2017 Annual Report

19 September 2017 The Manager Market Announcements Office Australian Securities Exchange Dear Manager, 2017 ANNUAL REPORT Attached is the Wesfarmers Limited 2017 Annual Report. A copy of the report will be sent by mid-October 2017 to those shareholders who have elected to receive a copy. The report is also available on the company’s website www.wesfarmers.com.au. Yours faithfully, LJ KENYON COMPANY SECRETARY For personal use only Wesfarmers Annual 2017 Report 2017 Annual Report Delivering value today and tomorrow For personal use only The primary objective of Wesfarmers is to provide a satisfactory return to its shareholders. About Wesfarmers About this report 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 Wesfarmers has grown into one of companies’ operations, activities and with the production of the annual Australia’s largest listed companies. financial position as at 30 June 2017. In report and printed copies are only With headquarters in Western Australia, this report references to ‘Wesfarmers’, posted to shareholders who have its diverse business operations ‘the company’, ‘the Group’, ‘we’, ‘us’ and elected to receive a printed copy. This cover: supermarkets, liquor, hotels ‘our’ refer to Wesfarmers Limited (ABN report is printed on environmentally and convenience stores; home 28 008 984 049) unless otherwise stated. responsible paper manufactured under improvement; department stores; ISO 14001 environmental standards. References in this report to a ‘year’ office supplies; and an Industrials are to the financial year ended division with businesses in chemicals, 30 June 2017 unless otherwise stated. energy and fertilisers, industrial and All dollar figures are expressed in safety products and coal. Wesfarmers Australian dollars (AUD) unless is Australia’s largest private sector otherwise stated. employer with around 223,000 employees (including more than 4,200 All references to ‘Indigenous’ people Indigenous team members) and has are intended to include Aboriginal a shareholder base of approximately and/or Torres Strait Islander people. 515,000. For personal use only Contents Overview Governance 2 The year in review 62 Board of directors 4 Chairman’s message 64 Corporate Governance Overview 6 Managing Director’s report 8 Performance overview 10 Executive Leadership Team Directors’ report 68 Directors’ report 73 – Remuneration report Operating and financial review 12 Operating and financial review Financial statements 22 Retail businesses 93 Financial statements 22 Coles 99 Notes to the financial statements 28 Home Improvement 34 Department Stores 36 – Kmart 37 – Target Signed reports 40 Officeworks 139 Directors’ declaration 44 Industrials 140 Independent auditor’s report 46 – Chemicals, Energy and Fertilisers 48 – Industrial and Safety 50 – Resources Shareholder and 52 Other activities ASX information 145 Annual statement of coal resources and reserves 148 Shareholder information Sustainability 149 Five-year financial history For personal use only 53 Sustainability 150 Investor information 151 Corporate directory 152 Wesfarmers brands Overview The year in review Delivering value today and tomorrow Bunnings United Kingdom and Ireland opened four pilot stores during the year. p28 Richard Goyder reflects on his time as Managing Director. p6 $2.23 In 2017 Rob Scott will DIVIDENDS become Wesfarmers' eighth Wesfarmers is a special Managing Director. p5 PER SHARE company. I often describe it as financially p8 focused with a heart. We are clear on our objectives of providing our shareholders with a satisfactory return, knowing we can For personal use only only do that through creating value for all our stakeholders. Our community Kmart growth contributions exceeded $130m. p60 Kmart delivered another year of strong earnings growth. p36 2 Wesfarmers 2017 Annual Report Coles continued to invest in value, quality and service. p22 Our suppliers Industrials had a strong received $46.4b. recovery in earnings. p44 p8 $2.1b Terry Bowen leaves GOVERNMENT TAXES Wesfarmers in great AND ROYALTIES financial shape, with a strong balance sheet and p8 record cash flows. p12 Sustainability matters For personal use only Understanding and We employ around 223,000 managing the ways we Officeworks people and paid $8.7b in impact our community continues to salaries, wages and other and the environment is drive growth and benefits.p8 important to us. p53 productivity. p40 Wesfarmers 2017 Annual Report 3 Overview Chairman’s message I am pleased to report on another successful year for your company. CHAIRMAN — MICHAEL CHANEY AO On a statutory reporting basis, share to $2.23 from $1.86 in 2016. Wesfarmers recorded a substantial The company’s results for the year increase