.5 per cent lower than the prior year. and small-to-medium sized businesses. Blackwoods’ revenue was marginally below the prior year due to strong demand from the mining segment not offsetting weaknesses in other Sustainability segments. Workwear Group revenue was lower than the prior year due Industrial and Safety continued its target-based to strong demand in the industrial work wear market in Australia being sustainability plan during the year, and progressed key offset by weaker demand in New Zealand and the UK, and impacts from areas of focus such as gender balance, Indigenous reports Signed a fire at a major distribution centre. Coregas revenue increased on the engagement, ethical sourcing and the health and prior year due primarily to growth in tonnage, bulk and New Zealand wellbeing of team members. Employee safety sales channels, moderated by changes in sales mix and pricing pressure. continued to be a high priority area. Each business has Earnings of $118 million were a 2.6 per cent increase on the prior year. progressed their strategic safety plans to manage and Blackwoods earnings were impacted by the continued investment in mitigate critical risks. the transformation of customer service, the supply chain and digital WIS is striving to reduce its emissions intensity and platforms. Workwear Group earnings increased due to improved margins improve its resilience to climate change and rising from sourcing initiatives partially offset by restructuring costs in the energy costs. In the past four years, it has installed supply chain and remediation costs at the fire-affected distribution renewable solar systems on major distribution centres

centre. Coregas earnings were lower than the prior year despite stronger and continued to focus on sustainable buildings with information ASX Shareholder and sales due to margins being impacted by higher energy costs and LED light fittings. Under this program the business has increased competition. reduced electricity consumption by 25 per cent since 2015.

54 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 55

Overview Operating and financial review — Industrials Operating and financial review

BACK

INDUSTRIALS OTHER financial review andOperating RESOURCES ACTIVITIES

Sustainability

Our business Wesfarmers is also a major Gresham Partners Wespine Industries YEAR IN REVIEW investor in the BWP Trust, Following the divestment of Curragh, Wesfarmers has a 50 per cent The 50 per cent-owned Wespine Resources has a 40 per cent joint venture Gresham Partners and shareholding in Gresham Partners Industries operates a plantation Revenue EBIT interest in the Bengalla mine, located Wespine Industries. Group Limited, the holding softwood sawmill in Dardanup, south-west of Muswellbrook, in the Hunter company for the Gresham Western Australia. Valley region of New South Wales. Partners operations. Gresham is Timber sales for the 2018 $1,689m $359m BWP Trust a leading independent financial financial year increased by 31 Wesfarmers announced an agreement to services business with activities sell its 40 per cent interest in the Bengalla Wesfarmers’ investment in the per cent with higher sales to in corporate advisory, funds the Eastern States more than 2018 1,689 2018 359 BWP Trust (the Trust) contributed Governance Joint Venture on 7 August 2018. The sale of management, property, and 2017 1,746 2017 405 the interest in Bengalla is expected to close earnings of $45 million, compared offsetting sustained weakness in to $55 million last year due to capital solutions. house building activity in Western 2016 1,008 2016 (310) in the fourth quarter of calendar year 2018 and will complete Wesfarmers’ exit from coal lower property revaluations. During the year, Gresham Australia. Operating margins 2015 1,374 2015 50 mining following a detailed strategic review. The Trust was established in participated in a number also improved during the year, 2014 1,544 2014 130 1998 with a focus on warehouse of significant advisory reflecting production efficiencies Our market retailing properties and, in transactions, including on higher volumes. mergers and acquisitions, Safety performance improved Bengalla’s steaming coal is used for power particular, Bunnings warehouses corporate restructurings and with the rolling 12-month total generation and is primarily exported to leased to Bunnings Group Key financial indicators debt refinancing on behalf recordable injury frequency rate customers based in Japan and North Asia. Limited. BWP Management Limited, the responsible entity of a range of domestic and for the year falling to a record low

1 2 3 international clients. Its property report Directors’ For the year ended 30 June 2014 2015 2016 2017 2018 Sustainability for the Trust, is a wholly owned in June 2018. The management Revenue ($m) 1,544 1,374 1,008 1,746 1,689 subsidiary of Wesfarmers funds management business, team is maintaining its focus on which is the manager of Earnings before interest and tax ($m) 130 50 (310) 405 359 Resources strives to be a highly ethical Limited. Units in the Trust are all aspects of workplace safety. business that puts the safety and wellbeing listed on the Australian Securities established institutional funds Capital employed (R12) ($m) 1,459 1,453 1,351 587 479 of its people first. This is achieved by and syndicates, continued to Exchange and Wesfarmers Return on capital employed (%) 8.9 3.4 (22.9) 69.0 74.9 focusing on workplace health and safety to holds, through a wholly owned finance a range of Australian Capital expenditure ($m) 163 137 116 91 57 prevent accidents and injuries. subsidiary, 24.8 per cent of the development projects. The business is committed to operating total units issued by the Trust as Wesfarmers is a participant in the 1 2018 includes contribution from Curragh for the period 1 July 2017 to 29 March 2018. in a sustainable manner and takes its at 30 June 2018. Gresham Private Equity funds 2 The 2016 earnings before interest and tax for Industrials excludes the $850 million non-cash environmental and social responsibilities with the remaining holding being impairment of Curragh. The Trust performed in line with seriously. It seeks to make a positive and an underground mining services 3 The 2018 earnings before interest and tax excludes the $120 million pre-tax gain on its business objectives during statements Financial disposal of the Curragh coal mine. lasting contribution to the communities in the year, providing a 1.7 per cent business, Barminco Limited, which it operates and to the nation through increase in full-year distributions operating both in Australian and its economic activity. and $70 million in net revaluation overseas markets. In August gains from its property 2018, Ausdrill Limited agreed

investment portfolio. to acquire Barminco. As a part PERFORMANCE DRIVERS of the transaction Barminco The Trust’s portfolio as at 30 shareholders will become The sale of the Curragh coal mine in Queensland to Coronado Coal June 2018 consisted of a total Group was completed on 29 March 2018 and as a result Curragh shareholders in the enlarged of 79 properties: 76 established Ausdrill upon completion. only contributed nine months to the 2018 financial year. Overall the Bunnings warehouses, eight investment by Wesfarmers in Curragh, which was acquired in 2000, of which have adjacent retail has delivered an after-tax internal rate of return of approximately showrooms that the Trust owns reports Signed 49 per cent per annum. and are leased to other retailers; Revenue of $1,689 million was 3.3 per cent below last year, primarily one fully leased stand-alone large due to the divestment of Curragh, which was partially offset by an format showroom property; and increase in the average prices for thermal and metallurgical coal two vacant properties. achieved due to the continued robustness of export coal markets. Earnings of $359 million were $46 million below last year, primarily due to the divestment of Curragh. At Bengalla, a continued focus on production debottlenecking drove an increase in production to take advantage of higher export thermal coal prices, resulting in higher earnings. information ASX Shareholder and

56 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 57

Overview Sustainability

BACK SUSTAINABILITY OUR PERFORMANCE financial review andOperating

Wesfarmers considers communities in which we operate through strong partnerships and WE ARE PROUD OF OUR PROGRESS IN THE FOLLOWING AREAS. sustainability as an by providing direct and indirect

opportunity to drive employment. We endeavour to continually improve our performance Safety Ethical sourcing strong and long-term and publicly report on our progress and human rights shareholder returns. and challenges in our annual sustainability report. Injury rate Factories in our audit program At Wesfarmers we believe long- Sustainability In March 2018, Wesfarmers term value creation is only possible announced the completion of the if we play a positive role in the 15% 4,003 sale of its Curragh coal mine and this communities we serve. Sustainability report includes data for that business is about understanding and Reduced our total recordable Improved the transparency of our until 29 March 2018. managing the ways we impact the injury frequency rate by supply chain with 4,003 factories communities and environments in The Dow Jones Sustainability Our full sustainability report is available 15 per cent to 24.4. including supplier sites in our which we operate, to ensure we Index (DJSI) tracks sustainability at sustainability.wesfarmers.com.au audit program. continue to create value in the future. performance of leading companies around the world. In September 2018, Wesfarmers is committed to Wesfarmers was advised that it is

minimising our footprint and to Governance one of only six companies worldwide delivering solutions that help our Diversity Community contributions in the food and staples sector to be customers and the community do included in the DJSI World index. the same. We contribute to the Indigenous employees Direct funding 5,228 $86.6m Worked to promote diversity Contributed a further in our workplaces, with a 24% $60.9 million in indirect funding increase in employees identifying to community organisations. as Indigenous1. report Directors’

WE ACKNOWLEDGE THAT WE CAN IMPROVE OUR PERFORMANCE.

Diversity Climate change resilience statements Financial

Wesfarmers’ workforce is We will continue to focus on made up of 54 per cent women climate change resilience,

and 46 per cent men. A key especially energy efficiency. opportunity for the Group is We are proactive about managing to increase the percentage of risks associated with climate leadership positions held by change because we believe this women. will deliver significant benefits for Over the last five years, there has us all. reports Signed been a 5.0 per cent increase in This year we reduced our Scope women in management roles and 1 and 2 carbon emissions by

a 5.5 per cent increase in women 3 per cent. in senior roles. ASX information ASX Shareholder and

1 As at 30 June 2018.

58 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 59

Overview Sustainability

BACK SAFETY DIVERSITY financial review andOperating We maintain a relentless We strive to create an inclusive Wesfarmers supports its divisions to Indigenous procurement focus on providing safe Total recordable injury Lost time injury work environment, with build a gender-balanced workforce in a In addition to direct employment, workplaces. frequency rate1 frequency rate1 particular attention to gender number of ways. In 2018, independent Wesfarmers has created Indigenous balance and the inclusion of external gender audits identified employment opportunities through Wesfarmers is a business driven by opportunities to improve gender Indigenous people. procurement from local and national people. As Australia’s largest private balance. Wesfarmers has developed

24.4 6.8 Indigenous suppliers. In the Wesfarmers is committed to building sector employer some 217,000 people 50 10 its own gender tool kit which is a five years from 2013 to 2017, an inclusive culture that harnesses resource to help our businesses come to work in our offices, shops, FY18 24.4 FY18 6.8 Wesfarmers purchased more than plants and facilities every day. 40 8 the power of diversity of thought and identify opportunities to better harness $65 million in products and services FY172 28.7 FY172 7.5 experience in our teams. Diversity The safety of team members, 30 6 the strength of male and female talent from Indigenous suppliers.

enables us to best deliver on the needs Sustainability customers, suppliers and visitors FY162 33.6 FY162 7.3 and capture business opportunities 20 4 of each of our customers and thus Indigenous partnerships across all our sites is our highest by better catering to all people across FY15 39.4 FY15 7.3 deliver for our shareholders. priority. We continue to make 10 2 our customer base. The launch of a Wesfarmers is committed to FY14 42.7 FY14 7.7 Wesfarmers cross-divisional Gender establishing community partnerships improvements to safety. 0 0 Gender balance Balance Working Group, sponsored with organisations focused on improving To monitor our safety performance, we 14 15 16 17 18 14 15 16 17 18 While our workforce is balanced by our Group Managing Director, the lives of Indigenous people. use total recordable injury frequency with 54 per cent of our team members 1 TRIFR is the number of lost time injuries and medical 1 LTIFR is the number of lost time injuries per has enabled our divisions to share Wesfarmers has partnered with Clontarf rate (TRIFR) and lost time injury treatment injuries per million hours worked. million hours worked. female, there is room to strengthen practices across the Group as well as since 2001 to improve the education, frequency rate (LTIFR), which show 2 Restated due to maturation of data. 2 Restated due to maturation of data. the gender balance in management hear from external experts. injuries per million hours worked by roles. Twenty-eight per cent of senior discipline, life skills, self-esteem and employees and long-term contractors. management roles are held by women. Indigenous representation employment prospects of young This year, our TRIFR decreased by ‘Gender balance’ means that teams in our workforce Indigenous men using football as a Governance 15 per cent from 28.7 to 24.4, with have a minimum of 40 per cent of foundation. During the year Clontarf Wesfarmers’ diversity strategy improvements across most divisions. either gender. continued to expand nationally as it includes a commitment to make every Our LTIFR decreased nine per cent aims to double its student intake. While Building a more gender balanced business a place where Indigenous this year compared to the prior significant financial support is provided business that appreciates and people feel welcome and valued, as corresponding period. by Wesfarmers, a number of our caters to the strengths, preferences employees, customers and suppliers. divisions have established relationships We were pleased that our workers’ and needs of different team members To do this, Wesfarmers prepared and with Clontarf Academies around compensation claims decreased by and different customers is a source of committed to its first Reconciliation Australia and provide work experience more than 500 to 5,863. competitive advantage. Action Plan (RAP) in 2009, which and employment opportunities, as well outlines specific measurable actions . as mentoring and other in-kind support.

Female representation to be undertaken across the Group, report Directors’ We continued to support Australian across the Group targeting Indigenous employment, Indigenous Mentoring Experience business engagement, community and The Graham (Polly) Farmer partnerships and team member 2017 2018 Foundation. Wesfarmers also entered PEOPLE DEVELOPMENT volunteering with Indigenous

into the second year of its partnership organisations. Wesfarmers Limited with Reconciliation WA. Many of managers, to ensure they have the This year, we made progress across Our greatest competitive Non-Executive Directors our divisions also have additional advantage is our people capabilities we require for today and all areas of our RAP, with the following partnerships with organisations that and we are committed for the future. 38% 33% highlights. support Indigenous communities, to providing them with We set standards for talent, leading Indigenous employment such as New Start Australia, The Fred cross-divisional talent development Hollows Foundation and The Australian statements Financial opportunities to improve processes and supporting the As Australia’s largest employer, we Literacy and Numeracy Foundation. their performance and Senior executive positions believe we can provide Indigenous individual development of our most (General manager or above) Our RAP is available at their careers. critical and highest potential leaders. people with greater opportunities to participate in sustainable employment, wesfarmers.com.au

Wesfarmers is Australia’s largest This year Wesfarmers launched a Blackwoods helps team 24% 28% and this remains our primary goal. This employer with approximately 217,000 Group-wide investment in awareness members plan for the time year we employed 997 more Indigenous employees. Our businesses provide and capability building associated with of their lives team members, and total Indigenous data analytics, in line with one of our Quiet Hour employment to approximately one in Blackwoods has identified All management and team members now represent now every Tuesday 60 working Australians. strategic focus areas. an increasing corporate risk professional roles 2.5 per cent of Wesfarmers’ Australian During the year, we paid $9.3 billion associated with a maturing workforce. Workplace relations workforce. During the year, it Coles launches its

in salaries, wages and benefits to reports Signed More than 87 per cent of our team introduced a program to address 32% 34% accessibility action plan our employees. members are covered by collective the cost of illness and injury Indigenous team members In June 2018, Coles launched its agreements. We recognise the right within this cohort and the loss second Accessibility Action Plan Training and development of business knowledge and Total workforce of those we employ to negotiate 2018-2020, which aims to improve Wesfarmers’ divisions provide 2018 5,228 either individually or collectively, customer serviceability as older the accessibility of its stores, sites, job-specific and career development people left the organisation. 2017 4,231 with or without the involvement of 54% 54% workplaces and digital access for training opportunities that include third parties. Collective agreements 2016 3,327 people with disability. The new technical skills, customer service, team plan makes 16 commitments typically include provisions for notice 2015 2,762 work, and leadership. These programs and includes expanding ‘Quiet periods and provisions for consultation are available to full-time, part-time and 2014 1,711 Hour’. Quiet Hour is a low-sensory and negotiation. We also believe in casual employees. shopping experience offering maximising the flexibility of workplace dimmed lights, reduced noise and ASX information ASX Shareholder and At the Group level, we focus on arrangements available to our Wesfarmers is Australia’s largest limited overhead announcements the potential and capability of employees and their managers. employer of Indigenous people. at specified times. our leadership teams and general

60 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 61

Overview Sustainability

BACK SUPPLIERS COMMUNITY CONTRIBUTIONS financial review andOperating We commit to strong and We make a positive facilitating the collection of customer Wesfarmers Arts Kmart and Target commit to donations for local fundraising respectful relationships sourcing more sustainable contribution to the Wesfarmers has supported the arts in communities in which initiatives. As a result of these locally Australia for more than three decades. with our suppliers. cotton driven activities, there are a significant we operate. Our engagement in the cultural life Our relationships with approximately Kmart and Target have joined the number of community groups and of the community embraces our 18,000 suppliers across the Group Better Cotton Initiative, a sustainable Wesfarmers is a successful company, programs which have received the long-term support for a wide range cotton standard and program are very important to us. This year and one that creates value for all its support of our businesses across a of premier performing and visual that exists to make global cotton we paid approximately $47 billion to stakeholders. As a result, we have wide range of areas. arts organisations and the ongoing our suppliers. We want to provide production better for the people who produce it, better for the a significant positive impact on the Wesfarmers contribution development of The Wesfarmers value to our customers and sustainable environment it grows in and better Australian economy. The wealth Collection of Australian Art. growth for our suppliers and their In addition to the millions of dollars Sustainability for the sector’s future. created by the Group during the year From rare watercolours of the earliest employees. Striving for better efficiency invested in community programs by our was $69.9 billion which, in one form or years of European settlement, to in our consumer supply chains ensures various businesses, Wesfarmers also another, was distributed to our various the art of today across painting, their continued competitiveness. stakeholders. Wesfarmers is Australia’s supports a number of organisations philanthropically. photography, sculpture and digital largest private sector employer. The media, The Wesfarmers Collection vast majority of our shares are owned The Wesfarmers Board approves reflects the diversity of creative by residents of Australia, and we invest partnerships focused on five areas: Australia through the work of our in the local communities where our medical research and health; country’s defining artists. During ETHICAL SOURCING AND HUMAN RIGHTS businesses operate. Indigenous programs, particularly the year, we shared works from In 2018, the Wesfarmers Group targeting education and employment our collection with museums and outcomes; education initiatives; We strive to source products Increasing supply chain non-compliances such as minor gaps in contributed $86.6 million in direct galleries throughout Australia and Governance community programs; and the in a responsible manner transparency record keeping to critical breaches, such funding to community organisations online via Instagram, Facebook and as incidences of forced labour or bribery. across Australia and New Zealand Wesfarmers Arts program. the Wesfarmers Art Collection app, while working with suppliers Global supply chains are inherently and other regions where we operate. Where a non-compliance is identified, the In 2018, approximately $9 million available free from the Appstore. to improve their social and complex, diverse and dynamic. The Group also facilitated donations factory is required to fix the issue, within was contributed to our partners, In 2018 the Wesfarmers Arts During the year, we continued to from customers and employees environmental practices. an appropriate period of time, depending the majority of which are long-term sponsorship program provided focus on supply chain transparency totalling $60.9 million this year, taking on the nature of the non-compliance. commitments with West Australian- $3.3 million in support of the activities Ethical sourcing and human rights has as the key to ensuring modern total community contributions to based organisations. been identified as Wesfarmers’ most slavery is not occurring in our supply We were able to remedy 43 of these of 14 leading arts organisations. approximately $148 million. This year marked the start of our material sustainability issue in our chains. Our due diligence process issues immediately, 50 had action Wesfarmers has always believed renewed contract with Telethon Kids annual materiality process. has revealed unfair working conditions plans that were on track at the end of that a strong business environment Institute, with an increased funding

is a risk in supply chains all over the the reporting period, one was exited report Directors’ Our businesses directly source is underpinned by a cohesive and contribution from Wesfarmers to world, including OECD countries such immediately and no further supply orders products from more than 20 countries. inclusive community environment. $1.5 million per annum. Wesfarmers has as Australia. were placed at the remaining 20. Some of the major locations we Accordingly, Wesfarmers has had a had a long partnership with Telethon source from outside Australia include During the year Target, Kmart and long-term commitment to investing in Kids, most recently through the China, Bangladesh, New Zealand, Coles maintained their commitment Ethical sourcing audit community initiatives linked to long- establishment of the Wesfarmers Centre India, Thailand and Vietnam. While to supply chain transparency by term social and economic outcomes. of Vaccines and Infectious Diseases. our operations and supply chains continuing to publish the details of the program findings are complex, our aim is to ensure factories that directly produce their Our divisional contribution that human rights are understood, own brand products. Wesfarmers Arts supports Reflecting the Group’s divisional Yirra Yaakin Aboriginal respected and upheld. We expect 4,003 autonomy, our approach to community Ethical sourcing audit programs Theatre - Noongar our partners and stakeholders to Total number of factories1 engagement is driven and managed Shakespeare Project adhere to ethical business conduct To mitigate the risk of unethical by our businesses to ensure value is statements Financial In 2018 we embarked on a major consistent with our own, and are practices occurring in our supply Approved 1,849 created in ways that best fit with their committed to working with them to initiative with Yirra Yaakin to chains, the relevant Wesfarmers Conditionally Approved 1,815 operations and geographic spread. fulfil this common goal. develop a contemporary Noongar businesses (Coles, Bunnings, Target, Wesfarmers has a local footprint Indigenous interpretation of Expired Audits 257 During the year, Wesfarmers continued Kmart, Officeworks, and Industrial and in many communities. Many of our Macbeth set to premier at Perth Safety) apply a human rights and ethical Critical Breaches 82 to engage with government and NGOs divisions have major, long-term Blackwoods’ support for the Festival in 2020 and tour to The sourcing audit program to certain to voice its support for establishing 1 Factories include supplier sites. partnerships at a national level, such Fred Hollows Foundation Globe Theatre, UK. a Modern Slavery Act in Australia. suppliers. Suppliers are considered as the enduring partnership between exceeds $1 million We believe the Act will improve lower risk if they are supplying Kmart and The Salvation Army through recognised international brands. Through proceeds from the sale transparency in corporate and public the Kmart Wishing Tree Appeal, or of a select range of products and

sector activities, and ultimately help This year, our audit program covered Coles’ relationship with national food employee and supplier support, reports Signed to eliminate modern slavery across 4,003 factories or supplier sites relief charity SecondBite. Blackwoods contributed more Australian entities’ operations and their in Australia and overseas used to In addition to these major partnerships, than $500,000 to support supply chains. produce products for sale across our Indigenous health programs in a significant part of our community retail businesses. investment is directed to smaller, the past 12 years. Factories and supplier sites in the not-for-profit organisations operating During the year, Backwoods audit program are required to have locally. For example, Bunnings reviewed its support to the undertaken an assessment as Officeworks works with suppliers has supported thousands of local foundation and announced to improve working conditions mandated by our business. Factories community groups throughout the year an improved contribution of may then be required to undertake Officeworks has a comprehensive by participating in activities such as 10 per cent of proceeds from further assessments including having approach to ethical sourcing that fundraising sausage sizzles, hands-on the sale of Prosafe eye and face

protection products going to information ASX Shareholder and a current audit certificate, which is built on the values of transparency, projects, community workshops and Our third Modern Slavery integrity, collaboration and The Fred Hollows Foundation means they have been audited by us product contributions. Indigenous Australia program, Statement can be found in our 2018 or another party whose audits we continuous improvement, aiming to Sustainability Report available at protect workers’ rights throughout Our retail businesses all support contributing more than sustainability.wesfarmers.com.au accept. The audits identify a range of the supply chain. local community groups through the $600,000 this year alone. non-compliances, from minor provision of gift cards, products or

62 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 63

Operating and Directors’ Financial Signed Shareholder and Overview Sustainability Governance financial review report statements reports ASX information 65 Dry ice replaces water at water at Dry ice replaces CSBP reduced WesCEF During the year, dry iceits water use by using rather than water to clean feasible. equipment where Wesfarmers 2018 Annual Report Wesfarmers

Further information on our corporate governance practices can be found on pages 68 to 71 and in the full 2018 Corporate Governance Statement website at available on the company’s www.wesfarmers.com.au/cg improving its recycling programs programs its recycling improving The total amount these areas. across by Coles decreased of waste recycled while waste to 3 per cent this year, 8 per cent. Coles is landfill decreased and in stores combating food waste with the supply chain by partnering this partnership SecondBite. Through that edible, surplus food it ensures of people in ends up on the plates to landfill. need instead of contributing a In May 2018, Coles marked recycling milestone with soft plastics in all its for customers available Coles’ supermarkets nationally. partnership with REDcycle provides customers with a simple and effective soft plastics, way of recycling including plastic packaging and plastic bags. Customers can simply place their soft plastics in a dedicated REDcycle bin at their local Coles and it will be collected where store, into a range of products. recycled Reducing water use water recorded the Group This year, 13,422 megalitres. use of approximately in water a decrease This represents use of 18 per cent due to the sale of the Curragh coal mine as we have to calculated the water use related this business until it was divested in March 2018. WASTE AND USE WATER ROBUST GOVERNANCE ROBUST We maintainWe robust corporate governance our all in policies businesses. is of Wesfarmers The Board committed to fulfilling its corporate governance obligations and of in the best interests responsibilities the company and its stakeholders. We striveWe to reduce our water and landfill to waste use where possible. our waste reduce working to are We and to divert asto landfill intensity rate both in much as possible to recycling, our customers. our operations and for a material management is Water Coles Resources, issue for WesCEF, management and Bunnings. Senior responsible of those businesses is water for assessing and managing risks and opportunities related have and their divisional boards oversight of these strategic risks and that recognise opportunities. We Australia is a highly water stressed country and our focus is on using reducing our efficiently, water more water use intensity rate and replacing or scheme water with reclaimed possible. water where recycled Recycling and waste our we decreased This year, waste to landfill by 4 per cent to 154 thousand tonnes and decreased by 6 per cent our waste recycled to 351 thousand tonnes. This was primarily due to waste diversion and at Coles, Target projects Officeworks. of waste are Our main sources food and plastic at Coles. cardboard, Coles is focused on innovating and

e) in scope 2 e. The decrease is also e. The decrease 2 Officeworks plants more plants more Officeworks than 200,000 trees Partnering with Greening committed Australia, Officeworks for every to planting two trees one used, based on the weight of purchased products paper-based by its customers. Encompassing the than 8,000 products, more initiative set out to re-establish landscapes native plants across bushland, help to revegetate wildlife flourish, support species, and increase threatened the water quality in these regions. We have systems and procedures in procedures have systems and We customer information place to protect privacyand acknowledge that significant ongoing requires protection a high priority. This remains resources. toDuring the year we continued to controls implement a number of enhancedminimise risk, including testingmonitoring and vulnerability of our systems and procedures. related to the sale of the Curragh related coal mine as we have calculated the to this business up emissions related 2018. until it was divested in March one and two emissions, which was This 3 per cent less than last year. a 6 per cent reduction represents last in emissions intensity from in our the decrease This year, year. emissions was driven by energy at Coles, Kmart projects efficiency which account for a and Officeworks than 200 thousand of more reduction tonnes of CO 3,945 thousand tonnes of carbon dioxide equivalent (CO Our emissions Our we emitted a total of This year, are offered for sale. As well as safety for sale. As well offered are with required testing and compliance our divisions implement standards, possible safety where recalls product issues may arise. of our materialityDuring the year as part as customer privacy emerged process, and Wesfarmers a key material issue for to committed are its businesses. We Privacycomplying with the Australian legislation. Act and all relevant Managing our emissions our Managing The scale of the climate challenge is but the International Panel on great Climate Change highlights that the it. world has the means to address looking for ways Our divisions are reduce efficiency, energy to improve their operations emissions across and supply chains and invest in low-emissions and renewable technologies as we transition to a low carbon economy. to all our responsibility recognise We our stakeholders to play an active role climate change. in addressing gases both emit greenhouse We Our direct and indirectly. directly our (Scope 1) emissions come from industrial businesses, including the use of natural gas and diesel, and coal mining. fugitive emissions from (Scope 2) of indirect Our main source emissions is electricity used by our also estimate our operations. We other Scope 3 emissions, which are emissions that occur as a indirect of our operations (e.g. employee result by us. not controlled air travel), but are able to manage our emissions are We intensity (tonnes of emissions per one million dollars revenue) various initiatives including through in our technology improvements and through industrial processes initiatives in all our efficiency energy businesses.

CLIMATE CHANGE RESILIENCE CHANGE CLIMATE PRODUCT SAFETY AND CUSTOMER PRIVACY AND SAFETY CUSTOMER PRODUCT

Wesfarmers 2018 Annual Report Wesfarmers Bunnings invests in energy renewable At the end of the financial year installed solar PV systems were across at 23 Bunnings stores Australia, covering 25,000 square area. of roof metres We striveWe to improve the our intensity of emissions theirbusinesses improve and resilience to climate change. acknowledge the scientific We consensus on climate change and the it may have on our customers, effects our operations, the economy and the communities in which we operate. about managing proactive are We risks associated with climate change will deliver because responding significant economic, social and benefits for us all. environmental supports the Wesfarmers on Force of the Task recommendations Financial Disclosures Climate-related (TCFD) which has developed voluntary, financialconsistent climate-related for companies, and isdisclosures stakeholderscommitted to providing to how wewith information in relation managing climate change risks. Inare line with the TCFD recommendations, can be found in theour disclosures Operating and Financial Review section on page 23. All of the consumer products we All of the consumer products meetsupply must be safe and under theconsumer guarantees countriesconsumer laws of the that ensure we operate. We where relevant comply with all our products they before mandatory standards We areWe committed to providing consumers with safe products and privacy. their protecting Sustainability 64 BACK Overview Governance

BACK BOARD OF DIRECTORS financial review andOperating

MICHAEL CHANEY AO JENNIFER WESTACOTT AO WAYNE OSBORN PAUL BASSAT TONY HOWARTH AO CHAIRMAN DIRECTOR DIRECTOR DIRECTOR DIRECTOR BSc, MBA, Hon. LLD W.Aust, FTSE BA (Honours), FAICD, FIPAA Dip Elect Eng, MBA, FAICD, FTSE B.Comm, LL.B. (Melb) CitWA, Hon.LLD (UWA), SF Fin, FAICD Age 68 Age 58 Age 67 Age 50 Age 66

Term: Chairman since November 2015; Term: Director since April 2013. Term: Director since March 2010. Term: Director since November 2012. Term: Director since July 2007. Director since June 2015. Skills and experience: Jennifer is Chief Skills and experience: Wayne started working Skills and experience: Paul started his career Skills and experience: Tony has more than 30 Sustainability Skills and experience: After an early career Executive of the Business Council of Australia. in the iron ore industry in the mid-1970s and as a lawyer in 1991. He co-founded SEEK Limited years’ experience in the banking and finance in petroleum geology and corporate finance, Prior to that, she was a Board director and joined Alcoa in 1979. He worked in various in 1997, and served as Chief Executive Officer industry. He was Chairman of Home Building Michael joined Wesfarmers in 1983 as Company lead partner at KPMG. Jennifer has extensive roles across the Australian business, including and then as joint Chief Executive Officer until Society Limited and Deputy Chairman of Bank of Secretary and Administration Manager. He became experience in critical leadership positions in the accountability for Alcoa’s Asia Pacific operations, 2011. He is a co-founder and director of Square Queensland Limited. Tony has held several senior Finance Director in 1984 and was appointed New South Wales and Victorian governments. prior to being appointed Managing Director in Peg Capital Pty Ltd, a venture capital fund management positions during his career, including Managing Director in July 1992. He retired from Directorships of listed entities (last three years), 2001, retiring in 2008. that invests in early stage and growth stage Managing Director of Challenge Bank Limited and that position in July 2005. other directorships/offices (current and recent): Directorships of listed entities (last three years), technology companies. He is also a director of Chief Executive Officer of Hartleys Limited. the Peter MacCallum Cancer Foundation, Mt Directorships of listed entities (last three years), - Adjunct Professor at the City Futures Research Centre of other directorships/offices (current and recent): Directorships of listed entities (last three years), Scopus College Foundation and the P&S Bassat other directorships/offices (current and recent): the University of New South Wales other directorships/offices (current and recent): - Director of South32 Limited (since May 2015) Foundation and is a member of Innovation and - Chairman of Woodside Petroleum Limited (retired April - Co-chair, Advisory Board, Australia Sino One Hundred - Director of Alinta Holdings (retired April 2017) Science Australia. - Director of BWP Management Limited, the responsible 2018) Year Agricultural and Food Safety Partnership (since entity for the BWP Trust (since October 2012) July 2015) - Director of Alinta Energy Limited Directorships of listed entities (last three years), - Chancellor of The University of Western Australia (retired - Chairman of MMA Offshore Limited (retired November

(retired April 2017) other directorships/offices (current and recent): Governance December 2017) - Chair of the Mental Health Council of Australia (since 2017) - Director of Iluka Resources Limited - Australian Football League Commissioner (since February - Member of Commonwealth Science Council (since January 2013) (retired May 2016) 2012) - Chairman of St John of God Health Care Inc. (retired October 2014) - Co-chair of the Australia-Canada Economic Leadership May 2018) - Director of AFL Sportsready Pty Ltd (resigned October - Chair of the National School Resourcing Board (since Forum Organising Committee (since February 2016) 2017) - Chairman of the West Australian Rugby Union Inc. (retired November 2017) - Member of the Melbourne School of Government December 2017) Advisory Board (since March 2016) - Chairman of National Australia Bank Limited (retired - Director of Alinta Holdings (since March 2011) December 2015) - Member of the Prime Minister’s Expert Advisory Panel on the Reform of the Federation (concluded December 2015) - Director Alinta Energy Pty Limited (since September 2016) - Member of Prime Minister’s Business Advisory Council (retired December 2015) - Member of the Prime Minister’s Cyber Security Review - Director of Viburnum Funds Pty Ltd (since July 2007) Panel (concluded April 2016) - Board member of Cyber Security Research Centre (CSRC) Ltd (since February 2018) - Co-Patron of Pride in Diversity (since November 2017) report Directors’

ROB SCOTT THE RIGHT HONOURABLE VANESSA WALLACE DIANE SMITH-GANDER JAMES GRAHAM AM statements Financial MANAGING DIRECTOR BILL ENGLISH KNZM DIRECTOR DIRECTOR DIRECTOR (to 23 July 2018) B.Comm, MAppFin, CA, GradDipAppFin DIRECTOR B.Comm (UNSW), MBA (IMD Switzerland), MAICD B.Ec, MBA, Hon.DEc W.Aust (UWA), FAICD, FGIA BE (Chem)(Hons)(Syd), MBA (UNSW), FIEAust, Age 49 Age 55 Age 60 FTSE, FAICD, SF Fin BA (Hons) (Wellington), BCom (Otago)

Age 70 Term: Director since November 2017. Age 56 Term: Director since July 2010. Term: Director since August 2009. Term: Director since May 1998. Skills and experience: Rob joined Wesfarmers Term: Director since April 2018. Skills and experience: Vanessa is an experienced Skills and experience: Diane has extensive in 1993 before moving into investment banking in strategy management consultant who had been experience in corporate governance and Skills and experience: James has had an various roles in Australia and Asia. Rob rejoined Skills and experience: Bill was Minister of with Strategy& (formerly Booz & Company) for providing strategic advice to corporations in active involvement in the growth of Wesfarmers Wesfarmers in 2004 in Business Development Finance and Deputy Prime Minister of New more than 25 years. She has deep expertise in Australia and overseas. She was a partner with since 1976 as Chairman and Managing Director before being appointed Managing Director of Zealand from October 2008 to December the financial services sector across the spectrum McKinsey & Company in the USA, became of Gresham Partners Limited, and previously Wesfarmers Insurance in 2007 and then Finance 2016 and Prime Minister until the change of of wealth management, retail banking and a senior advisor to McKinsey & Company in as Managing Director of Rothschild Australia Director of Coles in 2013. He was Managing government in October 2017. He retired from insurance, with particular functional depth in Australia in 2016 and has more than a decade of Limited. James was also previously Chairman Director, Financial Services in 2014 and Managing parliament in March 2018. Bill has also held risk management, post-merger integration and executive experience in the banking industry. of Rabobank Australia Limited, Chairman of the reports Signed Director of the Wesfarmers Industrials division ministerial roles in health, education, housing, capturing business opportunities associated with Darling Harbour Authority and a director of Hill and revenue since his election to Parliament in Directorships of listed entities (last three years), in 2015. Rob became the Group’s Deputy Chief channels, customers and markets. other directorships/offices (current and recent): Samuel Australia Limited. Executive Officer in February 2017 and assumed 1990. He has long-term interests in economic Directorships of listed entities (last three years), - Director of AGL Energy Limited (since September 2016) Directorships of listed entities (last three years), restructuring, sound microeconomic policy, and the role of Managing Director and Chief Executive other directorships/offices (current and recent): other directorships/offices (current and recent): Officer at the conclusion of the 2017 Annual social policy reform. - Chairman of Broadspectrum Limited (formerly known as - Director of SEEK Limited (since 1 March 2017) - Chairman of the Advisory Council of the Institute for General Meeting in November 2017. Transfield Services Limited) which delisted in June 2016 Directorships of listed entities (last three years), Neuroscience and Muscle Research (since 1999) other directorships/offices (current and recent): - Director of AMP Limited (resigned May 2018) (director since October 2010, Chairman since October Directorships of listed entities (last three years), 2013, retired September 2016) other directorships/offices (current and recent): None - Chairman of AMP Capital Holdings Limited (resigned June 2018) - Chair of Safe Work Australia (since February 2016) - Director of Gresham Partners Group Limited (resigned July 2018) - Executive Chairman of Strategy& (Japan) Inc. (retired - Trustee and director of CEDA – Committee for Economic June 2015) Development of Australia (trustee since September 2014, - Director of Gresham Partners Holding Limited (resigned director since November 2015) July 2018) - Director of Keystart Home Loans (since July 2016) - Member of UWA Business School Advisory Board (since information ASX Shareholder and August 2017) - Board member of Henry Davis York (since July 2016) - Chairman of Rowing Australia (since October 2014) - Chair of the Asbestos Safety and Eradication Council (since December 2016)

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Structure and composition of the Board Skills, experience and expertise

Wesfarmers is committed to ensuring that the composition of the financial review andOperating Board continues to include directors who bring an appropriate mix of skills, experience, expertise and diversity (including gender CEO level experience diversity) to Board decision-making. The Board currently comprises nine directors, including eight ASX-listed company experience non-executive directors. Detailed biographies of the directors as at 30 June 2018 are set out on pages 66 and 67 of this annual Capital markets report. The current directors possess an appropriate mix of skills, experience, expertise and diversity to enable the Board to Finance and banking discharge its responsibilities and deliver the company’s strategic priorities as a diversified corporation with current businesses Strategy and risk management Sustainability operating in supermarkets, liquor, hotels and convenience stores; home improvement; department stores; office supplies; and an E-commerce and digital Industrials division with businesses in chemicals, energy and fertilisers, industrial and safety products, and coal. Governance Rob Scott was appointed as Wesfarmers Deputy Chief Executive Officer in February 2017, and joined the Board and assumed the Human resources and executive remuneration role of Group Managing Director in November 2017. Former New Zealand Prime Minister, The Right Honourable Financial acumen and transaction experience Bill English KNZM was appointed a director on 30 April 2018. The Board of Wesfarmers Limited is committed to providing a satisfactory return to its shareholders and He brings significant and valuable experience to the Board Marketing/customers/retail given his outstanding record of financial management and Governance fulfilling its corporate governance obligations and responsibilities in the best interests of the company government policy development and given Wesfarmers’ extensive Regulatory and government policy and its stakeholders. This statement details the key aspects of the governance framework and business interests in New Zealand. He guided the New Zealand Resources and industrial practices of Wesfarmers. Wesfarmers regularly reviews its governance framework and practices so as economy through the global financial crisis, initiated tax reforms, implemented partial floats of four government companies and led to ensure it consistently reflects market practice and stakeholder expectations. the financing to rebuild Christchurch after the 2010 earthquakes. International business experience On 23 July 2018, Wesfarmers announced that James Graham Corporate sustainability Set out below is an overview of selected aspects of Wesfarmers’ In fulfilling its roles and responsibilities, the key focus areas of the had retired as a non-executive director of the company to coincide with his appointment as Chairman-elect of the proposed corporate governance framework and key focus areas of the Board Board during the 2018 financial year are set out below. International and domestic political experience and its committees in 2018. demerged Coles group.

