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9
2019
WESFARMERS
ANNUAL REPORT
ABOUT WESFARMERS
ABOUT THIS REPORT
From its origins in 1914 as a Western
Australian farmers’ cooperative, Wesfarmers
has grown into one of Australia’s largest
listed companies. With headquarters in
Perth, Wesfarmers’ diverse businesses in this
year’s review cover: home improvement;
apparel, general merchandise and office
supplies; an Industrials division with
businesses in chemicals, energy and
fertilisers and industrial safety products. Prior
to demerger and divestment, the Group’s
businesses also included supermarkets,
liquor, hotels and convenience retail; and
coal. Wesfarmers is one of Australia’s largest
private sector employers with approximately
105,000 team members and is owned by
approximately 484,000 shareholders.
This annual report is a summary
of Wesfarmers and its subsidiary
companies’ operations, activities and
financial performance and position as at
30 June 2019. In this report references to
‘Wesfarmers’, ‘the company’, ‘the Group’,
‘we’, ‘us’ and ‘our’ refer to Wesfarmers
Limited (ABN 28 008 984 049), unless
otherwise stated.
References in this report to a ‘year’ are to
the financial year ended 30 June 2019
unless otherwise stated. All dollar figures
are expressed in Australian dollars (AUD)
unless otherwise stated.
All references to ‘Indigenous’ people are
intended to include Aboriginal and/or
Torres Strait Islander people.
Wesfarmers is committed to reducing the
environmental footprint associated with
the production of this annual report and
printed copies are only posted to
shareholders who have elected to receive
a printed copy. This report is printed on
environmentally responsible paper
manufactured under ISO 14001
environmental standards.
CONTENTS
OVERVIEW
OPERATING
AND FINANCIAL
REVIEW
2019 The year in review
Group structure
Primary objective
Performance overview
Chairman’s message
Managing Director’s report
Leadership Team
Operating and financial review
Bunnings
Kmart Group
–
–
Kmart
Target
Industrials
–
–
Chemicals, Energy and Fertilisers
Industrial and Safety
Officeworks
Other activities
Group sustainability performance
Climate-related financial disclosures
Independent Limited Assurance Statement
GOVERNANCE
Board of directors
Corporate governance overview
DIRECTORS’
REPORT
Directors’ report
–
Remuneration report
FINANCIAL
STATEMENTS
Financial statements
Notes to the financial statements
SIGNED
REPORTS
SHAREHOLDER
AND ASX
INFORMATION
Directors’ declaration
Independent auditor’s report
Shareholder information
Investor information
Five-year financial history
Corporate directory
Wesfarmers companies
2
4
5
6
8
10
12
14
24
30
32
34
38
40
45
50
56
57
64
73
74
76
80
85
111
117
161
162
168
169
170
171
172
1
Wesfarmers 2019 Annual Report
2019
THE YEAR IN REVIEW
FINANCIAL PERFORMANCE
REVENUE
$27.9b
4.3%
From continuing operations
CONTRIBUTIONS
SALARIES AND
WAGES
$6.5b
NET PROFIT AFTER TAX
DIVIDENDS PER SHARE
$1.9b
13.5%
From continuing operations and
excluding significant items
$2.78
Including $1.00
special dividend
GOVERNMENT TAXES
AND ROYALTIES
COMMUNITY
CONTRIBUTIONS
$1.5b
$72m
Includes discontinued operations
Includes discontinued operations
From continuing operations
Significant portfolio repositioning
Successful demerger of Coles and divestment
of Kmart Tyre & Auto and interests in Bengalla
and Quadrant Energy
2
Wesfarmers 2019 Annual Report Bunnings
Continued to grow
in both consumer
and commercial
markets across
all major
trading regions
and product
categories
Kmart Group
Reduced earnings
but maintaining
strong return
on capital
1.5%
Reduction in total
recordable injury
frequency rate to
13.5 in continuing
operations
Officeworks
Continued strong
sales growth in
stores and online
3
Chemicals, Energy
and Fertilisers
Continued
earnings growth
reflecting strong
operational
performance and
customer demand
Relentless focus
on improving
the customer
experience both
in-store and online
Investment
and focus on
accelerating
divisional
digital and data
capabilities
Ethical sourcing
Improved
transparency
in our supply
chain with 3,773
factories and
supplier sites in
our audit program
Wesfarmers 2019 Annual Report GROUP STRUCTURE
BUNNINGS
KMART GROUP
INDUSTRIALS
OFFICEWORKS
OTHER
ACTIVITIES
CORPORATE
Bunnings
Kmart
Chemicals,
Energy and
Fertilisers
Industrial
& Safety
Officeworks
Coles
(15%)
flybuys
(50%)
BWP Trust
(24.8%)
Gresham
Partners
(50%)
Wespine
Industries
(50%)
Target
CSBP
Blackwoods
Geeks2U
Catch Group1
Australian
Vinyls
Workwear
Group
Australian Gold
Reagents
(75%)
Coregas
Queensland
Nitrates
(50%)
Greencap
EVOL LNG
NZ Safety
Blackwoods
Kleenheat
ModWood
Covalent2
Lithium
(50%)
In August 2019, Wesfarmers completed the acquisition of Catch Group Holdings.
