Wesfarmers Annual Report Annual Wesfarmers 2018 WESFARMERS ANNUAL REPORT 2018 WorldReginfo - d3a92f54-2182-4dea-a8ec-9fcd9ff886c9 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 WorldReginfo - d3a92f54-2182-4dea-a8ec-9fcd9ff886c9 Overview BACK Bunnings The 2018 financial year was one of significant change for Wesfarmers, review financial Operating and 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 and Shareholder 1 The 2018 earnings before interest and tax for Department Stores excludes Target’s pre-tax non-cash impairment of $306 million. 58 50 2 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 37 WorldReginfo - d3a92f54-2182-4dea-a8ec-9fcd9ff886c9 Overview BACK GROUP STRUCTURE The 2018 financial year was one of significant change for Wesfarmers, review financial Operating and 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 and Shareholder 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. 4 Wesfarmers 2018 Annual Report Wesfarmers 2018 Annual Report 57 WorldReginfo - d3a92f54-2182-4dea-a8ec-9fcd9ff886c9 Overview Overview BACK The 2018 financial year was one of significant change for Wesfarmers, review financial Operating and 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