A copy of Wesfarmers’ full 2018 Corporate Governance Statement, Key focus areas of the Board during the 2018 financial The Board skills matrix set out on this page describes the Crisis and disaster management and recovery report Directors’ which provides detailed information about governance, and a year included: combined skills, experience and expertise presently represented on the Board. copy of Wesfarmers’ Appendix 4G, which sets out the company’s – Overseeing the implementation of strategy to address areas Community engagement compliance with the recommendations in the third edition of underperformance and reposition the portfolio to deliver To the extent that any skills are not directly represented on of the ASX Corporate Governance Council’s Principles and the Board, they are augmented through management and International trade experience

growth in shareholder returns Recommendations (ASX Principles), is available on the corporate external advisors. governance section of the company’s website at – Approving the proposed demerger of Coles and overseeing Archie Norman, who has significant retail experience, was www.wesfarmers.com.au/cg the proposed leadership change with Steven Cain to be appointed as the next Managing Director of Coles to succeed appointed in 2009 as an advisor to the Board on retail issues. The Board believes that the governance policies and practices John Durkan (March 2018) In this role, Mr Norman attends Wesfarmers Board meetings adopted by Wesfarmers during 2018 are in accordance with the as required and is a director of the Coles and Target boards. recommendations contained in the ASX Principles. – Overseeing a comprehensive review of strategic options to Mr Norman will step down from this role to become an advisor improve shareholder returns for the Bunnings United Kingdom to the proposed demerged Coles Board, continuing his strategic statements Financial and Ireland business and approving the divestment (May 2018) contribution to that business. Roles and responsibilities of the Board and – Approving the sale of the Curragh coal mine in Queensland David Cheesewright who has extensive experience in international management retailing and manufacturing, including 19 years with Walmart, will

for $700 million with a post-tax gain on sale of approximately The role of the Board is to approve the strategic direction of the $123 million (December 2017) be the Wesfarmers nominee on the Coles Board in recognition of Group, to guide and monitor the management of Wesfarmers and its retention of a shareholding interest. Mr Cheesewright is also to its businesses in accordance with the strategic plans, to instil – Overseeing management’s performance in strategy be appointed an advisor to the Wesfarmers Board. the core values of the Group, and to oversee good governance implementation practice. The Board aims to protect and enhance the interests of – Monitoring the Group’s operating and cash flow performance, Director independence its shareholders, while taking into account the interests of other financial position and key metrics, including financial

stakeholders, including employees, customers, suppliers and the covenants and credit ratings Directors are expected to bring views and judgement to Board The Board has reviewed the position and relationships reports Signed wider community. deliberations that are independent of management and free of any of all directors in office as at the date of the company’s In performing its role, the Board is committed to a high standard – Reviewing business operations and the development plans business or other relationship or circumstance that could materially 2018 annual report and considers that all eight non-executive of each division likely to impact long-term shareholder value

of corporate governance practice and to fostering a culture of interfere with the exercise of objective, unfettered or independent directors are independent. creation whether through portfolio management, consideration compliance which values ethical behaviour, personal and corporate judgement, having regard to the best interests of the company as of divestment options or other strategies integrity, accountability, transparency and respect for others. a whole. The Group Managing Director has responsibility for the day-to-day – Monitoring the Group’s safety performance and overseeing The Board’s assessment of independence and the criteria against management of Wesfarmers and its businesses, and is supported implementation of strategies to improve safety performance which it determines the materiality of any facts, information or in this function by the Wesfarmers Leadership Team. Details of and enhance workplace safety awareness circumstances, is formed having regard to the ASX Principles. In particular, the Board focuses on the factors relevant to assessing the members of the Wesfarmers Leadership Team are set out – Reviewing talent management and development on pages 12 and 13 and in the corporate governance section the independence of a director set out in recommendation 2.3; ASX information ASX Shareholder and of the company’s website (www.wesfarmers.com.au/cg). The – Monitoring and evaluating growth opportunities to complement the materiality guidelines applied in accordance with Australian Board maintains ultimate responsibility for strategy and control of the existing portfolio Accounting Standards; any independent professional advice Wesfarmers and its businesses. sought by the Board at its discretion; and developments in – Reviewing policies, reporting and processes to improve the international corporate governance standards. Group’s system of corporate governance

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Committees of the Board Risk management – a comprehensive risk financing program, including risk transfer to – Reviewing the succession and transition plans for the external insurers and reinsurers; The Board has established a Nomination Committee, a Remuneration Wesfarmers Leadership Team, including the transition plans for Wesfarmers is committed to the identification, monitoring and financial review andOperating annual budgeting and monthly reporting systems for all Committee, an Audit and Risk Committee, and a Gresham the newly appointed Group Managing Director and Group Chief management of material financial and non-financial risks associated – businesses which enable the monitoring of progress against Mandate Review Committee as standing committees to assist with Financial Officer with its business activities across the Group. performance targets and the evaluation of trends; the discharge of its responsibilities. Following the resignation of – Reviewing the senior executive remuneration framework and The Board recognises that a sound culture is fundamental to an Mr Graham from the Board in July 2018, the Gresham Mandate – appropriate due diligence procedures for acquisitions and policies, including terms of employment such as notice periods, effective risk management framework. Wesfarmers promotes a Review Committee was disbanded in August 2018. Details of the divestments; restraint and non-solicitation clauses culture which values the principles of honesty, transparency, integrity,

current membership and composition of each committee are set out fairness, constructive challenge and accountability, and these values – crisis management systems and business continuity processes in the 2018 Corporate Governance Statement. – Reviewing the expected implications of the proposed demerger are reflected in the Group’s Code of Conduct. for all key businesses in the Group; and of Coles from the Wesfarmers Group on the long-term incentive These elements are necessary to support effective risk management – external and internal assurance programs. Role of the Nomination Committee plans in operation within the Group and awareness, and to support appropriate behaviours and

As part of the Nomination Committee’s oversight of Board succession judgements about risk taking. Sustainability – Reviewing and making a recommendation to the Board on non- Investor engagement planning, it is responsible for identifying suitable candidates to fill executive director fees Management is responsible for the Group’s day-to-day compliance Board vacancies as and when they arise, or to identify candidates to with risk management systems. Management monitors compliance Wesfarmers recognises the importance of providing its shareholders complement the existing Board, and to make recommendations to the – Reviewing and monitoring diversity targets and gender pay equity with, and the effectiveness of the risk management systems and and the broader investment community with facilities to access up- Board on their appointment. Where appropriate, external consultants controls at a divisional level. Senior management across the to-date high quality information, participate in shareholder decisions are engaged to assist in searching for candidates. The Nomination Wesfarmers Group is responsible for reinforcing and modelling the of the company and provide avenues for two-way communication Committee is responsible for scheduling formal performance reviews Role of Audit and Risk Committee key behaviours required to maintain a sound risk culture, including between the company, the Board and shareholders. Wesfarmers of the Board and its committees at least every two years. The Board encouraging constructive challenge and transparency. Wesfarmers’ has developed a program on investor engagement for engaging with The Audit and Risk Committee assists the Board in fulfilling its then undertakes an evaluation process to review its performance senior management reports to the Board on the adequacy of the shareholders, debt investors, the media and the broader investment responsibilities in overseeing the company’s financial reporting, which is facilitated by an external consultant. More details about risk management systems and processes on a consolidated basis community. In addition, the company’s shareholders have the compliance with legal and regulatory requirements, the setting and Wesfarmers’ review process for both the Board and its committees across the Group. Divisional Managing Directors are accountable ability to elect to receive communications and other shareholder

reviewing of risk parameters of the Wesfarmers Group, and proactively Governance are set out in the 2018 Corporate Governance Statement. for risk management outcomes, and day-to-day compliance in information electronically. managing the Group’s systems of internal control and its financial and their respective divisions. During the second half of the 2018 non-financial risk management framework. Key focus areas of the Nomination Committee during the financial year, the Group formalised its approach to the review 2018 financial year included: and consideration of operational risks within each division through Governance policies Key focus areas of the Audit and Risk Committee during the the establishment of divisional audit and risk committees. These – Identification and nomination of Bill English as a new non-executive 2018 financial year included: The corporate governance section of the company’s website committees ensure management has access to timely information director for election to the Board bringing skills, experience and (www.wesfarmers.com.au/cg) contains access to all relevant expertise to augment those of current directors – Monitoring the Group’s cyber security framework, including data about emerging and existing risks and provides management with corporate governance information, including Board and committee protection management, third party data risk management and a dedicated forum to facilitate constructive debate and challenge charters, and Group policies referred to in the 2018 Corporate – Identification and nomination of Chairman-elect and non- the reporting structure and escalation process on information regarding operational risk management. The committees further Governance Statement. executive directors for the proposed Coles demerged entity security risks strengthen operational risk management and support the divisional boards and management and have become an increasingly – Consideration of feedback from major shareholders during the – Monitoring the ethical sourcing of products for resale through important component of the Board’s assurance framework on risk Ethical and responsible behaviour report Directors’ Chairman’s Roadshow conducted prior to the 2017 Annual the Group’s retail networks to ensure that there are appropriate and governance. General Meeting safeguards and processes in place Wesfarmers’ primary objective is to deliver satisfactory returns to shareholders through financial discipline and exceptional – Reviewing and assessing the Group’s processes which ensure Risk Management Framework management of a diversified portfolio of businesses. The Wesfarmers Role of the Remuneration Committee the integrity of financial statements and reporting, and associated Way is the framework for the company’s business model and compliance with accounting, legal and regulatory requirements The Risk Management Framework of Wesfarmers is reviewed by comprises our core values of integrity, openness, accountability and The role of the Remuneration Committee is to review and make the Board on an annual basis and was approved in May 2018. This entrepreneurial spirit, details of which are published on Wesfarmers’ recommendations to the Board in relation to overall remuneration – Reviewing the processes and controls around the recognition of framework details the overarching principles and risk management website. The Wesfarmers Way, together with the Code of Conduct policy. Full details of the remuneration paid to non-executive commercial income by the retail divisions to ensure recognition is controls that are embedded in the Group’s risk management and other policies, guide the behaviour of everyone who works at and executive directors, and senior executives are set out in the in accordance with Accounting Standards and accepted industry processes, procedures and reporting systems, and the division of the Wesfarmers as we strive to achieve our primary objective. The Board remuneration report on pages 77 to 96 of this annual report. practice key risk management functions between the Board, Group Managing and senior executives of the Group strive to ensure that their own statements Financial Senior executives comprising members of the Wesfarmers Director and Chief Financial Officer, Audit and Risk Committee, – Monitoring the retail shrinkage control measures and reporting actions and decisions are consistent with Wesfarmers’ core values. Leadership Team have a variable or ‘at risk’ component as part of divisional management and Group Assurance and Risk, including: procedures in the Group’s divisions their total remuneration package under the Key Executive Equity – the Group Code of Conduct; Performance Plan (KEEPP). The mix of remuneration components Diversity – Reviewing and evaluating the adequacy of the Group’s insurance established Group and divisional structures, reporting lines and, and the performance measures used in the KEEPP have been chosen – arrangements to ensure appropriate cover for identified appropriate authorities and responsibilities, including guidelines to ensure that there is a strong link between remuneration earned and Wesfarmers considers building a diverse and inclusive workforce operational and business risks and limits for approval of all expenditure, including capital the achievement of the Group’s strategy and business objectives, as an opportunity to deliver on our objective of satisfactory returns expenditure and investments, and contractual commitments; to shareholders. Our customers and stakeholders are increasingly risk management and, ultimately, generating satisfactory returns for – Monitoring the Group’s tax compliance program both in Australia shareholders. and overseas, including cross-border intra-Group transactions, – Operating Cycle and Divisional Reporting Requirements diverse and to gain the best insight into their needs, and how to documents that clearly set out the Board, Board committees and meet them, diverse and inclusive teams are required. A diversity Annual performance reviews of each member of the Wesfarmers to ensure its obligations are met in the jurisdictions in which the Group operates divisional board activities and reports; of perspectives and backgrounds also strengthens creativity and Leadership Team, including the Group Managing Director, for the 2018 innovation in teams. Moreover, creating an environment that attracts, reports Signed a formal director induction program and a directors’ program financial year have been undertaken. More details about Wesfarmers’ – retains and promotes talent with a wide range of strengths and of annual site visits to Wesfarmers’ operations to enhance the performance and development review process for senior executives is experiences ensures Wesfarmers is best equipped for future growth. Role of the external auditor Board’s understanding of key and emerging business risks;

set out in the 2018 Corporate Governance Statement. Our commitment to diversity across Wesfarmers extends to all a formal corporate planning process which requires each division The company’s external auditor is Ernst & Young. The effectiveness, – individuals and all perspectives. Particular focus is paid to achieving Key focus areas of the Remuneration Committee during the to assess trends that are likely to affect and shape their industry, performance and independence of the external auditor is reviewed a gender balance in senior management positions across our 2018 financial year included: perform scenario planning and prepare a SWOT analysis; annually by the Audit and Risk Committee. Darren Lewsen is the divisions and continuing to boost employment of Indigenous people. lead partner for Ernst & Young and was appointed on 1 July 2013. In Group policies and procedures for the management of financial – Reviewing and making a recommendation to the Board in relation – Further details on diversity are set out on page 61 of this annual accordance with the requirements of the Corporations Act 2001, the risk and treasury operations, such as exposures to foreign to the fixed and variable remuneration of the Group Managing report and in the 2018 Corporate Governance Statement on the Director and his direct reports Audit and Risk Committee approved Mr Lewsen to act as the lead currencies and movements in interest rates; partner for a sixth year in 2018/19. company’s website at www.wesfarmers.com.au/cg a Group compliance reporting program supported by approved – information ASX Shareholder and – Reviewing and making recommendations to the Board in relation Ernst & Young provided the required independence declaration to the guidelines and standards covering safety; the environment; to the Wesfarmers variable remuneration plans, including Board for the financial year ended 30 June 2018. The independence legal liability; information technology; ethical sourcing; taxation recommending to the Board the vesting outcomes of the 2014 declaration forms part of the directors’ report and is provided on page compliance; risk identification, quantification and reporting; and Wesfarmers Long Term Incentive Plan shares, based on the 76 of this annual report. financial reporting controls; achievement of the performance conditions as at 30 June 2018

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Operating and Directors’ Financial Signed Shareholder and Overview Sustainability Governance financial review report statements reports ASX information 2 73

------1 1 1 1,000 5,493 Shares 19,411 87,597 18,654 14,728 12,045 13,483 447,848 Attended 1 ------1 1 1 Gresham Mandate Gresham Review Committee attend Eligible to 2 - - - 4 1 3 3 4 4 4 4 4 Wesfarmers Limited Wesfarmers – – – – – – – – Attended 34,299 1 Committee Nomination - - - 4 1 4 4 4 4 4 4 4 Performance Rights attend Wesfarmers 2018 Annual Report Wesfarmers Eligible to 2 ------8 7 8 7 8 Attended 1 Committee ------8 8 8 8 8 Remuneration attend Eligible to 2 – – – – – – – – Units 20,000 ------1 7 7 7 BWP Trust Attended 1 Committee ------1 7 7 7 Audit and Risk attend Eligible to 2 2 3 5 8 13 12 13 13 13 13 12 13 Attended 1 Board 2 3 5 8 13 13 13 13 13 13 13 13 attend Eligible to of this annual report. 6 4 5 3 7 Number of meetings held while the director was a member of the Board/Committee. was a member of the Board/Committee. Number of meetings held while the director Number of meetings attended. M A Chaney attended all meetings of the Audit and Risk Committee held during the year. Notwithstanding he is not a member, 1 May 2018. of the company on 30 April 2018. He was appointed to the Audit and Risk Committee effective S W English was appointed a director of the company on 16 November 2017, at the conclusion of the 2017 Annual General Meeting. and as a director Managing Director as Group R J B Goyder retired General Annual 2017 the of conclusion the at of the company on 16 November 2017, and a director Managing Director R G Scott was appointed as Group Meeting. R G Scott holds 34,299 performance rights allocated under the 2015 Wesfarmers Long Term Incentive Plan (WLTIP). If the performance conditions are met, met, If the performance conditions are Incentive Plan (WLTIP). Long Term the 2015 Wesfarmers R G Scott holds 34,299 performance rights allocated under fully-paid at the end of the performance period. Mr Scott also holds 185,872 Wesfarmers shares fully-paid ordinary Mr Scott will be allocated Wesfarmers on report Plan (KEEPP). For further details, please see the remuneration under the 2016 and 2017 Key Executive Equity Performance shares ordinary pages 77 to 96 on 4 September 2017. as Finance Director T J Bowen resigned

P M Bassat 1 2 3 4 5 6 7 Directors’ report Directors’ entities its controlled and Limited Wesfarmers shareholdings Directors’ are: the date of this report as at interest had a relevant corporate in which directors body the company or in a related Securities in P M Bassat 30 June 2018 and the number of meetings attended by each director: 30 June 2018 and the number of meetings attended * and in 184,172 shares interest on 4 September 2017. As at that date, Mr Bowen had a relevant Director as Finance T J Bowen resigned date. units as at his resignation in BWP Trust interests relevant Limited. He had no 217,079 performance rights in Wesfarmers of the company on 16 November 2017, at the conclusion of the and as a director Director Managing as Group R J B Goyder retired and 247,928 performance rights in in 726,254 shares interest Goyder had a relevant 2017 Annual General Meeting. As at that date, Mr date. units as at his retirement in BWP Trust interests Limited. He had no relevant Wesfarmers Coles group. demerged on 23 July 2018, coincident with his appointment as Chairman-elect of the proposed as a director J P Graham retired in 15,120 units in BWP Trust. interest Limited and a relevant in Wesfarmers in 785,155 shares interest As at that date, Mr Graham had a relevant meetings Directors’ the year ended committees) held during meetings (including meetings of Board The following table sets out the number of directors’ M A Chaney S W English R J B Goyder T J Bowen S W English M A Chaney J P Graham D L Smith-Gander A J Howarth W G Osborn A J Howarth V M Wallace R G Scott* D L Smith-Gander W G Osborn J A Westacott V M Wallace J A Westacott R G Scott

$m 2017 2,873 1,070 1,165 1,361

$m 2018 1,197 1,361 1,168 1,361 coal mining and production; and distribution; gas processing distribution; industrial and safety product and chemicals and fertilisers manufacture; investments. W G Osborn D L Smith-Gander V M Wallace J A Westacott • • • • • • • • • to 71 forms part of the directors’ report for the financial year ended 30 June 2018 and is to be read 2018 and is to be year ended 30 June for the financial report part of the directors’ to 71 forms

Wesfarmers 2018 Annual Report Wesfarmers fully-franked final dividend of 120 cents (2016: 95 cents) per share paid on 28 September 2017 (as paid on 28 September 2017 95 cents) per share fully-franked final dividend of 120 cents (2016: report) directors’ disclosed in last year’s out of the profits for the year ended 30 June 2018 on the fully-paid ordinary shares: 30 June 2018 on the fully-paid ordinary for the year ended out of the profits out of the profits for the year ended 30 June 2017 and retained earnings on the fully-paid ordinary earningsretained on the fully-paid ordinary for the year ended 30 June 2017 and out of the profits shares: M A Chaney (Chairman) Managing Director) R G Scott (Group P M Bassat S W English A J Howarth retailing operations including supermarkets, general operations including supermarkets, retailing stores; and specialty department merchandise fuel, liquor and convenience outlets; and and outdoor living products of home improvement retailing supply of building materials; and technology products; of office retailing T J Bowen who resigned as Finance Director of the company on 4 September 2017; of the company on as Finance Director T J Bowen who resigned on 16 November 2017, at the conclusion of of the company and as a director Managing Director as Group R J B Goyder who retired the 2017 Annual General Meeting; at the conclusion of of the company on 16 November 2017, and a director Managing Director R G Scott who was appointed as Group the 2017 Annual General Meeting; and of the company on 30 April 2018. S W English who was appointed as a director (i) paid on 5 April 2018 103 cents) per share (i) fully-franked interim dividend of 103 cents (2017: (ii) fully-franked final dividend of 120 cents (2017: 120 cents) per share to be paid on 120 cents) per share (ii) fully-franked final dividend of 120 cents (2017: 27 September 2018 72 Directors report are: at the date of this in office The directors • • • • • Principal activities during the year were: Group The principal activities of entities within the consolidated • • • • Wesfarmers Limited and its controlled entities its controlled and Limited Wesfarmers 6 appearing on pages The information with the following information: in conjunction Results and dividends Directors’ report Directors’ report Directors’ 1 July 2017 to 30 June 2018, except: for the period from served on the Board All directors • • • • of the proposed of the company coincident with his appointment as Chairman-elect as a director On 23 July 2018, J P Graham retired Coles group. demerged report appear on as at the date of this in office directors responsibilities and other details of the The qualifications, experience, special pages 66 and 67 of this annual report. Year ended 30 June Year Profit entity to members of the parent attributable Profit Dividends The following dividends have been paid by the company or declared by the directors since the the directors by have been paid by the company or declared The following dividends financial year ended 30 June 2018: commencement of the (a) (b) BACK Operating and Directors’ Financial Signed Shareholder and Overview Sustainability Governance financial review report statements reports ASX information 75 683 343 $’000 1,026

Wesfarmers 2018 Annual Report Wesfarmers is consistent with maintaining the quality of the audit provided to the company; and to the company; is consistent with maintaining the quality of the audit provided of the Corporations Act 2001). situation (as defined in section 324CD would not give rise to a conflict of interest key audit matters and significant judgements, in light of regarding retention of knowledge the benefits associated with the continued of Coles; key management and the planned demerger changes to Wesfarmers’ recent work as auditor; and and Mr Lewsen’s Young the Audit and Risk Committee has been satisfied with the quality of Ernst & the to ensure policies and controls auditor independence the company maintains, and will continue to maintain, robust independence of the auditor is maintained. the non-audit services provided do not involve reviewing or auditing the auditor’s own work or acting in a management or decision- own work or acting in a management or or auditing the auditor’s do not involve reviewing the non-audit services provided making capacity for the company; adopted by the company and have been and policies to the corporate governance subject procedures all non-audit services were the integrity and objectivity of the auditor; and affect they do not by the Audit and Risk Committee to ensure reviewed on the been reproduced independence declaration (a copy of which has to question the veracity of the auditor’s is no reason there following page). Auditor Lewsen to continue, 324DAA of the Corporations Act 2001 for Mr Darren under section granted approval On 21 December 2017, the Board being the financial year role in the audit of the company for one additional successive financial year, to play a significant as lead auditor, and Risk Committee which was the Audit from with a recommendation was granted in accordance ending 30 June 2019. The approval satisfied the approval: • • Reasons supporting this decision include: • • • with section 324DAC of the has been lodged with ASIC in accordance granting approval resolution A copy of the Board to this approval 300(11AA) of the Corporations Act 2001 in relation under section required Corporations Act 2001. The statutory disclosures of the role in the audit Report for financial year 2019, being the year in which Mr Lewsen will play a significant will appear in the Directors’ of the Corporations Act 2001. granted under section 324DAA on the approval company in reliance Directors’ report Directors’ entities its controlled and Limited Wesfarmers (continued) period the reporting Events after Bengalla in Sale of interest Corporation to sell its 40 per cent with New Hope agreement into a binding that it had entered announced On 7 August 2018, Wesfarmers of the On successful completion approval. including regulatory Bengalla for $860 million subject to certain conditions in interest $680 million, subject to completion adjustments. on sale of between $670 and profit a pre-tax expects to record transaction, Wesfarmers (KTAS) and Auto Service Sale of Kmart Tyre business for with Continental A.G. to sell its KTAS into an agreement announced that it had entered On 13 August 2018, Wesfarmers expects of the transaction, Wesfarmers On successful completion approval. conditions including regulatory $350 million subject to certain to completion adjustments. sale of between $270 and $275 million, subject on profit pre-tax a to record in Quadrant Sale of interest Holdings Pty Energy in Quadrant interest to sell its 13.2 per cent indirect announced it had agreed On 22 August 2018, Wesfarmers million). On successful completion of the US$170 million (A$231 of approximately Limited for net proceeds Ltd (Quadrant) to Santos (A$133 million). US$98 million on sale of approximately profit a pre-tax expects to report transaction, Wesfarmers Non-audit services or is due to ended 30 June 2018 and received, non-audit services to the consolidated entity during the year provided Ernst & Young of these services: the provision the following amounts for receive, Tax compliance Tax Other Total 12.0 per cent of the total fees paid or payable to Ernst & Young represents The total non-audit services fees of $1,026 thousand services fees was non-audit services fees and assurance-related ended 30 June 2018. Total practices for the year and related practices for the year related and 23.0 per cent of the total fees paid or payable to Ernst & Young $1,968 thousand representing ended 30 June 2018. with written advice in the Board of the Committee, provided passing of a resolution The Audit and Risk Committee has, following the of non-audit services by Ernst & Young. to the provision relation and is satisfied Ernst by & Young, advice, and the non-audit services provided the Audit and Risk Committee’s has considered The Board of the general standard compromise, of these services during the year by the auditor is compatible with, and did not that the provision for the following reasons: auditor independence imposed by the Corporations Act 2001 • • • of this annual cents per share resulting in a total dividend of $1,361 million was declared for a declared in a total dividend of $1,361 million was resulting cents per share elated body corporate, unless the liability arises out of conduct on the part of the director the liability arises out of conduct on the part elated body corporate, unless (2017: $2.23 per share)

ficer of the company or of a related body corporate; and of a ficer of the company or

Wesfarmers 2018 Annual Report Wesfarmers which involves a lack of good faith; which involves a lack of as an of company or a r to a person other than the

revenue from continuing operations up from $64,913 million to $66,883 million operations up from continuing from revenue result for the Curragh coal mine and BUKI, the the trading $2,873 million to $1,197 million (includes for the year down from profit of the Curragh coal mine, $375 million (£210 million) post-tax loss on disposal of BUKI, $123 million post-tax gain on disposal for provisions closure and store and $1,023 million (£584 million) in impairments, write-offs $300 million non-cash impairment of Target BUKI) of $2.23 dividends per share $40,115 million to $36,933 million total assets down from $23,941 million to $22,754 million equity down from shareholders’ $4,809 million to $3,933 million net debt down from to $4,080 million $4,226 million operating activities down from net cash flows from provide for insurance against certain liabilities incurred as a director; and as a director; insurance against certain liabilities incurred for provide to certain to be a director, ceases period after the director and for a specific while in office with continuing access, director a provide in office. period to the director’s relate company documents which indemnify a director to the full extent permitted by law against any liability incurred by the director: by the any liability incurred to the full extent permitted by law against indemnify a director – – payment date of 27 September 2018. This dividend has not been provided for in the 30 June 2018 full-year financial statements. for in payment date of 27 September 2018. This dividend has not been provided 74 The following significant events have arisen since the end of the financial year: Dividend On 15 August 2018, a fully-franked final dividend of 120 Review of results and operations Review of results are detailed in the financial years of the consolidated entity for future The operations, financial position, business strategies and prospects report. review on pages 14 to 57 of this operating and financial period Events after the reporting Significant changes in the state of affairs Significant changes in the state are as follows: of the consolidated entity during the financial year of affairs Particulars of the significant changes in the state • • • • • • • Company Secretary Company Secretary 2002. Limited in April of Wesfarmers Linda Kenyon was appointed as Company Secretary Australia and is a Fellow of the of Western The University from degrees Linda holds Bachelor of Laws and Bachelor of Jurisprudence in 1987 as legal counsel and Australia). She joined Wesfarmers Secretaries Governance Institute of Australia (formerly the Chartered Management Manager of BWP Management Limited (formerly Bunnings Property held that position until 2000 when she was appointed of Linda is also Company Secretary Trust). Property (formerly Bunnings Warehouse the listed BWP Trust entity for Limited), the responsible Leadership Team. subsidiaries, and a member of the Wesfarmers Group a number of Wesfarmers Directors’ and other officers’ remuneration and other officers’ Directors’ and senior executives and the for directors and amount of remuneration the nature policy for determining Discussion of the Board’s on pages 77 to 96 report contained in the remuneration and company performance are between such policy relationship report. Options of the financial year or granted during, or since the in existence at the beginning in the company were No options over unissued shares end of the financial year. • • liability related bodies corporate from of the company or its of officers for the indemnity provides constitution In addition, the company’s by a person in that capacity. incurred the financial year. to above during or since the end of of the documents referred No indemnity payment has been made under any Wesfarmers Limited and its controlled entities its controlled and Limited Wesfarmers and officers of directors and indemnification Insurance and officers directors of a contract insuring all respect in has paid premiums the company year, the end of the financial During or since liability of the of the nature Disclosure capacity. in that certain liabilities incurred entities against its related Limited and of Wesfarmers under the contract of insurance. requirements confidentiality paid is subject to by the insurance and premiums covered Insurance and Access with each of into Deeds of Indemnity, entered constitution, the company has with the company’s In accordance These Deeds: of the company. the directors • Directors’ report Directors’ report Directors’ BACK Operating and Directors’ Financial Signed Shareholder and Overview Sustainability Governance financial review report statements reports ASX information 93 94 96 77 80 82 77 class Wesfarmers 2018 Annual Report Wesfarmers Executive remuneration Executive Section 1: Introduction frameworks KMP and remuneration Section 2: Executive Section 3: Outcomes remuneration Non-executive director outcomes Section 4: Framework and information Other remuneration governanceSection 5: Remuneration on remuneration Section 6: Further information t 2018 (audited) t 2018 R epo R ation ation accretive growth opportunities and improving its underperforming businesses. The 2018 financial year saw a number of significant its underperforming businesses. The 2018 financial year saw a number opportunities and improving growth accretive Introduction 2018 – a new team talent to support the business into the future; driving entrepreneurial initiative (where the Leadership Team is encouraged to take measured is encouraged to take measured the Leadership Team initiative (where driving entrepreneurial talent to support the business into the future; by a commitment to generating all underpinned of focus are digital and data capabilities. These areas risks); and, investing in Wesfarmers’ value for our stakeholders. long-term by creating long-term, sustainable returns for shareholders executive KMP participates and supportsThe Key Executive Equity Performance Plan (KEEPP) is the primary incentive plan in which the these strategic objectives, as discussed in further detail in sections 2.2 and 3.3. In a rapidly changing business environment, Mr Scott’s strategic areas of focus for the Group are: developing and attracting world- are: of focus for the Group strategic areas Mr Scott’s In a rapidly changing business environment, Portfolio review managing its portfolio, investing in by proactively is committed to delivering satisfactory returns to shareholders Wesfarmers value- over a long-term horizon. for shareholders returns to deliver strong intended to position Wesfarmers decisions being taken which were and other approvals. subject to shareholder the Group, of Coles from demerger announced the proposed 2018, Wesfarmers On 16 March of the executive is expected to have an impact upon the remuneration it is due to occur in late November 2018. The demerger If approved, KMP (see section 3.6 for further information). from profit The Coal Group. announced the completion of the sale of the Curragh coal mine to Coronado 2018, Wesfarmers On 29 March outcomes (as set out in section 3.3). executive remuneration the sale of the business has been excluded from to a company associated with completed the divestment of Homebase in the United Kingdom and Ireland Wesfarmers Further, business was disappointing and theHilco Capital on 11 June 2018, after acquiring the business in 2016. The underperformance of this remuneration outcomes (as set out in executive and has been reflected of shareholders divestment was deemed to be in the best interests in section 3). R Remune Contents Executive remuneration 1. division, Wesfarmers’ businesses with the Department Stores a number of performances from The 2018 financial year saw strong budget in and Bunnings Australia and New Zealand all exceeding their EBIT budget while Coles met a Industrials division, Officeworks, with the announcement in February 2018 for some other businesses within the Group, very competitive market. It was a challenging year to the eventual (BUKI) prior losses for Bunnings United Kingdom and Ireland of significant impairments, writedowns and forecast remuneration resulted in substantial financial These impairments Target. of divestment of Homebase and a significant impairment report). this remuneration involved (as detailed in section 3 and throughout in 2018 for the executives reductions 1.1 Key management personnel (KMP) changes Goyder who led the succeeding Richard Managing Director, Group as Wesfarmers’ In November 2017, Rob Scott took up his appointment than 12 years. company for more section 2.1), the (see Leadership Team Wesfarmers at the helm of the company and a renewed Managing Director With a new Group Wesfarmers’ of change, marked by decisive actions taken in the long-term interests 2018 financial year has been a year of considerable portfolio of businesses. of the company’s and a review shareholders appointment of a new non-executive was also pleased to announce the Wesfarmers In addition to changes within the Leadership Team, directors. the non-executive KNZM. See section 4 for further detail regarding The Right Honourable Bill English of the Group, director focus Renewed leadership, renewed 8 g (the . , the 8 DSL:JT:WESFARMERS:012 he context of our audit ional Accountants Regulations 2001 Regulations Wesfarmers Limited appropriate to provide a basis for for a basis provide to appropriate ment, were of most significance in our in significance were of most ment, of e Corporations /au 61 8 9429 2436 9429 8 61 61 8 9429 2222 9429 8 61 and the ethical requirements of the Accounting of the requirements ethical and the Tel: + Fax: + ey.com Code of Ethics for Profess of Ethics Code embers eport M ned to respond to our assessment of the risks of material of risks the of assessment our to respond to ned tothe in relation to the audit; and in relation of the Corporations Act 2001 equirements D S Lewsen Partner 14 September 2018 ofessional conduct in relation to the audit. to ofessional conduct in relation eport r Ernst Young Ernst & Bay Mounts Road 11 Australia 6000 WA Perth 6843 WA M939 GPO Box Perth uditor's our report. We are independent of the Group in accordance with accordance auditor the in Group of the are independent We report. our t section of our report, including in relation to these matters. Accordingly, our audit our Accordingly, relation matters. these in to including report, ofour section t atters ding:

section of complying with Australian Accounting Standards and the giving a true and fair view of the consolidated financial position of the Group as at 30 June June 201 as at 30 Group of the financial position fair consolidated of the view and a true giving and of its consolidated financial performance for the year ended on that date; and on date; that ended year financial for the performance of its consolidated and , inclu no contraventions of any applicable code of pr no contraventions of the auditor independence r no contraventions of the auditor independence

Wesfarmers 2018 Annual Report Wesfarmers Report on the audit of the financial r financial report. financial misstatement of the financial report. The results of our audit procedures, including the procedures the including procedures, audit our of results The financial of the report. misstatement accompanyin the on opinion the audit for our provide basis below, matters the address to performed A & Ernst of firm member Global Limited Young Liability under approved scheme a by limited Legislation Standards Professional audit of the financial report of the current year. These matters were addressed in t in were addressed matters year. These current of the report financial of the audit as a report financial of the a separate provide we do not but thereon, opinion our forming in and whole, matters. these on opinion matter the audit addressed ofour how our below, description matter each For ext. cont that in is provided Auditor’s Responsibilities the in for described responsibilities the the fulfilled Audit have ofWe the Repor Financial desig performance the of procedures included Key audit m judg professional our in that, those are matters matters audit Key Basis for opinion under Standards. Our responsibilities Auditing Australian with accordance in audit our conducted We for Auditor’s the the Responsibilities Audit in of the Financial are described further standards those Report requirements Act independence Corporations of the 2001 Professional and Ethical Standards Board’s APES 110 APES Board’s Standards Ethical and Professional Opinion subsidiaries its and Company) (the of Limited Wesfarmers financial the report audited have We as at sheet balance consolidated the comprises Group), the which (collectively June 201 30 Independent a b) Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other our have We also fulfilled Australia. in report financial of the audit our to are relevant that Code) Code. the with accordance in responsibilities ethical and is sufficient obtained evidence we have audit the that believe We our opinion. consolidated income statement, the consolidated statement of comprehensive income, the consolidated the income, statement of comprehensive consolidated the statement, income consolidated in of changes statement notes ended, then year cash for the flow consolidated statement the and equity directors' the statements and financial the to declaration. Corporations the with Act accordance is in Group of the financial accompanying report the opinion, our In 2001 a) A member firm of Ernst & Young Global Limited A member firm of Ernst & Legislation Standards under Professional Liability limited by a scheme approved Ernst & Young Auditor’s Independence Declaration to the Directors of Wesfarmers Limited of Wesfarmers the Directors Independence Declaration to Auditor’s to the best of my knowledge ended 30 June 2018, I declare Limited for the financial year of Wesfarmers As lead auditor for the audit have been: and belief, there a) b) year. during the financial and the entities it controlled Limited of Wesfarmers This declaration is in respect 76 The amounts contained in this report and in the financial statements have been rounded to the nearest million dollars unless otherwise rounded to the nearest and in the financial statements have been The amounts contained in this report is applicable) under the option available to the company under ASIC Corporations (Rounding in Financial/Directors’ rounding stated (where Reports) Instrument 2016/191. The company is an entity to which the instrument applies. Corporate information and office registered that is incorporated and domiciled in Australia. The company’s Limited is a company limited by shares Wesfarmers Western Australia. Terrace, Perth, Tower 2, 123 St Georges Place principal place of business is Level 14, Brookfield Rounding No proceedings have been brought on behalf of the company, nor have any applications been made in respect of the company under nor have any applications been made in respect on behalf of the company, have been brought No proceedings section 237 of the Corporations Act 2001. Corporate governance Limited support and of Wesfarmers the directors and accountability, of corporate behaviour the need for high standards In recognising Corporate Governance Principles and Recommendations. edition of the ASX Corporate Governancehave followed the third Council’s corporate governance The full corporate statement can be found on pages 68 to 71 of this annual report. An overview of the company’s website at www.wesfarmers.com.au/cg governance statement is available on the corporate governance section of the company’s The activities of the consolidated entity are subject to environmental regulation by various authorities throughout Australia and the other throughout by various authorities regulation subject to environmental The activities of the consolidated entity are operates. countries in which the Group the storage and carriage of the management of air and water quality and quantity, Licences granted to the consolidated entity regulate operations. with the consolidated entity’s matters associated materials, the disposal of wastes and other environmental hazardous licence conditions. of the consolidated entity’s no known material breaches have been During the year there on behalf of the company Proceedings Environmental regulation and performance regulation Environmental Wesfarmers Limited and its controlled entities its controlled and Limited Wesfarmers Ernst from & Young: the following declaration received The directors Directors’ report Directors’ report Directors’ BACK Operating and Directors’ Financial Signed Shareholder and Overview Sustainability Governance financial review report statements reports ASX information 79 Wesfarmers 2018 Annual Report Wesfarmers offs and store closure provisions for BUKI; the loss on the subsequent disposal of BUKI; and for BUKI; the loss on the subsequent disposal provisions closure store and offs t 2018 (audited) t 2018 Reported NPAT was $1,197 million, which included a number of significant items such as: the of significant items which included a number was $1,197 million, Reported NPAT 2017 non-cash impairment, the December impairment of Target; December 2017 non-cash write- the sale of Curragh. from the profit items was $2,772 million. excluding the significant Adjusted NPAT, all divisions performed well against their budgets. With the exception of BUKI, was tested at 30 June 2018, and the Incentive Plan (WLTIP) Long Term The 2014 Wesfarmers of the the operational losses and the loss on disposal impacted by the losses, both were results and BUKI. Following as the non-cash impairments of both Target BUKI as well business, from participants, no value to 2014 WLTIP rights lapsed. This delivered testing, all performance total, $12 million worth executives who have now left the business. In including for some senior KMP and former executive by the current forfeited as at 30 June 2018 were allocations of WLTIP (based on a with $17 million forfeited overall by all plan participants as disclosed in section 2.1, 30 June 2018). Section 3.4(b) shows the number of price of $49.36 as at Limited share Wesfarmers performance rights forfeited. receive any annual did not Chief Financial Officer, Bowen, former Group Mr Goyder and Terry not as at 31 December 2017 were hurdles incentive in the 2018 financial year as the financial to their strategic hurdles. any payment in relation to forfeit achieved and both agreed the outcomes of the 2018 KEEPP for the executive Following the end of the 2018 financial year, set out in their scorecards and strategic measures KMP have been determined using the financial contributions. their individual and, overall, reflect the disposal of BUKI were sale of the Curragh coal mine and the loss from the from The profit The impairments announced in February 2018 the outcomes of the 2018 KEEPP. excluded from the outcomes of the 2018 KEEPP. excluded from were 2018 KEEPP scorecard included in Mr Scott’s The full impact of the BUKI operating losses were of maximum opportunity. outcomes, delivering an outcome of 84.4 per cent also applied to the 2018 KEEPP scorecard The full impact of the BUKI operating losses were and Michael Schneider, Chief Financial Officer outcomes for Anthony Gianotti, Group remuneration of the BUKI the reduced and significantly Bunnings Group; Managing Director, operational leadership team. on average outcome was excluding Mr Scott, the 2018 KEEPP award For the executive KMP, 83.3 per cent of maximum opportunity. to $2,500,000 on appointment to was increased remuneration (FAR) fixed annual Mr Scott’s paid to his 28.7 per cent less than the FAR for Mr Scott is The FAR Director. Group Managing in November 2017. Managing Director who stepped down as Group Mr Goyder, predecessor, Chief Financial Officer. to Group to $1,350,000 on appointment was increased FAR Mr Gianotti’s Mr Bowen, who paid to his predecessor, for Mr Gianotti is 27.0 per cent less than the FAR The FAR in November 2017. Officer Chief Financial stepped down as Group with an average Leadership Team, unchanged for the majority of the remained Fixed remuneration review. per cent in the October 2017 remuneration of 1.9 increase fees in 2018. to non-executive director no increases were There and the The maximum cash payable under the 2018 KEEPP for the Group Managing Director reduced in comparison with the maximum cash payable under the Chief Financial Officer Group outcome to long-term business variable incentive plans, further aligning remuneration previous performance. • • • • • • • • • • • • • • • R epo

R ation ation 2018 remuneration snapshot (continued) 2018 remuneration

How did the business business How did the perform? Refer to section 3 Linking business performance outcomes to remuneration Refer to section 3 Other outcomes Refer to section 3 and section 4.1 R Remune 1.2 6 3 outcomes scorecards world-class talent and e.g., in safety, customer e.g., in safety, metrics, gender balance, Attract, engage and retain Attract, engage and retain outstanding people to drive management, in the KEEPP Drive strategic achievement, succession planning and talent 5 2 equity than cash Align effective risk Align effective performance hurdles Guiding principles autonomous operating Be transparent and fit for Be transparent purpose, recognising our purpose, recognising model, linking rewards to model, linking rewards and individualised KEEPP management and strategy Remuneration objective which executives are directly directly which executives are accountable and responsible accountable and responsible performance, e.g., the use of achievement of objectives for while retaining a link to Group a link to Group while retaining execution with reward, having execution with reward, greater focus on long-term held greater shareholders over the long term shareholders the individual KEEPP scorecards the individual KEEPP scorecards t 2018 (audited) t 2018 R epo R Drive leadership performance and behaviours to deliver satisfactory returns to 4 1 ation ation

on the long term interests through share share through interests results through awards of awards through results

Wesfarmers 2018 Annual Report Wesfarmers Recognise and reward high Recognise and reward 2018 remuneration snapshot 2018 remuneration ownership, focusing on Group ownership, focusing on Group