In September 2019, Wesfarmers completed the acquisition of Kidman Resources and its 50 per cent interest in the Covalent Lithium joint venture.
1.
2.
4
Wesfarmers 2019 Annual Report THE PRIMARY OBJECTIVE OF
WESFARMERS IS TO PROVIDE
A SATISFACTORY RETURN TO
SHAREHOLDERS.
We believe it is only possible to achieve this over the long term by:
anticipating the needs
of our customers and
delivering competitive
goods and services
looking after our team
members and providing
a safe, fulfilling work
environment
engaging fairly with
our suppliers, and
sourcing ethically
and sustainably
supporting the
communities in
which we operate
taking care of the
environment
acting with integrity
and honesty in all
of our dealings
Wesfarmers 2019 Annual Report
5
5
Wesfarmers 2019 Annual Report PERFORMANCE OVERVIEW
CREATING WEALTH AND ADDING VALUE
$29.6b Payments to suppliers
$ 6.5b Employees (salaries, wages and other benefits)
Wealth creation1
Value distribution
$48.7b
$14.5b
$4.6b Payments for rent,
services and other external costs
$1.5b Government (taxes and royalties)
$0.2b Lenders (finance costs)
$3.2b Shareholders (dividends)
$3.1b Reinvested in the business
1
Includes discontinued operations.
Group performance
Key financial data
Results from continuing operations¹
Revenue
Earnings before interest, tax, depreciation and amortisation
Earnings before interest, tax, depreciation and amortisation (excluding significant items)²
Earnings before interest and tax
Earnings before interest and tax (excluding significant items)²
Net profit after tax
Net profit after tax (excluding significant items)²
Basic earnings per share
Basic earnings per share (excluding significant items)²
Results including discontinued operations¹
Earnings before interest and tax
Earnings before interest and tax (excluding significant items)³,4
Net profit after tax
Net profit after tax (excluding significant items)³,4
Basic earnings per share
Basic earnings per share (excluding significant items)³,4
Return on average shareholders' equity (R12) (excluding significant items)³,4
Cash flow and dividends (including discontinued operations)
Operating cash flows
Net capital expenditure on property, plant and equipment and intangibles
Free cash flows
Equity dividends paid
Operating cash flow per share
Free cash flow per share
Dividends per share (declared)
Balance sheet and gearing
Total assets
Net debt
Shareholders' equity
Fixed charges cover (R12) (excluding significant items)
Interest cover (R12) (cash basis) (excluding significant items)
Gearing (net debt to equity)
2019
2018
27,920
26,763
3,511
3,511
2,974
2,974
1,940
1,940
171.5
171.5
6,818
3,561
5,510
2,339
487.2
206.8
19.2
2,718
827
2,963
3,628
240.3
262.0
278.0
18,333
2,500
9,971
3.2
30.6
25.1
2,865
3,171
2,344
2,650
1,409
1,709
124.6
151.1
2,796
4,288
1,197
2,772
105.8
245.1
11.7
4,080
1,209
3,422
2,528
360.1
302.0
223.0
36,933
3,933
22,754
3.0
30.4
17.3
$m
$m
$m
$m
$m
$m
$m
cents
cents
$m
$m
$m
$m
cents
cents
%
$m
$m
$m
$m
cents
cents
cents
$m
$m
$m
times
times
%
1 Discontinued operations relate to Coles, Curragh, Bengalla, KTAS, Quadrant Energy and BUKI.
2 Significant items for continuing operations for 2018 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): $931 million ($1,023 million) of writedowns 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.
