Wesfarmers Annual Report 2010
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Wesfarmers Annual Report 2010 Creating value Wesfarmers Annual Report 2010 www.wesfarmers.com.au WESFARMERS LIMITED ABN 28 008 984 049 Further information For more information about Wesfarmers’ activities including financial updates, ASX announcements, key dates and other Wesfarmers’ corporate reports, visit the ‘Investor centre’ at www.wesfarmers.com.au Wesfarmers Sustainability Report 2010 Wesfarmers Shareholder Review 2010 Creating value Sustainability Report 2010 Shareholder Review 2010 www.wesfarmers.com.au > Investor centre Cert no. SGS-COC-003898 The cover and pages 1 to 68 are printed on Monza Recycled paper, which is Certified Carbon Neutral by The Carbon Reduction Institute (CRI) in accordance with the global Greenhouse Protocol and ISO 14040 framework. Monza Recycled contains 55% recycled fibre (25% post consumer and 30% pre consumer) and FSC Certified pulp, which ensures that all virgin pulp is derived from well-managed forests and controlled sources. It is manufactured by an ISO 14001 certified mill. Monza Recycled is an FSC Mixed Sources Certified paper. The paper used from page 69 to 176 is printed on Pacesetter Laser, which is FSC Mixed Sources Certified. The Mill operate under ISO 14001 environmental Designed and produced by Ross Barr & Associates Pty Limited Designed and produced by Ross systems and practices. Pulp used in the manufacture of Pacesetter Laser is Elemental Chlorine Free (ECF). The 200,000 people in our teams across our major business groupings of retail, industrial and insurance, reach millions of customers every day in every part of Australia and New Zealand, creating value for all our stakeholders, in particular, through generating satisfactory returns to our shareholders. We continue to make a vitally important contribution to the communities in which we live and work and do it all in a way which is sensitive to the environment in which we operate. CONTENTS 2 Highlights and summary 34 Industrial and other 67 Financial statements 4 Chairman’s message businesses highlights 1 4 5 Directors’ report 6 Managing Director’s review 36 Resources 1 5 0 Remuneration report 2010 (audited) 10 Finance Director’s review 40 Insurance 1 6 6 Directors’ declaration 12 Review of operations 44 Chemicals, Energy and Fertilisers 167 Independent auditor’s report 16 Retail highlights 48 Industrial and Safety 168 Annual statement of coal resources 18 Coles 52 Other activities and reserves 22 Home Improvement 53 Sustainability 170 Shareholder information and Office Supplies 56 Board of Directors 172 Five year financial history 26 Target 58 Corporate governance statement 173 Investor information 30 Kmart 174 Glossary 175 Group structure 176 Corporate directory WESFARMERS ANNUAL REPORT 2010 1 Highlights and summary A strong performance with higher profits and increased dividends to shareholders Results summary 2010 2009 Key financial data Revenue $m 51,827 50,982 Earnings before interest and tax* $m 2,869 2,947 Net profit after tax (pre significant items)* $m 1,702 1,628 Net profit after tax* $m 1,565 1,522 Dividends $m 1,446 1,102 Total assets* $m 39,236 39,062 Net debt $m 4,035 4,435 Shareholders’ equity* $m 24,694 24,248 Capital expenditure on property, plant and equipment and intangibles $m 1,656 1,503 Depreciation and amortisation* $m 917 856 Key share data Earnings per share* cents 135.7 158.5 Dividends per share cents 125.0 110.0 Net tangible assets per share* $ 3.61 3.13 Operating cash flow per share $ 2.88 3.25 Key ratios Return on average shareholders’ equity*(R12) % 6.4 7.3 Gearing (net debt to equity) % 16.3 18.3 Interest cover (cash basis) times 6.8 5.0 * 2009 restated for change in accounting policy for Stanwell royalty payment. VALUE GENERATED AND DISTRIBUTED BY WESFARMERS NET PROFIT AFTER TAX ($m) $1,565 2010 2009 $10,799m $10,486m Employees – salaries, wages 10% 10% and other benefits 1,565 % 1,522 14% 10 Government – taxes 60% 8% 60% and royalties 6% Lenders – borrowed funds 10% 12% Shareholders – dividends 1,063 on their investment 869 Reinvested in the business 786 # * 06 07 08 09 10 # Excludes earnings from the sale of ARG. * Restated for change in accounting policy for Stanwell royalty payment. 2 WESFARMERS ANNUAL REPORT 2010 Financial highlights Operational highlights • 2.8 per cent increase in net profit after tax to $1,565 million. • Coles’ new management team has established solid business foundations, with significant improvements made to the in-store • 1.7 per cent increase in the Group’s operating revenue offer and higher levels of customer trust established in the to $51.8 billion and a 4.4 per cent increase across the Coles brand. retail divisions. • Home Improvement and Office Supplies both delivered robust • Earnings before interest and tax (EBIT) of $2,869 million, growth across all business channels. Bunnings’ network growth down 2.6 per cent, whilst EBIT (excluding Resources) accelerated, with 22 new stores and trade centres opened increased 31.1 per cent, with earnings improvements during the year. Officeworks opened five new stores and achieved across most divisions. 