Align executive and stakeholder performance with a strong focus focus performance with a strong term, at-risk deferred equity long-term, at-risk deferred 1.2 R Remune 78 Directors’ report Directors’ BACK Operating and Directors’ Financial Signed Shareholder and Overview Sustainability Governance financial review report statements reports ASX information 81 Year 7 Year Restrictions lift (50%) after six years Year 6 Year Performance tested after four years depending on role with measures see section 3.3(d) Restrictions lift (50%) after five years Wesfarmers 2018 Annual Report Wesfarmers Year 5 Year Year 4 Year Year 3 Year Paid after Year 1, only to the extent that total KEEPP 1, only to Paid after Year is capped Cash component > 100% of FAR. award (maximum depends on role) t 2018 (audited) t 2018 Year 2 Year The KEEPP is designed to reflect each of the guiding principles as set out in section 1.2 each of the guiding principles as to reflect The KEEPP is designed R epo R Restricted Shares – Restricted Shares 50% of KEEPP allocation after cash (if applicable) – Performance Shares 50% of KEEPP allocation after cash (if applicable) Cash (if applicable) Year 1 Year ation ation period Annual comprising financial and Performance

Cash salary

see section 3.3(d) assessed against KEEPP scorecard KEEPP scorecard performance strategic measures strategic measures

2017 KEEPP 2017 Guiding principle FAR Group ROE was chosen to reward performance at the Group level for the Group Managing Director and Group Chief Financial Officer, Chief Financial Officer, and Group Managing Director level for the Group performance at the Group ROE was chosen to reward Group in over time. Following the non-cash impairments price growth and share specifically because this should drive dividends applicable to the will be made to the KEEPP awards of Coles, modifications demerger the proposed and BUKI and Target, in from the increase any undue benefit afforded not they are to ensure Chief Financial Officer and the Group Group Managing Director those actions. from ROE that would naturally result ASX 100 peers, to Wesfarmers’ regard having external market performance measure a relative TSR was chosen because it provides results. against Group still remunerated all participants are and ensures is directors of divisional managing that the remuneration chosen to ensure subject to average ROC, was divisional EBIT, Four-year involved. directly returns the business in which they are for linked to the achievement of long-term financial directly As at 30 June 2018, the service and performance conditions to determine vesting of the 2018 KEEPP allocation had not yet been finalised.As at 30 June 2018, the service and performance conditions to determine vesting of the 2018 KEEPP in section 3.3. the KEEPP is provided Further information regarding R Remune KEEPP invited were executive KMP plan the current remuneration the only variable and was year, in the 2017 financial was introduced The KEEPP year. in during the 2018 financial to participate both financial and strategic that comprises against a scorecard to performance with respect determined under the plan are Annual awards and the maximum is 200 per cent of FAR opportunity for each participant The target of each participant. to the role relevant measures KMP in the prior financial year and did not executive was not a member of the executive the Where of FAR. opportunity is 300 per cent the Committee and the Board to the Remuneration recommends Director Managing the Group for that year, have a KEEPP scorecard to grant. amount under the KEEPP 100 per cent is above that the KEEPP award The cash component is only paid to the extent primarily in shares. is delivered The award will Chief Financial Officer and Group Managing Director Group the year, over time. Starting in the 2020 financial and will reduce of FAR split between to participants consists of cash, with the remainder component. The 2018 KEEPP allocation a KEEPP cash not receive (50 per cent). (50 per cent) and Performance Shares Restricted Shares for five years and will be restricted over the long term. Half of the Restricted Shares alignment with shareholders provide Restricted Shares the long term. performance over remuneration linked to Group a significant portion of providing for six years, half will be restricted the value. For the 2017 KEEPP, of shareholder link with the creation a strong designed to create have conditions Performance Shares return (TSR), relative total shareholder are Chief Financial Officer and Group Managing Director performance conditions for the Group divisional the performance conditions are For the divisional managing directors absolute return on equity (ROE) plus strategic goals. TSR over four years. (ROC), and relative and tax (EBIT) and return on capital interest performance against corporate plan earnings before is set out below: The strategic intent of these performance conditions • • • the lifecycle for each element of years. The diagram below shows the remuneration In total, each KEEPP cycle operates over seven in section 3.3(d). summary of how the KEEPP operates is provided framework. A detailed remuneration 25% 75% 3 2 5 4 t 2018 (audited) t 2018 Wesfarmers is committed to an executive remuneration framework that embodies all of the framework that is committed to an executive remuneration Wesfarmers guiding principles as set out in section 1.2 The remuneration framework is designed to enable the Group to attract, engage and retain engage and retain to attract, designed to enable the Group framework is The remuneration outstanding people to drive outcomes world-class talent and 1 R epo R ixed remuneration

F KEEPP

ation ation

Wesfarmers 2018 Annual Report Wesfarmers Executive KMP and remuneration frameworks KMP and remuneration Executive Remuneration framework and policy Executive KMP Executive Guiding principle Guiding principle R G Scott commenced in the role of Group Managing Director on 16 November 2017. Managing Director of Group R G Scott commenced in the role a member of the executive KMP on 13 November 2017. and became Chief Financial Officer A N Gianotti was appointed as Group became a member of the executive KMP on 14 August 2017. Industrials and Wesfarmers D A Baxby was appointed as Managing Director, executive KMP on 16 November 2017. and as a member of the Managing Director of Group R J B Goyder ceased in the role the executive KMP on 10 November 2017. and as a member of Chief Financial Officer of Group T J Bowen ceased in the role

Fixed remuneration remuneration set at a level that is and engage key talent, with fixed attract, retain is set at a competitive level to remuneration Total business and responsibility; is based upon: role between the roles The level of differentiation of the role. for the requirements appropriate and individual performance; internal and external and contribution, competencies and capabilities. relativities; The remuneration mix for the executive KMP is structured to reward executives for performance at a Group or divisional level, as executives for performance at a Group to reward mix for the executive KMP is structured The remuneration ownership. share through and to align executive and stakeholder interests appropriate, Wesfarmers’ primary objective is to provide satisfactory returns to shareholders and the guiding remuneration principles are focused on principles are and the guiding remuneration satisfactory returns to shareholders primary objective is to provide Wesfarmers’ driving the leadership performance and behaviours consistent with achieving this objective. The graph below shows these and participation in the KEEPP. framework for the executive KMP comprises FAR Our ongoing remuneration each executive KMP: for of total maximum remuneration components as a percentage maximum remuneration Total 2.2 1 2 3 4 5 will announced that John Durkan 2018, Wesfarmers changes to the executive KMP for 2019. In March will be It is anticipated that there in August 2018, by Steven Cain in mid-September 2018. Further, in the role Coles and will be replaced step down as Managing Director, replaced to be in November 2018, Department Stores Executive Officer, announced that Guy Russo will step down as Chief Wesfarmers expected Mr Cain and Mr Bailey are of Senior Advisor. in the role with the Group Both Mr Durkan and Mr Russo will remain by Ian Bailey. to be KMP for part of the 2019 financial year. Managing Director, Wesfarmers Industrials (David Baxby) Wesfarmers Managing Director, Former executive KMP Goyder) (Richard Director Managing Group Bowen) (Terry Financial Officer Chief Group Executive KMP (Rob Scott) Managing Director Group Coles (John Durkan) Managing Director, (Guy Russo) Stores Department Chief Executive Officer, (Michael Schneider) Bunnings Group Managing Director, Newly appointed executive KMP (Anthony Gianotti) Financial Officer Chief Group The executive KMP includes the Group Managing Director and the Group Chief Financial Officer and those executives who have authority and those executives who Chief Financial Officer and the Group Managing Director the Group The executive KMP includes Wesfarmers. The executive generating division of the activities of a major profit and controlling for planning, directing and responsibility as follows: KMP for 2018 are 2. 2.1 R Remune 80 Directors’ report Directors’ BACK Operating and Directors’ Financial Signed Shareholder and Overview Sustainability Governance financial review report statements reports ASX information 83 Performance commentary Wesfarmers 2018 Annual Report Wesfarmers Mr Scott exceeded his overall strategic objectives Mr Scott exceeded his overall strategic objectives portfolio effective demonstrated through for the year, TSR, including the long-term management to improve BUKI and sale of the Curragh coal mine, the exit from of Coles, demerger to the proposed in relation progress opportunities through in addition to focusing on growth key digital and data capabilities, recruiting improved being talent into critical leadership and advisor roles, gender a champion for talent initiatives and improving balance at senior levels. against both results Mr Gianotti achieved above target the sale from and ROE, excluding the profit NPAT Group of the Curragh coal mine, the loss on disposal of BUKI and the non-cash impairments announced in February BUKI. 2018 and including the operating losses from to have exceeded his Mr Gianotti was considered including balance for the year in areas strategic targets sheet and capital management, risk management, external and talent. management relationship Mr Scott achieved above target results against both against both results Mr Scott achieved above target the sale from and ROE, excluding the profit NPAT Group of BUKI of the Curragh coal mine, the loss on disposal February and the non-cash impairments announced in BUKI. 2018 and including the operating losses from Maximum achieved Outcome Target met or exceeded Target t 2018 (audited) t 2018 Measure The 2018 KEEPP scorecards are transparent and fit for purpose, recognising our recognising and fit for purpose, transparent are The 2018 KEEPP scorecards to achievement of objectives for which autonomous operating model, linking rewards accountable and responsible directly executives are R epo R Group NPAT and ROE NPAT Group Balance sheet and capital management, risk leadership, divisional finance talent strengthen gender balance pipeline, improve Portfolio management, strengthening Portfolio management, strengthening and performance in growth Group talent pipeline, TSR, strengthen gender balance improve Group NPAT and ROE NPAT Group Threshold met or exceeded Threshold ation ation KEEPP outcomes - overview KEEPP outcomes Performance conditions and outcomes for the 2018 financial year scorecard financial year scorecard for the 2018 conditions and outcomes Performance term interests of shareholders by delivering the majority of the awards in shares. The shares continue to be subject to share price risk to be subject to share continue The shares in shares. by delivering the majority of the awards of shareholders term interests Guiding principle Threshold not met Threshold

Group Chief Financial Officer (A N Gianotti) Chief Financial Officer Group Group Managing Director (R G Scott) Managing Director Group Group financial financial Group (60%) measures Strategic measures (40%) Strategic measures Strategic measures (40%) R Remune 3.3 (a) outcomes. 2018 KEEPP scorecard in the should be reflected and divisional results was given to how both the Group consideration Careful received the profit a benefit from Industrials, have not received Wesfarmers Managing Director, David Baxby, Mr Scott, Mr Gianotti and negatively impacted by the for Mr Scott, Mr Gianotti and Mr Schneider were sale of the Curragh coal mine. The outcomes the from BUKI. losses from inclusion of the full operating The actions taken of the accounting standards. the requirements was undertaken consistent with BUKI and Target The impairment of both to be considered network were Department Stores the broader value across BUKI and to continue to extract from by management to exit for the outcomes impact of each of these on remuneration the respective has considered The Board of shareholders. in the best interests executive KMP. long-term benefit of for the performance within the Group to improve the focus required of the KEEPP, Given the long-term nature not million non-cash impairment of BUKI has for past decisions and performance, the $1,023 of responsibility and the degree shareholders during the 2018 financial year. roles and Mr Gianotti who took up their current outcomes for Mr Scott scorecard impacted the 2018 KEEPP Scott, Mr Gianotti and for Mr results has not impacted the 2018 KEEPP scorecard non-cash impairment of Target the $300 million Further, Mr Russo. year align with the outcomes for the executive KMP for the 2018 financial decisions on remuneration considers that these The Board long- restriction period (Restricted Shares). the five- and six-year and performance period (Performance Shares) over both the four-year outlined below and on the following 2018 KEEPP allocation are for the of the performance against the annual scorecard The results or Chairman, as applicable, and included Managing Director by the Group have been approved on each scorecard page. The measures leadership performance and behaviours intended to drive (or division) and are of the Group because they align with the strategic direction return. long-term objectives and maximising shareholder consistent with achieving the Group’s Group financial financial Group (60%) measures 5 5 - 223 5.2 2,772 245.1 1,197 49.36 105.8 - 12.4 254.7 4 4 - esCEF’s interest in Air Liquide WA Pty Ltd Pty Ltd in Air Liquide WA interest esCEF’s 9.8 1.7 200 186 223 216.1 36.2 2 3 3 50 100 200 2014 2015 2016 2017 2018 10.5 2,253 2,440 2,353 2,873 196.6 216.1 209.5 254.7 2,689 2,440 407 2,873 41.84 39.03 40.10 40.12 234.6 1 t 2018 (audited) t 2018 Fixed annual remuneration is set at levels to attract, engage and retain world-class talent is set at levels to attract, engage and retain Fixed annual remuneration and outstanding people to drive outcomes R epo R 1 ation ation

Wesfarmers 2018 Annual Report Wesfarmers Outcomes Overview of company performanceOverview Fixed annual remuneration Guiding principle along with ($743 million) in non-trading items relating to the impairment of Target’s goodwill and Coles Liquor restructuring provision. 2016 excludes 2016 excludes provision. restructuring goodwill and Coles Liquor of Target’s to the impairment along with ($743 million) in non-trading items relating to reset costs and provisions impairment of Curragh and $102 million of restructuring $595 million non-cash $1,249 million non-cash impairment of Target, in BUKI; provisions closure and store (post-tax) amounts: $931 million ($1,023 million) of impairments, write-offs 2018 excludes the following pre-tax Target. million) gain on and, a $120 million ($123 million ($300 million) non-cash impairment of Target; a $375 million ($375 million) loss on disposal of BUKI; a $306 disposal of Curragh. includes the 10 cent special ‘Centenary’ dividend. 2014 total dividends per share 1 above. 2014 EPS and ROE includes the items outlined in footnote 1 above. 2016 EPS and ROE includes the items outlined in footnote 1 above. 2018 EPS and ROE includes the items outlined in footnote 2014 excludes $1,179 million in discontinued operations relating to the disposal of the Insurance division and W relating 2014 excludes $1,179 million in discontinued operations

The Group reported NPAT of $1,197 million for the 2018 financial year. The result includes: $1,575 million of significant items beingresult includes: $1,575 million of significant The year. of $1,197 million for the 2018 financial NPAT reported The Group million non-cash impairment of mine; $375 million loss on disposal of BUKI; $300 to the sale of the Curragh coal $123 million gain relating the 2017 financial year. from by $1,676 million decreased impairment of BUKI. NPAT and $1,023 non-cash Target; the competitive most of the businesses, which is pleasing given has seen good performance against budget for The 2018 financial year key financial performance for below summarises details of Wesfarmers’ in which most businesses operate. The table environment over the past five financial years. measures June Financial year ended 30 3. 3.1 R Remune Wesfarmers’ practice is not to increase fixed remuneration by reference to inflation or indexation as a matter of course. Changes are as a matter of course. Changes to inflation or indexation reference remuneration by fixed practice is not to increase Wesfarmers’ of internal or as a result rising materially, the market rate for comparable roles or responsibility, based on merit, a material change in role Wesfarmers in developing its key talent. the significant investment of while protecting relativities, to in November 2017, upon transitioning was increased remuneration of Mr Scott and Mr Gianotti As explained in section 1.2, the fixed their new roles. by an average of 1.9 per cent for the remuneration increased in October 2017, the fixed review During the annual remuneration Leadership Team. 2 3 4 5 3.2 Adjusted EPS (cents) 1 82 Directors’ report Directors’ Capital management distribution (paid) (cents) Total dividends per share (declared) (cents) (declared) dividends per share Total Net profit after tax (NPAT) ($m) after tax (NPAT) Net profit Return 12) (%) on equity (ROE) (rolling Closing share price ($ as at 30 June) price Closing share Adjusted NPAT (excluding significant items) ($m) (excluding significant Adjusted NPAT Earnings per share (EPS) (cents) Earnings (EPS) (cents) per share BACK Operating and Directors’ Financial Signed Shareholder and Overview Sustainability Governance financial review report statements reports ASX information

2 85 % ($) 15.6 15.6 10.0 22.7 10.0 25.5

Forfeited 4,580,942 1,420,907 1,771,449 3,187,433 2,841,893 Fair value at grant

% 84.4 84.4 90.0 90.0 74.5 77.3

1 Awarded ($) ($) 2018 KEEPP opportunity Percentage of maximum of maximum Percentage 5,099,917 1,499,936 1,869,975 3,364,715 2,999,956 Wesfarmers 2018 Annual Report Wesfarmers ($) 1 5,827,646 3,146,929 2,700,000 4,162,500 2,679,355 4,114,550 Total Share Award value Award Share Total Shares Shares and and Shares Performance Performance for Restricted for Restricted

Balance available Balance available 60,848 17,896 22,311 40,145 35,793

($) Cash Cash 2018) 500,000 270,000 540,000 832,500 675,000 990,000 allocated (vesting performance period) Performance Shares Performance Shares (paid in August subject to performance conditions over a four-year conditions over a four-year

($) 60,848 17,896 22,311 40,145 35,793 t 2018 (audited) t 2018 6,327,646 3,416,929 3,240,000 4,995,000 3,354,355 5,104,550 scorecard The KEEPP outcomes align with each of the guiding principles as set out in section 1.2 as set out in section each of the guiding principles outcomes align with The KEEPP 2018 KEEPP Total outcome Total R epo Restricted Shares Restricted Shares a five- and six-year R allocated (subject to restriction from trading) from restriction ation ation 2 KEEPP awarded during the year (2017 KEEPP allocation) KEEPP awarded KEEPP outcomes – 2018 financial year scorecard – 2018 financial KEEPP outcomes Guiding principle 50 per cent allocated as Restricted Shares and 50 per cent allocated as Performance Shares. 50 per cent allocated as Restricted Shares will be delivered wholly in Restricted Shares given his change in role from The Board has agreed that Mr Durkan’s 2018 KEEPP shares under the 2018 KEEPP. Managing Director, Coles prior to the allocation of any shares The number of Restricted Shares and Performance Shares allocated is determined based upon the 10-day VWAP of Wesfarmers shares over the period over the period shares of Wesfarmers allocated is determined based upon the 10-day VWAP and Performance Shares The number of Restricted Shares the announced in August 2017 (i.e., 18 August to 31 August 2017) being $41.907025. This amount shown represents immediately following the full-year results multiplied by the 10-day VWAP. and Performance Shares total number of Restricted Shares subject to market with AASB 2 Share-Based Payment . The Performance Shares For accounting purposes, the fair value at grant is shown above, in accordance and the have been independently valued using the Monte Carlo simulation using the Black-Scholes framework. The Restricted Shares conditions (TSR hurdle) and ROC) have been valued using the Black-Scholes option and ROE or divisional EBIT NPAT subject to non-market conditions (Group Performance Shares and per Performance Share is $27.36 and the value per Restricted Share for the TSR performance hurdle pricing model. The value per Performance Share is $41.07. and ROE or divisional EBIT and ROC hurdle NPAT subject to Group

Name R G Scott 1 2 1 2 and Performance was paid on 17 August 2018. The Restricted Shares year scorecard The KEEPP cash component for the 2018 financial report. in the 2019 remuneration grants will be provided to be allocated in December 2018. Details of these share expected are Shares (c) the following the testing of the 2017 KEEPP scorecards, year, during the 2018 financial report, in the 2017 remuneration As presented Schneider and Mr Baxby participated in the KEEPP under the 2017 KEEPP in September 2017. As Mr shares executive KMP received relation to the 2017 KEEPP allocation, the in place for them in was no scorecard there for the first time in the 2018 financial year and the from on recommendation by the Board Schneider and Mr Baxby during the year was approved to Mr amount of KEEPP awarded was no cash component and there respectively and 125 per cent of FAR 200 per cent of FAR They received Director. Group Managing for either. that award allocated to participants under the 2017 KEEPP allocation. One half of the were Shares and Performance Restricted Shares that is of the award for five years (50 per cent) and six years (50 per cent). The other half restricted are in Restricted Shares is provided in section 3.3(d). performance period. Further details are subject to a four-year are in Performance Shares provided R Remune upon the based year, the actual KEEPP outcomes for the 2018 financial relating to specific information The table below sets out 2018 financial year scorecards. Name R G Scott A N Gianotti D A Baxby J P Durkan G A Russo G A Russo M D Schneider (b) D A Baxby J P Durkan G A Russo G A Russo M D Schneider Performance commentary Performance Mr Schneider achieved strong results in improving digital digital in improving results Mr Schneider achieved strong good and data capabilities within Bunnings and made gender balance in addition talent and in safety, progress to supporting the exit of BUKI. Overall, Mr Schneider on his strategic objectives. exceeded target for Wesfarmers results strong Mr Baxby delivered Industrials, and achieved a maximum 2018 KEEPP from the outcome for his financial objectives. The profit sale of the Curragh coal mine was excluded. Mr Baxby exceeded in the achievement of his strategic objectives such as talent, gender balance and digital and data capabilities, although the strengthening has not been set for safety improvement tough target to have achieved. Overall, Mr Baxby was considered for his strategic objectives. exceeded target Mr Durkan delivered on target results for Coles in a highly for Coles in a highly results on target Mr Durkan delivered competitive environment. strategic objectives for the year, Mr Durkan exceeded his sensitive a number of commercially demonstrated across employee in safety, well as improvements as areas balance. engagement and gender in both continued improvement Mr Russo has delivered excluding the Stores, EBIT and ROC for Department and achieved a maximum Target, non-cash impairment of 2018 KEEPP outcome for his financial objectives. targets, Mr Russo performed well against his strategic turnaround delivering the next phase of the Target in safety strategy and achieving good progress for Department Stores. and gender balance improvement to have exceeded his Overall, Mr Russo was considered strategic objectives. Mr Schneider has delivered very strong results for for results strong very Mr Schneider has delivered Bunnings Australia and New Zealand, which accounted overall. for 80 per cent of his financial target relation to have been met in None of the financial targets any benefit in BUKI and Mr Schneider has not received to these. relation Maximum achieved Outcome Target met or exceeded Target t 2018 (audited) t 2018 Measure R epo R Improvement in safety, identification identification in safety, Improvement initiatives, and support for growth talent pipeline, improve strengthen digital and gender balance, improve data capabilities Wesfarmers Industrials EBIT and Industrials EBIT and Wesfarmers ROC Improvement in safety, identification identification in safety, Improvement initiatives, and support for growth support for strategic initiatives, gender balance improve identification in safety, Improvement initiatives, and support for growth talent pipeline, improve strengthen and digital gender balance, improve data capabilities, continued Target turnaround Department Stores EBIT and ROC Department Stores Bunnings Australia and New Zealand EBIT and ROC . . Bunnings United Kingdom and Ireland EBIT and ROC . Improvement in safety, identification identification in safety, Improvement initiatives, and support for growth talent pipeline, improve strengthen and digital gender balance, improve data capabilities, continued support for BUKI turnaround Coles EBIT and ROC Comparative Sales Threshold met or exceeded Threshold ation ation

Wesfarmers 2018 Annual Report Wesfarmers Performance conditions and outcomes for the 2018 financial year scorecard (continued) financial year scorecard for the 2018 conditions and outcomes Performance Threshold not met Threshold

Managing Director, Wesfarmers Industrials (D A Baxby) Wesfarmers Managing Director, Chief Executive Officer, Department Stores (G A Russo) Department Stores Chief Executive Officer, (M D Schneider) Group Bunnings Managing Director, Managing Director, Coles (J P Durkan) Managing Director, Strategic measures Strategic measures (40%) Divisional financial Divisional financial (60%) measures Strategic measures Strategic measures (40%) Strategic measures (40%) Divisional financial Divisional financial (60%) measures Divisional financial (60%) measures Strategic measures Strategic measures (40%) (a) R Remune Divisional financial Divisional financial (60%) measures 84 Directors’ report Directors’ BACK Operating and Directors’ Financial Signed Shareholder and Overview Sustainability Governance financial review report statements reports ASX information 87 Wesfarmers 2018 Annual Report Wesfarmers Percentage of awards vesting of awards Percentage 0% vesting 50% vesting increase vest for each percentile An additional 2% of awards 100% vesting t 2018 (audited) t 2018 R epo R ation ation Board discretion to determine treatment of awards. to determine treatment discretion Board which vest (or to clawback or adjust any incentive awards The terms of the KEEPP contain a mechanism for the Board result of the financial statements or otherwise as a from, of a material misstatement in, or omission may vest) as a result if to adjust any conditions applicable to an award, has discretion of obligations. The Board fraud, dishonesty or breach or defer or otherwise require reduce up to the value of the overpaid remuneration, may, The Board appropriate. considered no unfair benefit is derived. to ensure of any amount paid or payable to the executive the repayment Restricted Shares be paid to the KEEPP participants. period and thereafter until the end of the 12-month forfeiture These will be escrowed Performance Shares performance period and only paid to the KEEPP participants to the extent that for the full four-year These will be escrowed vest. the underlying shares The Board will assess the performance of the Group Managing Director and Group Chief Financial Officer in respect of their of their respect in Officer Chief Financial and Group Managing Director of the Group will assess the performance The Board strategic targets. with the terms of the plan, the that do not vest will be forfeited. In accordance Shares Following testing, any Performance to do so. appropriate it is considered to the performance conditions where to make adjustments has discretion Board 2018 KEEPP Allocation: to determine vesting of the 2018 KEEPP allocation had not yet As 30 June 2018, the performance and service conditions been finalised. Restricted Shares 2017 KEEPP Allocation: restriction. subject to a five- or six-year trading are Restricted Shares announcement for the 2022 and 2023 financial on the day following the full-year results restriction from They will be released subject to any (i.e., the beginning of the trading window) and will not be years in August 2022 and August 2023 respectively a can elect to provide Policy). The Board Securities Trading on dealing (subject to complying with Wesfarmers’ trading restrictions in value to the vested shares). cash payment as an alternative (equivalent to the shares 2018 KEEPP Allocation: As at 30 June 2018, of the 2018 KEEPP allocation had not yet been finalised. the conditions to determine vesting Performance Shares although not subject to any additional trading restrictions that vest subject to the performance conditions are Performance Shares a cash payment as an alternative (equivalent in value to the vested shares). can elect to provide to the shares the Board Restricted Shares the of allocation, breaches within 12 months if the executive resigns subject to forfeiture are Restricted Shares including cause or significant circumstances or is dismissed in certain clause in their employment agreement restraint Wesfarmers. is intended to continue even if the executive ceases to be an employee of underperformance. The restriction payment as an alternative a cash to the shares early and also to provide to lift this restriction has discretion The Board (equivalent in value to the vested shares). Performance Shares to the the end of the performance period, their entitlement before If an executive ceases employment with Wesfarmers dismissal or will forfeit in the event of resignation of cessation. All shares any) will depend on the circumstances (if shares for cause or significant underperformance. ill health, death, or other of redundancy, If an executive ceases employment during the performance period by reason left his or her Performance Shares the executive will generally be entitled to have by the Board, approved circumstances applicable performance period. in the plan to be vested (and vest) at the end of the restricted Vesting schedule against relative TSR: relative schedule against Vesting ranking Percentile Below the 50th percentile Equal to the 50th percentile percentile Between the 50th and 75th or above Equal to the 75th percentile

Detailed summary – KEEPP (continued) Detailed summary Change of Change of control Clawback Dividends R Remune (d) Performance Shares conditions and vesting (continued) Restrictions upon shares allocated Cessation of employment t 2018 (audited) t 2018 TSR relative to the TSR of the ASX 100 Index (20 per cent weighting). to the TSR of the ASX 100 Index (20 per cent TSR relative R epo R Wesfarmers’ TSR relative to the TSR of the ASX 100 Index (50 per cent weighting); to the TSR of the ASX 100 Index (50 TSR relative Wesfarmers’ Absolute ROE (20 per cent weighting); and (30 per cent weighting). Strategic measures Cumulative EBIT and ROC (80 per cent weighting); and Wesfarmers’ 50 per cent of the Performance Shares vest if 92.5 per cent of the ROE target is achieved; and of the ROE target vest if 92.5 per cent 50 per cent of the Performance Shares is achieved. of the ROE target vest if 100 per cent 100 per cent of the Performance Shares to achieving is achieved, subject the cumulative EBIT target vest if 90 per cent of 50 per cent of the Performance Shares and 90 per cent of the average ROC target; to achieving is achieved, subject of the cumulative EBIT target vest if 100 per cent 100 per cent of the Performance Shares 90 per cent of the average ROC target. 50 per cent will be granted as Restricted Shares for up to six years where half of the shares will be restricted for five years and will be restricted half of the shares for up to six years where 50 per cent will be granted as Restricted Shares for six years; and the balance will be subject to a restriction which will vest subject to performance Shares) (Performance 50 per cent will be performance-based shares the remaining the Chief Financial Officer, and Group Managing Director for the Group conditions over four years. For the 2017 allocation, the goals and for the divisional managing directors TSR, absolute ROE plus strategic relative performance conditions are TSR over four years. divisional performance against corporate plan EBIT and ROC, and relative performance conditions are

ation ation 2017 KEEPP Allocation: performance period. over a four-year have financial performance conditions The Performance Shares Chief Financial Officer: and Group Managing Director Group – – – Divisional Managing Directors: – – Vesting schedule against ROE: Vesting – – forfeited. that do not vest are Straight-line vesting occurs in between and following testing, any shares schedule against EBIT and ROC: Vesting – – forfeited. that do not vest are Straight-line vesting occurs in between and following testing, any shares An annual scorecard (agreed between participants and the Group Managing Director or Chairman, as applicable, or Chairman, as applicable, Managing Director and the Group between participants (agreed An annual scorecard by the be recommended Committee) is used in determining the amount to by the Remuneration and reviewed the overall value of the KEEPP allocation. or Chairman, as Group Managing Director conditions that or divisional, as applicable) and strategic performance (Group comprises financial The annual scorecard of respect 3.3(a)). In Group or each division, as applicable (see section and specific to the quantifiable and measurable are vesting threshold and ROE or divisional EBIT and ROC targets, NPAT which include Group for 2018, the financial measures at or above 105 per cent or 110 per cent awarded and maximum is cent or 95 per cent of target begins at either 92.5 per of target. 2018 KEEPP: in the using performance against the annual scorecard for the financial year is determined award The value of the full KEEPP is no If there or Chairman, as appropriate. Managing Director recommended by the Group and as financial year, preceding financial year) the value the preceding a member of the KMP during in place (for example, if the executive becomes scorecard based on a number of factors. Managing Director, by the Group is recommended of the award respect of each year (in of the financial statements the preparation is assessed after Performance under the scorecards or Managing Director by the Group of performance against strategic measures review and after a the financial measures) at the end of the financial year. Chairman, as appropriate, to the performance conditions, where to make adjustments has discretion with the terms of the plan, the Board In accordance considers this appropriate. the Board and in cash, Restricted Shares granted are the KEEPP awards Following the determination of the opportunity amount, Performance Shares. and Managing Director For the Group than 100 per cent of FAR. is greater the overall KEEPP award Cash is only paid where This will opportunity. per cent of the at target for 2018 the maximum amount of cash was 10 Financial Officer, Chief Group For the divisional the start of the 2020 financial year. all from will be no cash component at in 2019, and there decrease for 2018 opportunity total at target cash was paid up to a maximum of 22.5 per cent of the participant’s managing directors, made in late August. over the next few KEEPP cycles. The KEEPP cash payments are and will be reduced as follows: and Performance Shares is granted as Restricted Shares of the KEEPP award The remainder – – on and communicating the deciding allocated following the Board are and Performance Shares The Restricted Shares conditions and restrictions. allocated under the the number of shares on the KEEPP, Coles demerger Given the expected impact of the proposed be post-demerger. expected to period of time as determined by the Board, 2018 KEEPP allocation will be determined over a Reward plan designed to reflect Wesfarmers’ autonomous management model and to reward executive KMP for financial KMP for financial executive reward model and to autonomous management Wesfarmers’ to reflect plan designed Reward wealth. long-term alignment with shareholders’ strong while providing or their division, as applicable, of the Group results with shareholder (to align shares (heavily) in Wesfarmers total of seven years and is delivered The plan operates over a the grant date). to six years from periods (up experience) with long restriction

Wesfarmers 2018 Annual Report Wesfarmers Detailed summary – KEEPPDetailed summary Performance Performance Shares conditions and vesting Annual Annual scorecard measures (d) below. summarised of the KEEPP are The key details Description R Remune Annual Annual scorecard assessment Allocation of awards 86 Directors’ report Directors’ BACK Operating and Directors’ Financial Signed Shareholder and Overview Sustainability Governance financial review report statements reports ASX information 89 Wesfarmers 2018 Annual Report Wesfarmers Percentage of awards vesting of awards Percentage 0% vesting 50% vesting increase vest for each percentile An additional 2% of awards 100% vesting Percentage of awards vesting of awards Percentage 0% vesting 50% vesting increase vest for each percentile An additional 2% of awards 100% vesting vesting of awards Percentage 0% vesting 50% vesting increase vest for each percentile An additional 2% of awards 100% vesting t 2018 (audited) t 2018 R epo R ation ation Following testing, any rights that do not vest, lapse. Allocation (granted during the 2017 financial year): 2016 WLTIP to the TSR of the ASX 50 Index. TSR relative Wesfarmers’ is one performance hurdle: There The following vesting schedule applies: Following testing, any rights that do not vest, lapse. not subject to any additional trading performance period are allocated on vesting of the rights after the four-year Shares to seven years (for the 2014 of up for an additional trading restriction elect upfront An executive can, however, restrictions. and 2015 allocations) or 15 years (for the 2016 allocation) of the grant date to apply. the end of the performance period, their entitlement to the before If an executive ceases employment with Wesfarmers or termination All rights will lapse in the event of resignation of cessation. rights (if any) will depend on the circumstances for cause. ill health, death, or other of redundancy, If an executive ceases employment during the performance period by reason in the his or her rights left restricted the executive will generally be entitled to have by the Board, approved circumstances over the applicable performance period. plan to vest based on achievement of the ROE and / or TSR hurdles Following testing, any rights that do not vest, lapse. during the 2016 financial year): Allocation (granted 2015 WLTIP TSR (with a CAGR in ROE (with a 50 per cent weighting) and Wesfarmers’ Wesfarmers’ two performance hurdles: are There to the CAGR in ROE and TSR of the ASX 50 Index. 50 per cent weighting), relative hurdles: The following vesting schedule applies to both performance Percentile ranking ranking Percentile Below the 50th percentile Equal to the 50th percentile Between the 50th and 75th percentile or above Equal to the 75th percentile Award of performance rights subject to a four-year performance period. performance subject to a four-year of performance rights Award Four years. the performance of each executive. 2016 allocations, an assessment was made of Prior to the 2014, 2015 and a and assessment by the Board, Mr Goyder, Managing Director, by the then Group Based upon the recommendation and up to a of FAR equal in value to a minimum of 80 per cent award an LTI KMP could receive member of the executive year. in the preceding for outstanding performance of FAR maximum of 160 per cent up per cent of FAR a minimum of 100 in the range from award could determine his LTI the Board In the case of Mr Goyder, year. performance rating in the preceding depending upon his cent of FAR to a maximum of 200 per the 10-day volume weighted average price of rights allocated was determined based upon The number of performance announced in August. immediately following the full-year results over the period shares Wesfarmers financial year): Allocation (granted during the 2015 2014 WLTIP TSR (with a CAGR in ROE (with a 75 per cent weighting) and Wesfarmers’ Wesfarmers’ two performance hurdles: are There to the CAGR in ROE and TSR of the ASX 50 Index. 25 per cent weighting), relative hurdles: The following vesting schedule applies to both performance ranking Percentile Below the 50th percentile Equal to the 50th percentile Between the 50th and 75th percentile or above Equal to the 75th percentile ranking Percentile Below the 50th percentile Equal to the 50th percentile Between the 50th and 75th percentile or above Equal to the 75th percentile Detailed summary - WLTIP Detailed summary Restrictions Restrictions upon shares allocated R Remune below. summarised are of the WLTIP The key details Description Performance period Amount that can be earned Conditions and vesting (c)

4 - Held at 55,725 79,608 34,299 20,399 168,742 112,673 Number of 30 June 2018 shares vested shares

0% (35,008) (45,171) (24,912) (18,068) (79,186) (49,406) Total % of Total Net change shares vested shares 3 0% 0% award the year (35,008) (45,171) (24,912) (18,068) (79,186) (49,406) Lapsed during % of maximum 2 ------Vested 47% 20% vs ASX 50 Performance Shares Performance Shares

2 Percentile ranking Percentile vested during the year ------Granted 1 30.7% during year (16.9)% Outcome 32,088 48,830 47,319 (2014–2018) t 2018 (audited) t 2018 1 R epo Restricted Shares Held at R 90,733 59,211 38,467 124,779 247,928 162,079 vested during the year 1 July 2017 ation ation

6,8 5 7,8

Wesfarmers 2018 Annual Report Wesfarmers WLTIP overview WLTIP LTI vesting during the year vesting during LTI Summary of awards held under WLTIP Summary of awards KEEPP vesting during the year KEEPP vesting No Performance Shares reached the end of the four-year performance period in the year. The first The first period in the year. performance four-year the end of the reached No Performance Shares end 30 June 2020. performance period is due to 2016 Restricted Shares vested in November 2017 although 50 per cent continue to be subject to a to a 2017 although 50 per cent continue to be subject vested in November 2016 Restricted Shares restriction. per cent continue to be subject to a six-year trading restriction and 50 five-year trading Reflects the period A N Gianotti became a member of the executive KMP on 13 November 2017. continued to be held his vested performance rights that reflect R J B Goyder ceased to be a member of the executive KMP on 16 November 2017. Figures conditions beyond this time. and subject to performance in the WLTIP restricted continued to be held his vested performance rights that reflect T J Bowen ceased to be a member of the executive KMP on 10 November 2017. Figures conditions beyond this time. and subject to performance in the WLTIP restricted in the rights continue to be restricted that R J B Goyder and T J Bowen will be entitled to have their unvested WLTIP approved On 28 June 2017, the Board in grant as at the date they ceased employment, resulting for a WLTIP service period normally required waiving the four-year plan after they leave the Group, price on that date was $40.77. All other terms of the grant, Wesfarmers Limited share revised vesting period. The over the an accelerated expensing profile remain the same and will be tested at the end of the applicable performance period. including the applicable performance conditions to be satisfied for vesting, grants was not changed at the date of modification. The fair value of these WLTIP Reflects prior year WLTIP allocations which are subject to performance conditions at that time which remain unvested (i.e., under the 2014, 2015 and remain unvested (i.e., under the 2014, 2015 and to performance conditions at that time which subject allocations which are Reflects prior year WLTIP allocation of performance rights). 2016 WLTIP will be any allocations in the future. of the KEEPP it is not expected that there following the introduction this year and made under WLTIP No allocations were not met. were hurdles lapsed as performance were The rights under the 2014 WLTIP rights). remain unvested (i.e., the 2015 WLTIP allocations subject to performance conditions at that time which Reflects the WLTIP Former KMP Executive KMP

R J B Goyder G A Russo A N Gianotti J P Durkan T J Bowen 5 6 7 8 1 2 3 4 CAGR in ROE (75% of the award) TSR (25% of the award) Vesting condition Vesting 3.4 (a) rate (being compound annual growth award for the 2014 WLTIP against the targets The table below shows the performance of the Group not achieved vesting levels were The threshold performance period ended on 30 June 2018. (CAGR) in ROE and TSR), whose four-year and all the performance rights lapsed. grant vested into shares none of the 2014 WLTIP and therefore (b) rights granted allocation as well as details of to the 2014 WLTIP rights lapsed in relation The table below sets out details of performance awards. under prior year WLTIP Name Name R G Scott J P Durkan G A Russo 1 2 (e) KEEPP allocation. to the 2016 in relation vested sets out details of shares The table below R Remune R G Scott 88 Directors’ report Directors’ BACK Operating and Directors’ Financial Signed Shareholder and Overview Sustainability Governance financial review report statements reports ASX information 91