4 2019 excludes the following significant items pre-tax (post-tax): $2,319 million ($2,264 million) gain on demerger of Coles, $679 million ($645 million) gain on disposal
of Bengalla, $267 million ($244 million) gain on disposal of KTAS, $138 million ($120 million) gain on disposal of Quadrant Energy and $146 million ($102 million) provision
for Coles supply chain automation.
6
Wesfarmers 2019 Annual ReportOverview Actions taken during the year to reposition the portfolio have significantly strengthened the balance
sheet and enabled the delivery of improved shareholder returns.
During this period of change, our operating divisions continued to generate solid returns, while
remaining focused on long-term value creation.
Divisional performance
Bunnings Australia and New Zealand
Revenue ($m)
Earnings before interest and tax ($m)
Segment assets ($m)
Segment liabilities ($m)
Capital employed ($m) R12
Return on capital employed (%) R12
Capital expenditure ($m)
Kmart Group (including KTAS)
Revenue ($m)
Earnings before interest and tax ($m)
Segment assets ($m)
Segment liabilities ($m)
Capital employed ($m) R12
Return on capital employed (%) R12
Capital expenditure ($m)
$m
$m
$m
$m
$m
%
$m
$m
$m
$m
$m
$m
%
$m
1 The 2018 earnings before interest and tax for Kmart Group exclude the pre-tax non-cash impairment of $306 million for Target.
Industrials1 (including Quadrant Energy)
Revenue ($m)
Earnings before interest and tax ($m)
Segment assets ($m)
Segment liabilities ($m)
Capital employed ($m) R12
Return on capital employed (%) R12
Capital expenditure ($m)
1
Industrials has been restated to exclude Resources.
Officeworks
Revenue ($m)
Earnings before interest and tax ($m)
Segment assets ($m)
Segment liabilities ($m)
Capital employed ($m) R12
Return on capital employed (%) R12
Capital expenditure ($m)
$m
$m
$m
$m
$m
%
$m
$m
$m
$m
$m
$m
%
$m
2019
13,166
2018
12,544
1,626
5,118
1,983
3,220
50.5
470
2019
8,713
550
3,755
1,476
1,872
29.4
201
2019
3,830
524
3,315
740
2,833
18.5
141
2019
2,314
167
1,531
559
980
17.0
42
1,504
5,025
1,875
3,045
49.4
497
20181
8,837
660
3,617
1,482
2,013
32.8
293
2018
3,580
508
3,237
690
2,816
18.0
110
2018
2,142
156
1,452
532
939
16.6
45
7
Wesfarmers 2019 Annual ReportSigned reportsShareholder and ASX informationFinancial statementsDirectors’ reportGovernanceOperating and financial reviewOverview CHAIRMAN’S
MESSAGE
The 2019 financial year was one of continued strong profit contributions by Wesfarmers’ activities
coupled with a major change in the makeup of the company’s business portfolio.
The repositioning of the Group’s portfolio included the
demerger of the Coles business from the Group and the
sale of our interest in the Bengalla coal mine, the Kmart Tyre
and Auto Service (KTAS) business and of the company’s
investment in Quadrant Energy.
On a statutory basis, net profit after tax rose $4.3 billion
to $5.5 billion. Of this total, $3.2 billion was attributable to
significant items arising from the Coles demerger and the
profits on sale of Bengalla, KTAS and Quadrant Energy.
Net profit from continuing operations (excluding significant
items in the prior year) rose 13.5 per cent from $1.7 billion
to $1.9 billion. This increase resulted from the higher
contributions from Bunnings, Officeworks and Industrials
and other activities, including our 15 per cent share in
Coles Group, more than offsetting a fall in the profits of
the Kmart Group.
The Directors declared a fully-franked final dividend of
78 cents per share, bringing the full-year ordinary dividend
to $1.78 per share, plus a special dividend paid in
April 2019 of $1.00 per share, for total fully-franked
dividends for the year of $2.78 per share.