12 stores were fully upgraded. • Combined retail divisions EBIT was up 15.8 per cent despite • Target delivered a solid result, despite difficult trading challenging retail conditions, particularly in the second half of conditions, driven by good inventory management and the year, highlighting encouraging performance in the Group’s merchandise planning, a favourable shift in sales mix towards turnaround businesses. apparel and a focus on costs. Target opened seven stores • EBIT from the Resources division was $165 million compared (including one replacement store), closed three stores and with a record $885 million1 in the previous corresponding refurbished 24 stores during the year. period, resulting from a significant reduction in the March 2009 • Kmart relaunched its offer during the year, moving to a low price settlements, following declines in global export coal prices price everyday strategy. Good progress has been made to date, between August 2008 and May 2009. with strong customer response reflected in pleasing transaction • Industrial and Insurance divisions reported a 37.3 per cent growth and improved earnings from category management. increase in combined earnings2 on a return to more normalised Supply chain restructuring delivered further earnings benefits. trading conditions for the industrial businesses and a strong • Resources announced a $286 million expansion of the turnaround in underwriting profitability for Insurance. Curragh mine to 8.0 – 8.5 million tonnes annual export capacity, • 9.3 per cent increase in operating cash flows to $3,327 million the early completion of the Blackwater Creek diversion supported by a $415 million reduction in Group working capital. project and a long-term contract with Thiess for overburden • Earnings per share of $1.36, down 14.4 per cent, on the removal at Curragh. expanded share capital. • Insurance delivered strong earnings growth following portfolio • $0.70 fully-franked final dividend per share declared, and business unit restructuring and an ongoing focus on taking the full-year dividend to $1.25 per share. underwriting and claims management disciplines. • Balance sheet strengthened with net debt of $4.0 billion • Chemicals and Fertilisers merged with Energy from 1 July 2010 and further diversification and extension of the Group’s debt to form Wesfarmers Chemicals, Energy & Fertilisers division. maturity profile. These businesses benefited from a return to full gas supply for the year. • Wesfarmers’ Industrial and Safety division achieved a solid 1 Restated for change in accounting policy for Stanwell royalty payment. result in a challenging economic environment. The business 2 Excluding a $48 million non-cash impairment charge related to Coregas. delivered good sales momentum in a number of areas and upgraded its supply chain capabilities. As part of the divisional restructure Coregas became part of Industrial and Safety. EARNINGS PER SHARE (cents) DIVIDENDS PER SHARE (cents) OpERATING CASH FLOW ($m) 135.7 125 $3,327 225 215 218.5 3,327 200 3,044 195.2 163.875011 174.2 158.5 109.250008 135.7 125 110 1,451 54.625004 1,301 1,129 # * 10 06 07 08 09 10 06 07 08 09 06 07 08 09 10 0.000000 WESFARMERS ANNUAL REPORT 2010 3 Chairman’s message I am extremely pleased to present the 2010 Wesfarmers We are major supporters of the arts in Australia, health and medical research, indigenous programs like the Annual Report to shareholders after what has been a Clontarf Football Academy, and education programs milestone year for this great company. from school to university and beyond. Last year we launched our Reconciliation Action Plan and we are committed to providing employment opportunities for Aboriginal people wherever we can. We firmly believe During the 2009/10 financial year we celebrated the that to have a healthy business you must have strong 25th anniversary of Wesfarmers’ listing as a public and vibrant communities in which to live and work and company. We have indeed come a long way in that we are enthusiastically meeting the challenges such an quarter of a century and the growth of the company objective presents. Putting a dollar measurement on is worthy of reflection. the benefit of our support for communities is an inexact science, but the London Benchmarking Group has At the time of the original stock market listing back assessed Wesfarmers’ total community contributions, in late 1984 when, after 70 years as a West Australian direct and leveraged from our support, at $50.6 million farmers’ cooperative, Wesfarmers transformed for the last financial year. itself into a publicly listed company, it had a market capitalisation of approximately $91 million. At Business performance listing there were 40.1 million shares on issue and approximately 21,000 shareholders in the company.