Wesfarmers 2018 Annual Report Wesfarmers t 2018 (audited) t 2018 R epo R ation ation Executive remuneration (statutory presentation) remuneration Executive The KEEPP cash component is recognised for the year to which it relates. The KEEPP Restricted Shares are recognised as an as recognised are The KEEPP Restricted Shares for the year to which it relates. is recognised The KEEPP cash component recognised over the are and the KEEPP Performance Shares period typically spanning two financial years expense over a 12-month for granted to the executive. The value recognised years) based on their assessed value when originally performance period (four value if and when the incentive vests to to their be significantly different may and Performance Shares the KEEPP Restricted Shares the executive. granted to the based on their assessed value when originally over the performance period (four years) recognised are awards WLTIP the incentive vests to the executive. to their value, if and when different executive. This may be significantly and in other cases there or rights vest to the executive when no shares as remuneration recorded are amounts In some circumstances, due to non-vesting. in a given year LTIs from can be negative remuneration The amounts included for the ‘value of annual incentive shares’ column includes the portion of the 2016 and 2017 annual incentive shares that continued to be to be that continued includes the portion of the 2016 and 2017 annual incentive shares column The amounts included for the ‘value of annual incentive shares’ conditions. subject to performance and forfeiture are as these shares of vesting, expensed in the 2018 financial year based on probability in section 3.3. For accounting purposes, the detailed equity’ column for the 2017 KEEPP are The amounts included for the ‘value of long-term incentive are of vesting, as these shares based on probability continue to be expensed in the 2018 financial year 2016 KEEPP and the 2014, 2015 and 2016 WLTIP to as the service period. conditions, together referred subject to performance and forfeiture table in will be included in the remuneration granted under the 2018 KEEPP, yet to be that are and Performance Shares The expensing for the Restricted Shares the 2019 Remuneration Report. payments divided by the of the annual incentive and KEEPP cash and share-based for the 2018 financial year is the sum performance related The percentage remuneration at risk for the year. of the actual percentage reflecting total remuneration, for the being the amount expensed in the 2018 financial year only, KEEPP shares that consists of performance rights and of total remuneration The percentage 47.3 per cent, A N Gianotti 28.7 per cent, as applicable, is as follows – R G Scott and the 2016 and 2017 KEEPP shares, 2014, 2015 and 2016 WLTIP Schneider 35.2 per cent, D A Baxby 31.1 per cent, R J B Goyder 13.3 per cent and J P Durkan 33.1 per cent, G A Russo 49.3 per cent, M D providing parking, vehicle, life insurance and travel. Short-term benefits, cost to the company of Short-term benefits, ‘non-monetary benefits’, include the relocations from respective costs of their insurance. For R G Scott and A N Gianotti this also includes the and officer ‘other’, includes the cost of directors Sydney to Perth upon appointment to their new roles. relate to leave entitlements earned during the year. Long-term benefits statutory superannuation with Wesfarmers’ and senior executives in accordance director made on behalf of the executive Superannuation contributions are senior executives salary that has been sacrificed into superannuation. and obligations. Also included is any part of the executive director None of the KMP have from last year to this year. FAR) incentive accrual (equal to nine months retention Post-employment benefits, ‘other benefits’, include the incentive. an outstanding entitlement to the retention to contractual notice period and in support of a restraint. Bowen, principally in relation Payments made on termination to R J B Goyder and T J 13 November 2017. effective A N Gianotti became a member of the KMP, 14 August 2017. effective D A Baxby became a member of the KMP, T J Bowen 14.5 per cent. T J Bowen 14.5 per cent. On 28 June 2017, the Board approved that R J B Goyder and T J Bowen be entitled to have their unvested WLTIP rights continue to be restricted in the plan in the plan rights continue to be restricted entitled to have their unvested WLTIP that R J B Goyder and T J Bowen be approved On 28 June 2017, the Board in an grant as at the date they cease employment, resulting for a WLTIP required service period normally waiving the four-year after they leave the Group, reflected under the ‘value of long-term incentive equity’. is expensing profile revised vesting period. This accelerated over the accelerated expensing profile 2017. on 10 November the Group from T J Bowen ceased to be a member of the KMP following his departure Bunnings Group of Chief Executive Officer, his original role from J C Gillam ceased to be a member of the KMP following his stepping into a Senior Adviser role on 6 December 2016. M D Schneider became a member of the KMP, effective 7 December 2016. effective M D Schneider became a member of the KMP, on 16 November 2017. his retirement R J B Goyder ceased to be a member of the KMP following

12 13 14 R Remune 3.7 presented outcomes are How remuneration readily (which has the benefit of being of accounting standards based on the requirements presented are Remuneration outcomes on vesting during cash and benefits and the value of equity rather than a take-home pay basis (being comparable with other companies) of this are: the financial year). Examples • • • page Footnotes to remuneration table on the following 1 2 3 4 5 6 7 8 9 10 11

prior to demerger rights held immediately Number of performance - ) Coles 5-day post demerger VWAP + Wesfarmers 5-day post demerger VWAP Wesfarmers Wesfarmers 5-day Wesfarmers post demerger VWAP t 2018 (audited) t 2018 X R epo R ation ation The terms of the WLTIP contain a mechanism for the Board to clawback or adjust any awards which vest (or may vest) which vest (or may vest) awards to clawback or adjust any mechanism for the Board contain a The terms of the WLTIP result of fraud, as a the financial statements or otherwise in, or omission from, of a material misstatement as a result if considered an award, to adjust any conditions applicable to has discretion The Board of obligations. dishonesty or breach the or defer or otherwise require reduce remuneration, up to the value of the overpaid may, The Board appropriate. no unfair benefit is derived. payable to the executive to ensure of any amount paid or repayment Board discretion to determine treatment of awards. to determine treatment discretion Board

prior to demerger rights held immediately Number of performance

Wesfarmers 2018 Annual Report Wesfarmers Anticipated impact of the proposed demerger of Coles on executive remuneration Anticipated impact of the proposed Annual incentive overview Detailed summary - WLTIP (continued) - WLTIP Detailed summary ( Further, the Board intends to exercise discretion in relation to the calculation of the 2015 WLTIP ROE hurdle to ensure participants are participants are to ensure ROE hurdle to the calculation of the 2015 WLTIP in relation discretion intends to exercise the Board Further, methodology for As the standard result of the demerger. in ROE that would occur as a the increase any undue benefits from not afforded any to exercise is not required TSR, the Board of Coles into the calculation of Wesfarmers’ calculating TSR will incorporate the demerger of the demerger. as a result under the 2015 and 2016 WLTIP to the calculation of the TSR hurdles in relation discretion in the 2019 Remuneration Report. Further information will be provided WLTIP allocations do not carry a right to participate in the demerger the 2015 and 2016 WLTIP performance rights allocated under The WLTIP that participants are and to ensure rights following the demerger, the overall value of the performance to preserve of Coles. In order the approvals, the required receives the Group of Coles from demerger assuming the proposed not disadvantaged by the demerger, additional Group who continue to be employed within the Wesfarmers has decided it will grant participants in the 2015 WLTIP Board on substantially the same terms as the participant’s performance rights. The additional grants will be made shortly after the demerger ceased employment with previously a participant in the 2015 or 2016 WLTIP Where of performance rights under the WLTIP. original award cash has decided it will make an additional Board the Wesfarmers but continues to hold performance rights under the WLTIP, the Group of performance rights. The original original award payment, equal in value and subject to substantially the same terms as the participant’s on foot and continue to be held subject to the will otherwise remain of performance rights held under the 2015 and 2016 WLTIP award is whole performance right) down to the nearest original terms. The calculation method for the additional performance rights (rounding expected to be as follows: 3.6 KEEPP considers Board Wesfarmers of Coles. The carry a right to participate in the demerger and the Performance Shares The Restricted Shares aligned with Wesfarmers under the KEEPP wholly by having awards is preserved it of utmost importance that the integrity of the KEEPP intended this is also shareholders, continued long-term alignment between participants and Wesfarmers As well as ensuring the Shares. and behaviours which deliver satisfactory returns to Wesfarmers senior executives to demonstrate performance to incentivise Wesfarmers’ over the long term. shareholders the 2016 and 2017 KEEPP allocations held by the approvals, the required receives has decided that, if the demerger the Board As a result, to has been completed, the intention is for new awards After the demerger the demerger. senior executives will likely be cancelled prior to with will be determined in a manner that is consistent and conditions of the new awards The terms shares. be made wholly in Wesfarmers held for the long term that are Shares including, for example, the allocation of both Restricted the original design principles of the KEEPP, performance conditions, depending on the that vest based upon the achievement of divisional and/or Group and Performance Shares including by setting following the demerger, be no better off that the KEEPP participants will will also ensure The Board role. participant’s challenging in light of the demerger. appropriately performance conditions that remain in the 2019 Remuneration Report. Further information will be provided Mr Goyder and Mr Bowen participated in the annual incentive plan during the 2018 financial year, up until the time they each left up until the 2018 financial year, participated in the annual incentive plan during Mr Goyder and Mr Bowen the Group. same for an ROE gate, up to 31 December 2017, was the with hurdle NPAT Group (70 per cent weighting), being a The financial measure successful transition of Mr Scottrelated to the specifically (30 per cent weighting) Bowen. The strategic measures both Mr Goyder and Mr on the Mr Goyder also had a focus departures. balance sheet at the time of their respective and Mr Gianotti and the delivery of a strong the Group. across in safety continued improvements and the $1,023 million non-cash the $300 million non-cash impairment of Target Following the announcement in February 2018 of for any payment. required below the minimum threshold were financial measures impairment of BUKI, as at 31 December 2017 the no payments were Accordingly, to their strategic measures. to forfeit any payment in relation Mr Goyder and Mr Bowen agreed Further, incentive plan for the 2018 financial year. made to Mr Goyder or Mr Bowen under the annual Clawback 3.5 (c) Change of control R Remune 90 Directors’ report Directors’ BACK Operating and Directors’ Financial Signed Shareholder and Overview Sustainability Governance financial review report statements reports ASX information

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- 39,058,555 - 15,513,225 1,314,887 975,000 158,338 202,849 48,240 404,652 8,408,429 12,032,935 2017

- 30,647,280 1,918,916 11,316,299 491,770 - 137,898 199,420 1,020,246 491,488 3,807,500 11,263,743 2018

Total

45.0 1,608,519 - 489,029 234,183 - 12,182 14,520 3,502 1,694 - 853,409 2017

J C Gillam C J – Chief Executive Officer, Bunnings Group Bunnings Officer, Executive Chief –

14

71.5 6,679,473 - 2,548,008 46,941 - 31,947 30,833 8,040 16,145 2,179,506 1,818,053 2017

14.5 1,925,974 950,196 279,772 - - 10,756 11,235 3,363 8,681 - 661,971 2018

T J Bowen J T – Group Chief Financial Officer, Wesfarmers Limited Wesfarmers Officer, Financial Chief Group –

12,13

69.5 12,097,459 - 4,200,391 129,237 - 31,948 58,433 8,040 247,096 4,073,135 3,349,179 2017

13.3 2,789,558 968,720 372,188 - - 10,689 22,253 3,514 142,153 - 1,270,041 2018

R J B Goyder B J R – Group Managing Director, Wesfarmers Limited Wesfarmers Director, Managing Group –

11,12

Former senior executives senior Former

55.4 1,364,576 - 221,622 111,424 - 11,073 8,231 4,538 45,960 423,288 538,440 2017

62.6 4,001,742 - 1,633,561 197,425 - 21,804 25,000 9,228 133,273 675,000 1,306,451 2018

M D Schneider D M – Managing Director, Bunnings Group Bunnings Director, Managing –

10

68.3 6,042,322 - 2,936,836 357,020 - 31,948 30,833 8,040 27,093 832,500 1,818,052 2017

65.4 5,474,957 - 2,697,035 52,166 - 21,804 30,833 9,228 3,195 832,500 1,828,196 2018

G A Russo – Chief Executive Officer, Department Stores Department Officer, Executive Chief – Russo A G

60.7 5,658,579 - 3,129,281 306,539 - 19,620 36,666 8,040 3,053 - 2,155,380 2017

54.2 4,912,252 - 1,624,398 48,765 - 20,049 36,666 9,228 3,195 990,000 2,179,951 2018

J P Durkan – Managing Director, Coles Coles Director, Managing – Durkan P J

53.9 2,363,746 - 734,361 - - 20,049 17,589 8,116 2,810 540,000 1,040,821 2018

D A Baxby A D – Managing Director, Wesfarmers Industrials Wesfarmers Director, Managing –

9

50.2 2,628,821 - 876,207 174,650 - 12,698 14,178 432,517 49,305 270,000 799,266 2018

A N Gianotti N A – Group Chief Financial Officer, Wesfarmers Limited Wesfarmers Officer, Financial Chief Group –

8 Senior executives Senior

t 2018 (audited) t 2018

1,988,058 129,543 975,000 19,620 23,333 8,040 63,611 900,000 1,500,422 2017 53.8 5,607,627 -

3,098,777 18,764 - 20,049 41,666 545,052 148,876 500,000 2,177,046 2018 55.2 6,550,230 - R epo Limited Wesfarmers Director, Managing Group – Scott G R

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‘owners’. M 13,483 12,045 14,728 18,654 87,597 35,792 56,821 19,411 majority the shares shares 447,848 102,731 427,878 163,506 790,188 152,666 727,364 and for 3,077,205 shares, annual senior Shares the executive that at year-end and Shares their with Share balance balance Share unvested unvested number senior long-term of incentive as as or appointment. The Wesfarmers 2018 Annual Report Wesfarmers like Performance of shares. well well

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or and shares a November has April executives FAR August remuneration be Shares, 13 30

under under 14 2 ------to as KEEPP executive shares Shares from from year’s Performance from executive indirectly 2017 shares shares 81,945 80,290 44,622 35,792 and ceased 121,696 364,345 one granted encourage KMP, KMP, Wesfarmers the 2017. KMP, Performance senior to in Restricted the the 2017. they framework vested vested the or least directly, of of Shares and shares Wesfarmers Wesfarmers of Shares, at date Shares allocated allocated Shares KEEPP the shares held November the directly, directly, director holdings

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Restricted Restricted 10 of held held on 1 as - - - a 2017. as as their the shares on as KMP t 2018 (audited) t 2018 Performance Where of year personal 3,957 9,988 time time Group KEEPP KEEPP 13,483 12,045 24,358 17,848 87,597 19,411 shares shares shares to time Wesfarmers 310,334 379,526 118,884 796,516 759,981 184,172 August under Group foundation of cash for executives equity rather than deferred of long-term, at-risk awards A focus on executive and stakeholder aligns director, level for directors, and a minimum shareholding interests his his 2,738,100 the in of minimum his KEEPP

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At significantly more. Directors Directors five-year 2017 balance shares, 2017 The The T Executive director, senior executives and former senior executives Executive director, Non-executive directors This This The This The The The The R A N Gianotti R G Scott J A Westacott V M Wallace R J B Goyder D L Smith-Gander M D Schneider W G Osborn G A Russo A J Howarth S W English D A Baxby J P Durkan J P Graham T J Bowen Total M A Chaney 1 2 3 4 5 6 7 8 9 10 • • • R Remune 5.2 The directors The related and executive shareholdings Director Name P M Bassat

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273,040 279,228 259,040 265,228 398,608 279,228 768,040 285,040 780,206 291,228 259,040 414,940 259,040 265,228 265,228 423,528 and 2,916,788 2,895,669

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non-executive Board officer set ($) sacrificed review is the directors 2018. which participation and relation 40,725 Fees – Fees – to Management 245,380 249,951 231,380 235,951 245,380 249,951 740,380 257,380 749,951 Limited 261,951 231,380 251,000 285,380 235,951 256,000 289,951 been for in 2,487,660 2,570,382 April assist BWP 30 determining Wesfarmers Wesfarmers have charter, directors to of on Limited of that its Committee and non-executive directors in of board cost fees responsibility Group director t 2018 (audited) t 2018 the the policy behalf on information 2017 2018 2017 2018 2017 2018 2017 2018 2017 2017 2018 2018 2017 2017 2017 2018 2018 2018 2018 on Partners director’s contained

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RemuneRation RepoRt 2018 (audited) Financial statements For the year ended 30 June 2018 – Wesfarmers Limited and its controlled entities

BACK

5.3 Share trading restrictions fi g Operatin

Wesfarmers’ Securities Trading Policy reflects the Corporations Act 2001 prohibition on KMP and their closely related parties entering into n any arrangement that would have the effect of limiting the KMP’s exposure to risk relating to an element of their remuneration that remains i anc subject to restrictions on disposal. al review al Wesfarmers directors, the Wesfarmers Leadership Team, and certain members of their immediate family and controlled entities are also required to obtain clearance from the Wesfarmers Company Secretary for the sale, purchase or transfer of Wesfarmers securities and Contents an for short selling, short-term trading, security interests, margin loans and hedging relating to Wesfarmers securities. The Wesfarmers d

Company Secretary refers all requests for clearance to at least two members of the Disclosure Committee. Clearance from the Chairman is also required for requests from Wesfarmers directors. Clearance cannot be requested for dealings that are subject to the Corporations Act 2001 prohibition referred to above. Financial statements The policy is available on the Corporate Governance section of the company’s website at www.wesfarmers.com.au/cg. Breaches of the Income statement Page 98 policy are subject to disciplinary action, which may include termination of employment. Statement of comprehensive income Page 99 Sustai Balance sheet Page 100

6. Further information on remuneration n

Cash flow statement Page 101 ability 6.1 Service agreements Statement of changes in equity Page 102 The remuneration and other terms of employment for the Group Managing Director, the Group Chief Financial Officer and executive KMPs are covered in formal employment contracts. All service agreements are for unlimited duration and may be terminated immediately Notes to the financial statements for serious misconduct. All executives are entitled to receive pay in lieu of any accrued but untaken annual and long service leave on About this report Page 103 cessation of employment. Segment information Page 105 Executive KMPs must give a minimum 12 months’ notice should they wish to resign and Wesfarmers must give 12 months’ notice should Governance it wish to terminate employment (other than for cause). Key numbers Capital Risk Group structure Unrecognised items Other The former Group Managing Director, Mr Goyder, and the former Group Chief Financial Officer, Mr Bowen, left the Group in P. 108 P. 117 P. 121 P. 131 P. 137 P. 138 November 2017. Their leaving entitlements were calculated in line with their contractual arrangements. Their 2014, 2015 and 2016 WLTIP allocations were left on foot and will be tested at the relevant testing date – see section 3.4 for further information on the 2014 WLTIP. Their 2018 financial year annual incentive was tested as at 31 December 2017, and neither Mr Goyder or Mr Bowen received any payment in 1. Income 10. Capital 15. Financial risk 18. Associates 21. Commitments and 23. Parent relation to this plan – see section 3.5 for further information. management management and joint contingencies disclosures arrangements 6.2 Other transactions and balances with key management personnel 2. Expenses 11. Dividends and 16. Hedging 19. Subsidiaries 22. Events after the 24. Deed of Cross Mr Bassat, a director of Wesfarmers, was a director of AFL Sportsready Limited (until 11 October 2017) which provided training services report distributions reporting period Guarantee Direc to Wesfarmers Group companies on an arm’s length and normal commercial terms basis and was paid $107,710 during this period (2017: $449,350). t ors’ ors’ Mr Graham, who was a director of Wesfarmers throughout the 2018 financial year, has a majority shareholding interest in a company which 3. Tax expense 12. Equity and 17. Impairment of 20. Discontinued 25. Auditors’ jointly owns Gresham Partners Group Limited on an equal basis with a wholly owned subsidiary of Wesfarmers. Partly owned subsidiaries reserves non-financial operations remuneration of Gresham Partners Group Limited have provided office accommodation and advisory services to Wesfarmers and were paid fees of assets $5,596,377 in 2018 (2017: $2,356,069).

From time to time, directors of the company or its controlled entities, or their director-related entities, may purchase goods or services 4. Cash and cash 13. Earnings per 26. Related party from the Group. These purchases are on the same terms and conditions as those entered into by other Group employees or customers equivalents share transactions and are minor or domestic in nature. statements There were no loans made during the year, or remaining unsettled at 30 June 2018, between Wesfarmers and its KMP and/or their Fin related parties. 5. Receivables 14. Interest- 27. Other a

bearing loans accounting n 6.3 Independent audit of remuneration report and borrowings policies cia l The remuneration report has been audited by Ernst & Young. Please see page 151 of this annual report for Ernst & Young’s report on the remuneration report. 6. Inventories 28. Share-based payments The directors’ report, including the remuneration report, is signed in accordance with a resolution of the directors of Wesfarmers Limited.

7. Property, plant 29. Director and

and equipment executive reports Signed disclosures

M A Chaney AO R G Scott 8. Goodwill and 30. Tax Chairman Managing Director intangible transparency assets disclosures

Perth 9. Provisions 14 September 2018 ASX information ASX Shareholder and

96 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 97

statements Financial Financial statements

income statement statement of comprehensive income For the year ended 30 June 2018 For the year ended 30 June 2018

BACK

Consolidated Consolidated About this report RESTATED RESTATED 2018 2017 2018 2017 Note $m $m Note $m $m

Continuing operations Profit attributable to members of the parent 1,197 2,873 Revenue 1 66,883 64,913 Other comprehensive income Expenses Items that may be reclassified to profit or loss: Raw materials and inventory (45,718) (44,633) information Segment Foreign currency translation reserve 12 Employee benefits expense 2 (9,375) (8,746) Exchange differences on translation of foreign operations (7) (2) Freight and other related expenses (757) (857) Exchange differences recognised in the income statement on disposal of foreign operations (2) - Occupancy-related expenses 2 (2,976) (2,882) Depreciation and amortisation 2 (1,198) (1,175) Cash flow hedge reserve 12 Impairment expenses 2 (421) (44) Unrealised gains/(losses) on cash flow hedges 96 (136) Other expenses 2 (2,757) (2,832) Realised losses transferred to net profit 29 92 Total expenses (63,202) (61,169) Realised losses transferred to non-financial assets 114 84

Share of associates and joint venture reserves 18 (7) - numbers Key Other income 1 283 286 Tax effect 3 (72) (17) Share of net profits of associates and joint venture 18 97 147 380 433 Items that will not be reclassified to profit or loss: Retained earnings 12 Earnings before interest and income tax expense (EBIT) 4,061 4,177 Remeasurement loss on defined benefit plan (1) (5) Finance costs 2 (211) (248) Tax effect 3 - 2 Profit before income tax 3,850 3,929 Other comprehensive income for the year, net of tax 150 18 Income tax expense 3 (1,246) (1,169) Total comprehensive income for the year, net of tax, attributable to members of the parent arising from: Capital Profit from continuing operations 2,604 2,760 Continuing operations 2,754 2,784 Discontinued operations (1,407) 107 Discontinued operations 1,347 2,891 Loss after tax for the year for Bunnings UK and Ireland 20 (1,657) (101) Profit after tax for the year for Wesfarmers Curragh Pty Ltd 20 250 214 (Loss)/profit after tax for the period from discontinued operations (1,407) 113

Profit attributable to members of the parent 1,197 2,873 Risk Earnings per share attributable to ordinary equity holders of the parent from continuing operations cents cents Basic earnings per share 230.2 244.7 Diluted earnings per share 229.8 244.2

Earnings per share attributable to ordinary equity holders of the parent Basic earnings per share 13 105.8 254.7 Diluted earnings per share 13 105.6 254.2 structure Group

items Unrecognised Other

98 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 99 statements Financial Financial statements

Balance sheet cash flow statement As at 30 June 2018 For the year ended 30 June 2018

BACK

Consolidated Consolidated About this report 2018 2017 2018 2017 Note $m $m Note $m $m Assets Cash flows from operating activities Current assets Receipts from customers 75,354 74,042 Cash and cash equivalents 4 683 1,013 Payments to suppliers and employees (69,836) (68,713) Receivables - Trade and other 5 1,657 1,633 Net movement in finance advances and loans - (47) Inventories 6 6,011 6,530 Dividends and distributions received from associates 50 46 Derivatives 16 126 247 information Segment Interest received 15 83 Other 229 244 Borrowing costs (195) (234) Total current assets 8,706 9,667 Income tax paid (1,308) (951) Non-current assets Net cash flows from operating activities 4 4,080 4,226 Investments in associates and joint venture 18 748 703 Cash flows from investing activities Deferred tax assets 3 692 971 Payments for property, plant and equipment and intangibles 4 (1,815) (1,681) Property 7 1,920 2,195 Proceeds from sale of property, plant and equipment and intangibles 4 606 653

Plant and equipment 7 6,488 7,245 numbers Key Net proceeds from sale of businesses and associates 534 947 Goodwill 8 13,491 14,360 Net investments in associates and joint arrangements - (2)

Intangible assets 8 4,369 4,576 Acquisition of subsidiaries, net of cash acquired - (24) Derivatives 16 391 246 Net redemption of loan notes 17 54 Other 128 152 Net cash flows used in investing activities (658) (53) Total non-current assets 28,227 30,448 Total assets 36,933 40,115 Cash flows from financing activities Liabilities Proceeds from borrowings 688 220 Capital Current liabilities Repayment of borrowings (1,905) (1,994) Trade and other payables 6,541 6,615 Proceeds from exercise of in-substance options under the employee share plan 12 - 1 Interest-bearing loans and borrowings 14 1,159 1,347 Equity dividends paid (2,528) (1,998) Income tax payable 299 292 Demerger transaction costs (7) - Provisions 9 1,726 1,743 Net cash flows used in financing activities (3,752) (3,771) Derivatives 16 16 154 Net (decrease)/increase in cash and cash equivalents (330) 402 Other 284 266 Cash and cash equivalents at beginning of year 1,013 611 Total current liabilities 10,025 10,417 4 683 1,013 Cash and cash equivalents at end of year Risk Non-current liabilities Interest-bearing loans and borrowings 14 2,965 4,066 Provisions 9 1,033 1,511 Derivatives 16 - 24 Other 156 156 Total non-current liabilities 4,154 5,757 Total liabilities 14,179 16,174

Net assets 22,754 23,941 structure Group

Equity

Equity attributable to equity holders of the parent Issued capital 12 22,277 22,268 Reserved shares 12 (43) (26) Retained earnings 12 176 1,509 Reserves 12 344 190 Total equity 22,754 23,941 items Unrecognised Other

100 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 101 statements Financial Financial statements

statement of changes in equity Notes to the fiNaNcial statemeNts: About this report For the year ended 30 June 2018 For the year ended 30 June 2018

BACK

Attributable to equity holders of the parent About this report About this report Basis of consolidation Issued Reserved Retained Hedging Other Total capital shares earnings reserve reserves equity Wesfarmers Limited (referred to as ‘Wesfarmers’) is a for-profit The consolidated financial statements comprise the financial company limited by shares incorporated and domiciled in Australia statements of the Group. A list of controlled entities (subsidiaries) Consolidated Note $m $m $m $m $m $m whose shares are publicly traded on the Australian Securities at year-end is contained in note 19. Exchange. The nature of the operations and principal activities of The financial statements of subsidiaries are prepared for the Balance at 1 July 2016 21,937 (28) 874 (105) 271 22,949 Wesfarmers and its subsidiaries (referred to as ‘the Group’) are same reporting period as the parent company, using consistent described in the segment information. Net profit for the year - - 2,873 - - 2,873 accounting policies. Adjustments are made to bring into line any Other comprehensive income The consolidated general purpose financial report of the dissimilar accounting policies that may exist. Exchange differences on translation of foreign operations 12 - - - - (2) (2) Group for the year ended 30 June 2018 was authorised for

In preparing the consolidated financial statements, all information Segment issue in accordance with a resolution of the directors on inter-company balances and transactions, income and expenses Changes in the fair value of cash flow hedges, net of tax 12 - - - 23 - 23 14 September 2018. The Directors have the power to amend and and profits and losses resulting from intra-Group transactions reissue the financial report. Remeasurement loss on defined benefit plan, net of tax 12 - - (3) - - (3) have been eliminated. Subsidiaries are consolidated from the Total other comprehensive income for the year, net of tax - - (3) 23 (2) 18 The financial report is a general purpose financial report which: date on which control is obtained to the date on which control is Total comprehensive income for the year, net of tax - - 2,870 23 (2) 2,891 disposed. The acquisition of subsidiaries is accounted for using the • has been prepared in accordance with the requirements of acquisition method of accounting. Share-based payment transactions 12 3 - - - 3 6 the Corporations Act 2001, Australian Accounting Standards Issue of shares 12 328 - - - - 328 and other authoritative pronouncements of the Australian Accounting Standards Board (AASB) and International Financial Foreign currency Proceeds from exercise of in-substance options 12 - 1 - - - 1 Reporting Standards (IFRS) as issued by the International The functional currencies of overseas subsidiaries are listed in Equity dividends 11 - 1 (2,235) - - (2,234) Accounting Standards Board (IASB); note 19. As at the reporting date, the assets and liabilities of numbers Key 331 2 (2,235) - 3 (1,899) • has been prepared on a historical cost basis, except overseas subsidiaries are translated into Australian dollars at the

Balance at 30 June 2017 and 1 July 2017 22,268 (26) 1,509 (82) 272 23,941 for investments held by associates and certain financial rate of exchange ruling at the balance sheet date and the income instruments which have been measured at fair value. The statements are translated at the average exchange rates for the Net profit for the year - - 1,197 - - 1,197 carrying values of recognised assets and liabilities that are year. The exchange differences arising on the retranslation are the hedged items in fair value hedge relationships, which are taken directly to a separate component of equity. Other comprehensive income otherwise carried at amortised cost, are adjusted to record Transactions in foreign currencies are initially recorded in the Exchange differences on translation of foreign operations 12 - - - - (7) (7) changes in the fair values attributable to the risks that are being functional currency at the exchange rates ruling at the date of Exchange differences recognised in the income hedged; the transaction. Monetary assets and liabilities denominated in statement on disposal of foreign operations 12 - - - - (2) (2) • is presented in Australian dollars with all values rounded foreign currencies are translated at the rate of exchange ruling at the balance sheet date. Exchange differences arising from the Changes in the fair value of cash flow hedges, net of tax 12 - - - 160 - 160 to the nearest million dollars ($’000,000) unless otherwise Capital stated, in accordance with ASIC Corporations (Rounding in application of these procedures are taken to the income statement, Remeasurement loss on defined benefit plan, net of tax 12 - - (1) - - (1) with the exception of differences on foreign currency borrowings Financial/Directors’ Reports) Instrument 2016/191; Total other comprehensive income for the year, net of tax - - (1) 160 (9) 150 that provide a hedge against a net investment in a foreign entity, • presents reclassified comparative information where required which are taken directly to equity until the disposal of the net Total comprehensive income for the year, net of tax - - 1,196 160 (9) 1,347 for consistency with the current year’s presentation; investment and are then recognised in the income statement. Tax Share-based payment transactions 12 9 - - - 3 12 • adopts all new and amended Accounting Standards and charges and credits attributable to exchange differences on those Acquisition of shares on-market for Key Executive Equity Interpretations issued by the AASB that are relevant to the borrowings are also recognised in equity. Performance Plan (KEEPP) 12 - (17) - - - (17) Group and effective for reporting periods beginning on or before Equity dividends 11 - - (2,529) - - (2,529) 1 July 2017. Refer to note 27 for further details; Other accounting policies 9 (17) (2,529) - 3 (2,534) • does not early adopt Accounting Standards and Interpretations Significant and other accounting policies that summarise the Risk that have been issued or amended but are not yet effective with Balance at 30 June 2018 22,277 (43) 176 78 266 22,754 measurement basis used and are relevant to an understanding of the exception of AASB 9 Financial Instruments (December 2010) the financial statements are provided throughout the notes to the as amended by 2013-9 (AASB 9 (2013)) including consequential financial statements. amendments to other standards which was adopted on 1 July 2014; and • equity accounts for associates and joint venture listed at note 18.

Key judgements and estimates

In the process of applying the Group’s accounting policies, structure Group management has made a number of judgements and applied estimates of future events. Judgements and estimates which are material to the financial report are found in the following

notes:

Page 108 Note 1 Income 110 Note 3 Tax expense items Unrecognised 112 Note 6 Inventories 113 Note 7 Property, plant and equipment 114 Note 8 Goodwill and intangible assets 115 Note 9 Provisions 129 Note 17 Impairment of non-financial assets 131 Note 18 Associates and joint arrangements 137 Note 21 Commitments and contingencies Other

102 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 103 statements Financial Financial statements

Notes to the fiNaNcial statemeNts: About this report Notes to the fiNaNcial statemeNts: Segment information For the year ended 30 June 2018 For the year ended 30 June 2018

BACK About this report The notes to the financial statements The Group’s operating segments are organised and managed Industrials separately according to the nature of the products and services The notes include information which is required to understand the • Capital: provides information about the capital management provided. financial statements and is material and relevant to the operations, practices of the Group and shareholder returns for the year; Industrial and Safety (WIS) financial position and performance of the Group. Information is Each segment represents a strategic business unit that offers • Supplier and distributor of maintenance, repair and operating • Risk: discusses the Group’s exposure to various financial risks, different products and operates in different industries and markets. considered material and relevant if, for example: products; explains how these affect the Group’s financial position and The Board and executive management team (the chief operating • the amount in question is significant because of its size or performance and what the Group does to manage these risks; decision-makers) monitor the operating results of the business • Manufacturer and marketing of industrial gases and equipment; nature; • Group structure: explains aspects of the group structure units separately for the purpose of making decisions about • Supplier, manufacturer and distributor of workwear clothing in resource allocation and performance assessment. • it is important for understanding the results of the Group; and how changes have affected the financial position and Australia and internationally;

• it helps to explain the impact of significant changes in the performance of the Group; The types of products and services from which each reportable • Specialised supplier and distributor of industrial safety products information Segment Group’s business – for example, acquisitions, disposals and • Unrecognised items: provides information about items that are segment derives its revenues are disclosed below. Segment and services; and performance is evaluated based on operating profit or loss impairment writedowns; or not recognised in the financial statements but could potentially (segment result), which in certain respects, is presented differently • Provider of risk management and compliance services. • it relates to an aspect of the Group’s operations that is have a significant impact on the Group’s financial position and from operating profit or loss in the consolidated financial important to its future performance. performance; and statements. Chemicals, Energy and Fertilisers (WesCEF) • Other: provides information on items which require disclosure The notes are organised into the following sections: Interest income and expenditure are not allocated to operating • Manufacturer and marketing of chemicals for industry, mining to comply with Australian Accounting Standards and other segments, as this type of activity is managed on a Group basis. and mineral processing; • Key numbers: provides a breakdown of individual line items regulatory pronouncements. However, these are not considered in the financial statements that the directors consider most critical in understanding the financial performance or position of Transfer prices between business segments are set on an • Manufacturer and marketing of broadacre and horticultural relevant and summarises the accounting policies, judgements the Group. arm’s length basis in a manner similar to transactions with third fertilisers; and estimates relevant to understanding these line items; parties. Segment revenue, expenses and results include transfers • National marketing and distributor of LPG and LNG; and numbers Key between business segments. Those transfers are eliminated on • LPG and LNG extraction for domestic and export markets.

consolidation and are not considered material. Significant items in the current reporting period The operating segments and their respective types of products and services are as follows: Resources • Interest in the Bengalla joint operation. Announced intention to demerge Coles Retail Disposal of Wesfarmers Curragh Pty Ltd Other On 16 March 2018, Wesfarmers announced its intention to demerge On 22 December 2017, Wesfarmers entered into an Bunnings its Coles business, subject to shareholder and other approvals. agreement to sell its Curragh coal mine in Queensland to Includes: Wesfarmers plans to retain a minority ownership of 15 per cent Coronado Coal Group for $700 million. The agreement also • Retailer of building material and home and garden improvement in Coles. The decision follows a review of Wesfarmers’ portfolio included a value share mechanism linked to future metallurgical products; and • Forest products: non-controlling interest in Wespine Industries Capital and an assessment of the composition of its capital employed to coal prices. Pty Ltd; support higher levels of future growth and total shareholder returns. • Servicing project builders and the housing industry. • Property: non-controlling interest in BWP Trust; As at 30 June 2018, Coles accounts for approximately 63 per cent The transaction was completed on 29 March 2018, and the • Investment banking: non-controlling interest in Gresham of the Group’s capital employed and 34 per cent of the Group’s Curragh coal mine business is presented as a discontinued Coles operation for FY2018. The gain on disposal after-tax is Partners Group Limited; earnings before interest and tax from continuing operations. • Supermarket and liquor retailer, including a hotel portfolio; $123 million (refer to note 20). • Private equity investment: non-controlling interests in Gresham • Retailer of fuel and operator of convenience stores; and While the demerger is expected to be completed in Private Equity Fund No. 2; and November 2018, it remains subject to final Board approval, third Disposal of Bunnings United Kingdom and Ireland • Coles property business operator. party consents, and regulatory and shareholder approvals. As such, On 25 May 2018, Wesfarmers entered into an agreement • Corporate: includes treasury, head office, central support the Coles division is not considered a discontinued operation or to divest the assets of the BUKI business to a company functions and other corporate entity expenses. Corporate is not classified as held-for-sale as at 30 June 2018. associated with Hilco Capital for a nominal amount. The Officeworks considered an operating segment and includes activities that Risk agreement included a value share mechanism whereby • Retailer and supplier of office products and solutions for home, are not allocated to other operating segments. Impairments Wesfarmers will continue to participate in any profitable small-to-medium sized businesses and education. Target: impairment to the carrying value of Target of $306 million divestment of the business in the long-term. Seasonality ($300 million after-tax) was recognised during FY2018. The Department Stores decrease in the recoverable amount of the Target cash generating The transaction was completed on 11 June 2018, and the BUKI Revenue and earnings of various businesses are affected by unit (CGU) largely reflected the difficult trading conditions in an business is presented as a discontinued operation for FY2018. Kmart seasonality and cyclicality as follows: increasingly competitive market and a moderated outlook for the The loss after-tax on disposal is $375 million (refer to note 20). • Retailer of apparel and general merchandise, including toys, • For retail divisions, earnings are typically greater in the business. The impairment was recognised in respect of Target’s leisure, entertainment, home and consumables; and December half of the financial year due to the impact of the goodwill ($47 million), brand name ($238 million) and other fixed Christmas holiday shopping period; assets ($21 million). • Provision of automotive service, repairs and tyre service.