The portfolio changes during the year reflected Wesfarmers’
focus on enhancing shareholder returns. It was considered
a separately listed Coles would provide greater shareholder
value going forward than the value attributed by the market
to the combined Group, owing to the different growth
outlooks. Wesfarmers shareholders received shares in Coles
amounting to 85 per cent of the company, with Wesfarmers
retaining 15 per cent. The shareholdings in KTAS, Bengalla
and Quadrant Energy were sold at prices which represented
a strong return for Wesfarmers.
During the year, Wesfarmers announced its intention to
acquire Kidman Resources, which owns 50 per cent of a
major lithium deposit and project in Western Australia, a
mineral associated with the rise of electric vehicles. The
acquisition was completed in September 2019, after
Kidman Resources shareholders supported the proposed
scheme of arrangement. Our plan is to develop a lithium
hydroxide plant in Kwinana, Western Australia, near our
existing chemical operations, in conjunction with our joint
venture partner. In August 2019, Wesfarmers also
completed the acquisition of Catch Group, an established
online retailer.
The Board considers the Group to be well positioned for
future growth in its existing businesses, with the balance
sheet capacity to expand its operations and move into
new fields where the potential returns justify investment.
During 2019, there has been continued debate and
commentary in Australia and around the world about
corporate governance, the role of companies, sustainability
and the need for companies to innovate and invest. There
does seem to be some confusion about aspects of these
debates that are worth addressing here.
8
Above: Michael Chaney in the
Wesfarmers corporate office
with The Wesfarmers Collection
of Australian Art, Perth
Wesfarmers 2019 Annual ReportOverview Firstly, various commentators have made the suggestion that
the role of companies is broader than just shareholder profit
maximisation. In this regard, it was interesting to read recently
of a change of emphasis in the annual declaration of ‘The
Purpose of a Company’ by the USA Business Roundtable,
the American equivalent of the Business Council of Australia.
The declaration, to which 181 large company CEOs had
signed up at the time of writing, stated that the CEOs
pledged to:
− deliver value to our customers,
− invest in our employees,
− deal fairly and ethically with our suppliers,
− support the communities in which we work, and
− generate long-term value for our shareholders.
It seems rather strange to list shareholders last in such a
declaration because the reason listed companies exist is to
provide returns to their shareholders; but the philosophy
behind the declarations would not come as a great revelation
to followers of Wesfarmers over the years. Since we listed on
the stock exchange in 1984, our annual report has made very
clear the necessity of considering all stakeholders. As the
reader will see again on page 5 of this year’s report, our aim
of providing satisfactory returns to shareholders goes
hand-in-hand with a focus on the interests of employees,
customers, suppliers, the environment and the communities
in which our diverse set of businesses operate; and on ethical
and honest behaviour. If a company does not maintain that
focus, customers will desert it, employees will leave and
potential partners will decline to do business with it.
Over the last year, Wesfarmers has been named as one
of the most generous supporters of the community. In a
ranking of community investment as a proportion of profit,
Wesfarmers was ranked first by a long way among
ASX-listed companies. In a survey published in 2018 by
the US business organisation, Fortune, called ‘Doing Well
by Doing Good’, Wesfarmers was ranked thirteenth in the
world and was the only Australian company in that list.
We do not think it is a coincidence that we have
maintained a strong focus on the interests of our other
stakeholders and have been one of the most successful
companies on the stock exchange. The evidence for the
last point is that an investment in Wesfarmers at the time
of its listing in 1984 has provided shareholder returns more
than 10 times greater than an investment in the ASX50.
The second issue to address is commentary that Australian
companies focus too much on dividends and capital returns
at the expense of investment in the businesses. This seems
to us to indicate a misunderstanding of corporate finance.
The misunderstanding is that a company is limited by
capital rather than by investment opportunities; and that
there is a trade-off between dividends and capital
investment. Neither is true.
For large companies in particular, capital is effectively
unlimited, except perhaps during rare times of crisis.
At almost all times, debt and equity markets are only
too willing to provide capital for good investments.
The challenge is to find them.
The reason Australian companies maintain higher
dividend payout ratios than companies in other countries
is straightforward: we have dividend imputation. When
franking credits build up, the responsible company
returns them to its shareholders. They are of no value to
the company but of great value to shareholders. If the
resulting distribution would result in available cash being
below desired levels, the company can introduce a
dividend reinvestment plan which allows it to raise equity
capital at an immaterial or zero discount.