in net profit for the 2017 illustrated the advantages of its financial year compared to that conglomerate structure. Increases in reported in the 2016 financial earnings from the Industrial businesses, year when profit was reduced by Kmart and Bunnings in Australia and impairment charges in Curragh New Zealand as well as reduced losses and Target, as well as significant in Target, more than offset the fall in restructuring costs in Target. profits in Coles supermarkets and losses in the United Kingdom and Ireland Excluding those significant home improvement business. items, underlying net profit after For personal use only tax increased 22.1 per cent to The focus of management and the $2,873 million. Earnings per share Board continues to be on providing increased 21.6 per cent to a record a superior return to shareholders $2.55 and return on equity rose from over the long term. At times this can 9.6 per cent to 12.4 per cent. mean sacrificing short-term profits to support our longer term business The directors declared a fully-franked growth; the Coles business today final dividend of $1.20 per share, provides a good example of that. lifting the full-year dividend per 4 Wesfarmers 2017 Annual Report Competition is strong across all of our The current system is instead serving as In November, Rob Scott will succeed markets, with new players entering the a deterrent to the enterprise bargaining Richard Goyder as Group Managing field and new products and processes process, working against the interests Director and Chief Executive Officer; challenging the status quo; but that has of employers, employees and unions and Anthony Gianotti will succeed always been the case. The pace of change in seeking to provide flexible and Terry Bowen as Group Chief Financial may be faster today but that simply appropriate terms of employment. The Officer. The directors are pleased that, highlights the need to keep innovating. uncertainty created by decisions of as has been the case historically, these This, I think, has been a strength of the Fair Work Commission in the retail critical appointments have been able Wesfarmers since it listed in 1984. sector operates as a disincentive to to be made internally, with people bargaining and a barrier to building the who understand the company’s values In that context it is instructive to flexibility that would allow businesses and culture. consider the growth of the company to meet the needs of consumers. over those 33 years, when its market Richard Goyder has been an value has increased 600-fold, from A fourth issue is the increasingly outstanding chief executive over his $80 million on listing to $48 billion uncompetitive corporate tax rate 12-year term in that role. The fact that today. During that period, $22.3 billion prevailing in Australia. Attempts by the company has outperformed the of net new equity has been raised and the Federal Government to reduce the general market over the past decade, $23.3 billion of dividends have been rate to 25 per cent for all companies - a in the face of the global financial paid to shareholders, meaning that reduction that would undoubtedly crisis occurring soon after the major the whole $48 billion of increased have resulted in increased employment acquisition of the Coles Group, is due shareholder value has come from and economic activity - were opposed in no small part to Richard’s personal business growth. by Labor and then watered down in values, his calm in the face of challenge, negotiation with the minor parties to the his focus on performance and his ability The task, of course, is to continue that point where the effect will be minimal. to inspire his people. He leaves with our record of success but I believe we have sincere thanks and appreciation. the management team, culture and A final issue is the unnecessary systems to achieve that. complexity associated with doing Terry Bowen has been described business across Australia through lack elsewhere as one of Australia’s best chief Several of the challenges facing all of uniformity in State-based legislation. financial officers. His attention to detail, companies doing business in Australia For instance, there are widespread in-depth knowledge of our businesses today occur at the government level. The inconsistencies in retail trading laws and outstanding work ethic justify that increasing tendency of governments to across and within States and Territories, accolade. Terry leaves Wesfarmers in adopt populist policies counts against including differences in extended great financial shape, with strong cash productive economic outcomes. weekday trading hours, Sunday trading, flows and the balance

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