• For Resources, the majority of the entity’s coal contracted structure Group Bunnings United Kingdom and Ireland (BUKI): impairment to the tonnages are renewed on an annual basis; and carrying value of BUKI of $861 million (£491 million) pre-tax ($953 Target • For Chemicals, Energy and Fertilisers, earnings are typically

million (£544 million) post-tax) was recognised during FY2018. • Retailer of apparel, homewares and general merchandise, greater in the second half of the financial year due to the impact The decrease in the recoverable amount of BUKI was the result including accessories, electricals and toys. of a continued deterioration in the financial performance of the of the Western Australian winter season break on fertiliser sales. Homebase stores and a moderated long-term outlook for the broader business. The impairment was recognised in respect of BUKI’s brand ($18 million) and goodwill ($777 million), both recognised in impairment expenses and a $92 million write-off of its Revenues by segment for FY2018 Seasonality of revenues in FY2018 deferred tax asset and $66 million writedown of stock. From continuing operations From continuing operations items Unrecognised For further details on impairment refer to note 17. JUL TO DEC JAN TO JUN $m Bunnings 12,544 Coles 39,388 Department Stores 8,837

Officeworks 2,142 Industrials 3,980 Other

RETAIL RESOURCES CHEMICALS, GROUP ENERGY AND FERTILISERS

104 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 105 statements Financial Financial statements

Notes to the fiNaNcial statemeNts: Segment information Notes to the fiNaNcial statemeNts: Segment information For the year ended 30 June 2018 For the year ended 30 June 2018

BACK About this report CONTINUING OPERATIONS DISCONTINUED OPERATIONS4

INDUSTRIALS BUNNINGS COLES DEPARTMENT OFFICEWORKS WIS WesCEF2 RESOURCES3 OTHER CONSOLIDATED STORES1 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m information Segment Segment revenue 12,544 11,514 39,388 39,217 8,837 8,528 2,142 1,964 1,750 1,776 1,830 1,639 400 287 (8) (12) 66,883 64,913 2,995 3,531

Adjusted EBITDA5 1,683 1,505 2,151 2,256 862 739 181 168 159 158 469 472 190 107 (130) (53) 5,565 5,352 6 316 Depreciation and amortisation (179) (171) (651) (647) (202) (196) (25) (24) (41) (43) (79) (77) (18) (16) (3) (1) (1,198) (1,175) (85) (91) Segment result 1,504 1,334 1,500 1,609 660 543 156 144 118 115 390 395 172 91 (133) (54) 4,367 4,177 (79) 225 Items not included in segment result6 - - - - (306) ------(306) - (1,186) - EBIT 4,061 4,177 (1,265) 225 Finance costs (211) (248) (10) (16) Profit before income tax expense 3,850 3,929 (1,275) 209 numbers Key

Income tax expense (1,246) (1,169) (132) (96) Profit attributable to members of the parent 2,604 2,760 (1,407) 113

Other segment information Segment assets 5,025 4,846 21,180 21,140 3,617 3,928 1,452 1,401 1,698 1,661 1,539 1,484 263 260 719 1,121 35,493 35,841 - 2,600 Investments in associates and joint venture 17 17 ------202 183 - - 529 503 748 703 - - Tax assets 692 971 692 971 - -

Total assets 36,933 37,515 - 2,600 Capital

Segment liabilities (1,875) (1,785) (4,561) (4,245) (1,482) (1,423) (532) (488) (335) (385) (355) (270) (68) (63) (548) (684) (9,756) (9,343) - (1,126) Tax liabilities (299) (292) (299) (292) - - Interest-bearing liabilities (4,124) (5,413) (4,124) (5,413) - - Total liabilities (14,179) (15,048) - (1,126)

Other net assets7 (3,098) (2,825) (10) (209) (47) (142) 8 (25) (631) (585) (745) (793) (191) (91) 4,714 6,681 - 2,011 - (2,011) Net assets 69 253 16,609 16,686 2,088 2,363 928 888 732 691 641 604 4 106 1,683 2,887 22,754 24,478 - (537) Risk Capital expenditure8 497 367 762 811 293 222 45 36 50 34 60 44 14 13 2 - 1,723 1,527 139 156 Share of net profit or loss of associates and joint venture included in EBIT ------41 61 - - 56 86 97 147 - -

1 As a result of the changes to internal reporting the Kmart and Target segments have been reported collectively as Department Stores for the current and comparative periods. Geographical information 2 The 2017 WesCEF result includes profit on sale of land of $22 million (before tax), and $33 million relating to WesCEF’s share of revaluation gains recognised by its associate, Capital expenditure by segment for FY2018 Australian Energy Consortium Pty Ltd. From continuing operations The table below provides information on the geographical location 3 The Resources segment represents the Group’s interest in the Bengalla joint arrangement, as the Curragh coal mine has been classified as a discontinued operation for the of revenue and non-current assets (other than financial instruments, current and comparative periods. deferred tax assets and pension assets). Revenue from external 4 Discontinued operations relate to the Curragh coal mine and BUKI which were disposed of during the financial year. Refer to note 20 for further information on discontinued $m customers is allocated to a geography based on the location of the operation in which it was derived. Non-current assets are allocated structure Group operations. Bunnings 497 5 based on the location of the operation to which they relate. Revenue Adjusted EBITDA represents earnings before interest, tax, depreciation, amortisation and other items not included in the segment results outlined in footnote 6. and non-current assets relating to discontinued operations have been 6 Coles 762 The 2018 segment result excludes Target’s pre-tax impairment of $306 million and $1,186 million relating to discontinued operations which includes BUKI’s pre-tax writedown excluded. of $861 million (£491 million), store closure provision of $70 million (£40 million), $375 million (£210 million) pre-tax loss on disposal relating to BUKI and $120 million pre-tax Department Stores 293 gain on disposal of the Curragh coal mine. Refer to note 17 for further information on the Target impairment and BUKI writedown and note 20 for discontinued operations. Non-current 7 Officeworks 45 Other net assets relate predominantly to inter-company financing arrangements and segment tax balances. Revenue assets 8 Capital expenditure includes accruals to represent costs incurred during the year. The amount excluding movement in accruals is $1,815 million (2017: $1,681 million). WIS 50 2018 2017 2018 2017 WesCEF 60 $m $m $m $m Resources 14 Segment result FY2014 to FY2018 Australia 64,909 63,073 26,856 27,170 items Unrecognised From continuing operations * Other capital expenditure: $2 million New Zealand 1,912 1,774 203 303 m FY2014 TO FY2017 FY2018 United Kingdom 42 47 4 5 2000 Other foreign countries 20 19 6 4 1800 100 66,883 64,913 27,069 27,482 100 1200 1000 800 00 Other 00 200 0 BUNNINGS COLES DEPARTMENT STORES OFFICEWORKS INDUSTRIALS 106 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 107 statements Financial Financial statements

Notes to the fiNaNcial statemeNts: Key numbers Notes to the fiNaNcial statemeNts: Key numbers For the year ended 30 June 2018 For the year ended 30 June 2018 BACK About this report 1. Income 2. Expenses Consolidated Consolidated Occupancy-related expenses 2018 2017 Key estimate: loyalty program 2018 2017 Operating leases $m $m The Group operates a loyalty points program, which allows $m $m Operating lease payments are recognised as an expense in the customers to accumulate points when they purchase income statement on a straight-line basis over the lease term. Sale of goods 66,582 64,488 products in the Group’s retail stores. The points can then Remuneration, bonuses and on-costs 8,616 8,018 Operating lease incentives are recognised as a liability when be redeemed for products, subject to a minimum number Rendering of services 12 12 Superannuation expense 654 625 received and released to the income statement on a straight-line of points being obtained. Consideration received on basis over the lease term. Interest revenue 14 83 Share-based payments expense 105 103

transactions where points are issued is allocated between information Segment Fixed rate increases to lease payments, excluding contingent or Other 275 330 the products sold and the points issued. The fair value of the Employee benefits expense 9,375 8,746 points issued is deferred and recognised as revenue when index based rental increases, are recognised on a straight-line Revenue 66,883 64,913 basis over the lease term. the points are redeemed. At 30 June 2018, $308 million Minimum lease payments 2,281 2,184 of revenue is deferred in relation to the loyalty program An asset or liability is recognised for the difference between the Contingent rental payments 191 215 Gains on disposal of property, plant and (2017: $267 million). Any reasonably possible change in the amount paid and the lease expense recognised in earnings on a equipment 62 122 estimate is unlikely to have a material impact. Other 504 483 straight-line basis. Other 221 164 Key estimate: gift cards Occupancy-related expenses 2,976 2,882 Other income 283 286 Contingent rental payments Revenue from the sale of gift cards is recognised when Depreciation 913 905 the card is redeemed and the customers purchase Contingent rental payments are made as a result of either Amortisation of intangibles 153 145 goods by using the card, or when the customer card is turnover-based rentals or movements in relevant indices. Such numbers Key Recognition and measurement no longer expected to be redeemed. At 30 June 2018, Amortisation other 132 125 payments are recognised in the income statement as they are incurred. $224 million of revenue is deferred in relation to gift cards Depreciation and amortisation 1,198 1,175 Revenue (2017: $217 million). The key assumption in measuring the liability for gift cards and vouchers is the expected Revenue is measured at the fair value of the consideration received Impairment of plant, equipment and other redemption rates by customers, which are reviewed or receivable. Revenue is recognised if it meets the criteria outlined assets 306 22 Occupancy-related expenses by segment annually based on historical information. Any reassessment below. of expected redemption rates in a particular year impacts Impairment of freehold property 68 22 m on the revenue recognised from expiry of gift cards and Impairment of goodwill 47 - Sale of goods vouchers (either increasing or decreasing). Any reasonably Impairment expenses 421 44 possible change in the estimate is unlikely to have a The Group generates a significant proportion of its revenue from Bunnings material impact. Capital the sale of the following finished goods: Mining royalties 33 24 Coles • Merchandise direct to customers through the Group’s retail Repairs and maintenance 405 400 operations; Utilities and office expenses 1,039 983 Department Stores • Sales to other businesses of products for which the Group has Total revenue Insurance expenses 190 150 Officeworks distribution rights, principally related to industrial maintenance and industrial safety; From continuing operations Other 1,090 1,275 Industrials Other expenses 2,757 2,832 • Fertilisers and specialty gases; $66,883 3.0% FY18 FY17 • Coal, both nationally and internationally; and Interest expense 181 213 $m Depreciation and amortisation

• LPG and LNG. Risk 75,000 Discount rate adjustment 12 11 $m Refer to notes 7 and 8 for details on depreciation and amortisation. Revenue is recognised when the significant risks and rewards of Amortisation of debt establishment costs 5 6 FY18 66,883 ownership of the goods have passed to the buyer and it can be Other finance related costs 13 18 measured reliably. Risks and rewards are considered passed to FY171 64,913 Impairment the buyer at the time of delivery of the goods to the customer. Finance costs 211 248 FY161 64,649 Impairment expenses are recognised to the extent that the carrying Revenue from lay-by transactions is recognised on the date when amounts of assets exceed their recoverable amounts. Refer to the customer completes payment and takes possession of the FY151 61,320 Recognition and measurement note 17 for further details on impairment. merchandise. FY141 58,924 50,000 Employee benefits expense Finance costs Rendering of services FY14 FY15 FY16 FY17 FY18 The Group’s accounting policy for liabilities associated with

Finance costs are recognised as an expense when they are structure Group With respect to services rendered, revenue is recognised 1 FY14 to FY17 have been restated to exclude discontinued operations employee benefits is set out in note 9. The policy relating to depending on the stage of completion of those services. share-based payments is set out in note 28. incurred, except for interest charges attributable to major projects with substantial development and construction phases.

The majority of employees in Australia and New Zealand are party Interest to a defined contribution scheme and receive fixed contributions Provisions and other payables are discounted to their present from Group companies and the Group’s legal or constructive value when the effect of the time value of money is significant. Revenue is recognised as the interest accrues on the related The impact of the unwinding of these discounts and any changes financial asset. Interest is determined using the effective interest obligation is limited to these contributions. Contributions to defined contribution funds are recognised as an expense as they to the discounting is shown as a discount rate adjustment in rate method, which applies the interest rate that exactly discounts finance costs. estimated future cash receipts over the expected life of the financial become payable. Prepaid contributions are recognised as an instrument. asset to the extent that a cash refund or a reduction in the future payment is available. The Group also operates a defined benefit Capitalisation of borrowing costs

superannuation scheme, the membership of which is now closed. items Unrecognised Dividends To determine the amount of borrowing costs to be capitalised as part of the costs of major construction projects, the Group uses Revenue from dividends is recognised when the Group’s right to the weighted average interest rate (excluding non-interest costs) receive the payment is established. Employee benefits expense by segment applicable to its outstanding borrowings during the year. For 2018, had there been major long-term construction projects, the weighted Operating lease rental revenue m average interest rate applicable would have been 3.79 per cent (2017: 3.64 per cent). Operating lease revenue consists of rentals from investment properties and sub-lease rentals. Rentals received under operating leases and initial direct costs are recognised on a straight-line basis Bunnings over the term of the lease. Coles Other Department Stores Officeworks Industrials 108 Wesfarmers 2018 Annual Report FY18 FY17 Wesfarmers 2018 Annual Report 109 statements Financial Financial statements

Notes to the fiNaNcial statemeNts: Key numbers Notes to the fiNaNcial statemeNts: Key numbers For the year ended 30 June 2018 For the year ended 30 June 2018 BACK About this report 3. Tax expense Recognition and measurement 4. Cash and cash equivalents 5. Receivables Consolidated Current taxes Consolidated Consolidated 2018 2017 Current tax assets and liabilities are measured at the amount 2018 2017 2018 2017 expected to be recovered from or paid to taxation authorities at $m $m $m $m The major components of tax expense are: $m $m the tax rates and tax laws enacted or substantively enacted by the balance sheet date. Income statement (continuing operations) Cash on hand and in transit 492 409 Trade and other Current income tax expense Deferred taxes Cash at bank and on deposit 191 604 Trade receivables 1,351 1,300 Current year (paid or payable) 1,283 1,187 Deferred income tax is provided using the full liability method. 683 1,013 Allowance for credit losses (58) (60) Deferred income tax assets are recognised for all deductible information Segment Adjustment for prior years Other debtors 364 393 (8) (18) temporary differences, carried forward unused tax assets and Reconciliation of net profit after tax to Deferred income tax expense unused tax losses, to the extent it is probable that taxable profit will net cash flows from operations 1,657 1,633 Temporary differences be available to utilise them. (29) (7) Net profit 1,197 2,873 Allowance for credit losses Adjustment for prior years - 7 The carrying amount of deferred income tax assets is reviewed at Non-cash items balance sheet date and reduced to the extent that it is no longer Movements in the allowance for credit Income tax reported in the income probable that sufficient taxable profit will be available to utilise Depreciation and amortisation 1,283 1,266 losses were as follows: statement 1,246 1,169 them. Impairment and writedowns of assets 1,216 49 Carrying value at the beginning of the year 60 64 Statement of changes in equity Deferred income tax assets and liabilities are measured at the Loss on disposal of businesses 254 - tax rates that are expected to apply to the year when the asset is Allowance for credit losses recognised 15 16

Net gain on disposal of non-current numbers Key Net loss on revaluing cash flow hedges 72 17 realised or the liability is settled, based on tax rates and tax laws assets (9) (83) Receivables written off as uncollectable (13) (15) Other - (2) that have been enacted or substantively enacted at the balance sheet date. Share of profits of associates and joint Unused amounts reversed (4) (5) Income tax reported in equity 72 15 venture (97) (147) Deferred income tax is provided on temporary differences at Allowance for credit losses at year-end 58 60 Tax reconciliation (continuing operations) balance sheet date between accounting carrying amounts and the Dividends and distributions received from associates 50 46 Trade receivables past due but not Profit before tax 3,850 3,929 tax bases of assets and liabilities, other than for the following: Discount adjustment in borrowing costs 22 27 impaired Income tax at the statutory tax rate of 30% 1,155 1,179 • Where they arise from the initial recognition of an asset or Under three months 180 145 liability in a transaction that is not a business combination and Other 3 29 Adjustments relating to prior years (8) (11) at the time of the transaction, affects neither the accounting (Increase)/decrease in assets Three to six months 34 25 Non-deductible items 111 9 profit nor taxable profit or loss. Receivables - Trade and other (215) 87 Over six months 12 6 Capital Share of results of associates and joint • Where taxable temporary differences relate to investments in 226 176 venture (12) (18) Receivables - Finance advances and subsidiaries, associates and interests in joint ventures: loans - (47) Other - 10 1. Deferred tax liabilities are not recognised if the timing of the Inventories (54) (296) Income tax on profit before tax 1,246 1,169 reversal of the temporary differences can be controlled and Prepayments (10) 18 Ageing of trade receivables past due but not impaired it is probable that the temporary differences will not reverse Deferred tax assets 61 39 Deferred income tax in the balance in the foreseeable future. sheet relates to the following: Other assets (2) 5 180 145 2. Deferred tax assets are not recognised if it is not Provisions 250 338 probable that the temporary differences will reverse in the Increase/(decrease) in liabilities Employee benefits 427 417 foreseeable future and taxable profit will not be available to Trade and other payables 279 165 34 25 Risk Accrued and other payables 130 141 utilise the temporary differences. Current tax payable 8 275 2018 12 2017 6 Borrowings 103 143 Deferred tax liabilities are also not recognised on recognition of Provisions 42 (146) 0 $m 226 0 $m 176 goodwill. Derivatives 5 53 Other liabilities 52 66 Trading stock 90 98 Income taxes relating to items recognised directly in equity are Net cash flows from operating activities 4,080 4,226 Under three months Fixed assets 273 432 recognised in equity and not in the income statement. Three to six months Other individually insignificant balances 87 71 Offsetting deferred tax balances Net cash capital expenditure Over six months Deferred tax assets 1,365 1,693 Deferred tax assets and deferred tax liabilities are offset only if a Accelerated depreciation for tax legally enforceable right exists to set off current tax assets against Cash capital expenditure purposes 212 253 current tax liabilities and the deferred tax assets and liabilities relate Payment for property 411 308 structure Group to the same taxable entity and the same taxation authority. Derivatives 155 148 Payment for plant and equipment 1,171 1,251

Accrued income and other 159 155 Payment for intangibles 233 122 Intangible assets 106 107 1,815 1,681 Key estimate: unrecognised deferred tax assets Other individually insignificant balances 41 59 Capital losses: The Group has unrecognised benefits Less: Proceeds from sale of property, Deferred tax liabilities 673 722 relating to carried forward capital losses, which can only plant, equipment and intangibles 606 653 Net deferred tax assets 692 971 be offset against eligible capital gains. The Group has Net cash capital expenditure 1,209 1,028 determined that at this stage future eligible capital gains to utilise the tax assets are not currently sufficiently probable. Deferred income tax in the income items Unrecognised statement relates to the following: The unrecognised deferred tax assets of $119 million Recognition and measurement (2017: $127 million) relate wholly to capital losses in Provisions (17) (20) Australia. Cash at bank and on deposit Depreciation, amortisation and impairment 10 (23) Key judgement: unrecognised deferred tax liability Cash and short-term deposits in the balance sheet comprise cash at bank and on hand, and short-term deposits with an original Other individually insignificant balances (22) 36 A deferred tax liability has not been recognised on indefinite maturity of three months or less and are classified as financial life intangibles for which the carrying value has been assets held at amortised cost. Deferred tax expense (29) (7) assessed as recoverable through sale, consistent with the Group’s practice and strategy to maximise shareholder Cash at bank earns interest at floating rates based on daily bank returns. deposit rates. Short-term deposits are made for varying periods of

between one day and three months, depending on the immediate Other Refer to note 30 for tax transparency disclosures. cash requirements of the Group, and earn interest at the respective short-term deposit rates.

110 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 111 statements Financial Financial statements

Notes to the fiNaNcial statemeNts: Key numbers Notes to the fiNaNcial statemeNts: Key numbers For the year ended 30 June 2018 For the year ended 30 June 2018 BACK About this report 5. Receivables (continued) 6. Inventories 7. Property, plant and equipment

Recognition and measurement Consolidated PROPERTY PLANT AND EQUIPMENT 2018 2017 Plant, Mineral Trade receivables, finance advances, loans and other debtors are Lease hold vehicles and lease and all classified as financial assets held at amortised cost on the basis $m $m they are held with the objective of collecting contractual cash flows Land Buildings improvements equipment development Total and the cash flows relate to payments of principal and interest on Raw materials 37 91 Consolidated $m $m $m $m $m $m the principal amount outstanding. Work in progress 2 15 Year ended 30 June 2018 Finished goods 5,972 6,424 information Segment Trade receivables 6,011 6,530 Trade receivables generally have terms of up to 30 days. They are Cost 1,142 938 1,734 12,620 158 16,592 recognised initially at fair value and subsequently at amortised Accumulated depreciation and impairment - (160) (828) (7,136) (60) (8,184) cost using the effective interest method, less an allowance for Inventories recognised as an expense for the year ended Net carrying amount 1,142 778 906 5,484 98 8,408 impairment. 30 June 2018 totalled $50,122 million (2017: $49,083 million). Customers who wish to trade on credit terms are subject to Movement extensive credit verification procedures. Receivable balances are Recognition and measurement Net carrying amount at the beginning of the year 1,334 861 913 5,865 467 9,440 monitored on an ongoing basis and the Group’s exposure to bad debts is not significant. With respect to trade receivables that Inventories are valued at the lower of cost and net realisable value. Additions 229 186 193 1,013 17 1,638 are neither impaired nor past due, there are no indications as of The net realisable value of inventories is the estimated selling price Disposals and write-offs (419) (230) (173) (474) (246) (1,542) the reporting date that the debtors will not meet their payment in the ordinary course of business less estimated costs to sell. numbers Key Depreciation and amortisation - (20) (152) (939) (19) (1,130) obligations. Transfers between classes - (19) 123 12 (116) - Impairment of trade receivables Other including foreign exchange movements (2) - 2 7 (5) 2 Collectability and impairment are assessed on an ongoing basis at Key estimate: net realisable value Net carrying amount at the end of the year 1,142 778 906 5,484 98 8,408 a divisional level. Impairment is recognised in the income statement The key assumptions, which require the use of management when there is objective evidence that the Group will not be able judgement, are the variables affecting costs recognised in Assets under construction included above: - 237 97 477 - 811 to collect the debts. Financial difficulties of the debtor, probability bringing the inventory to their location and condition for that the debtor will enter bankruptcy or financial reorganisation sale, estimated costs to sell and the expected selling price. Year ended 30 June 2017 and default or delinquency in payments are considered objective These key assumptions are reviewed at least annually. The evidence of impairment. The amount of the impairment loss is total expense relating to inventory writedowns during the Cost 1,334 1,035 1,773 13,544 1,010 18,696 Capital the receivable carrying amount compared to the present value of year was $78 million (2017: $11 million), which is inclusive of Accumulated depreciation and impairment - (174) (860) (7,679) (543) (9,256) estimated future cash flows, discounted at the original effective the $66 million writedown of stock made during the financial interest rate. Cash flows relating to short-term receivables are year for BUKI. Any reasonably possible change in the Net carrying amount 1,334 861 913 5,865 467 9,440 not discounted if the effect of discounting is immaterial. Debts estimate is unlikely to have a material impact. that are known to be uncollectable are written off when identified. Movement If an impairment allowance has been recognised for a debt that Net carrying amount at the beginning of the year 1,470 926 925 5,830 461 9,612 then becomes uncollectable, the debt is written off against the allowance account. If an amount is subsequently recovered, it is Additions 57 251 122 1,084 45 1,559 credited against profit or loss. Costs incurred in bringing each product to its present location and Disposals and write-offs (205) (285) (12) (113) - (615) condition are accounted for as follows: Other debtors Depreciation and amortisation - (26) (127) (933) (22) (1,108) Risk • Raw materials: purchase cost on a weighted average basis. Acquisition of controlled entities 14 8 - - - 22 These amounts generally arise from transactions outside the usual • Manufactured finished goods and work in progress: cost of operating activities of the Group. They do not contain impaired Transfers between classes - (5) 5 - - - direct materials and labour and a proportion of manufacturing assets and are not past due. Based on the credit history, it is Other including foreign exchange movements (2) (8) - (3) (17) (30) expected that these other balances will be received when due. overheads based on normal operating capacity, but excluding borrowing costs. Work in progress also includes run-of-mine Net carrying amount at the end of the year 1,334 861 913 5,865 467 9,440 coal stocks for Resources, consisting of production costs of drilling, blasting and overburden removal. Assets under construction included above: - 334 59 448 - 841 • Retail and wholesale merchandise finished goods: purchase cost on a weighted average basis, after deducting any

settlement discounts, supplier rebates and including logistics Recognition and measurement Derecognition structure Group expenses incurred in bringing the inventories to their present The carrying value of property, plant and equipment is measured An item of property, plant and equipment is derecognised when location and condition. as the cost of the asset, minus depreciation and impairment. The it is sold or otherwise disposed of, or when its use is expected to bring no future economic benefits. Any gain or loss from Volume-related supplier rebates, and supplier promotional rebates cost of the asset also includes the cost of replacing parts that are eligible for capitalisation, and the cost of major inspections. derecognising the asset (the difference between the proceeds of where they exceed spend on promotional activities, are accounted disposal and the carrying amount of the asset) is included in the for as a reduction in the cost of inventory and recognised in the income statement in the period the item is derecognised. income statement when the inventory is sold. Depreciation and amortisation Items of property, plant and equipment are depreciated on a Impairment straight-line basis over their useful lives. The estimated useful life Refer to note 17 for details on impairment testing. of buildings is between 20 and 40 years; plant and equipment is

Key estimate: supplier rebates between 3 and 40 years. Land is not depreciated. items Unrecognised The recognition of certain supplier rebates in the income Expenditure on mining areas of interest in which production has Key estimates: property, plant and equipment statement requires management to estimate both the commenced is amortised over the life of the mine, based on the The estimations of useful lives, residual value and amortisation volume of purchases that will be made during a period of rate of depletion of the economically recoverable reserves. If methods require management judgement and are reviewed time and the related product that was sold and remains in production has not yet commenced, amortisation is not charged. annually. If they need to be modified, the change is accounted inventory at reporting date. Management’s estimates are for prospectively from the date of reassessment until the based on existing and forecast inventory turnover levels and Leasehold improvements are amortised over the period of the lease end of the revised useful life (for both the current and future sales. Reasonably possible changes in these estimates are or the anticipated useful life of the improvements, whichever is years). Such revisions are generally required when there are unlikely to have a material impact. shorter. changes in economic circumstances impacting specific assets or groups of assets, such as changes in store performance or changes in the long-term coal price forecasts. These changes are limited to specific assets and as such, any reasonably Other possible change in the estimate is unlikely to have a material impact on the estimations of useful lives, residual value or amortisation methods.

112 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 113 statements Financial Financial statements

Notes to the fiNaNcial statemeNts: Key numbers Notes to the fiNaNcial statemeNts: Key numbers For the year ended 30 June 2018 For the year ended 30 June 2018 BACK

About this report 8. Goodwill and intangible assets 8. Goodwill and intangible assets (continued) 9. Provisions

Consolidated Consolidated GOODWILL INTANGIBLE ASSETS 2018 2017 Contractual 2018 2017 and non- Gaming $m $m $m $m contractual and liquor Goodwill Brand relationships1 Software licences Total Allocation of indefinite life intangible Current assets to groups of cash generating units Consolidated $m $m $m $m $m $m Employee benefits 1,194 1,150

Carrying amount of intangibles Self-insured risks 241 277 information Segment Year ended 30 June 2018 Home Improvement 1 1 Restructuring and make good 54 84 Cost 15,647 3,918 57 1,401 158 21,181 Officeworks 160 160 Lease provision 2 2 Accumulated amortisation and impairment (2,156) (264) (19) (882) - (3,321) Industrial and Safety 22 22 Off-market contracts 5 52 Net carrying amount 13,491 3,654 38 519 158 17,860 Coles 2,963 2,962 Other 230 178 Kmart 368 268 1,726 1,743 Movement Target 292 531 Net carrying amount at the beginning of the year 14,360 3,812 41 566 157 18,936 Non-current 3,806 3,944 Additions 2 100 - 121 1 224 Employee benefits 167 180 numbers Key Disposals and write-offs (78) - - (17) - (95) Allocation of goodwill to groups of cash Self-insured risks 344 339 generating units Mine and plant rehabilitation 45 269 Amortisation for the year - (4) (3) (146) - (153) Restructuring and make good 26 147 Impairment charge (825) (256) - (2) - (1,083) Carrying amount of goodwill Lease provision 250 233 Other including foreign exchange movements 32 2 - (3) - 31 Chemicals, Energy and Fertilisers 2 2 Off-market contracts 12 182 Net carrying amount at the end of the year 13,491 3,654 38 519 158 17,860 Home Improvement 868 1,692 Other 189 161 Officeworks 799 799 Year ended 30 June 2017 1,033 1,511 Industrial and Safety 686 686 Total provisions 2,759 3,254 Cost 16,468 3,836 68 1,331 157 21,860 Coles 10,377 10,375 Capital Accumulated amortisation and impairment (2,108) (24) (27) (765) - (2,924) Kmart 759 759 Recognition and measurement Net carrying amount 14,360 3,812 41 566 157 18,936 Target - 47 13,491 14,360 Provisions are recognised when: Movement • the Group has a present obligation (legal or constructive) as a Net carrying amount at the beginning of the year 14,448 3,817 56 596 156 19,073 Impairment result of a past event; Additions - - - 123 1 124 Refer to note 17 for details on impairment testing. • it is probable that resources will be expended to settle the Disposals and write-offs (48) - - (12) - (60) obligation; and Amortisation for the year - (3) (15) (140) - (158) • a reliable estimate can be made of the amount of the obligation.

Other including foreign exchange movements (40) (2) - (1) - (43) Risk Net carrying amount at the end of the year 14,360 3,812 41 566 157 18,936 1 Contractual and non-contractual relationships are intangible assets that have arisen through business combinations. They represent the value of Key estimate: discounting pre-existing customer relationships in the acquired company. Provisions, other than employee benefits, are determined by discounting the expected future cash flows at a pre-tax rate A summary of the useful lives of intangible assets is as follows: that reflects current market assessments of the time value of Recognition and measurement money and the risks specific to the liability to the extent they Intangible asset Useful life are not included in the cash flows. Goodwill Brand1 Indefinite and finite Provisions have been calculated using discount rates Goodwill acquired in a business combination is initially measured (up to 20 years) of between 1.9 and 4.2 per cent (2017: between 2 and structure Group at cost. Cost is measured as the cost of the business combination 4.5 per cent) minus the net fair value of the acquired and identifiable assets, Contractual and Finite (up to 15 years) non-contractual relationships liabilities and contingent liabilities. Following initial recognition, Key estimate: employee benefits goodwill is measured at cost less any accumulated impairment Software Finite (up to seven years) Employee benefit provision balances are calculated using losses. Refer to note 17 for further details on impairment. Gaming and liquor licences Indefinite discount rates derived from the high quality corporate bond (HQCB) market in Australia provided by Milliman Australia. Intangible assets 1 Includes trade names and other intangible assets with characteristics of a Intangible assets acquired separately are measured on initial brand. recognition at cost. The cost of intangible assets acquired in a Assets with an assumed indefinite useful life are reviewed at business combination is their fair value at the date of acquisition. each reporting period to determine whether this assumption items Unrecognised Following initial recognition, intangible assets are carried at cost continues to be appropriate. If not, it is changed to a finite life and less amortisation and any impairment losses. Intangible assets accounted for prospectively as a change in accounting estimate. with finite lives are amortised on a straight-line basis over their useful lives and tested for impairment whenever there is an indication that they may be impaired. The amortisation period and Key judgement: useful lives of intangible assets method is reviewed at each financial year-end. Intangible assets Certain brands have been assessed as having indefinite lives with indefinite lives are tested for impairment in the same way as on the basis of strong brand strength, ongoing expected goodwill. profitability and continuing support. The brand incorporates complementary assets such as store formats, networks and product offerings. Other Gaming and liquor licences have been assessed as having indefinite lives on the basis that the licences are expected to be renewed in line with business continuity requirements.

114 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 115 statements Financial Financial statements

Notes to the fiNaNcial statemeNts: Key numbers Notes to the fiNaNcial statemeNts: Capital For the year ended 30 June 2018 For the year ended 30 June 2018 BACK About this report 9. Provisions (continued) 10. Capital management

Employee benefits The obligation for discounted future above-market payments are 1 provided for, calculated using the discount rate determined at Consolidated The provision for employee benefits represents annual leave, long acquisition date. The discounted future above-market provision is service leave entitlements and incentives accrued by employees. 2018 2017 released to earnings over the duration of the contract. The Group’s capital management objectives $m $m Wages and salaries The primary objective of Wesfarmers is to provide a satisfactory Self-insured risks return to its shareholders. The Group aims to achieve this objective Liabilities for wages and salaries, including non-monetary benefits The Group is self-insured for workers’ compensation and general by: Cash interest cover expected to be settled within 12 months of the reporting date, liability claims. Provisions are recognised based on claims are recognised in provisions and other payables in respect of • improving returns on invested capital relative to that cost of Profit before income tax 2,575 4,138 reported, and an estimate of claims incurred but not reported. information Segment employees’ services up to the reporting date. They are measured capital; and These provisions are determined on a discounted basis, using an Finance costs 221 264 at the amounts expected to be paid when the liabilities are settled. actuarially determined method. • ensuring a satisfactory return is made on any new capital invested. Depreciation and amortisation 1,283 1,266 Annual leave and long service leave EBITDA (A) 4,079 5,668 Capital is defined as the combination of shareholders’ equity, The liability for annual leave and long service leave is recognised in Key estimate: self-insured risks the provision for employee benefits. It is measured as the present reserves and net financial debt. The Board is responsible for Net cash interest paid (B) 183 226 The self-insured risk liability is based on a number of monitoring and approving the capital management framework value of expected future payments for the services provided by Cash interest cover (times) (A/B) 22.3 25.0 employees up to the reporting date. Expected future payments are management estimates including, but not limited to: within which management operates. The purpose of the framework discounted using market yields at the reporting date on HQCB with is to safeguard the Group’s ability to continue as a going concern Adjusted EBITDA2 (C) 5,571 5,668 • future inflation; while optimising its debt and equity structure. Wesfarmers aims terms to maturity and currencies that match, as closely as possible, Cash interest cover (times) (C/B) the estimated future cash outflows. • investment return; to maintain a capital structure that is consistent with a stable numbers Key investment grade credit rating. (applying adjusted EBITDA) 30.4 25.0 • average claim size;

Consolidated • claim development; and Debt cover 2018 2017 • claim administration expenses. Total interest-bearing debt 4,124 5,413 Key estimate: long service leave Note $m $m Long service leave is measured using the projected unit These assumptions are reviewed periodically and any Less: cash and cash equivalents (683) (1,013) reassessment of these assumptions will affect workers’ credit method. Management judgement is required in Equity and reserves Net financial debt (D) 3,441 4,400 determining the following key assumptions used in the compensation or claims expense (either increasing or calculation of long service leave at balance sheet date: decreasing the expense). Any reasonable change in Issued capital 12 22,277 22,268 EBITDA (A) 4,079 5,668 these assumptions will not have a significant impact on Reserved shares 12 (43) (26)

• future increases in salaries and wages; the Group. Debt cover (times) (D/A) 0.8 0.8 Capital • future on-cost rates; and Retained earnings 12 176 1,509 Adjusted EBITDA2 (C) 5,571 5,668 • future probability of employee departures and period of Reserves 12 344 190 Mine and plant rehabilitation Debt cover (times) (D/C) service. 22,754 23,941 (applying adjusted EBITDA) 0.6 0.8 Mining lease agreements and Group policies impose obligations The total long service leave liability is $623 million to remediate areas where mining activity has taken place. Fixed charges cover (2017: $606 million). Given the magnitude of the liability and Work is ongoing at various sites and in some cases will extend Net financial debt the nature of the key assumptions, any reasonably possible for more than 15 years. Provisions for remediation have been Total interest-bearing debt 14 4,124 5,413 EBITDA 4,079 5,668 change in one or a combination of the estimates is unlikely calculated assuming current technologies. As part of the valuation to have a material impact. methodology, the risks are incorporated in the cash flows rather Less: Cash and cash equivalents 4 (683) (1,013) Minimum lease payments 2,490 2,399 than the discount rates. EBITDA plus minimum lease 6,569 8,067 3,441 4,400 Risk payments (E) Restructuring and make good Net capital 26,195 28,341 Lease provision Finance costs (net of discount These provisions relate principally to: adjustment), and minimum lease The lease provision covers stepped lease arrangements to enable The Group manages its capital through various means, including: payments (F) 2,689 2,636 the lease expenses to be recognised on a straight-line basis over • the closure of retail outlets or distribution centres; the lease term. Actual lease payments may vary from the amounts • restructuring; and • adjusting the amount of ordinary dividends paid to Fixed charges cover (times) (E/F) 2.4 3.1 provided where alternate uses are found for these premises, shareholders; • associated redundancies. Adjusted EBITDA (C) 5,571 5,668 including attraction of new tenants. • maintaining a dividend investment plan; Minimum lease payments 2,490 2,399 Provisions for restructuring are recognised where steps have been • raising or returning capital; and Off-market contracts taken to implement a detailed plan, including discussions with Adjusted EBITDA plus minimum

• raising or repaying debt for working capital requirements, structure Group When undertaking business acquisitions, Wesfarmers often takes affected personnel, with employee-related costs recognised over lease payments (G) 8,061 8,067 the period of any required further service. capital expenditure and acquisitions. on responsibility for contracts that are in place within the acquiree. Fixed charges cover (times) Changes in market conditions may result in the original terms of Wesfarmers regularly monitors its capital requirements using (G/F) (applying adjusted EBITDA) 3.0 3.1 the contract becoming unfavourable in comparison to market various benchmarks, with the main internal measures being conditions present at the date of acquisition. cash interest cover, debt cover and fixed charges cover. The principal external measures are the Group’s credit ratings from Group credit ratings Off- Self- Mine and Restructuring Standard & Poor’s and Moody’s. Standard & Poor’s A–(stable) A–(negative) Lease market insured plant and make Moody’s A3(stable) A3(stable) provision contracts risks rehabilitation good Other Total Consolidated $m $m $m $m $m $m $m 1 The income statement metrics include both continuing and discontinued Shareholder distributions operations. items Unrecognised Carrying amount at 1 July 2016 221 271 663 278 298 350 2,081 2 The 2018 adjusted EBITDA excludes Target’s pre-tax impairment of Interim dividend Special dividend $306 million and $1,186 million relating to discontinued operations which Arising and acquired during the year 21 10 143 38 77 234 523 $share Final dividend (FY18: proposed) Capital management includes BUKI’s pre-tax writedown of $861 million, store closure provision of Utilised (7) (32) (190) (19) (134) (245) (627) 3.0 $70 million, $375 pre-tax loss on disposal relating to BUKI and $120 million pre-tax gain on disposal of the Curragh coal mine. Adjustments - (15) - (28) (10) - (53) 2.5 2.0 Carrying amount at 30 June 2017 and 1.5 1 July 2017 235 234 616 269 231 339 1,924 1.0 0.5 Arising during the year 22 5 201 22 40 322 612 0.0 Other Utilised (5) (33) (232) (1) (74) (229) (574) 2014 2015 2016 2017 2018 Sale of business - (189) - (245) (117) (13) (564) Carrying amount at 30 June 2018 252 17 585 45 80 419 1,398

116 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 117 statements Financial Financial statements

Notes to the fiNaNcial statemeNts: Capital Notes to the fiNaNcial statemeNts: Capital For the year ended 30 June 2018 For the year ended 30 June 2018 BACK About this report 11. Dividends and distributions 12. Equity and reserves (continued) 12. Equity and reserves (continued) Consolidated Ordinary Shares Reserved Shares Foreign Cash Share- Movement in shares on currency flow Financial based 2018 2017 issue ’000 $m ’000 $m Retained Restructure Capital translation hedge assets payments $m $m earnings tax reserve reserve reserve reserve reserve reserve At 1 July 2016 1,126,131 21,937 (2,294) (28) Consolidated $m $m $m $m $m $m $m Declared and paid during the year Exercise of in-substance (fully-franked at 30 per cent) options - - 206 1 Balance at 1 July 2016 874 150 24 54 (105) 5 38 Interim dividend for 2018: $1.03 Dividends applied - - - 1 information Segment (2017: $1.03) 1,168 1,165 Net profit 2,873 ------Issue of ordinary shares Dividends (2,235) ------Final dividend for 2017: $1.20 under the Wesfarmers (2016: $0.95) 1,361 1,070 Dividend Investment Plan 5,471 236 - - Remeasurement loss on defined benefit plan, net of tax (3) ------2,529 2,235 Issue of ordinary shares Net loss on financial instruments recognised in equity - - - - (136) - - under the Wesfarmers Realised gains transferred to balance sheet/net profit - - - - 176 - - Employee Share Proposed and unrecognised as Tax effect of transfers and revaluations - - - - (17) - - a liability (fully-franked at 30 per cent) Acquisition Plan 2,238 92 - - Currency translation differences - - - (2) - - - Final dividend for 2018: $1.20 Transfer from other (2017: $1.20) 1,361 1,361 reserves - 3 - - Share-based payment transactions ------3 At 30 June 2017 and Balance at 30 June 2017 and 1 July 2017 1,509 150 24 52 (82) 5 41 numbers Key Franking credit balance 1 July 2017 1,133,840 22,268 (2,088) (26) Franking credits available for future years Net profit 1,197 ------Acquisition of shares at 30 per cent adjusted for the payment on-market for Key Dividends (2,529) ------of income tax and dividends receivable Executive Equity Remeasurement loss on defined benefit plan, net of tax (1) ------or payable 978 786 Performance Plan (KEEPP) - - (418) (17) Net loss on financial instruments recognised in equity - - - - 96 - - Impact on the franking account of Exercise of in-substance Realised losses transferred to balance sheet/net profit - - - - 143 - - dividends proposed before the financial options - - 164 - Share of associates and joint venture reserve - - - - (7) - - report was issued but not recognised as Transfer from other

a distribution to equity holders during the reserves - 9 - - Tax effect of transfers and revaluations - - - - (72) - - Capital period (583) (583) At 30 June 2018 1,133,840 22,277 (2,342) (43) Currency translation differences - - - (7) - - - Wesfarmers’ dividend policy considers availability of franking Exchange differences recognised in the income credits, current earnings and future cash flow requirements and statement on disposal of foreign operations - - - (2) - - - targeted credit metrics. Nature and purpose of reserves Share-based payment transactions ------3 The Group operates a dividend investment plan which allows Restructure tax reserve Balance at 30 June 2018 176 150 24 43 78 5 44 eligible shareholders to elect to invest dividends in ordinary shares. All holders of Wesfarmers ordinary shares with addresses The restructure tax reserve is used to record the recognition of tax in Australia or New Zealand are eligible to participate in the plan. losses arising from the equity restructuring of the Group under the 13. Earnings per share The allocation price for shares is based on the average of the 2001 ownership simplification plan. Consolidated Risk daily volume weighted average price of Wesfarmers ordinary These tax losses were generated on adoption by the Group of the shares sold on the Australian Securities Exchange, calculated with tax consolidation regime. 2018 2017 reference to a period of not less than five consecutive trading days Calculation of earnings per share as determined by the directors. Capital reserve Profit attributable to ordinary equity holders of the parent ($m) 1,197 2,873 Basic earnings per share An issue of shares under the dividend investment plan results in an The capital reserve was used to accumulate capital profits. The 1 Basic earnings per share is calculated as net profit attributable to increase in issued capital unless the Group elects to purchase the reserve can be used to pay dividends or issue bonus shares. WANOS used in the calculation of basic required number of shares on-market. EPS (shares, million)2 1,131 1,128 members of the parent, adjusted to exclude any costs of servicing equity (other than dividends), divided by the weighted average Foreign currency translation reserve WANOS1 used in the calculation of number of ordinary shares, adjusted for any bonus element. 2 12. Equity and reserves The foreign currency translation reserve is used to record diluted EPS (shares, million) 1,133 1,130 exchange differences arising from the translation of the financial - Basic EPS (cents per share) 105.8 254.7 Diluted earnings per share structure Group statements of foreign subsidiaries. The nature of the Group’s contributed equity - Diluted EPS (cents per share) 105.6 254.2 Diluted earnings per share is calculated as net profit attributable to members of the parent, adjusted for:

Ordinary shares are fully-paid and have no par value. They carry Cash flow hedge reserve one vote per share and the right to dividends. They bear no special The hedging reserve records the portion of the gain or loss on a 1 Weighted average number of ordinary shares. • costs of servicing equity (other than dividends); terms or conditions affecting income or capital entitlements of the hedging instrument in a cash flow hedge that is determined to be 2 The variance in the WANOS used in the calculation of the basic EPS and • the after-tax effect of dividends and interest associated with shareholders and are classified as equity. an effective hedge relationship. the diluted EPS is attributable to in-substance options. dilutive potential ordinary shares that have been recognised as Reserved shares are ordinary shares that have been repurchased expenses; and Financial assets reserve by the company and are being held for future use. They include There have been no transactions involving ordinary shares • other non-discretionary changes in revenues or expenses employee reserved shares, which are shares issued to employees The financial assets reserve records fair value changes on financial between the reporting date and the date of completion of during the year that would result from the dilution of potential under the share loan plan. Once the share loan has been paid assets designated at fair value through other comprehensive these financial statements, apart from the normal conversion of ordinary shares; items Unrecognised in full, they are converted to ordinary shares and issued to the income. employee-reserved shares (treated as in-substance options) to employee. unrestricted ordinary shares. divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element. Incremental costs directly attributable to the issue of new shares Share-based payments reserve are shown in equity as a deduction, net of tax, from the proceeds. The share-based payments reserve is used to recognise the There are no shares authorised for issue that have not been issued value of equity-settled share-based payments provided to at reporting date. employees, including key management personnel, as part of their remuneration. Refer to note 28 for further details of these plans. Other

118 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 119 statements Financial Financial statements