The issue of making capital investments is an entirely
separate one. At Wesfarmers, our investment horizon is the
long term. Since capital is available as debt and equity, all
investments that suit the company and that are assessed to
provide an acceptable risk-adjusted return over the long term
are made. As stated above, however, good investments are
few and far between. The question of their attractiveness
depends on potential revenues being high enough to justify
capital and operating costs. All three are affected by the
capability of the company – management and negotiating
skills, experience, and so on – but also by issues outside
management’s control – the outlook for the Australian and
world economies, volatile commodity prices and many other
issues influenced or controlled by governments like corporate
tax rates, investment allowances, the exchange rate, interest
rates and workplace relations settings. The high rate of
corporate tax and modest investment allowances in Australia
are relevant issues here.
For the last 35 years, Wesfarmers has maintained at its
corporate office an uncommonly strong group of business
development professionals, currently numbering around
25, whose job is to find and evaluate new investment
opportunities; and there are many more such people
within our operating divisions. The fact that the occasions
on which investments actually come to fruition are
infrequent provides an illustration of the challenge of
finding acceptable ones; but one thing is certain: it has
nothing at all to do with dividend policy.
I take this opportunity, on behalf of my fellow directors, to
thank our outgoing director, Tony Howarth, for his efforts
on behalf of the company. Tony’s wide experience and
wise counsel have proved invaluable. He has chaired the
Audit and Risk Committee with distinction during a period
when what is normally a complex task, given Wesfarmers’
conglomerate status, has been even more complex due
to corporate restructurings. He retires with our sincere
gratitude and best wishes. We welcome Mike Roche and
Sharon Warburton to the Board and look forward to their
contribution as chairs of the Remuneration, and Audit and
Risk Committees respectively; and I thank the other
members of our Board for their continued dedication to
Wesfarmers and its objectives.
I also take this opportunity on behalf of the Board to thank
Linda Kenyon, who retired as our Company Secretary at the
end of the 2019 financial year. As Company Secretary from
2002, Linda provided steadfast guidance to the Board,
ensuring that our governance aligned with leading market
practice and the rising expectations of our many important
stakeholders. We wish Linda well in her retirement after
more than three decades of service to Wesfarmers.
In closing, I pay tribute to our hard-working team, led by
Rob Scott. We look forward to overseeing their efforts to
provide our shareholders with satisfactory returns.
MICHAEL CHANEY AO
– Chairman
9
Wesfarmers 2019 Annual ReportSigned reportsShareholder and ASX informationFinancial statementsDirectors’ reportGovernanceOperating and financial reviewOverview MANAGING
DIRECTOR’S REPORT
It is my pleasure to provide the 2019 financial year update. This was a year of portfolio renewal and,
pleasingly, also a year in which we recorded strong financial results and improved shareholder returns.
These outcomes were made possible by the Wesfarmers
model and our commitment to our core objective to deliver
satisfactory returns to shareholders. The Wesfarmers
operating model enables us to evolve the portfolio, adjust
our capital allocation and create the settings for our divisions
to be the best they can be in their respective markets.
The successful repositioning of our portfolio has increased
the Group’s exposure to businesses that are both resilient
and with good growth prospects over the long term, while
also strengthening our balance sheet. Importantly, during
this period of change, our operating divisions continued to
generate solid returns, while remaining focused on
long-term value creation.
The Group’s continuing businesses generated NPAT
growth of 13.5 per cent (excluding significant items in the
prior year), to $1.9 billion. Adjusting for the contribution
from our 15 per cent stake in Coles, the increase in NPAT
was 8.3 per cent. The performance of Bunnings,
Wesfarmers Chemicals, Energy and Fertilisers business
(WesCEF), and Officeworks was particularly pleasing.
Bunnings’ solid result demonstrates the benefits of a diverse
customer base and product range, a relentless focus on
delivering better experiences for customers and team
members and a focus on business efficiency. Throughout
the year, Bunnings continued to broaden its range and offer
to customers and achieved strong growth in the trade and
commercial sector. I am happy to report that Bunnings also
made considerable progress expanding its digital offer.