Notes to the fiNaNcial statemeNts: Capital Notes to the fiNaNcial statemeNts: Risk For the year ended 30 June 2018 For the year ended 30 June 2018 BACK About this report 14. Interest-bearing loans and borrowings 15. Financial risk management Consolidated Funding activities The Group holds financial instruments for the following purposes: The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans, bank Following the divestment of BUKI in June 2018, £705 million Financing: to raise finance for the Group’s operations or, in the 2018 2017 accepted bills, commercial paper, corporate bonds and the (A$1,240 million) of bank facilities were cancelled. During the year, case of short-term deposits, to invest surplus funds. The principal overnight money market across a range of maturities. Although $m $m NZ$50 million (A$46 million) of bank facilities were also considered types of instruments used include other bank loans, bank accepted the bank debt facilities have fixed maturity dates, from time to time surplus to requirements and were cancelled. The remaining bank bills, commercial paper, corporate bonds and cash and short-term they are reviewed and extended, thus deferring the repayment Current facilities that matured during the financial year were renewed and deposits. of the principal. The Group aims to spread maturities to avoid extended, all for durations of approximately one year. Unsecured Operational: the Group’s activities generate financial instruments, excessive refinancing in any period. Bank debt 660 378 In March 2018, a US144A bond totalling US$750 million including cash, trade receivables, trade payables and finance The Group endeavours to maintain funding flexibility by keeping information Segment (A$728 million) matured. Combined with associated cross-currency advances. Capital market debt 499 969 committed credit lines available with a variety of counterparties. interest rate swaps, the net amount to repay the bond was funded Surplus funds are generally invested in instruments that are 1,159 1,347 from existing bank facilities and available cash balances. Risk management: to reduce risks arising from the financial instruments described above, including forward exchange contracts tradeable in highly liquid markets with highly rated counterparties. and interest rate swaps. Non-current Recognition and measurement Consolidated Unsecured Capital market debt includes foreign and domestic corporate It is, and has been throughout the year, the Group’s policy that no speculative trading in financial instruments shall be undertaken. Bank debt 150 863 bonds. All loans and borrowings are initially recognised at 2018 2017 fair value, less directly attributable transaction costs. After Capital market debt 2,815 3,203 The Group’s holding of these financial instruments exposes it Financing facilities available $m $m initial recognition, interest-bearing loans and borrowings are to risk. The Board reviews and agrees the Group’s policies for 2,965 4,066 subsequently measured at amortised cost using the effective managing each of these risks, which are summarised below: Total facilities interest method. Gains and losses are recognised in profit or loss numbers Key Total interest-bearing loans and borrowings 4,124 5,413 Other bank loans 2,999 4,245 when the liabilities are derecognised. • liquidity risk (note 15(b));

2,999 4,245 The illustration below provides details, including the principal The carrying values of recognised assets and liabilities that are the • market risk, including foreign currency, interest rate and hedged items in fair value hedge relationships, which are otherwise commodity price risk (note 15(c)); and repayment obligations, of all loans and borrowings on issue at Facilities used at balance date 30 June 2018: carried at amortised cost, are adjusted to record changes in the fair values attributable to the risks that are being hedged. • credit risk (note 15(d)). Other bank loans 811 1,244 These risks affect the fair value measurements applied by the 811 1,244 Group. This is discussed further within note 15(e). Outstanding loans and borrowings Facilities unused at balance date 15(a) Offsetting financial instruments Other bank loans 2,188 3,001 A$m BANK DEBT CAPITAL MARKET DEBT Capital The Group presents its derivative assets and liabilities on a gross 2,188 3,001 2,700 CURRENTCURRENT NON-CURRENT basis. Derivative financial instruments entered into by the Group $1,159M$1,347M $2,965M 2,250 are subject to enforceable master netting arrangements, such as an International Swaps and Derivatives Association (ISDA) master Assets pledged as security 1,800 netting agreement. In certain circumstances, for example, when a A controlled entity has issued a floating charge over assets, credit event such as a default occurs, all outstanding transactions capped at $80 million (2017: $80 million), as security for payment 1,350 under an ISDA agreement are terminated, the termination value is obligations to a trade creditor. The assets are excluded from assessed and only a single net amount is payable in settlement of financial covenants in all debt documentation. 900 all transactions. 450 The amounts set out in note 16 represent the derivative financial assets and liabilities of the Group, that are subject to the above Maturity of financial liabilities Risk 0 arrangements and are presented on a gross basis. The following tables analyse the Group’s financial liabilities, FY19 FY20 FY21 FY22+ including net and gross settled financial instruments, into relevant maturity periods based on the remaining period at the reporting 15(b) Liquidity risk date to the contractual maturity date. The amounts disclosed in The table below sets out an analysis of net borrowings and the movements in net borrowings for the period presented: the table are the contractual undiscounted cash flows and hence will not necessarily reconcile with the amounts disclosed in the Nature of the risk balance sheet. LIABILITIES FROM Wesfarmers is exposed to liquidity risk primarily due to its capital FINANCING ACTIVITIES management policies, which view debt as a key element of the Expected future interest payments on loans and borrowings exclude accruals already recognised in trade and other payables. Assets held Group’s capital structure (see note 10). In addition, Wesfarmers

Derivative cash flows exclude accruals recognised in trade and structure Group Borrowings Borrowings to hedge maintains a flexible financing structure to enable it to take advantage of new investment opportunities that may arise. other payables. due within due after long-term To facilitate effective use of debt as part of the capital structure, the For foreign exchange derivatives cross-currency interest rate swaps

1 year 1 year borrowings Total Group continues to maintain investment grade credit ratings from and hedged commodity swaps, the amounts disclosed are the $m $m $m $m Standard & Poor’s and Moody’s. gross contractual cash flows to be paid. These policies expose the Group to risk including the sufficiency For interest rate swaps, the cash flows are the net amounts to be Balance at 1 July 2017 1,347 4,066 (488) 4,925 of available unused facilities and the maturity profile of existing paid at each quarter, excluding accruals included in trade and other Cash flows (1,367) 150 - (1,217) financial instruments. payables, and have been estimated using forward interest rates Transfers 1,366 (1,366) - - applicable at the reporting date. Foreign exchange adjustments 55 110 (110) 55 Liquidity risk management items Unrecognised Fair value changes, including settlements (243) - 243 - Liquidity risk is managed centrally by Group Treasury, by considering over a period of time the operating cash flow forecasts Other non-cash movements 1 5 2 8 of the underlying businesses and the degree of access to debt and Balance at 30 June 2018 1,159 2,965 (353) 3,771 equity capital markets. Other

120 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 121 statements Financial Financial statements

Notes to the fiNaNcial statemeNts: Risk Notes to the fiNaNcial statemeNts: Risk For the year ended 30 June 2018 For the year ended 30 June 2018 BACK About this report 15(b) Liquidity risk (continued) 15(c) Market risk The Group aims to hedge approximately 70 to 100 per cent of its < 3 Carrying Nature of foreign currency risk non-capital expenditure-related foreign currency purchases for months, Total amount The Group’s primary currency exposure is to US dollars and arises which firm commitments or highly probable forecast transactions or on 3-6 6-12 1-2 2-3 3-4 4-5 contractual (assets)/ from sales or purchases by a division in currencies other than the exist, up to 24 months forward. The Group currently hedges demand months months years years years years >5 years cash flows liabilities division’s functional currency. The Group is also exposed to the 100 per cent of capital expenditure-related foreign currency US dollar and Euro through its borrowing facilities. purchases to match expected payment dates and these may Consolidated $m $m $m $m $m $m $m $m $m $m extend beyond 12 months. The current hedge contracts extend out As a result of operations in New Zealand, the Group’s balance to April 2020. The Group has also hedged 100 per cent of its Euro Year ended 30 June 2018 sheet can also be affected by movements in the AUD/NZD borrowing facilities. exchange rate. The Group mitigates the effect of its translational information Segment The Wesfarmers Audit and Risk Committee can approve temporary Non-derivatives currency exposure by borrowing in NZ dollars in New Zealand. amendments to this policy, such as the hedging time horizon and Trade and other payables 6,455 46 39 1 10 - - - 6,551 6,551 hedge levels, with such amendments reviewed on a regular basis. Loans and borrowings before Exposure swaps - 316 845 500 500 1,026 1,131 - 4,318 4,124 The Group’s exposure to the US dollar and Euro (prior to hedging The Group’s sensitivity to foreign exchange Expected future interest contracts) at the reporting date were as follows: movements payments on loans and The sensitivity analysis below shows the impact that a reasonably USD EUR borrowings 19 13 37 75 51 43 31 - 269 - possible change in foreign exchange rates over a financial year Total non-derivatives 6,474 375 921 576 561 1,069 1,162 - 11,138 10,675 Consolidated A$m A$m would have on profit after tax and equity, based solely on the

Group’s foreign exchange risk exposures existing at the balance numbers Key Derivatives 2018 sheet date. The Group has used the observed range of actual

Hedge interest rate swaps Financial assets historical rates for the preceding five-year period, with a heavier (net settled) - (1) (1) (2) (1) - - - (5) (5) weighting placed on recently observed market data, in determining Cash and cash equivalents 15 1 reasonably possible exchange movements to be used for the Hedged commodity swaps (1) (1) (7) (13) (6) - - - (28) (28) Trade and other receivables 39 - current year’s sensitivity analysis. Past movements are not necessarily indicative of future movements. Cross-currency interest rate Cross-currency interest rate swap - 348 swaps (gross settled) Hedge foreign exchange derivative The following exchange rates have been used in performing the – (inflow) (3) (3) - (41) (42) (1,070) (1,162) - (2,321) (348) assets 120 - sensitivity analysis: – outflow 4 11 43 86 86 931 786 - 1,947 - Commodity derivative asset 28 - USD EUR Net cross-currency interest Financial liabilities Capital rate swaps 1 8 43 45 44 (139) (376) - (374) (348) Trade and other payables 1,061 58 Actual 2018 0.73 0.63 Hedge foreign exchange +10% 0.80 0.69 contracts (gross settled) Interest-bearing loans and borrowings 35 1,969 –10% 0.66 0.57 – (inflow) (1,142) (959) (959) (448) - - - - (3,508) (120) 2017 – outflow 1,110 927 932 424 - - - - 3,393 - Actual 2017 0.77 0.67 Financial assets Net foreign exchange contracts (32) (32) (27) (24) - - - - (115) (120) +10% 0.85 0.74 Cash and cash equivalents 12 5 Total derivatives (32) (26) 8 6 37 (139) (376) - (522) (501) –10% 0.69 0.60 Trade and other receivables 148 3

Year ended 30 June 2017 Cross-currency interest rate swap 242 239 Risk The impact on profit and equity is estimated by relating Hedge foreign exchange derivative the hypothetical changes in the US dollar and Euro Non-derivatives assets - 1 exchange rate to the balance of financial instruments at Trade and other payables 6,517 53 44 1 - - - - 6,615 6,615 Financial liabilities the reporting date. Foreign currency risks, as defined by Loans and borrowings before Trade and other payables 962 43 AASB 7 Financial Instruments: Disclosures, arise on account swaps - 100 1,256 1,366 350 500 997 1,100 5,669 5,413 of financial instruments being denominated in a currency that Interest-bearing loans and is not the functional currency in which the financial instrument Expected future interest borrowings 1,026 1,854 is measured. payments on loans and Hedge foreign exchange derivative borrowings 19 10 42 107 73 50 42 30 373 - Differences from the translation of financial statements into the liabilities 174 - Group’s presentation currency are not taken into consideration in Total non-derivatives 6,536 163 1,342 1,474 423 550 1,039 1,130 12,657 12,028 the sensitivity analysis and as such the NZ dollar has no material structure Group impact. The results of the foreign exchange rate sensitivity analysis Derivatives Foreign currency risk management are driven by three main factors, as outlined below:

Hedge interest rate swaps The hedging function of the Group to address foreign currency risk • the impact of applying the above foreign exchange movements (net settled) - (1) (2) (2) (1) (1) - - (7) (7) is managed centrally. The Group requires all divisions to hedge to financial instruments that are not in hedge relationships will foreign exchange exposures for firm commitments relating to sales be recognised directly in profit; Cross-currency interest rate or purchases or when highly probable forecast transactions have swaps (gross settled) been identified. Before hedging, the divisions are also required to • to the extent that the foreign currency denominated derivatives – (inflow) (6) (3) (987) (39) (40) (41) (1,039) (1,131) (3,286) (481) take into account their competitive position. The hedging instrument on balance sheet form part of an effective cash flow hedge must be in the same currency as the hedged item. Divisions are not relationship, any fair value movements caused by applying the – outflow 9 17 777 86 86 86 931 786 2,778 - permitted to speculate on future currency movements. above sensitivity movements will be deferred in equity and will items Unrecognised Net cross-currency interest The objective of Wesfarmers’ policy on foreign exchange hedging is not affect profit; and rate swaps 3 14 (210) 47 46 45 (108) (345) (508) (481) to protect the Group from adverse currency fluctuations. Hedging is • movements in financial instruments forming part of an effective Hedge foreign exchange implemented for the following reasons: fair value hedge relationship will be recognised in profit. contracts (gross settled) However, as a corresponding entry will be recognised for the – (inflow) (1,132) (1,102) (1,173) (1,074) (46) - - - (4,527) 173 • protection of competitive position; and hedged item, there will be no net effect on profit. – outflow 1,179 1,153 1,226 1,092 46 - - - 4,696 - • greater certainty of earnings due to protection from sudden At 30 June 2018, had the Australian dollar moved against the currency movements. Net foreign exchange US dollar and Euro, as illustrated in the table above, with all other The Group has hedged a portion of its foreign currency sales for contracts 47 51 53 18 - - - - 169 173 variables held constant, the Group’s profit after tax and other equity which firm commitments or highly probable forecast transactions would have been affected by the change in value of its financial

Total derivatives 50 64 (159) 63 45 44 (108) (345) (346) (315) existed. Such foreign currency sales arose predominantly in assets and financial liabilities as shown in the table on the following Other Resources. page.

122 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 123 statements Financial Financial statements

Notes to the fiNaNcial statemeNts: Risk Notes to the fiNaNcial statemeNts: Risk For the year ended 30 June 2018 For the year ended 30 June 2018 BACK About this report 15(c) Market risk (continued) 15(c) Market risk (continued) 2018 2017 AUD/USD +10% AUD/USD –10% AUD/EUR +10% AUD/EUR –10% Weighted Impact Impact Impact Impact Weighted average USD Impact on Impact on EUR Impact on Impact on average Balance interest rate Balance interest rate exposure on profit equity on profit equity exposure on profit equity on profit equity $m % $m % Consolidated A$m A$m A$m A$m A$m A$m A$m A$m A$m A$m Financial assets Year ended 30 June 2018 Fixed rate information Segment Financial assets Finance advances and loans 71 3.94 88 3.93 Cash and cash equivalents 15 (1) - 1 - 1 - - - - Trade and other receivables 39 (3) - 3 ------Floating rate Cross-currency interest rate Cash assets 191 0.91 604 1.30 swap - - - - - 348 - (137) - 167 Total weighted average effective interest rate on financial assets at Hedge foreign exchange balance date 1.73 1.63 derivative assets 120 (51) (145) 62 178 - - (2) - 3 Financial liabilities Commodity derivatives 28 - (5) - 6 - - - - - Fixed rate numbers Key Financial liabilities Other bank loans - - 507 1.09 Trade and other payables 1,061 74 - (74) - 58 4 - (4) - Corporate bonds 2,810 5.53 2,697 5.53 Interest-bearing loans and borrowings 35 2 - (2) - 1,969 - 179 - (219) Weighted average effective interest rate on fixed rate liabilities 5.53 4.66 Net impact 21 (150) (10) 184 4 40 (4) (49) Floating rate Year ended 30 June 2017 Other unsecured bank loans 810 2.44 734 1.04 Corporate bonds 504 2.93 1,475 2.95 Financial assets Weighted average effective interest rate on floating rate liabilities 2.63 2.31 Cash and cash equivalents 12 (1) - 1 - 5 - - - - Capital Trade and other receivables 148 (10) - 10 - 3 - - - - Total weighted average effective interest rate on financial liabilities: Cross-currency interest rate at balance date 4.61 3.70 swap 242 (62) (1) 76 1 239 - (131) - 160 during the year 3.79 3.64 Hedge foreign exchange during the year, including bank and liquidity charges 4.18 4.04 derivative assets - - - - - 1 - (1) - 2 Financial liabilities Trade and other payables 962 67 - (67) - 43 3 - (3) - The Group’s sensitivity to interest rate movements Impact on Impact on

Interest-bearing loans and The following sensitivity analysis shows the impact that a profit equity Risk borrowings 1,026 62 - (76) - 1,854 - 169 - (207) reasonably possible change in interest rates would have on Group Consolidated A$m A$m Hedge foreign exchange profit after tax and equity. The impact is determined by assessing the effect that such a reasonably possible change in interest rates derivative liabilities 174 (56) (173) 68 211 - - - - - 2018 would have had on the interest income/(expense) and the impact Net impact - (174) 12 212 3 37 (3) (45) on financial instrument fair values. This sensitivity is based on Australian variable interest rate +100bps (7) 42 reasonably possible changes over a financial year, determined Australian variable interest rate –100bps 7 (44) using observed historical interest rate movements for the preceding Nature of interest rate risk From a Group perspective, any internal contracts are eliminated five-year period, with a heavier weighting given to more recent 2017 as part of the consolidation process, leaving only the external market data. The Group’s exposure to the risk of changes in market interest contracts in the name of Wesfarmers Limited. Australian variable interest rate +100bps (5) 53 rates relates primarily to the Group’s debt obligations that have The results of the sensitivity analysis are driven by three main

Australian variable interest rate –100bps 5 (56) structure Group floating interest rates. Although Wesfarmers has issued Euro bonds, cross-currency factors, as outlined below: swaps are in place that remove any exposure to Euro interest rates. • for unhedged floating rate financial instruments, any increase or These cross-currency swaps ensure that the effective interest rate Commodity price risk decrease in interest rates will impact profit; Interest rate risk management to Wesfarmers is referenced to Australian interest rates. The policy of the Group is to limit its exposure to adverse • to the extent that derivatives form part of an effective cash flow The Group’s exposure to commodity price risk is purely operational fluctuations in interest rates, which could erode the Group’s hedge relationship, there will be no impact on profit and any and arises from coal price fluctuations, which impact on its coal profitability and adversely affect shareholder value. The policy Exposure increase/(decrease) in the fair value of the underlying derivative mining operation, and in relation to the purchase of inventory with requires that an interest rate risk management (IRRM) plan be As at the reporting date, the Group had the following financial instruments will be deferred in equity; and commodity price as a significant input, such as natural gas and developed based on cash flow forecasts. A committee comprising Brent oil. assets and liabilities with exposure to interest rate risk. Interest • movements in the fair value of derivatives in an effective fair senior management meets periodically to review the IRRM plan and on financial instruments, classified as floating rate, is repriced at value hedge relationship will be recognised directly in profit. • the Group has entered into a Brent oil future contract to hedge make interest rate hedging recommendations, which are provided intervals of less than one year. Interest on financial instruments,

the variability in cash flows arising from movements in the items Unrecognised to the Group’s Chief Financial Officer for approval. The Group’s classified as fixed rate, is fixed until maturity of the instrument. However, as a corresponding entry will be recognised for the hedged item, there will be no net impact on profit. natural gas price applicable to forecast natural gas purchases interest rate hedging profile is regularly reported to the Wesfarmers The classification between fixed and floating interest takes over three years. Board and senior executives. into account applicable hedge instruments. Other financial The following sensitivity analysis is based on the Australian variable instruments of the Group that are not included in the following • the Group does not enter into any financial instruments that To manage the interest rate exposure, the Group generally enters interest rate risk exposures in existence at balance sheet date. table are non-interest-bearing and are therefore not subject to vary with movements in other commodity prices. Excluding the into interest rate swaps, in which the Group agrees to exchange, interest rate risk. If interest rates had moved by +/–100bps (basis point/s) and with all foreign exchange risk component, which is managed as part of at specified intervals, the difference between fixed and variable other variables held constant, profit after tax and equity would be the Group’s overall foreign exchange risk management policies rate interest amounts calculated by reference to an agreed-upon affected as follows: notional principal amount. These swaps are designated to hedge and procedures referred to previously, these exposures are not interest costs associated with underlying debt obligations. At hedged. 30 June 2018, after taking into account the effect of interest rate No commodity price sensitivity analysis is provided, as:

swaps, economic hedging relationships and early repayment of Other a portion of core debt facilities, approximately 35 per cent of the • a reasonable change in the Brent oil futures would not have had Group’s core borrowings are exposed to movements in variable a material impact to the Group this financial year; and rates (2017: approximately 40 per cent). • the Group’s other commodity ‘own use contracts’ are outside the scope of AASB 9 Financial Instruments.

124 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 125 statements Financial Financial statements

Notes to the fiNaNcial statemeNts: Risk Notes to the fiNaNcial statemeNts: Risk For the year ended 30 June 2018 For the year ended 30 June 2018 BACK About this report 15(d) Credit risk 15(e) Fair values 16. Hedging The carrying amounts and estimated fair values of all the Group’s Nature of the risk financial instruments recognised in the financial statements are Types of hedging instruments Cross-currency interest rate swaps: to either reduce the Group’s Credit risk is the risk that a contracting entity will not complete its materially the same, with the exception of the following: exposure to exchange rate variability in its interest repayments The Group is exposed to risk from movements in foreign of foreign currency denominated debt (cash flow hedges) or to obligation under a financial instrument or customer contract that exchange, interest rates and commodity prices. As part of the will result in a financial loss to the Group. The Group is exposed 2018 2017 hedge against movements in the fair value of those liabilities due risk management strategy set out in note 15, the Group holds the to exchange and interest rate movements (fair value hedges). The to credit risk from its operating activities (primarily from customer Consolidated $m $m following types of derivative instruments: receivables) and from its financing activities, including deposits borrowing margin on Wesfarmers’ cross-currency interest rate swaps has been treated as a ‘cost of hedging’ and deferred into with financial institutions, foreign exchange transactions and other Capital market debt: carrying Forward exchange contracts: contracts denominated in US dollar and Euro to hedge highly probable sale and purchase transactions equity. These costs are then amortised to the profit and loss as a financial instruments. amount 3,314 4,172 information Segment (cash flow hedges). finance cost over the remaining life of the borrowing. Capital market debt: fair value 3,437 4,313 Credit risk management: receivables Interest rate swaps: to optimise the Group’s exposure to fixed Brent oil future contract: to reduce the Group’s exposure to price variability in its forecast purchase of natural gas. Customer credit risk is managed by each division subject to and floating interest rates arising from borrowings. These hedges established policies, procedures and controls relating to customer The methods and assumptions used to estimate the fair value of incorporate cash flow hedges, which fix future interest payments, credit risk management. The Group trades with recognised, financial instruments are as follows: and fair value hedges, which reduce the Group’s exposure to creditworthy third parties. Depending on the division, credit terms changes in the value of its assets and liabilities arising from interest are generally up to 30 days from date of invoice. The Group’s rate movements. exposure to bad debts is not significant and default rates have Cash historically been very low. The carrying amount is fair value due to the asset’s liquid nature. 2018 2017

Customers who wish to trade on credit terms are subject to Notional Weighted Asset Liability Notional Weighted Asset Liability numbers Key credit verification procedures, including an assessment of their Receivables/payables $m Average $m $m $m Average $m $m

independent credit rating, financial position, past experience and Due to the short-term nature of these financial rights and industry reputation. In addition, receivable balances are monitored obligations, carrying amounts are estimated to represent fair values. Foreign exchange contracts on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. Cash flow hedge - sales (AUD) US$96 Asset: nil - (2) US$335 Asset: 0.76 3 (10) Other financial assets/liabilities Liability: 0.75 Liability: 0.81 An ageing of trade receivables past due is included in note 5. The The fair values of corporate bonds held at fair value have been Cash flow hedge - sales (GBP) US$39 Asset: nil - (1) US$0 Asset: nil - - credit quality of trade receivables neither past due nor impaired calculated by discounting the expected future cash flows at Liability: 1.34 Liability: nil has been assessed as high on the basis of credit ratings (where prevailing interest rates using market observable inputs. The available) or historical information about counterparty default. The fair values of loan notes and other financial assets have been Cash flow hedge - purchases US$2,254 Asset: 0.77 117 (5) US$2,906 Asset: nil - (154) carrying amounts of the Group’s trade and other receivables are calculated using market interest rates. (AUD) Liability: 0.72 Liability: 0.74 Capital denominated in Australian dollars, US dollars and NZ dollars. Since Cash flow hedge - purchases US$41 Asset: 1.40 3 - US$65 Asset: nil - (2) the Group trades only with recognised third parties, no requests Derivatives (GBP) Liability: nil Liability: 1.27 or requirement for collateral covering trade and other receivables The Group enters into derivative financial instruments with various balances have been made. Cash flow hedge - purchases US$137 Asset: 0.71 8 - US$156 Asset: nil - (11) counterparties, principally financial institutions with investment (NZD) Liability: nil Liability: 0.69 grade credit ratings. Foreign exchange forward contracts, interest Exposure rate swap contracts, cross-currency interest rate swaps and Cash flow hedge - purchases €20 Asset: 0.64 - - €15 Asset: 0.69 1 - The Group’s maximum credit exposure to current receivables, commodity future contracts are all valued using forward pricing (AUD) Liability: 0.63 Liability: nil finance advances and loans are shown below: techniques. This includes the use of market observable inputs, Interest rate swap contracts such as foreign exchange spot and forward rates, yield curves of 2018 2017 the respective currencies, interest rate curves and forward rate Cash flow hedge - - - - £300 1.09% fixed - (1)

% % curves of the underlying commodity. Accordingly, these derivatives Fair value hedge A$300 BBSW +0.82% 5 - A$300 BBSW +0.82% 7 - Risk are classified as Level 2. floating floating Bunnings 20.0 23.7 Cross-currency interest rate swaps Interest-bearing loans and borrowings Coles 34.7 27.4 Fair value hedge - - - - US$750 BBSW +1.24% 242 - Quoted market prices or dealer quotes for similar instruments are floating Department Stores 2.7 2.8 used to value long-term debt instruments except corporate bonds Officeworks 2.7 2.5 which are dealt with above. Cash flow hedge €1,250 5.32% fixed 348 - €1,250 5.32% fixed 240 - Industrial and Safety 20.8 18.9 Valuation of financial instruments Brent oil contracts Chemicals, Energy and Fertilisers 15.2 11.4 For all fair value measurements and disclosures, the Group uses Cash flow hedge 0.877m AU$64.88 per 36 (8) 1.309m AU$68.52 per - -

Resources 1.9 11.4 the following to categorise the method used: barrels barrel barrels barrel structure Group Corporate 2.0 1.9 Total derivative asset/(liability) 517 (16) 493 (178) 100.0 100.0 • Level 1: the fair value is calculated using quoted prices in active markets. • Level 2: the fair value is estimated using inputs other than Recognition and measurement Credit risk management: financial instruments and quoted prices included in Level 1 that are observable for the For the purposes of hedge accounting, hedges are classified as: cash deposits asset or liability, either directly (as prices) or indirectly (derived Recognition Credit risk from balances with banks and financial institutions is from prices). Derivative financial instruments are initially recognised at fair value • fair value hedges when they hedge the exposure to changes in managed by Group Treasury in accordance with Board-approved • Level 3: the fair value is estimated using inputs for the asset or on the date on which a derivative contract is entered into and are the fair value of a recognised asset, liability or firm commitment policy. Investments of surplus funds are made only with liability that are not based on observable market data. subsequently remeasured to fair value per note 15(e). The method of that could affect profit or loss; or approved counterparties or counterparties rated AA or higher by recognising any remeasurement gain or loss depends on the nature • cash flow hedges when they hedge a particular risk associated items Unrecognised All of the Group’s financial instruments were valued using market of the item being hedged. For hedging instruments, any hedge Standard & Poor’s. Surplus funds are invested within credit limits with the cash flows of recognised assets and liabilities and highly observable inputs (Level 2) with the exception of shares in unlisted ineffectiveness is recognised directly in the income statement in the assigned to each counterparty, unless appropriate approval is probable forecast transactions. A hedge of the foreign currency provided. companies at fair value (Level 3) that were valued at under period in which it is incurred. This was immaterial in the current year. $2 million (2017: $1 million). risk of a firm commitment is accounted for as a cash flow hedge. The carrying amount of financial assets represents the maximum Hedge accounting Wesfarmers will discontinue hedge accounting prospectively only credit exposure. There is also exposure to credit risk when the For financial instruments that are carried at fair value on a recurring when the hedging relationship, or part of the hedging relationship Group provides a guarantee to another party. Details of contingent basis, the Group determines whether transfers have occurred At the start of a hedge relationship, the Group formally designates no longer qualifies for hedge accounting, which includes where liabilities are disclosed in note 21. There are no significant between levels in the hierarchy by reassessing categorisation and documents the hedge relationship, including the risk there has been a change to the risk management objective and concentrations of credit risk within the Group. (based on the lowest level input that is significant to the fair value management strategy for undertaking the hedge. This includes measurement as a whole) at the end of each reporting period. identification of the hedging instrument, the hedged item or strategy for undertaking the hedge and instances when the hedging There were no transfers between Level 1 and Level 2 during the transaction, the nature of the risk being hedged and how the instrument expires or is sold, terminated or exercised. For these year. There were no material Level 3 fair value movements during entity will assess the hedging instrument’s effectiveness. Hedge purposes, the replacement or rollover of a hedging instrument into Other the year. accounting is only applied where effective tests are met on a another hedging instrument is not an expiration or termination if prospective basis. such a replacement or rollover is consistent with our documented risk management objective.

126 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 127 statements Financial Financial statements

Notes to the fiNaNcial statemeNts: Risk Notes to the fiNaNcial statemeNts: Risk For the year ended 30 June 2018 For the year ended 30 June 2018 BACK About this report 16. Hedging (continued) 17. Impairment of non-financial assets Hedges that meet the criteria for hedge accounting are classified and accounted for as follows: Testing for impairment Recognised impairment Fair value hedges The Group tests property, plant and equipment, intangibles and In the first half of the year, the carrying values of both the Target goodwill for impairment: and BUKI CGUs exceeded their respective recoverable amounts The Group uses fair value hedges to mitigate the risk of changes in the fair value of foreign currency borrowings from foreign currency and a pre-tax impairment of $1,167 million ($1,253 million post-tax) and interest rate fluctuations over the hedging period. Where these fair value hedges qualify for hedge accounting, gains or losses from • at least annually for indefinite life intangibles and goodwill; and was recognised in ‘impairment expenses’ for Target and as part of remeasuring the fair value of the hedging instrument are recognised within finance costs in the income statement, together with gains or • where there is an indication that the asset may be impaired discontinued operations for BUKI. losses in relation to the hedged item where those gains or losses relate to the risk intended to be hedged. The net amount recognised in the income statement in this financial year was less than $1 million. (which is assessed at least each reporting date); or The decrease in the recoverable amount of the Target CGU • where there is an indication that previously recognised largely reflected the difficult trading conditions in an increasingly information Segment The maturity profile of the fair value hedges is shown in note 15(b). impairment (on assets other than goodwill) may have changed. competitive market and a moderated outlook for the business. If the hedged item is a firm commitment (and therefore not recognised), the subsequent cumulative change in the fair value of the hedged The impairment was recognised in respect of Target’s goodwill risk is recognised as an asset or liability with a corresponding gain or loss recognised in profit or loss. The changes in the fair value of the If the asset does not generate independent cash inflows and its ($47 million), brand name ($238 million) and other fixed assets hedging instrument are also recognised in profit or loss. value in use cannot be estimated to be close to its fair value, the ($21 million). asset is tested for impairment as part of the cash generating unit The accumulated amount of fair value adjustment which is included in the carrying amount of borrowings in the balance sheet is as (CGU) to which it belongs. The decrease in the recoverable amount of the BUKI CGU was follows: the result of a continued deterioration in the financial performance Assets are impaired if their carrying value exceeds their recoverable of the Homebase stores and a moderated long-term outlook for 2018 2017 amount. The recoverable amount of an asset or CGU is determined the broader business. The impairment was recognised in respect as the higher of its fair value less costs of disposal (FVLCOD) or of BUKI’s brand ($18 million) and goodwill ($777 million), both Foreign Domestic Foreign Domestic value in use (VIU).

recognised as part of discontinued operations, a $92 million numbers Key bonds bonds bonds bonds write-off of its deferred tax asset and $66 million writedown of $m $m $m $m Impairment calculations stock.

In assessing VIU, the estimated future cash flows are discounted Face value at inception 1,630 1,350 2,358 1,350 Target’s recoverable value as at 30 June 2018 continues to to their present value using a discount rate that reflects current approximate its carrying value, while BUKI has been disposed of in Change arising from revaluation to spot rates at 30 June 338 - 476 - market assessments of the time value of money and the risks the 2018 financial year (refer to note 20). 1,968 1,350 2,834 1,350 specific to the asset or CGU. In determining FVLCOD, a discounted cash flow model is used based on a methodology consistent with Reversal of impairment Balance of unamortised discount/premium (7) (2) (10) (4) that applied by the Group in determining the value of potential Amortised cost 1,961 1,348 2,824 1,346 acquisition targets, maximising the use of market observed inputs. Where there is an indication that previously recognised impairment These calculations, classified as Level 3 on the fair value hierarchy, losses may no longer exist or have decreased, the asset is tested. Accumulated amount of fair value hedge adjustment attributable to are compared to valuation multiples, or other fair value indicators If there has been a change to the estimates used to determine Capital hedged risk - 5 (6) 7 where available, to ensure reasonableness. the asset’s recoverable amount since the last impairment loss Carrying amount 1,961 1,353 2,818 1,353 was recognised, the carrying value of the asset is increased to Inputs to impairment calculations its recoverable amount. That increased amount cannot exceed the carrying value that would have been determined, net of There was no material ineffectiveness relating to financial instruments in designated fair value hedge relationships during the year For VIU calculations, cash flow projections are based on depreciation, had no impairment loss been recognised for the (2017: nil). Wesfarmers’ corporate plans and business forecasts prepared by asset in prior years. Such reversal is recognised in profit or loss management and approved by the Board. The corporate plans and the depreciation charge is adjusted in future periods to Cash flow hedges are developed annually with a five-year outlook and, for these allocate the asset’s revised carrying value, less any residual value, The Group uses cash flow hedges to mitigate the risk of variability of future cash flows attributable to foreign currency fluctuations over calculations, are adjusted to exclude the costs and benefits of on a systematic basis over its remaining useful life. Impairments the hedging period associated with our foreign currency borrowings and our ongoing business activities, predominantly where we have expansion capital and on the understanding that actual outcomes recognised against goodwill are not reversed. may differ from the assumptions used. highly probable purchase or settlement commitments in foreign currencies. The Group also uses cash flow hedges to hedge variability in There were no material reversals of impairment during the Risk cash flows due to interest rate or natural gas price movements associated with some of our domestic borrowings or forecast natural gas In determining FVLCOD, the valuation model incorporates the cash 2018 financial year. purchases respectively. flows projected over the balance of the current corporate plan For cash flow hedges, the portion of the gain or loss on the hedging instrument that is effective is recognised directly in equity, while the period, or, in the case of CGUs within the Resources business, ineffective portion is recognised in profit or loss. The maturity profile of these hedges is shown in note 15(b), the recognition of the gain or over their respective life-of-mine (LOM). These projections are loss is expected to be consistent with this. discounted using a risk-adjusted discount rate commensurate with a typical market participant’s assessment of the risk associated with the projected cash flows. 2018 2017 Foreign Foreign Commodity For both the VIU and FVLCOD models, cash flows beyond the Foreign Foreign Commodity five-year corporate plan period are extrapolated using estimated Trade bonds debt hedge Trade bonds debt hedge growth rates, which are based on Group estimates, taking into $m $m $m $m $m $m $m $m consideration historical performance as well as expected long-term structure Group operating conditions. Growth rates do not exceed the consensus Change in the fair value of the forecasts of the long-term average growth rate for the industry in hedged item 294 108 1 28 15 (30) 1 - which the CGU operates. Discount rates used in both calculations are based on the weighted Amounts recognised in equity are transferred to the income statement when the hedged transaction affects profit or loss, such as when average cost of capital determined by prevailing or benchmarked hedged income or expenses are recognised or when a forecast sale occurs. When the hedged item is the cost of a non-financial asset or market inputs, risk adjusted where necessary. Other assumptions liability, the amounts taken to equity are transferred to the initial carrying amount of the non-financial asset or liability. are determined with reference to external sources of information and use consistent, conservative estimates for variables such as If the forecast transaction is no longer expected to occur, amounts previously recognised in equity are transferred to the income terminal cash flow multiples. Increases in discount rates or changes

statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a in other key assumptions, such as operating conditions or financial items Unrecognised hedge is revoked, amounts previously recognised in equity remain in equity until the forecast transaction occurs. performance, may cause the recoverable amounts to fall below carrying values. Other

128 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 129 statements Financial Financial statements

Notes to the fiNaNcial statemeNts: Risk Notes to the fiNaNcial statemeNts: Group structure For the year ended 30 June 2018 For the year ended 30 June 2018 BACK About this report 17. Impairment of non-financial assets (continued) 18. Associates and joint arrangements

Consolidated Investment properties owned by associates are initially measured at cost, including transaction costs. Subsequent to initial Key assumptions: fair value less costs of disposal calculations 2018 2017 recognition, investment properties are stated at fair value, which $m $m reflects market conditions at the balance sheet date. Gains Coles and Target CGUs or losses arising from changes in the fair values of investment The key assumptions used for assessing the recoverable amounts of the Coles CGU (which accounts for over 77 per cent of the Investments in associates 731 686 properties are recognised in profit or loss of the associate, in the Group’s goodwill and intangible assets with indefinite useful lives at 30 June 2018) and Target CGU, are set out below. Both CGUs year in which they arise. This is consistent with the Group’s policy. adopt the FVLCOD valuation methodology to determine the recoverable amount. Interests in joint venture 17 17

748 703 information Segment EBIT growth over the forecast period is based on past experience, expectations of general market conditions and, in the case of Interests in joint arrangements Target, a program of business improvement strategies. The post-tax discount rates incorporate a risk-adjustment relative to the Net profits from operations of associates 92 117 Recognition and measurement risks associated with the net post-tax cash flows being achieved, while the growth rates beyond the corporate plan are based on Other comprehensive loss of associates (8) (7) The Group recognises its share of the assets, liabilities, expenses market estimates of the long-term average industry growth rate. and income from the use and output of its joint operations. The Profit from operations of joint venture 5 30 Group’s investment in its joint venture is accounted for using the Coles Target Other comprehensive income of equity method of accounting. 2018 2017 2018 2017 joint venture 1 7 Total comprehensive income 90 147 Discount rate (post-tax) 8.6% 8.9% 11.8% 11.0% Key judgement: control and significant

Growth rate beyond corporate plan 3.0% 3.0% 1.7% 2.5% numbers Key Investments in associates influence Headroom as a percentage of the CGU’s net carrying value 32.2% 29.9% 6.7% 4.9% Terminal value as a percentage of the Target CGU’s recoverable value 69.2% 77.1% Recognition and measurement The Group has a number of management agreements The Group’s investments in its associates, being entities in which with associates and joint arrangements it considers the Group has significant influence and are neither subsidiaries when determining whether it has control, joint control or As Target’s recoverable amount is marginally above its carrying value, any adverse movements in key assumptions may lead to nor jointly controlled assets, are accounted for using the equity significant influence. The Group assesses whether it has an impairment. Consistent with 30 June 2017, the recoverable amount of Target has been based on assumed improvements in method. Under this method, the investment in associates is carried the power to direct the relevant activities of the investee its operating and financial performance, notwithstanding that the timing of cash flows arising from these improvements will be in the consolidated balance sheet at cost plus post-acquisition by considering the rights it holds to appoint or remove key influenced by general market conditions. The recoverable value of Target is sensitive to changes in its discount rate and its forecast changes in the Group’s share of the associates’ net assets. management and the decision-making rights and scope of long-term EBIT that drives terminal value. A one per cent change in discount rate or a 12 per cent change in its forecast long-term Goodwill relating to associates is included in the carrying amount powers specified in the contract. EBIT approximates a $62 million change in recoverable value. Reversals of previously recognised impairment charges have been of the investment and is not amortised. After application of the Where the Group has the unilateral power to direct the Capital considered and given the marginal headroom under current valuations, an impairment reversal has not been recognised in respect equity method, the Group determines whether it is necessary relevant activities of an investee, the Group then assesses of the Target CGU. to recognise any additional impairment loss with respect to the whether the power it holds is for its own benefit (acting as Group’s investment. The Group’s income statement reflects the principal) or for the benefit of others (acting as agent). This Group’s share of the associate’s result. Other CGUs determination is based on a number of factors including Where there has been a change recognised directly in the an assessment of the magnitude and variability of the Based on current economic conditions and CGU performances, no reasonably possible change in a key assumption used in the associate’s equity, the Group recognises its share of any changes Group’s exposure to variable returns associated with its determination of the recoverable value of Coles or CGUs other than Target would result in a material impairment to the Group. and discloses this in the consolidated statement of comprehensive involvement with the investee. In an agency capacity, income. the Group is considered to be acting on behalf of other parties and therefore does not control the investee when it Where the reporting dates of the associates and the Group exercises its decision-making powers. vary, management accounts of the associate for the period to Risk the Group’s balance date are used for equity accounting. The associates’ accounting policies are consistent with those used by the Group for like transactions and events in similar circumstances. Ownership Interests in associates and joint arrangements 2018 2017 Associates Principal activity Reporting date Country of incorporation % %

Australian Energy Consortium Pty Ltd1 Oil and gas 31 December Australia 27.4 27.4

Bengalla Coal Sales Company Pty Limited Sales agent 31 December Australia 40.0 40.0 structure Group Bengalla Mining Company Pty Limited Management company 31 December Australia 40.0 40.0 BWP Trust Property investment 30 June Australia 24.8 24.8

Gresham Partners Group Limited Investment banking 30 September Australia 50.0 50.0 Gresham Private Equity Funds Private equity fund 30 June Australia (a) (a) Queensland Nitrates Management Pty Ltd Chemical manufacture 30 June Australia 50.0 50.0 Queensland Nitrates Pty Ltd Chemical manufacture 30 June Australia 50.0 50.0 Wespine Industries Pty Ltd Pine sawmillers 30 June Australia 50.0 50.0

Joint operations Principal activity Reporting date Country of incorporation % % items Unrecognised Sodium Cyanide Sodium cyanide manufacture 30 June Australia 75.0 75.0 Bengalla Coal mining 31 December Australia 40.0 40.0 ISPT Property ownership 30 June Australia 25.0 25.0 Joint venture Principal activity Reporting date Country of incorporation % % BPI NO 1 Pty Ltd Property management 30 June Australia (b) (b)

1 Australian Energy Consortium Pty Ltd has a 50.0 per cent interest in Quadrant Energy Holdings Pty Ltd. (a) Gresham Private Equity Funds: While the Group’s interest in the unit holders’ funds of Gresham Private Equity Fund No. 2 amounts to greater than

50.0 per cent, it is not a controlled entity as the Group does not have the practical ability to direct their relevant activities. Such control requires a unit holders’ Other resolution of 75.0 per cent of votes pursuant to the Funds’ trust deeds. (b) BPI NO 1 Pty Ltd: While the Group owns the only equity share in BPI NO 1 Pty Ltd, the Group’s effective interest approximates 50.0 per cent and joint control is effected through contractual arrangements with the joint venture partner.

130 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 131 statements Financial Financial statements

Notes to the fiNaNcial statemeNts: Group structure Notes to the fiNaNcial statemeNts: Group structure For the year ended 30 June 2018 For the year ended 30 June 2018 BACK About this report 19. Subsidiaries 19. Subsidiaries (continued) The consolidated financial statements include the financial statements of Wesfarmers Limited and the subsidiaries listed in the following table. Refer to page 135 for the respective legend. 2018 2017 2018 2017 Entity % % Entity % % 2018 2017 2018 2017 Entity % % Entity % % CTE Pty Ltd 100 100 Iconford Limited ~ p - 100

Cuming Smith and Company Limited + 100 100 Incorporatewear Limited p 100 100 A.C.N. 003 921 873 Pty Limited 100 100 Bunnings Manufacturing Pty Ltd 100 100 Curragh Coal Sales Co Pty Ltd ~ - 100 Index Limited ~ p - 100 A.C.N. 004 191 646 Pty Ltd 100 100 Bunnings Properties Pty Ltd 100 100 information Segment Curragh Queensland Mining Pty Ltd ~ - 100 J Blackwood & Son Pty Ltd + 100 100 A.C.N. 007 870 484 Pty Ltd 100 100 Bunnings Pulp Mill Pty Ltd 100 100 Dairy Properties Pty Ltd 100 100 James Patrick & Co Pty Ltd (in A.C.N. 008 648 799 Pty Ltd 100 100 Bunnings Services Limited ~ p - 100 liquidation) 100 100 Ditchburn Property Investments (UK) A.C.N. 008 734 567 Pty Ltd 100 100 BWP Management Limited < 100 100 Ltd p 100 100 KAS Direct Sourcing Private Limited # l 100 100 A.C.N. 082 931 486 Pty Ltd 100 100 C S Holdings Pty Limited + 100 100 Dowd Corporation Pty Ltd 100 100 KAS Global Holdings Pty Ltd + 100 100

A.C.N. 092 194 904 Pty Ltd 100 100 Campbells Hardware & Timber Pty e.colesgroup Pty Ltd 100 100 KAS Global Trading Pty Limited t 100 100 Limited 100 100 A.C.N. 112 719 918 Pty Ltd 100 100 e.tailing (Coles Group) Pty Ltd 100 100 KAS International Sourcing CGNZ Finance Limited n 100 100 Bangladesh PVT Ltd x 100 100 numbers Key AEC Environmental Pty Ltd 100 100 Eastfarmers Pty Ltd 100 100 Charlie Carter (Norwest) Pty Ltd * 100 100 KAS International Trading (Shanghai)

Andearp Pty Ltd 100 100 ECC Pty Ltd 100 100 Company Limited u 100 100 Chef Fresh Pty Ltd 100 100 KAS Pty Limited t 100 100 ANKO Retail Incorporated @ z 100 - ENV.Australia Pty Ltd 100 100 Chemical Holdings Kwinana Pty Ltd + 100 100 Australian Gold Reagents Pty Ltd 75 75 Environmental and Licensing KAS Services India Private Limited @ l 100 - CMFL Services Ltd * 100 100 Professionals Pty Ltd 100 100 Australian Graphics Pty Ltd 100 100 Katies Fashions (Aust) Pty Limited 100 100 CMNZ Investments Pty Ltd 100 100 Eureka Operations Pty Ltd * 100 100 Australian International Insurance Kleenheat Gas House Franchising Pty Limited + 100 100 CMPQ (CML) Pty Ltd 100 100 FBP Awards Fund Pty Ltd 100 100 Ltd ~ - 100 Capital Australian Liquor Group Ltd * 100 100 Coles Ansett Travel Pty Ltd 97.5 97.5 FIF Investments Pty Limited 100 100 Kleenheat Pty Ltd 100 100 Kmart Australia Limited + 100 100 Australian Underwriting Holdings Coles Financial Services Pty Ltd * 100 100 Fifthgrange Limited ~ p - 100 Limited + 100 100 Kmart Holdings Pty Ltd @ 100 - Australian Underwriting Services Pty Coles Group Asia Pty Ltd 100 100 Fitzgibbons Hotel Pty Ltd 100 100 Ltd 100 100 Kwinana Nitrogen Company Coles Group Deposit Services Pty Ltd 100 100 Fitzinn Pty Ltd 100 100 Proprietary Limited 100 100 Australian Vinyls Corporation Pty Ltd + 100 100 Coles Group Finance (USA) Pty Ltd 100 100 Focal Point (Lighting) Limited ~ p - 100 Lawvale Pty Ltd 100 100 AVC Holdings Pty Ltd + 100 100 Coles Group Finance Limited * 100 100 Fosseys (Australia) Pty Ltd + 100 100 Lexden BH (Colchester) Limited ~ p - 100

AVC Trading Pty Ltd + 100 100 Risk Coles Group International Pty Ltd 100 100 GBPL Pty Ltd 100 100 Lexden BH Limited ~ p - 100 BBC Hardware Limited + 100 100 Coles Group Limited * 100 100 GPML Pty Ltd 100 100 LHG Pty Ltd * 100 100 BBC Hardware Properties (NSW) Pty Coles Group New Zealand Holdings Ltd 100 100 Greencap Holdings Limited 100 100 LHG2 Pty Ltd * 100 100 Limited n 100 100 Greencap Pty Ltd 100 100 BBC Hardware Properties (Vic) Pty Ltd 100 100 Coles Group Properties Holdings Ltd * 100 100 LHG3 Pty Ltd 100 100 Beddington House (No.4) Limited ~ p - 100 Coles Group Property Developments Grocery Holdings Pty Ltd * 100 100 Liftco Pty Limited + 100 100

Ltd * 100 100 p Beddington House Holdings Limited ~ p - 100 Hampden Group Limited ~ - 100 Liquorland (Australia) Pty Ltd * 100 100 Coles Group Superannuation Fund HHGL (ROI) Limited ~ p - 100

Bi-Lo Pty Limited * 100 100 Pty Ltd 100 100 Liquorland (Qld) Pty Ltd * 100 100 structure Group Blacksmith Jacks Pty Ltd 100 100 Coles Group Supply Chain Pty Ltd * 100 100 HHGL Limited ~ p - 100 Loggia Pty Ltd + 100 100

Blackwoods 4PL Pty Ltd 100 100 Coles Melbourne Ltd * 100 100 Home Charm Group Limited ~ p - 100 Loyalty Pacific Pty Ltd * 100 100 Blackwoods Training Pty Ltd 100 100 Coles Online Pty Ltd 100 100 Home Charm Group Trustees Limited ~ p - 100 Manacol Pty Limited + 100 100

Blackwoods Xpress Pty Ltd 100 100 Coles Properties WA Ltd * 100 100 Homebase (NI) Limited ~ p - 100 Masters Hardware Limited n 100 100 Homebase Card Handling Services BPI Management Pty Ltd 100 Coles Property Management Pty Ltd 100 Masters Home Improvement Limited n 100 100 100 100 Limited ~ p - 100 Brian Pty Ltd 100 Coles Retail Services Pty Ltd 100 MC2 Pacific Pty Ltd 100 100 100 100 Homebase Direct Limited ~ p - 100 items Unrecognised BUKI (Australia) Pty Ltd + 100 Coles Stores (New Zealand) Limited ~ n 100 Meredith Distribution (NSW) Pty Ltd 100 100 100 - Homebase Group (2000) Limited ~ p - 100 Bullivants International Pty Ltd 100 Coles Supermarkets Australia Pty Ltd * 100 Meredith Distribution Pty Ltd 100 100 100 100 Homebase Group Limited ~ p - 100 Bullivants Pty Limited + 100 ConsortiumCo Pty Ltd 100 MI Home Limited ~ p - 100 100 100 Homebase Holdings Limited ~ p - 100 Bunnings (NZ) Limited n Coo-ee Investments Pty Limited 100 Millars (WA) Pty Ltd 100 100 100 100 100 Homebase Spend & Save Limited ~ p - 100 Bunnings (UK & I) Holdings Limited ~ p - 100 Coregas NZ Limited n 100 100 Hotel Wickham Investments Pty Ltd 100 100 Modern Interiors Limited ~ p - 100 Bunnings Group Limited + 100 100 Coregas Pty Ltd + 100 100 HouseWorks Co Pty Ltd 100 100 Modwood Technologies Pty Ltd 100 100

Bunnings Joondalup Pty Ltd 100 100 CSA Retail (Finance) Pty Ltd 100 100 Howard Smith Limited + 100 100 Mycar Automotive Pty Ltd 100 100 Other Bunnings Limited # n 100 100 CSBP Ammonia Terminal Pty Ltd 100 100 Howard Smith Nominees Pty Limited ~ - 100 Neat N’ Trim Uniforms Pty Ltd 100 100 Bunnings Management Services Pty CSBP Limited + 100 100 Newmart Pty Ltd * 100 100 Ltd 100 100 Hunter Property Investments s 100 100

132 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 133 statements Financial Financial statements

Notes to the fiNaNcial statemeNts: Group structure Notes to the fiNaNcial statemeNts: Group structure For the year ended 30 June 2018 For the year ended 30 June 2018 BACK About this report 19. Subsidiaries (continued) 19. Subsidiaries (continued)

2018 2017 2018 2017 2018 2017 Entity acquired/incorporated during the year. @ Entity % % Entity % % Entity % % Entity dissolved/deregistered during the year. ~

now.com.au Pty Ltd 100 100 Texas Services Limited ~ p - 100 Wesfarmers Industrial and Safety Pty Audited by firms of Ernst & Young International. # Ltd + 100 100 Audited by other firms of accountants. < NZ Finance Holdings Pty Limited n 100 100 The Builders Warehouse Group Pty Limited 100 100 Wesfarmers Insurance Investments An ASIC-approved Deed of Cross Guarantee has Officeworks Businessdirect Pty Ltd 100 100 Pty Ltd + 100 100 been entered into by Wesfarmers Limited and these The Franked Income Fund 100 100 entities. + information Segment Officeworks Holdings @ 100 - Wesfarmers Investments Pty Ltd 100 100 The Grape Management Pty Ltd * 100 100 Entities removed from the Closed Group by way of a Officeworks Ltd + 100 100 Wesfarmers Kleenheat Gas Pty Ltd + 100 100 Revocation Deed during the period. * The Westralian Farmers Limited + 100 100 Officeworks NZ Limited (formerly Wesfarmers LNG Pty Ltd + 100 100 Refer note 24 for further details. Officeworks Superstores NZ Limited) n 100 100 The Workwear Group HK Limited # t 100 100 Wesfarmers Loyalty Management Pty All subsidiaries are incorporated in Australia unless Officeworks Property Pty Ltd 100 100 The Workwear Group Holding Pty Ltd + 100 100 Ltd + 100 100 identified with one of the following symbols: Wesfarmers LPG Pty Ltd + 100 100 Pailou Pty Ltd + 100 100 The Workwear Group Pty Ltd + 100 100 Bangladesh x Patrick Operations Pty Ltd 100 100 Tickoth Pty Ltd 100 100 Wesfarmers Oil & Gas Pty Ltd 100 100 Bermuda t Cayman Islands s numbers Key Petersen Bros Pty Ltd 100 100 Tooronga Holdings Pty Ltd 100 100 Wesfarmers Private Equity Pty Ltd 100 100

Wesfarmers Provident Fund Pty Ltd 100 100 China u Powertrain Pty Limited ~ - 100 Trend Décor Limited ~ p - 100 Hong Kong t Wesfarmers Railroad Holdings Pty Ltd 100 100 Premier Power Sales Pty Ltd 100 100 Trimevac Pty Ltd 100 100 India l Wesfarmers Resources Limited + 100 100 Procurement Online Pty Ltd 100 100 Tyre and Auto Pty Ltd + 100 100 Indonesia m Protector Alsafe Pty Ltd 100 100 Tyremaster (Wholesale) Pty Ltd 100 100 Wesfarmers Retail Holdings Pty Ltd + 100 100 Republic of Ireland p Protex Healthcare (Aus) Pty Ltd 100 100 Tyremaster Pty Ltd 100 100 Wesfarmers Retail Pty Ltd + 100 100 New Zealand n Wesfarmers Risk Management Portugal v PT Blackwoods Indonesia m 100 100 Ucone Pty Ltd + 100 100 Capital (Singapore) Pte Ltd z 100 100 Singapore z p Validus Group Pty Ltd 100 Quickinstant Limited ~ - 100 100 Wesfarmers Risk Management Limited # t 100 100 United Arab Emirates  R & N Palmer Pty Ltd 100 100 Valley Investments Pty Ltd + 100 100 Wesfarmers Securities Management United Kingdom p Pty Ltd 100 100 Rapid Evacuation Training Services Viking Direct Pty Limited 100 100 United States of America z Pty Ltd 100 100 Wesfarmers Sugar Company Pty Ltd 100 100 W4K.World 4 Kids Pty Ltd 100 100 All entities utilise the functional currency of the country Relationship Services Pty Limited 100 100 Wesfarmers Superannuation Pty Ltd 100 100 of incorporation with the exception of Wesfarmers Waratah Cove Pty Ltd 100 100 Retail Australia Consortium Pty Ltd 100 100 Wesfarmers Transport Indonesia Pty Risk Management Limited and Target Australia Wesfarmers Agribusiness Limited + 100 100 Ltd ~ - 100 Sourcing (Shanghai) Co Ltd, which utilise the Australian Retail Investments Pty Ltd 100 100 dollar and KAS International Trading (Shanghai) Risk Retail Ready Operations Australia Pty Wesfarmers Bengalla Limited + 100 100 Wesfarmers Transport Limited + 100 100 Company Limited, PT Blackwoods Indonesia and Wesfarmers Oil & Gas Pty Ltd, which utilise the US dollar. Ltd * 100 100 Wesfarmers Bengalla Management Weskem Pty Ltd 100 100 Pty Ltd 100 100 Richardson & Richardson, Unipessoal, Westralian Farmers Superphosphates LDA v 100 100 Wesfarmers Bunnings Limited + 100 100 Limited + 100 100 Richmond Plaza Shopping Centre Pty Wesfarmers Chemical US Holdings Ltd 100 100 WEV Capital Investments Pty Ltd 100 100 Corp z 100 100 WFCL Investments Pty Ltd 100 100 Ruissellement Limited ~ p - 25 Wesfarmers Chemicals, Energy & Fertilisers Limited + 100 100 WFPL Funding Co Pty Ltd * 100 100

Sandfords Limited ~ p - 100 structure Group Wesfarmers Coal Resources Pty Ltd + 100 100 SBS Rural IAMA Pty Limited 100 100 WFPL No 2 Pty Ltd 100 100 Wesfarmers Curragh Pty Ltd ~ - 100 Scones Jam n Cream Pty Ltd 100 100 WFPL Security SPV Pty Ltd 100 100 Wesfarmers Department Stores Sellers (SA) Pty Ltd 100 100 Holdings Pty Ltd @ 100 - WFPL SPV Pty Ltd 100 100 Share Nominees Limited 100 100 Wesfarmers Emerging Ventures Pty WIS International Pty Ltd 100 100 Ltd 100 100 WIS Solutions Pty Ltd 100 100 Sotico Pty Ltd 100 100 Wesfarmers Energy (Gas Sales) WIS Supply Chain Management Limited + 100 100 Target Australia Pty Ltd + 100 100 (Shanghai) Co Ltd u 100 100 Target Australia Sourcing (Shanghai) Wesfarmers Energy (Industrial Gas) items Unrecognised Pty Ltd 100 100 WPP Holdings Pty Ltd 100 100 Co Ltd # u 100 100 WWG Middle East Apparel Trading Wesfarmers Fertilizers Pty Ltd + 100 100 Target Australia Sourcing Limited # t 100 100 LLC  49 49 Wesfarmers Finance Holding Target Holdings Pty Ltd @ 100 - Company Pty Ltd * 100 100 XCC (Retail) Pty Ltd 100 100 Texas (NI) Limited ~ p - 100 Wesfarmers Finance Pty Ltd * 100 100 Yakka Pty Limited 100 100 Texas Homecare (Northern Ireland) Wesfarmers Gas Limited + 100 100 Limited ~ p - 100 Texas Homecare Installation Services Wesfarmers Holdings Pty Ltd 100 100 Other Limited ~ p - 100 Wesfarmers Industrial & Safety Holdings NZ Limited # n 100 100 Texas Homecare Limited ~ p - 100 Wesfarmers Industrial & Safety NZ Texas Installations Limited ~ p - 100 Limited n 100 100

134 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 135 statements Financial Financial statements

Notes to the fiNaNcial statemeNts: Group structure Notes to the fiNaNcial statemeNts: unrecoGnised items For the year ended 30 June 2018 For the year ended 30 June 2018 BACK About this report 20. Discontinued operations 20. Discontinued operations (continued) 21. Commitments and contingencies Sale of Wesfarmers Curragh Pty Ltd Sale of Bunnings UK and Ireland On 22 December 2017, Wesfarmers entered into an agreement On 25 May 2018, Wesfarmers entered into an agreement to divest 2018 2017 to sell its Curragh coal mine in Queensland to Coronado Coal the assets of the BUKI business to a company associated with Consolidated $m $m Group for $700 million. The agreement also included a value share Hilco Capital for a nominal amount. Group operating lease commitments as lessee ($m) mechanism linked to future metallurgical coal prices. Operating lease commitments The agreement included a value share mechanism whereby Group as lessee (i) Within 2018 Under the value share mechanism, Wesfarmers will receive Wesfarmers will receive 20 per cent of any equity distributions from one year 25 per cent of Curragh’s export coal revenue generated above the business. This value share mechanism is not limited by time, Within one year 2,323 2,417 2017 a realised metallurgical coal price of US$145 per tonne, paid allowing Wesfarmers to participate in any profitable divestment One to five Greater than one year but not more than years information Segment quarterly over the next two years. of the business in the long term. No value for this has been five years 7,618 7,989 recognised as at 30 June 2018. Greater than The transaction was completed on 29 March 2018 and represents More than five years 8,432 9,159 five years the disposal of the Curragh coal mine business. The business The transaction was completed on 11 June 2018 and represents was not considered a discontinued operation or classified as the disposal of the BUKI business. The business was not 18,373 19,565 held-for-sale as at 30 June 2017 and the comparative consolidated considered a discontinued operation or classified as held-for-sale Group as lessor (ii) income statement and the statement of comprehensive income as at 30 June 2017 and the comparative consolidated income Within one year 14 18 Guarantees have been restated to show the discontinued operation separately statement and the statement of comprehensive income have The Group has issued a number of bank guarantees to third parties from continuing operations. been restated to show the discontinued operation separately from Greater than one year but not more than for various operational and legal purposes. It is not expected that continuing operations. five years 27 37 these guarantees will be called on. More than five years 4 7 Consolidated Consolidated On acquisition of the Coles group, Wesfarmers assumed numbers Key 45 62 2018 2017 2018 2017 responsibility for the guarantees entered into by the Coles group

Capital commitments (iii) relating to the sale of its Myer business in June 2006, under which $m $m $m $m Within one year 349 272 Coles group had guaranteed the performance of certain lease agreements held by Myer Ltd. The guarantees amount to less than Results of discontinued operation Results of discontinued operation Arising from agreements to invest in $1 million (2017: $2 million). The fair value of these guarantees is Gresham Private Equity Funds 2 2 Revenue 1,289 1,459 Revenue 1,706 2,072 not considered to be material and has not been recognised in this 351 274 financial report. Expenses (1,107) (1,151) Expenses (2,908) (2,171) Other expenditure commitments (iv) Profit before tax 182 308 Loss before tax (1,202) (99) The Group entered into warranties and a guarantee on disposal of Within one year 108 63 BUKI, the fair value of which were provided for at 30 June 2018. Income tax expense (55) (94) Income tax expense (80) (2)

The maximum exposure thereunder is not considered material to Capital Greater than one year but not more than Gain on disposal after income tax 123 - Loss on disposal after income tax (375) - the Group. Refer to note 20 for further information on the BUKI five years 245 59 divestment. Profit after tax from discontinued Loss after tax from discontinued More than five years 187 148 operations 250 214 operations (1,657) (101) Other 540 270 Certain companies within the Group are party to various legal Assets and liabilities of controlled entities at Assets and liabilities of controlled entities at Contingencies (v) date of disposal date of disposal actions that have arisen in the normal course of business. It is Trading guarantees 678 946 expected that any liabilities arising from such legal action would Assets Assets not have a material effect on the Group’s financial performance. Cash and cash equivalents - 8 Cash and cash equivalents 133 36 i. The Group has entered into commercial leases on office, retail and Trade and other receivables 176 151 Trade and other receivables 22 27 distribution properties, motor vehicles and office equipment. The lease 22. Events after the reporting period terms and implicit interest rates vary significantly. For the lease of buildings, Risk Inventories 113 115 Inventories 479 551 the lease terms range from one year to 25 years and have various renewal Dividends Property, plant and equipment 269 235 or purchase options, escalation clauses, termination rights and residual Property, plant and equipment 547 545 liability clauses. Operating lease commitments refer to future undiscounted A fully-franked final ordinary dividend of 120 cents per share Other assets 151 166 Goodwill and intangibles 94 874 minimum rentals payable under non-cancellable operating leases not resulting in a dividend of $1,361 million was declared for a included within this financial report. Operating lease payments are Total assets disposed 987 985 Other assets 25 128 payment date of 27 September 2018. The dividend has not been recognised as an expense in the income statement on a straight-line basis provided for in the 30 June 2018 full-year financial statements. Total assets disposed 1,022 1,851 over the lease term. Operating lease incentives are recognised as a liability Liabilities when received and released to earnings on a straight-line basis over the lease term. Fixed rate increases to lease payments, excluding contingent or Sale of interest in Bengalla Trade payables 155 143 Liabilities index-based rental increases, such as Consumer Price Index, turnover rental On 7 August 2018, Wesfarmers announced that it had entered into Other liabilities 277 264 Trade payables 354 388 and other similar increases, are recognised on a straight-line basis over the an agreement with New Hope Corporation to sell its 40 per cent lease term.

interest in Bengalla for $860 million subject to certain conditions structure Group Total liabilities disposed 432 407 Other liabilities 384 331 ii. Contracted non-cancellable future minimum lease payments expected to including regulatory approval. On successful completion of the Net assets disposed 555 578 Total liabilities disposed 738 719 be received in relation to non-cancellable sub-leases are not included in this transaction, Wesfarmers expects to record a pre-tax profit on financial report. sale of between $670 and $680 million, subject to completion Net assets disposed 284 1,132 Cash flows of discontinued operation iii. Commitments arising from contracts for capital expenditure contracted for at adjustments. balance date are not included in this financial report. Net cash from operating activities 182 356 Cash flows of discontinued operation iv. Contracted other expenditure commitments are not included in this financial Sale of Kmart Tyre and Auto Service (KTAS) Net cash used in investing activities (43) (76) Net cash used in operating activities (230) (291) report. On 13 August 2018, Wesfarmers announced that it had entered Net cash used in financing activities - - Net cash used in investing activities (68) (96) v. Contingent liabilities at balance date are not included in this financial report. into an agreement with Continental A.G. to sell its KTAS business Net cash flows for the year 139 280 Net cash from financing activities 395 382 for $350 million subject to certain conditions including regulatory Net cash flows for the year 97 (5) approval. On successful completion of the transaction, Wesfarmers Gain on disposal Key judgements: leases expects to record a pre-tax profit on sale of between $270 and items Unrecognised $275 million, subject to completion adjustments. Total consideration received 700 - Loss on disposal The Group classifies leases between finance and operating Carrying amount of net assets disposed (555) - Total consideration received - - depending on whether the Group holds substantially all Sale of interest in Quadrant of the risks and rewards incidental to ownership or not. In Transaction costs and other items (25) - Carrying amount of net assets disposed (284) - On 22 August 2018, Wesfarmers announced it had agreed to sell making this assessment, the Group primarily considers the its 13.2 per cent indirect interest in Quadrant Energy Holdings Pty Transaction costs and other items - Gain on disposal before income tax 120 - (91) asset ownership at the end of the lease term, any purchase Ltd (Quadrant) to Santos Limited for net proceeds of approximately Income tax benefit 3 - Loss on disposal before income tax (375) - options, the lease term in relation to the asset’s life, the US$170 million (A$231 million). On successful completion of the present value of future lease payments in relation to the Gain on disposal after income tax 123 - Income tax expense - - transaction, Wesfarmers expects to report a pre-tax profit on sale asset’s fair value and the nature of the asset. of approximately US$98 million (A$133 million). Loss on disposal after income tax (375) - Earnings per share - discontinued operation cents cents The reported lease commitments of the Group excludes rent that was considered contingent at lease inception. The effect The Group’s interests in Bengalla, KTAS and Quadrant have not Other Earnings per share - discontinued operation cents cents Basic earnings per share 0.22 0.19 of this exclusion on the reported lease commitments is not been classified as held-for-sale in these financial statements as the Diluted earnings per share 0.22 0.19 Basic earnings per share (1.46) (0.09) material. transactions did not meet the conditions for such classification at 30 June 2018. Diluted earnings per share (1.46) (0.09)

136 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 137 statements Financial Financial statements

Notes to the fiNaNcial statemeNts: Other Notes to the fiNaNcial statemeNts: Other For the year ended 30 June 2018 For the year ended 30 June 2018

BACK About this report 23. Parent disclosures 24. Deed of Cross Guarantee 24. Deed of Cross Guarantee (continued) 25. Auditors’ remuneration Parent The subsidiaries identified with a ‘+’ in note 19 are parties to a The consolidated balance sheet of the entities that are members Consolidated deed of cross guarantee under which each company guarantees of the Closed Group is as follows: 2018 2017 2018 2017 the debts of the others. By entering into the Deed, the wholly Deed Deed $m $m owned entities have been relieved from the requirement to Fees of the auditors of the company for: $’000 $’000 prepare a financial report and directors’ report under ASIC 2018 2017 Corporations (Wholly-owned Companies) Instrument 2016/785. Consolidated balance sheet $m $m Audit services Assets These subsidiaries and Wesfarmers Limited together referred to Audit and review of financial reports Current assets 6,687 8,681 Assets as the ‘Closed Group’, either originally entered into the Deed on Ernst & Young (Australia) 5,761 5,723 Non-current assets 22,780 22,639 27 June 2008, or have subsequently joined the Deed by way of an Current assets information Segment Ernst & Young (Overseas network firms) 812 702 Total assets 29,467 31,320 Assumption Deed. The effect of the Deed is that each party to it has guaranteed to pay any deficiency in the event of the winding Cash and cash equivalents 2,720 1,788 up of any of the entities in the Closed Group. Receivables - Trade and other 897 1,266 Assurance-related services Liabilities No entities joined the Closed Group by way of an Assumption Deed Inventories 3,575 5,536 Ernst & Young (Australian and overseas network firms) 942 1,272 Current liabilities 1,945 2,039 throughout the period. Entities that left the Closed Group by way of Derivatives 127 247 Non-current liabilities 3,362 4,017 a Revocation Deed are identified with a ‘ * ’ in note 19. The majority Other audit firms - 218 of these entities left the Closed Group effective 28 June 2018. Other 174 221 Total liabilities 5,307 6,056 7,515 7,915 No entities left the Closed Group by way of a disposal throughout Total current assets 7,493 9,058 Net assets 24,160 25,264 the period. Non-audit services Non-current assets The consolidated income statement and retained earnings of the Ernst & Young (Australian and overseas numbers Key Equity Receivables 484 548 entities that are members of the Closed Group is as follows: network firms): Equity attributable to equity holders of the parent Investment in controlled entities 16,450 4,579 Deed Deed – tax compliance 683 1,088 Issued capital 22,231 22,239 Investments in associates and joint venture 290 262 2018 2017 – other 343 1,219 Employee reserved shares 1 - Consolidated income statement and Deferred tax assets 370 771 retained earnings $m $m 1,026 2,307 Retained earnings 100 2,482 Property 494 1,556 Total paid to auditors 8,541 10,222 Dividends reserve 1,653 314 Profit from continuing operations before Plant and equipment 3,051 6,374 income tax 1,424 4,030 Restructure tax reserve 150 150 Goodwill 3,302 13,725 Profit from discontinued operations before The total non-audit services fees of $1,026 thousand represents Hedging reserve (19) 37 Intangible assets 966 4,539 income tax 384 308 12.0 per cent (2017: 23.1 per cent) of the total fees paid or Capital Share-based payments reserve 44 42 Derivatives 391 246 payable to Ernst & Young and related practices for the year Income tax expense (1,197) (1,227) ended 30 June 2018. The total non-audit services fees and Total equity 24,160 25,264 Other 1 27 Net profit for the year 611 3,111 assurance-related services fees was $1,968 thousand representing Total non-current assets 25,799 32,627 23.0 per cent (2017: 35.8 per cent) of the total fees paid or Profit attributable to members of the parent 2,103 2,474 Retained earnings at beginning of year 3,790 4,049 Total assets 33,292 41,685 payable to Ernst & Young and related practices for the year ended Remeasurement gain on defined benefit 30 June 2018. Total comprehensive income for the year, plan, net of tax (1) 1 net of tax, attributable to members of the Liabilities parent 2,102 2,458 Adjustment for companies transferred out 26. Related party transactions of the Closed Group (1,699) (1,136) Current liabilities Contingencies Total available for appropriation 2,701 6,025 Trade and other payables 3,027 5,850 Consolidated Interest-bearing loans and borrowings 993 1,179 Risk Contingent liabilities at balance date, not Dividends provided for or paid (2,529) (2,235) 2018 2017 Income tax payable 390 240 included in this financial report, were as Retained earnings at end of year 172 3,790 $’000 $’000 follows: Provisions 1,007 1,649 Derivatives 16 154 Associates Trading guarantees 593 860 Deed Deed Other 178 306 Management fees received 12,817 12,129 Consolidated statement of 2018 2017 Operating lease rent paid 141,660 141,668 Wesfarmers is party to various legal actions that have arisen in the comprehensive income $m $m Total current liabilities 5,611 9,378 normal course of business. It is expected that any liabilities arising Financial advisory fees paid 5,597 2,356 from such legal action would not have a material adverse effect on Profit for the year 611 3,111 Non-current liabilities Amounts receivable from associates 13,957 14,549 the Group’s financial report. Other comprehensive income Payables 1,088 1,307 Reimbursement for lease upgrades 569 879 structure Group Items that may be reclassified to profit or loss: Dividends reserve Interest-bearing loans and borrowings 2,965 3,649 Amounts owing to associates 39 17 Foreign currency translation reserve Provisions 631 1,125 Other related party transactions 452 509 The dividends reserve was created by the parent entity for Exchange differences on translation of the purposes of segregating profits from which dividends to foreign operations - 48 Derivatives - 24 shareholders can be paid. Other 90 82 Joint arrangements Cash flow hedge reserve Total non-current liabilities 4,774 6,187 Management fees received 323 318 Guarantees Unrealised gains/(losses) on cash flow hedges 96 (143) Total liabilities 10,385 15,565 Operating lease rent paid 38,705 57,598 Wesfarmers Limited and certain Australian controlled entities are Realised losses transferred to Net assets 22,907 26,120 Amounts receivable from joint venture 6,293 6,102 parties to a Deed of Cross Guarantee (the Deed) as disclosed in non-financial assets/net profit 143 191 Amounts owing to joint venture 66 63 note 24. Share of associates and joint venture reserves (8) - Equity items Unrecognised Other related party transactions 1,558 1,244 Tax effect (72) (17) Parent entity financial information Issued capital 22,275 22,268 Items that will not be reclassified to profit or loss: Reserved shares (42) (26) Management fees have been paid by associated entity, BWP Trust, The financial information for the parent entity has been prepared on Retained earnings the same basis as the consolidated financial statements, except as Retained earnings 173 3,790 to the Group on normal commercial terms and conditions for staff set out below. Remeasurement loss on defined benefit plan (1) 1 Reserves 501 88 and other services provided to associates. Rent for retail stores Other comprehensive income for the year, and warehouses has been paid by the Group to an associated 158 80 Total equity 22,907 26,120 Investments in subsidiaries, associates and joint net of tax entity, BWP Trust, and to the ISPT and BPI No. 1 Pty Ltd joint Total comprehensive income for the arrangements. During the year, no amounts were paid by ISPT to venture entities year, net of tax the Group for the acquisition and development of rental properties

Investments in subsidiaries, associates and joint venture entities Continuing operations 848 2,928 (2017: $186,100 thousand). Other related party transactions include Other are accounted for at cost in the financial statements of the parent. Discontinued operations (80) 263 sales to associates and joint arrangements on normal commercial Dividends received from associates are recognised in the parent terms and conditions. entity’s profit or loss when its right to receive the dividend is 768 3,191 established.

138 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 139 statements Financial Financial statements

Notes to the fiNaNcial statemeNts: Other Notes to the fiNaNcial statemeNts: Other For the year ended 30 June 2018 For the year ended 30 June 2018

BACK About this report 26. Related party transactions (continued) 27. Other accounting policies (continued) J P Graham, a director of Wesfarmers, has a majority shareholding interest in a company which jointly owns Gresham Partners Group Application Application Limited on an equal basis with a wholly owned subsidiary of Wesfarmers. Partly owned subsidiaries of Gresham Partners Group Limited Reference Description of Standard by Group have provided office accommodation and advisory services to Wesfarmers and were paid fees of $5,596,377 in 2018 (2017: $2,356,069). AASB 15 Revenue from Contracts This Standard establishes new principles for reporting information 1 January 2018 1 July 2018 P M Bassat, a director of Wesfarmers, was a director of AFL Sportsready Limited (until 11 October 2017) which provided training services with Customers (AASB 15) to users of financial statements about the nature, amount, timing to Wesfarmers Group companies on an arm’s length and normal commercial terms basis and were paid $107,710 during this period and uncertainty of revenue and cash flows arising from an entity’s (2017: $449,350). contracts with customers and supersedes a number of current Revenue Standards. The core principle of the Standard is that an entity recognises revenue to depict the transfer of promised 27. Other accounting policies information Segment goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in (a) New and amended accounting standards and interpretations adopted from 1 July 2017 exchange for those goods or services. All new and amended Australian Accounting Standards and Interpretations mandatory as at 1 July 2017 to the Group have been adopted, Revenue recognition streams are continually evolving across including: the Group. Management have assessed the impact of this Standard and, based on the revenue streams of the Group as Reference Description at 30 June 2018, the Group does not expect the application of AASB 15 to have a material effect on the consolidated net The effects of the following Standards were not material: income, balance sheet or cash flows of the Group. The Group has AASB 2016-1 Amendments to This Standard amends AASB 112 Income Taxes (July 2004) and AASB 112 Income Taxes adopted this standard on 1 July 2018 using the modified transition

Australian Accounting Standards – (August 2015) to clarify the requirements on recognition of deferred tax assets for unrealised approach. numbers Key Recognition of Deferred Tax Assets losses on debt instruments measured at fair value. AASB 2018-1 Amendments to This Standard makes the following amendments: 1 January 2019 1 July 2019 for Unrealised Losses Australian Accounting Standards - AASB 2016-2 Amendments to This Standard amends AASB 107 Statement of Cash Flows (August 2015) to require entities Further Improvements 2015-2017 – AASB 3 Business Combinations - clarifies the requirement to Australian Accounting Standards – preparing financial statements in accordance with Tier 1 reporting requirements to provide Cycle remeasure previously held interest in a joint operation when an Disclosure Initiative: Amendments to disclosures that enable users of financial statements to evaluate changes in liabilities arising entity obtains control of a business; AASB 107 from financing activities, including both changes arising from cash flows and non-cash changes. – AASB 11 Joint Arrangements - clarifies that there is no This information is disclosed in note 14. requirement to remeasure previously held interest in a joint AASB 2017-2 Amendments to This Standard clarifies the scope of AASB 12 Disclosure of Interests in Other Entities by operation when an entity obtains joint control of a business; Australian Accounting Standards specifying that the disclosure requirements apply to an entity’s interests in other entities that are – AASB 112 Income Taxes - clarifies the requirement for income – Further Annual Improvements classified as held for sale or discontinued operations in their capacity as owners or discontinued tax consequences of dividend payments to be accounted for Capital 2014-2016 Cycle operations in accordance with AASB 5 Non-current Assets Held for Sale and Discontinued in accordance with the nature of past profits from which the Operations. dividends were derived; and – AASB 123 Borrowing costs - clarifies the treatment of borrowings originally obtained to develop a qualifying asset. (b) New and amended standards and interpretations issued but not yet effective AASB 2014-10 Amendments to The amendments require: 1 January 2022 1 July 2022 Australian Accounting Standards The following standards, amendments to standards and interpretations are relevant to current operations. They are available for early – a full gain or loss to be recognised when a transaction involves adoption but have not been applied by the Group in this financial report. – Sale or Contribution of Assets between an Investor and its Associate a business (whether it is housed in a subsidiary or not); and

Application Application or Joint Venture – partial gain or loss to be recognised when a transaction Risk Reference Description of Standard by Group involves assets that do not constitute a business, even if these assets are housed in a subsidiary. The effects of the following Standards are not expected to be material: Amendments to AASB 9 Financial This Standard makes amendments to a number of Australian 1 January 2018 1 July 2018 AASB 2017-5 further defers the effective date of the amendments Instruments (December 2014) and Accounting Standards as a result of AASB 9 Financial Instruments made in AASB 2014-10 to periods beginning on or after AASB 2014-7 Amendments to (December 2014). The final version of AASB 9 introduces a new 1 January 2022. Australian Accounting Standards expected-loss impairment model that will require more timely arising from AASB 9 (December 2014) recognition of expected credit losses. Specifically, the new Standard requires entities to account for expected credit losses from when financial instruments are first recognised and to

recognise full lifetime expected losses on a more timely basis. structure Group

AASB 2016-5 Amendments to This Standard amends AASB 2 Share-based Payment to clarify 1 January 2018 1 July 2018

Australian Accounting Standards - accounting for the effects of vesting and non-vesting conditions Classification and Measurement of on the measurement of cash-settled share-based payments, Share-based Payment Transactions transactions with a net settlement feature for withholding tax obligations and a modification to the terms and conditions that changes the classification of the transaction from cash-settled to equity-settled share-based payments.

AASB Interpretation 22 – Foreign This interpretation clarifies the determination of the spot 1 January 2018 1 July 2018

Currency Transactions and Advance exchange rate on initial recognition of related assets, expenses items Unrecognised Consideration or income on the derecognition of a non-monetary asset or non-monetary liability arising from the payment or receipt of advance considerations.

AASB Interpretation 23 - Uncertainty This interpretation clarifies the application of the recognition and 1 January 2019 1 July 2019 over Income Tax Treatments measurement criteria in AASB 112 Income Taxes when there is uncertainty over income tax treatments. The interpretation addresses whether an entity considers uncertain tax treatments separately, the assumptions an entity makes about the examination of tax treatments by taxation authorities, how an

entity determines taxable profit or loss, tax bases, unused tax Other losses or tax credits and tax rates and how an entity considers changes in facts and circumstances.

140 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 141 statements Financial Financial statements

Notes to the fiNaNcial statemeNts: Other Notes to the fiNaNcial statemeNts: Other For the year ended 30 June 2018 For the year ended 30 June 2018

BACK About this report 27. Other accounting policies (continued) 28. Share-based payments Application Application The Group provides benefits to employees (including the executive Additional information on award schemes Reference Description of Standard by Group director) of the Group through share-based incentives. Employees are paid for their services or incentivised for their performance in Wesfarmers Employee Share Plan (WESP) part through shares or rights over shares. The expense arising from The effect of the following Standard is expected to be material: these transactions is shown in note 2. The total number of ordinary The last issue under the WESP was made in December 2004. AASB 16 Leases (AASB 16) This Standard introduces a single lessee accounting model and 1 January 2019 1 July 2019 Wesfarmers shares acquired on market during the financial year to Under the plan, employees were invited to apply for ordinary shares requires a lessee to recognise assets and liabilities for all leases satisfy employee incentive schemes was 3,460,019 (2017: 482,356) in the company, funded by an interest-free loan from the Group. with a term of more than 12 months, unless the underlying asset is at an average price of $42.79 (2017: $42.84) per share. The employees’ obligation for repayment of the loans is limited to of low value. A lessee is required to recognise a right-of-use asset the dividends declared and capital returns by the company and, information Segment representing its right to use the underlying leased asset and a lease Recognition and measurement in the event the employee ceases employment, the market price liability representing its obligations to make lease payments. achieved on the sale of the shares. Share-based payments can either be equity-settled or cash-settled. Information on the undiscounted amount of the Group’s operating The plan is accounted for as an in-substance equity-settled award, lease commitments at 30 June 2018 under AASB 117, the If the employee is provided a choice of settlement options then the with the contractual life of each option equivalent to the estimated current leases standard, is disclosed in note 21. Under AASB 16, scheme is considered to be cash-settled. the present value of these commitments would be shown as a loan life and no maximum term. liability on the balance sheet together with an asset representing Equity-settled transactions the right-of-use. The ongoing income statement classification of Wesfarmers Long-Term Incentive Plan (WLTIP) The cost of equity-settled transactions with employees is measured what is currently predominantly presented as occupancy-related The last issue under the WLTIP was made in November 2016, expenses will be split between amortisation and interest expense. using their fair value at the date at which they are granted. In where eligible executives were invited to receive performance rights numbers Key determining the fair value, no account is taken of any performance The Group plans to adopt the modified retrospective transition in the company, subject to testing at the end of the applicable conditions other than those linked to the price of the shares of approach whereby there is an option on a lease-by-lease basis to four-year performance period. Further details of the WLTIP Wesfarmers Limited (market conditions). calculate the right-of-use asset as either equal to the lease liability including the terms of grants and the performance hurdles are or with respect to historical lease payments. Under this method, The cost of equity-settled transactions is recognised, together with provided in the remuneration report. there is no requirement to restate comparatives. a corresponding increase in equity, over the period in which any A project team has been working to manage transition as the performance conditions (excluding market conditions) are met, Key Executive Equity Performance Plan (KEEPP) Group continues to evaluate the implications of AASB 16. A ending on the date on which the employees become fully entitled KEEPP was introduced in September 2016, and was the only quantitative assessment of the impact of the new standard is to the award (vesting date). The cumulative expense recognised for expected to be disclosed in the Group’s FY2019 half-year results. variable remuneration plan the current executive KMP were invited equity-settled transactions at each reporting date until vesting date to participate in during the 2018 financial year.