For Kmart Group, trading conditions moderated during
the year, and performance was below our expectations.
Nonetheless, Kmart remains one of Australia’s most
successful retailers and continues to invest in its market
leading product design and sourcing capabilities together
with compelling prices which will be important over the long
term. Target’s trading performance highlights the need for
ongoing repositioning to further elevate quality and style,
expand its digital capabilities, and differentiate the business
from Kmart and other competitors.
Officeworks achieved another strong year of sales and
earnings growth as its omni-channel approach continued to
resonate with customers, delivering strong sales growth
in stores and online. This performance was underpinned by
investment in new and expanded product ranges, online
enhancements and improvements to the click and collect
customer experience.
Within our Industrials division, WesCEF delivered another
strong result. Earnings growth was achieved through solid
demand from key customers and strong operational
performance as well as the disciplined capital investments
made over time in these businesses to improve capacity
and productivity. By contrast, the performance of the
Industrial and Safety businesses was disappointing,
reflecting the impact on Blackwoods’ earnings from
ongoing investment in customer service and
implementation of a new enterprise resource planning
10
Above: Rob Scott in the Wesfarmers
corporate office with The Wesfarmers
Collection of Australian Art, Perth
Wesfarmers 2019 Annual ReportOverview (ERP) system. For Blackwoods, the business is focused
on deepening customer engagement and aligning core
processes and systems, enabled by the new ERP, to
deliver satisfactory returns on capital.
As already noted, during the year, we significantly
repositioned the Wesfarmers portfolio, to increase our
exposure to businesses that are cash generative and have
stronger growth prospects over the long term.
In November 2018, we completed the demerger of Coles,
retaining a 15 per cent shareholding. This was the largest
demerger in Australian corporate history. Our retained
shareholding in Coles supports our 50 per cent interest,
alongside Coles, in flybuys, which we expect to provide
opportunities to leverage data and digital capabilities for
the benefit of customers. For many years, the Coles, KTAS
and Bengalla businesses delivered significant value to
Wesfarmers and our shareholders. I sincerely thank the
teams in each of these businesses for their many years of
service and wish them all the best for the future.
Throughout the year, we completed or announced three
transactions. In February 2019, Geeks2U was acquired by
Officeworks, expanding the division’s service offering. In
August 2019, we completed the acquisition of Catch
Group, bringing highly complementary skills in digital retail
and fulfilment and a growing e-commerce marketplace to
our Group. In September 2019, our Industrials division
acquired Kidman Resources. The acquisition will allow us
to leverage our chemical processing capabilities into the
growing market for high quality lithium hydroxide. While
relatively small in the context of the broader Group, each is
a good example of our disciplined approach to capital
allocation and is consistent with our objective of deploying
capital where we expect to generate attractive returns to
shareholders over time.
People
Wesfarmers is one of the largest private sector employers in
Australia with around 105,000 team members across our
businesses. Every day I am impressed by their commitment
to our primary objective, and the strong performance of the
Group reflects this dedication. I am pleased that safety
performance in our continuing operations has improved
again, with the total recordable injury frequency rate for the
Group 1.5 per cent lower than last year.
Another highlight for the year was our progress towards
gender balance, which we define as a minimum of
40 per cent of either gender. In addition to improvements
in senior management and general manager levels, the
Wesfarmers Leadership Team is now gender balanced for
the first time in Wesfarmers’ history.
In January 2019, Sarah Hunter succeeded Mark Ward as
Managing Director of Officeworks. Sarah joined from Coles
where she served as the Demerger Program Director,
overseeing the Coles’ team efforts in the demerger. Before
that, she played an important role in the turnaround at
Coles, with a range of leadership positions spanning
operations, finance and commercial.
I join our Chairman in thanking Linda Kenyon who retired as
our Company Secretary at the end of the 2019 financial year.
In addition to providing great guidance and support to the
Board, Linda was a valued member of the Leadership Team
and made a huge contribution to Wesfarmers over many
years. I was delighted to appoint Aleksandra Spaseska as
Executive General Manager, Company Secretariat and Group
Risk in June 2019, after more than 10 years working across
various roles within the Group.
Outlook
The repositioning of our portfolio this year leaves
Wesfarmers better placed to achieve long-term sustainable
growth, with a stable of leading, resilient businesses and a
strong balance sheet.