The project team has focused on: Capital reflects the extent to which the vesting period has expired and the – Implementing a new system for ongoing compliance with proportion of the awards that are expected to ultimately vest. No Under the plan in September 2017, eligible executives were AASB 16; expense is recognised for awards that do not ultimately vest due to invited to receive performance shares and restricted shares in the – Determining appropriate discount rates for calculating the a performance condition not being met. The expense is recognised company. present value of future lease payments on transition; in full if the awards do not vest (or are not exercised) due to a Performance shares – Judgements in determining if a decision to exercise options to market condition not being met. extend, terminate or purchase the leased asset is reasonably For the Group Managing Director and the Group Chief Financial certain; and Where the terms of an equity-settled award are modified, as a Officer, the performance hurdles are Wesfarmers’ TSR relative to minimum, an expense is recognised as if the terms had not been – Judgements in assessing non-lease components that will be the TSR of the ASX 100 (50 per cent weighting), absolute ROE excluded from the right-of-use asset. modified. In addition, an expense is recognised for any increase (20 per cent weighting) and strategic measures (30 per cent in the value of the transaction as a result of the modification, as weighting). For the divisional managing directors, the performance Risk The project team continues to report to the measured at the date of modification. hurdles are cumulative EBIT and ROC performance against the Audit and Risk Committee on the progress of implementation. Where an equity-settled award is cancelled, it is treated as if it divisional corporate plan (80 per cent weighting) and Wesfarmers’ had vested on the date of cancellation, and any expense not yet TSR relative to the TSR of the ASX 100 (20 per cent weighting). (c) Tax consolidation recognised for the award is recognised immediately. However, if a The fair value of the performance shares with a TSR hurdle is new award is substituted for the cancelled award, and designated Wesfarmers and its 100 per cent-owned Australian resident subsidiaries have formed a tax consolidated group with effect from determined using an option pricing model with the following inputs: 1 July 2002. Wesfarmers is the head entity of the tax consolidated group. Members of the group have entered into a tax sharing as a replacement award on the date that it is granted, the cancelled agreement in order to allocate income tax expense to the wholly owned subsidiaries on a stand-alone basis. The tax sharing arrangement and new award are treated as if they were a modification of the Grant date 25 Sept 2017 provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. The original award, as described above. Grant date share price ($) 41.07 possibility of such a default is considered remote at the date of this report. Volatility (%) 17.42 structure Group Cash-settled transactions Members of the tax consolidated group have entered into a tax funding agreement. The group has applied the group allocation approach Risk-free rate (%) 2.27 in determining the appropriate amount of current taxes to allocate to members of the tax consolidated group. The tax funding agreement The ultimate expense recognised in relation to cash-settled Fair value ($) 27.36 provides for each member of the tax consolidated group to pay a tax equivalent amount to or from the parent in accordance with their transactions will be equal to the actual cash paid to the employees, notional current tax liability or current tax asset. Such amounts are reflected in amounts receivable from or payable to the parent company which will be the fair value at settlement date. The expected cash in their accounts and are settled as soon as practicable after lodgement of the consolidated return and payment of the tax liability. payment is estimated at each reporting date and a liability recognised to the extent that the vesting period has expired and in proportion to the amount of the awards that are expected to ultimately vest. Equity-settled awards outstanding Weighted average share price in 2018 was $42.93 (2017: $42.33). The following table includes shares subject to trading restrictions. items Unrecognised

WESP WLTIP KEEPP WESAP (options) (shares) (rights) (shares) (shares) (rights)

Outstanding at the beginning of the year 450,482 497,553 1,497,659 256,472 7,725,868 172,621 Granted during the year - 74,128 - 418,414 3,158,623 - Exercised during the year (223,619) (306,817) (304,086) - (2,566,667) - Lapsed during the year - - (277,752) - (590,222) - Other Other adjustments - 30,462 - - (23,268) (172,621) Outstanding at the end of the year 226,863 295,326 915,821 674,886 7,704,334 - Exercisable at the end of the year 1,150,593 9,440,440 - - 3,957,701 -

142 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 143 Operating and Directors’ Financial Signed Shareholder and Overview Sustainability Governance financial review report statements reports ASX information 145

will be able to meet any 19 Wesfarmers 2018 Annual Report Wesfarmers

R G Scott 103 of the 2018 Annual Report; and 103 of the 2018 Annual tioN A Regulations 2001; and giving a true and fair view of the consolidated entity’s financial position as at 30 June 2018 and of its performance financial position of the consolidated entity’s giving a true and fair view for the year ended on that date; and for the year ended on that and the the Australian Accounting Interpretations) (including Accounting Standards complying with Australian Corporations

there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. that the company will be able to pay its debts to believe grounds reasonable are there 295A with section in accordance to be made to the directors required the declaration made after receiving This declaration has been 30 June 2018. for the financial year ended of the Corporations Act 2001 to believe that the members of the grounds reasonable are at the date of this declaration, there as In the opinion of the directors, entities marked ‘+’ as identified in note and the controlled comprising the company Closed Group to in note 24. Guarantee referred or may become subject to by virtue of the Deed of Cross obligations or liabilities to which they are the financial statements and notes comply with International Financial Reporting Standards as disclosed in the notes and notes comply with Internationalthe financial statements Financial Reporting Standards to the financial statements on page to the financial statements In the opinion of the directors: In the opinion audited,report designated as included in the directors’ notes and the additional disclosures the financial statements, Corporations Act 2001, including: with the in accordance for the full-year ended 30 June 2018 are of the consolidated entity (a) (b) September 2018 1.3 2. 3. On behalf of the Board: Managing Director M A Chaney AO Chairman Perth 14 1.2 r DecLA Directors’ entities its controlled and Limited Wesfarmers state that: Limited, we of Wesfarmers of the directors resolution with a In accordance 1. 1.1 9 7 (8) $m 2017 3,929 1,179 1,187 29.9% 29.7% 29.7% 29.9% 29 $m 111 (12) 2018 Consolidated 3,850 1,155 1,283 32.5% 30.0% 32.4% 30.0% ) 1 ) 1 a reconciliation of accounting profit to tax expense and to to tax of accounting profit a reconciliation tax payable; income tax paid or income temporary and non-temporarythe identification of material and differences; company tax rates for Australian and global the effective operations. The $306 million impairment of Target’s goodwill and non-current assets goodwill and non-current The $306 million impairment of Target’s during FY2018 was a non-deductible item. recognised Other Tax paid or payable reconciliation paid or payable Tax Accounting profit Effective tax rate for Australian Effective impairment operations (excluding Target Income tax at the statutory tax rate of 30% tax rate Effective tax rate for Australian Effective operations 1 30. Tax transparency disclosures transparency 30. Tax report to its final provided of Taxation 2016, the Board In February code.the Australian Government on a voluntary tax transparency for additional disclosure contained recommendations The report split between Part A and Part Bof tax information by companies in a separate publishable are The Part B disclosures disclosures. are: The Part A disclosures Paid report. Taxes • • • tax expense to its accounting profit of Wesfarmers’ A reconciliation are and non-temporary differences and material temporary to income of accounting profit disclosed in note 3. A reconciliation company tax rates for the tax paid or payable and the effective tabled below. Australian and global operations are Group’s Effective tax rate for global operations Effective tax rate for global operations Effective impairment (excluding Target Non-deductible items tax deferred differences: Temporary Associates and other Current year tax paid or payable Current ts: - 203 2017 $’000 1,271 23,674 16,828 41,976 199 283 2018 Consolidated 1,919 $’000 19,334 33,543 11,808 N stateme cial N a $42.89 (2017 average: $42.52)) is

year forfeiture period. The grant date share price is the fair period. The grant date share year forfeiture

Wesfarmers 2018 Annual Report Wesfarmers For the year ended 30 June 2018 30 June year ended For the payments (continued) 28. Share-based Financial statements Financial fiN the to Notes 144 Refer to note 26 in relation to transactions with Gresham Partners to transactions with Gresham Refer to note 26 in relation Limited in which J P Graham Limited and AFL Sportsready Group respectively. directors and P M Bassat are or its controlled of Wesfarmers time to time, directors From goods or entities, may purchase entities, or their director-related on the same terms are These purchases the Group. services from into by other consolidated entity and conditions as those entered trivial or domestic in nature. employees or customers and are Other transactions with key management personnel 29. Director and executive disclosures and executive 29. Director personnel Compensation of key management in sections one to six provided are disclosures The remuneration on pages 77 to 96 of this annual report report of the remuneration report. designated as audited and forming part of the directors’ Wesfarmers Employee Share Acquisition Plan Employee Share Wesfarmers Executives - (WESAP) to eligible executives. In November 2016, WESAP was introduced an invited to receive were eligible executives Under this offer, or an equivalent shares fully-paid ordinary of Wesfarmers’ award performance period. The cash payment at the end of a three-year or cash. with shares to settle the award has discretion Board years, for cause within three or is terminated If an executive resigns allocation or cancel the share may decide whether to the Board grantedcash payment.The fair value of the equity instruments determined with(2018 average: $43.06 (2017 average: $42.52)) is price on the date of grant. to the share reference determined with reference to the share price on the date of grant. to the share determined with reference Wesfarmers Employee Share Acquisition Plan (WESAP) Share Employee Wesfarmers plan, all in October 2009. Under the The WESAP was introduced shares fully-paid ordinary acquire invited to eligible employees are under a salary either acquired are The shares in the company. subject to the as an award, granted sacrifice arrangement or are Eligibility after tax performance hurdle. achieving a net profit Group is dependent upon an in-service period with of shares for an award a participating division and being a permanent employee. share The plan qualifies as a non-discriminatory employee of Division 83A of the scheme complying with the requirements 1997 (as amended) for Australian Income Tax Assessment Act of the equity instruments employees. The fair value resident granted (2018 average: Restricted shares Restricted shares under award shares a restricted Eligible executives also received for or is terminated if an executive resigns However, the KEEPP. that share may decide to cancel the Board cause within a year, at grant date is expensed over the share of value fair The allocation. the one- with and the performance share share value of both the restricted EBIT and ROC hurdles. and of the terms of the grants duringFurther details of the KEEPP report. in the remuneration provided the year are Key Executive Equity Performance Plan (KEEPP) Equity Performance Key Executive (continued) Short-term benefits Long-term benefits Post-employment benefits benefits Termination Share-based payments Share-based BACK Operating and Directors’ Financial Signed Shareholder and Overview Sustainability Governance financial review report statements reports ASX information 147 Wesfarmers 2018 Annual Report Wesfarmers Discount rates rates growth Terminal earningsMarket evidence of industry multiples valuation rate assumptions growth Long-term inflation and exchange rate assumptions. Forecast How our audit addressed the key audit matter the key audit audit addressed How our included an evaluation of the assumptions Our audit procedures in the assessments, with emphasisand methodologies utilised cash to the determination of CGUs, forecast on those relating valuation rates, discount rates, comparative industry flows, growth evidence. multiples and other market evaluate the involved our valuation specialists to We to the impairment relevant of key inputs, where appropriateness tests, including: • • • • • report disclosures financial the of adequacy the considered also We key assumptions and the impairment testing approach, regarding sensitivity analysis.

Impairment of non-current assets including intangible assets in Target intangible assets assets including of non-current Impairment Liability limited by a scheme approved under Professional Standards Legislation Standards under Professional Liability limited by a scheme approved A member firm of Ernst & Young Global Limited A member firm of Ernst & INDEPENDENT AUDITOR’S REPORT AUDITOR’S INDEPENDENT Limited of Wesfarmers Members to the 1. Why significant plant amounts of property, recoverable The determination of the goodwill and other intangible assetsand equipment (“PPE”), significant judgement by the Group. requires the Group by Australian Accounting Standards, As required are period whether there reporting assesses at the end of each Goodwill an asset may be impaired. any triggers indicating that at least assessed for impairment are and indefinite life intangibles annually. typically complex and judgemental, are Impairment assessments of a range of assumptions andas they include the modelling performance and market by future estimates that will be impacted conditions. of an impairment charge During the 2018 financial year, comprising to Target, in relation $306 million was recognised and othergoodwill ($47 million), brand name ($238 million) 17 Impairmentfixed assets ($21 million) as disclosed in Note of non-financial assets. prior from of impairment charges no material reversals were There years during the 2018 financial year. in the Group’s Key assumptions, judgements and estimates applied set out in Note 17. are impairment assessment for Target, value recoverable Note 17 also includes a statement that Target’s the terminal value.is sensitive to changes in the discount rate and to the keyBased upon the disclosed sensitivity analysis, changes give rise to anassumptions applied in the impairment test could cash generating unit impairment of the carrying value of the Target CGU, of the Target (“CGU”). Critical to supporting the recoverability results. is the business’ ability to achieve its planned trading

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Wesfarmers 2018 Annual Report Wesfarmers complying with Australian Accounting Standards and the Corporations Regulations 2001. complying with Australian Accounting Standards giving a true and fair view of the consolidated financial position of the Group as at 30 June 2018 and of its consolidated financial position of the Group giving a true and fair view of the consolidated financial performance for the year ended on that date; and

Report on the audit of the financial r financial the of audit the on Report A member firm of Ernst & Young Global Limited Young & Ernst of firm member A Legislation Standards Professional under approved scheme a by limited Liability Code of Ethics for Profess of Ethics Code 110 APES Board’s Standards Ethical and Professional t in were addressed matters year. These current of the report financial of the audit a separate provide we do not but thereon, opinion our forming in and whole, as a report financial of the matter the audit addressed of our how our below, description matter each For matters. these on opinion ext. cont that in is provided Auditor’s Responsibilities the in for described responsibilities the the fulfilled Audit have ofWe the Repor Financial desig performance the of procedures included report. financial Key audit m judg professional our in that, those are matters matters audit Key misstatement of the financial report. The results of our audit procedures, including the procedures procedures the including procedures, audit our of results The financial of the report. misstatement accompanyin the on opinion the audit for our provide basis below, matters the address to performed Basis for opinion under Standards. Our responsibilities Auditing Australian with accordance in audit our conducted We for Auditor’s the the Responsibilities Audit in of the Financial are described further standards those Report requirements Act independence Corporations of the 2001 Company) and its subsidiaries subsidiaries its and Company) (the of Limited Wesfarmers financial the report audited have We June 201 30 as at sheet balance consolidated the comprises Group), the which (collectively Independenta Opinion

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We have also fulfilled our other other our have We also fulfilled Australia. in report financial of the audit our to are relevant that Code) Code. the with accordance in responsibilities ethical appropriate to provide a basis for for a basis provide to appropriate and is sufficient obtained evidence we have audit the that believe We our opinion. consolidated income statement, the consolidated statement of comprehensive income, the consolidated consolidated the income, statement of comprehensive consolidated the statement, income consolidated notes ended, then year cash for the flow consolidated statement the and equity in of changes statement declaration. directors' the statements and financial the to Corporations the with Act accordance is in Group of the financial accompanying report the opinion, our In 2001 a) A member firm of Ernst & Young Global Limited A member firm of Ernst & Liability limited by a scheme approved under Professional Standards Legislation Standards under Professional Liability limited by a scheme approved We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further are under those standards Our responsibilities Auditing Standards. with Australian conducted our audit in accordance We in of the Group independent are We Report section of our report. Responsibilities for the Audit of the Financial described in the Auditor’s of the Accounting of the Corporations Act 2001 and the ethical requirements requirements with the auditor independence accordance to our audit relevant APES 110 Code of Ethics for Professional Accountants (the Code) that are Board’s and Ethical Standards Professional the Code. with responsibilities in accordance fulfilled our other ethical We have also report in Australia. of the financial a basis for our opinion. to provide and appropriate believe that the audit evidence we have obtained is sufficient We b) Basis for opinion We have audited the financial report of Wesfarmers Limited (the Company) and its subsidiaries (collectively the Group), which comprises Company) and its subsidiaries (collectively the Group), Wesfarmers Limited (the report of have audited the financial We the consolidated income statement, the consolidated statement of comprehensive the consolidated balance sheet as at 30 June 2018, in equity and the consolidated cash flow statement for the year then ended, notes to theincome, the consolidated statement of changes declaration. financial statements and the directors’ with the Corporations Act 2001, including: is in accordance report of the Group In our opinion, the accompanying financial a) Independent auditor’s report to the Members of Wesfarmers Limited of Wesfarmers to the Members report Independent auditor’s report of the financial Report on the audit Opinion to the Members of Wesfarmers Limited of Wesfarmers Members to the Signed reports Signed REPORT AUDITOR’S INDEPENDENT Key audit matters report of of most significance in our audit of the financial judgement, were that, in our professional those matters Key audit matters are report as a whole, and in forming our opinion of our audit of the financial in the context addressed These matters were year. the current our description of how our audit addressed on these matters. For each matter below, a separate opinion but we do not provide thereon, in that context. the matter is provided Responsibilities for the Audit of the Financial Report section of our in the Auditor’s responsibilities described have fulfilled the We to our designed to respond our audit included the performance of procedures to these matters. Accordingly, including in relation report, including the procedures results of our audit procedures, report. The assessment of the risks of material misstatement of the financial report. the basis for our audit opinion on the accompanying financial provide the matters below, performed to address 146 BACK Operating and Directors’ Financial Signed Shareholder and Overview Sustainability Governance financial review report statements reports ASX information 149 Wesfarmers 2018 Annual Report Wesfarmers Discount rates rates growth Terminal earningsMarket evidence of industry multiples valuation rate assumptions growth Long-term inflation and Commodity price assumptions exchange rate assumptions Forecast and key Performing sensitivity analysis on the model forecasts assumptions. related and agreements the sale and purchase read We of provisions documents to obtain an understanding of the key loss onthe sale and to assess the calculation of the post-tax during the financial year disposal recorded the accurately determined assessed whether the Group We as at the transaction value of assets and liabilities derecognised to the point of completion date and whether the operating result recorded disposal was correctly effective divestmentof the the tax impacts Our tax specialists considered including considering external advice obtained by the Group including the assessed the financial statement disclosures, We operationsclassification of both continued and discontinued of Australian Accounting with the requirements in accordance Standards. How our audit addressed the key audit matter the key audit audit addressed How our of assessing the appropriateness in respect Our audit procedures included an evaluation of the of impairment recognised, utilised in the assessments, inassumptions and methodologies forecast to the determination of the CGU, particular those relating discount rates, comparative industry rates, cash flows, growth other market evidence. valuation multiples and evaluate the involved our valuation specialists to We of key inputs, including: appropriateness • • • • • • • discontinued operations of the in respect Our audit procedures included the following: • • • • Discontinued operations of Bunnings UK and Ireland (“BUKI”) UK and Ireland operations of Bunnings Discontinued A member firm of Ernst & Young Global Limited A member firm of Ernst & Legislation Standards under Professional Liability limited by a scheme approved INDEPENDENT AUDITOR’S REPORT AUDITOR’S INDEPENDENT Limited of Wesfarmers Members to the 4. Why significant 31 December 2017, an impairmentDuring the six months to to BUKI, in relation recognised of $953 million after tax was charge million), brand name ($18 million), stockcomprising goodwill ($777 tax assets ($92 million). ($66 million) and deferred significant accounting included in the are disclosures The related policies and in Note 17. for to divest the BUKI business agreed On 25 May 2018, the Group a nominal amount. recognised a has the Group In the 2018 financial statements, the discontinued operations of from $1.66 billion loss after tax in recognised the impairment charge BUKI which incorporates result to the point of the trading year, the first six months of the disposal. disposal and the loss on effective included in the significant accounting are disclosures The related policies and in Note 20. We obtained and read the sale and purchase agreements and agreements the sale and purchase obtained and read We calculation of the post-tax gain documents to assess the related during the financial year on disposal recorded evaluated the key inputs of the post-tax gain on sale We transaction costs calculation, being the consideration received, and working capital adjustments recognised incurred accurately determined the assessed whether the Group We as at the transaction value of assets and liabilities derecognised to the point of completion date and whether the operating result recorded disposal was correctly effective divestmentof the impacts the tax Our tax specialists considered including considering external advice obtained by the Group including the disclosures, report assessed the financial We classification of both continued and discontinued operations Accounting of Australian with the requirements in accordance Standards. We gained an understanding of the nature of each material gained an understanding of the nature We the significant including assessing type of supplier rebate in place agreements in place controls of relevant assessed the effectiveness We amounts of rebate and measurement the recognition to relating arrangements rebate performed comparisons of the various We budget, including analysis of agingagainst the prior year and identified, obtained material variances were and where profiles supporting evidence and tested whether selected a sample of supplier rebates We and documentation existed supporting the recognition in the 30 June 2018 financial of the rebates measurement statements into, inspected a sample of material new contracts entered We date and assessed whether and after the balance both before was appropriate adopted by the Group the treatment of other rebate of legal counsel as to the existence inquired We contracts or contracts with unusual terms and conditions including product of business representatives inquired We chain managers and supply category merchandisers, as to the existence of any non-standard staff procurement or side arrangements. agreements How our audit addressed the key audit matter How our audit addressed included the following: Our audit procedures • • • • • How our audit addressed the key audit matter the key audit audit addressed How our included the of supplier rebates in respect Our audit procedures following: • • • • • • •

Wesfarmers 2018 Annual Report Wesfarmers Discontinued operations of Curragh Supplier rebates The commercial terms of each individual rebate terms of each individual The commercial timing of recognition The appropriate and whether the of the rebate Consideration of the nature against the carrying value ofamount should be applied in the income statement inventory or recognised in of rebates and measurement The accurate recognition and the Standards with Australian Accounting accordance and controls. processes related Group’s A member firm of Ernst & Young Global Limited A member firm of Ernst & Liability limited by a scheme approved under Professional Standards Legislation Standards under Professional Liability limited by a scheme approved During the period, the Group entered into an agreement to sell the into an agreement entered During the period, the Group also included a Curragh coal mine for $700 million. The agreement coal prices. metallurgical mechanism linked to future value share after tax from a $250 million profit has recognised Wesfarmers boththe Curragh discontinued operation which incorporates disposal and the gain effective to the point of the trading result on disposal. Refer to Note 20 Discontinued operations to the financial statements. 3. Why significant Supplier rebates are rebates received by the Group from suppliers from by the Group received rebates are Supplier rebates operations. associated with its retail due to the quantum determined this to be a key audit matter We year and the judgement during the recognised of supplier rebates to a number of factors, relation in to be exercised required including: • • • • of supplier and recognition to the measurement relating Disclosures Inventories. can be found in Note 6 rebates to the Members of Wesfarmers Limited of Wesfarmers Members to the 2. Why significant Signed reports Signed REPORT AUDITOR’S INDEPENDENT 148 BACK Operating and Directors’ Financial Signed Shareholder and Overview Sustainability Governance financial review report statements reports ASX information 151 Wesfarmers 2018 Annual Report Wesfarmers

Liability limited by a scheme approved under Professional Standards Legislation Standards under Professional Liability limited by a scheme approved A member firm of Ernst & Young Global Limited A member firm of Ernst & INDEPENDENT AUDITOR’S REPORT AUDITOR’S INDEPENDENT Limited of Wesfarmers Members to the Remuneration Report the audit of the Report on Report on the Remuneration Opinion 2018. for the year ended 30 June report included in the directors’ have audited the Remuneration Report We with section 300A of the for the year ended 30 June 2018 complies Limited Report of Wesfarmers In our opinion, the Remuneration Corporations Act 2001. Responsibilities with section of the Remuneration Report in accordance and presentation for the preparation responsible of the Company are The directors Report, based on our audit conducted an opinion on the Remuneration is to express . Our responsibility 300A of the Corporations Act 2001 with Australian Auditing Standards. in accordance Ernst & Young D S Lewsen Partner Perth 14 September 2018

Wesfarmers 2018 Annual Report Wesfarmers Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit report, whether due to fraud or error, of the financial Identify and assess the risks of material misstatement a basis for our opinion. to provide and appropriate risks, and obtain audit evidence that is sufficient to those responsive procedures involve as fraud may error, from fraud is higher than for one resulting from resulting The risk of not detecting a material misstatement or the override of internal control. intentional omissions, misrepresentations, collusion, forgery, in the appropriate that are to design audit procedures in order to the audit Obtain an understanding of internal relevant control internal control. of the Group’s an opinion on the effectiveness of expressing but not for the purpose circumstances, disclosures related of accounting estimates and accounting policies used and the reasonableness of Evaluate the appropriateness made by the directors. use of the going concern of the directors’ basis of accounting and, based on the audit evidence Conclude on the appropriateness ability to events or conditions that may cast significant doubt on the Group’s related obtained, whether a material uncertainty exists to draw attention in our auditor’s required to continue as a going concern. uncertainty exists, we are If we conclude that a material inadequate, to modify our opinion. Our conclusions are if such disclosures report or, in the financial disclosures to the related report or conditions may cause the events future However, report. obtained up to the date of our auditor’s based on the audit evidence are going concern. to cease to continue as a Group and whether the financial report, including the disclosures, and content of the financial structure Evaluate the overall presentation, events in a manner that achieves fair presentation. the underlying transactions and represents report Group to the financial information of the entities or business activities within the regarding audit evidence appropriate Obtain sufficient We audit. supervision and performance of the Group responsible for the direction, We are report. an opinion on the financial express for our audit opinion. solely responsible remain or error. continue as a going concern, ability to disclosing, responsible for assessing the Group’s are report, the directors the financial In preparing going concern to and using the going concern either intend toas applicable, matters relating basis of accounting unless the directors alternative or have no realistic but to do so. or to cease operations, liquidate the Group report for the audit of the financial responsibilities Auditor’s material misstatement, from report as a whole is free assurance about whether the financial to obtain reasonable Our objectives are that includes our opinion. Reasonable assurance is a high level of assurance, report and to issue an auditor’s whether due to fraud or error, detect a material will always with the Australian Auditing Standards accordance but is not a guarantee that an audit conducted in material if, individually or in the aggregate, considered and are fraud or error arise from misstatement when it exists. Misstatements can report. basis of this financial be expected to influence the economic decisions of users taken on the they could reasonably and maintain professional judgement professional we exercise with the Australian Auditing Standards, As part of an audit in accordance also: We the audit. scepticism throughout • • • • • • the planned scope and timing of the audit and significant audit among other matters, regarding, communicate with the directors We audit. findings, including any significant deficiencies in internal that we identify during our control independence, and regarding ethical requirements with a statement that we have complied with relevant the directors also provide We where be thought to bear on our independence, and and other matters that may reasonably to communicate with them all relationships safeguards. applicable, related of most significance in the audit of the financial those matters that were we determine the matters communicated to the directors, From unless law or report describe these matters in our auditor’s the key audit matters. We therefore year and are of the current report we determine that a matter should not circumstances, rare matter or when, in extremely about the public disclosure precludes regulation public be expected to outweigh the would reasonably because the adverse consequences of doing so be communicated in our report benefits of such communication. interest The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with and fair view in accordance report that gives a true of the financial for the preparation responsible of the Company are The directors determine is necessary to as the directors and the Corporations Act 2001 and for such internal control Australian Accounting Standards material misstatement, whether due to fraud from and is free report that gives a true and fair view financial of the enable the preparation Responsibilities of the directors for the financial report for the financial the directors Responsibilities of The directors are responsible for the other information. The other information comprises the information included in the Group’s Annual in the Group’s the information included information comprises other information. The other for the responsible are The directors thereon. report auditor’s report and our the financial but does not include year ended 30 June 2018, Report for the any form of assurance we do not express and accordingly report does not cover the other information Our opinion on the financial assurance opinion. Report and our related with the exception of the Remuneration conclusion thereon consider whetherread the other information and, in doing so, responsibility is to report, our of the financial In connection with our audit audit or otherwise appears to bereport or our knowledge obtained in the materially inconsistent with the financial the other information is materially misstated. to required information, we are is a material misstatement of this other have performed, we conclude that there If, based on the work we in this regard. have nothing to report fact. We that report Information other than the financial report and auditor’s report thereon report and auditor’s report other than the financial Information A member firm of Ernst & Young Global Limited A member firm of Ernst & Legislation Standards under Professional Liability limited by a scheme approved to the Members of Wesfarmers Limited of Wesfarmers Members to the Signed reports Signed REPORT AUDITOR’S INDEPENDENT 150 BACK Operating and Directors’ Financial Signed Shareholder and Overview Sustainability Governance financial review report statements reports ASX information 153 Wesfarmers 2018 Annual Report Wesfarmers – shareholders may arrange to holdings – shareholders – these holdings are sponsored sponsored holdings – these holdings are sponsored sponsored Issuer by Wesfarmers and there is no need for shareholders to be is no need for shareholders and there by Wesfarmers and by a stockbroker; sponsored Broker a signed who will require by a stockbroker be sponsored sponsorship agreement. Change of name or consolidation of holdings of name or consolidation Change single holdings into one or consolidation of multiple Name changes forms, which using the required be made in writing by holding must and clicking on www.wesdirect.com.au can be downloaded from ‘Need a Printable Form?’. register is Wesfarmers share Register: The Uncertificated Share are available to holdings Two forms of uncertificated uncertificated. shareholders: • Information on Wesfarmers website Wesfarmers the obtained from Up-to-date information on the company can be website www.wesfarmers.com.au company’s Securities Exchange listing the Australian Securities Exchange listed on are shares Wesfarmers under the code WES. major Australian newspapers, prices can be accessed from Share website or at www.asx.com.au on the Wesfarmers • within five business issued to shareholders Holding statements are occur thatdays after the end of any month in which transactions can also access alter the balance of their holding. Shareholders dividends paid on their holdings and details of their shareholdings by visiting www.wesdirect.com.au Privacy Privacy Policy is available on the A copy of the Wesfarmers website. Wesfarmers department Corporate Affairs Wesfarmers Further information and publications about the company’s department on the Corporate Affairs available from operations are (08) 9327 4428 (within Australia) or (+61 8) 9327 4428 (International) website. the Wesfarmers or from Dividend investment plan with effect dividend investment plan was reinstated The company’s of the plan can be obtained from 27 February 2007. Details from website. or the Wesfarmers registry the share and click on ‘Create Login’ for and click on ‘Create www.wesdirect.com.au view the company share price; view the company share change your banking details; holdings); (for non-CHESS sponsored change your address update your dividend instructions; Business File Number (TFN), Australian update your Tax Number (ABN) or exemption; preferences; select your email and communication dividend history; and view your transaction and generate a holding balance letter. INVESTOR INFORMATION INVESTOR your shareholding Managing by Computershare is managed registry share The company’s Pty Limited (Computershare). Investor Services website is the fastest, easiest and most The Investor Centre Investor and manage your shareholding. convenient way to view to: a shareholder enables Centre • • • • • • • • Visit Holding’ forportfolio membership or click on ‘Access a Single holding information. or accessing your When communicating with Computershare Number Reference holding online you will need your Securityholder shown on your(SRN) or Holder Identification Number (HIN) as statements. Issuer Sponsored/CHESS by: Computershare can also contact You Post GPO Box 2975 Melbourne, Victoria 3001 Australia 1300 558 062 Australia Telephone International (+61 3) 9415 4631 Telephone www.investorcentre.com/contact Website File Numbers Tax a TFN, if shareholders While it is not compulsory to provide pays an unfranked or a TFN and Wesfarmers have not provided to deduct tax partly-franked dividend, the company will be required rate dividend at the top marginal the unfranked portion of the from can go online to update their Shareholders Levy. plus the Medicare TFN by visiting www.wesdirect.com.au 162 5.31 3.36 1.45 1.12 0.75 0.75 0.59 0.52 0.44 0.33 0.25 0.25 0.23 0.19 0.17 0.17 0.17 0.15 15.15 23.00 9,668 4,844 88,077 386,776 % of issued capital Number of shareholdings 8,527,303 8,468,395 6,722,500 5,880,537 5,040,027 3,700,288 2,856,375 2,854,161 2,615,201 2,198,105 1,953,290 1,938,209 1,905,871 1,749,370 60,222,971 38,105,751 16,462,225 12,694,831 171,779,736 260,736,213 Number of shares

Wesfarmers 2018 Annual Report Wesfarmers BlackRock Group (BlackRock Inc. and subsidiaries) holding 5.00 per cent; and Inc. and subsidiaries) holding 5.00 per cent; (BlackRock BlackRock Group Inc. holding 5.00 per cent. Group, The Vanguard The percentage holding of the 20 largest shareholders of Wesfarmers ordinary shares was 54.36. shares ordinary of Wesfarmers shareholders holding of the 20 largest The percentage Citicorp Nominees Pty Limited National Nominees Limited DRP A/C) BNP Paribas Nominees Pty Ltd (Agency Lending BNP Paribas Noms Pty Ltd (DRP) Super Corp A/C) HSBC Custody Nominees (Australia) Limited (Nt-Comnwlth Inv A/C) Citicorp Nominees Pty Limited (Colonial First State Australian Foundation Investment Company Limited A/C) Plans Pty Limited (WESAP DFE Control CPU Share Investments Limited Argo AMP Life Limited Milton Corporation Limited A/C) Plans Pty Limited (WES Exu Control CPU Share IOOF Investment Management Limited (IPS Super A/C) HSBC Custody Nominees (Australia) Limited HSBC Custody Nominees (Australia) Limited - GSCO ECA Goldman Sachs Australia + Nominee Holdings Pty Ltd (WES Ltd Div Inv Plan A/C) Navigator Australia Ltd (MLC Investment Sett A/C) Services A/C) Netwealth Investments Limited (Wrap J P Morgan Nominees Australia Limited J P Morgan Name There were 10,889 shareholders that held less than a marketable parcel of Wesfarmers ordinary shares. ordinary of Wesfarmers that held less than a marketable parcel 10,889 shareholders were There outside Australia. addresses with registered 1.17 per cent of shareholders were There shareholders largest Twenty as at 14 September 2018 were: register on the company’s shares of ordinary shareholders The 20 largest HSBC Custody Nominees (Australia) Limited Size of holdings Voting rights Voting of one vote per share. carry voting rights shares fully-paid ordinary Wesfarmers and their holdings Distribution of members 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Substantial shareholders Substantial the of Part 6C.1 of for the purposes shareholders substantial are the following shareholders of this report, As at the date Act 2001: Corporations • • 152 Shareholder and ASX information ASX and Shareholder INFORMATION SHAREHOLDER BACK Operating and Directors’ Financial Signed Shareholder and Overview Sustainability Governance financial review report statements reports ASX information

155 April 2019 30 June 2019 February 2019 February 2019 21 August 2018 15 November 2018 31 December 2018 27 September 2018 + Wesfarmers 2018 Annual Report Wesfarmers Timing of events is subject to change. Timing of events is subject to

Financial calendar Financial dividend date for final Record Final dividend paid Annual general meeting + Annual general meeting Limited will be The 37th Annual General Meeting of Wesfarmers Mounts Bay held at the Perth Convention and Exhibition Centre, 15 November 2018 Australia on Thursday, Road, Perth, Western at 10:30am (Perth time). Website and company shareholder annual report, view the 2018 To information information, news announcements, background businesses and historical information, visit the on Wesfarmers’ website at www.wesfarmers.com.au Wesfarmers Half-year end announcement Half-year profit Record date for interim dividend Record Interim dividend payable Year-end

Computershare Investor Services Pty Limited Computershare Falls, 452 Johnston Street Yarra Victoria 3067 Abbotsford, Australia 1300 558 062 Telephone International (+61 3) 9415 4631 Telephone Facsimile Australia (03) 9473 2500 Facsimile International (+61 3) 9473 2500 www.investorcentre.com/wes Website Registered office Registered Tower 2 Place Level 14, Brookfield Terrace 123 St Georges 6000 Australia Perth, Western (+61 8) 9327 4211 Telephone Facsimile (+61 8) 9327 4216 www.wesfarmers.com.au Website Email [email protected] Executive director Rob Scott Officer and Chief Executive Director Managing Group Non-executive directors Michael Chaney AO Chairman Paul Bassat The Right Honourable Bill English KNZM Howarth AO Tony Osborn Wayne Diane Smith-Gander Wallace Vanessa AO Jennifer Westacott Chief Financial Officer Anthony Gianotti Company Secretary Linda Kenyon registry Share Shareholder and ASX information ASX and Shareholder DIRECTORY CORPORATE 049 28 008 984 ABN Limited Wesfarmers 2,3 50 3.2 (346) (939) 278 200 15.9 3,877 2,795 1,179 (1,082) $6.14 2,689 234.6 10.5% 13.1% 34.6% 19.8% 2014 59,903 39,727 13,740 60,181 25,987 47,835 22,708 Restated 1,143,275 2 - 3.0 (315) 318 200 100 20.5 9.8% 3,759 2015 (7.9%) (1,219) (1,004) 4,978 $4.85 2,440 216.1 25.1% 38.7% 62,129 40,402 15,621 62,447 24,781 43,860 21,844 1,123,753 2 - - 2.7 (308) (631) 338 407 186 16.8 36.2 9.6% 1,346 2016 (1,296) 2,642 $3.45 31.0% 43.7% (83.2%) 65,643 40,783 17,834 65,981 22,949 45,158 21,937 1,126,131 1 - 3.1 113 (248) 330 223 25.0 4,177 2017 (1,175) (1,169) 5,352 $4.44 2,873 254.7 12.4% 20.1% 40.3% 64,583 40,115 16,174 64,913 23,941 45,490 22,268 603.6% Restated 1,133,840

- 3.0 275 223 30.4 (211) 2018 5,259 $4.33 4,061 1,197 105.8 (1,198) (1,246) (1,407) 11.7% 17.3% 38.4% 66,608 36,933 14,179 66,883 22,754 55,966 22,277 (58.5%) 1,133,840 ) 6 ) 6 4,5 ) 4

Wesfarmers 2018 Annual Report Wesfarmers The 2017 numbers have been restated to reflect the disposal of BUKI and the Curragh coal mine as discontinued operations. to reflect The 2017 numbers have been restated for classification of BUKI and the Curragh coal mine as discontinued operations. The 2016 to 2014 numbers have not been restated WA Pty Ltd as a discontinued operation. in Air Liquide interest WesCEF’s the disposal of to reflect The 2014 numbers have been restated million ($1,249 million) (post-tax) items: $1,266 relating to the following pre-tax The summarised income statement for 2016 includes significant items costs and provisions Curragh; and $145 million ($102 million) of restructuring $850 million ($595 million) non-cash impairment of non-cash impairment of Target; Target. to reset Target. $306 million ($300 million post-tax) non-cash impairment of relating to the pre-tax The summarised income statement for 2018 includes significant items The 2018 and 2016 numbers exclude the significant items outlined in footnotes 4 and 5 above. Summarised income statement Summarised Sales revenue All figures in $m unless shown otherwise in $m unless All figures FIVE-YEAR FINANCIAL HISTORY FINANCIAL FIVE-YEAR 1 2 3 4 5 6 154 Shareholder and ASX information ASX and Shareholder Interest cover (cash basis) (R12, times) (excluding significant items cover Interest Financial position as at 30 June assets Total Other operating revenue Fixed charges cover (R12, times) (excluding significant items Fixed charges Total liabilities Total Operating revenue Net assets Operating profit before depreciation and amortisation, finance costs finance costs and amortisation, depreciation before Operating profit and income tax Net tangible asset backing per ordinary share Net tangible asset backing per ordinary Depreciation and amortisation and amortisation Depreciation Net debt to equity EBIT Total liabilities/total assets liabilities/total assets Total Finance costs Stock market capitalisation as at 30 June Income tax expense Income tax expense Profit after tax from discontinued operations after tax from Profit Operating profit after income tax attributable to members of attributable to members of after income tax Operating profit Wesfarmers Limited Capital and dividends on issue (number) 000's as at 30 June shares Ordinary Paid up ordinary capital as at 30 June Paid up ordinary Fully-franked dividend per ordinary share declared (cents) declared share Fully-franked dividend per ordinary Capital management: capital return and fully-franked dividend dividend Capital management: capital return and fully-franked components Financial performance Earnings (weighted average) (cents) per share Earnings growth per share Return on average ordinary shareholders' equity (R12) (excluding equity (R12) (excluding Return shareholders' on average ordinary significant items BACK WESFARMERS BRANDS

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