Across each of our divisions, our teams are relentlessly
focused on customers, maintaining price leadership and
improving quality, service and convenience. In the past year,
we have made good progress building capabilities and
investing in the platforms to support further growth. Each of
our divisions has made substantial progress in the data and
digital area and our investment in the Advanced Analytics
Centre, together with the recent acquisition of Catch Group,
allows us to accelerate our digital and e-commerce
initiatives in the years ahead.
With a strong balance sheet, we are well placed to continue
to invest in our existing businesses. As always, we are
focused on the disciplined deployment of capital to drive
continued growth and returns. We will also seek out other
opportunities that benefit from our capabilities and assets
or which are adjacent to our existing businesses.
Wesfarmers’ objective of delivering a satisfactory return to
shareholders can only be achieved over the long term if we
operate in a sustainable manner and this involves creating
value for all our stakeholders including team members,
customers, suppliers and the communities in which we
operate. Our commitment to acting with integrity and
honesty drives, among other things, our Group-wide focus
on the safety of our team members, our commitment to
ethical sourcing, our initiatives to support increased
Indigenous employment, our focus on the Group’s
environmental footprint and our longstanding, substantial
investment in local community organisations.
In conclusion, I extend my thanks to our dedicated and
hard-working team members across the Group without
whom we could not have achieved what we did in the past
year. Wesfarmers’ future is exciting and I look forward to
creating it with you.
ROB SCOTT
– Managing Director
11
Wesfarmers 2019 Annual ReportSigned reportsShareholder and ASX informationFinancial statementsDirectors’ reportGovernanceOperating and financial reviewOverview LEADERSHIP
TEAM
ROB SCOTT
MANAGING DIRECTOR
WESFARMERS
ANTHONY GIANOTTI
CHIEF FINANCIAL OFFICER
WESFARMERS
MAYA VANDEN DRIESEN
GROUP GENERAL COUNSEL
WESFARMERS
Rob was appointed Managing Director of
Wesfarmers in November 2017 following his
appointment as Deputy Chief Executive Officer in
February 2017. Rob joined Wesfarmers in 1993,
before moving into investment banking, where he
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 2013. Rob was appointed Managing
Director, Financial Services in 2014 and then
Managing Director of the Wesfarmers Industrials
division from August 2015 until August 2017.
Rob holds a Master of Applied Finance degree from
Macquarie University and a Bachelor of Commerce
degree from the Australian National University. He
has a Graduate Diploma in Applied Finance and
Investments, is a qualified Chartered Accountant
and has completed the Advanced Management
Program at Harvard Business School. Rob was
appointed as Chairman of the flybuys joint venture
with Coles Group Limited in December 2018.
Anthony was appointed Chief Financial Officer of
Wesfarmers in November 2017 following his
appointment as Deputy Chief Financial Officer in
July 2017. Anthony joined Wesfarmers in 2004 in
Business Development and in 2005 became
Manager, Investor Relations and 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 2013. In August 2015, he was
appointed Finance Director of the Wesfarmers
Industrials division and its Deputy Managing
Director in February 2017. Anthony holds a
Bachelor of Commerce from Curtin University, a
Graduate Diploma in Applied Finance and
Investments, is a qualified Chartered Accountant
and has completed the Advanced Management
Program at Harvard Business School.
Maya was appointed Group General Counsel of
Wesfarmers in January 2015. Prior to this, Maya
held a number of senior roles in the company
including Legal Counsel – Litigation, Senior Legal
Counsel and General Manager Legal – Litigation.
Maya holds Bachelor of Jurisprudence and
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.
Maya is a Graduate of the Australian Institute of
Company Directors and she sits on the Executive
Committee of the GC 100, representing the General
Counsel of Australia’s top 100 ASX-listed
companies within the Association of Corporate
Counsel (Australia).
Maya is a member of the UWA Law School’s
Advisory Board and she has been a director for the
Committee for Perth since January 2016.
ED BOSTOCK
MANAGING DIRECTOR
BUSINESS DEVELOPMENT
WESFARMERS
LINDA KENYON
COMPANY SECRETARY
WESFARMERS*
Ed joined Wesfarmers in October 2017 as
Managing Director, Business Development. Prior
to joining Wesfarmers, he was a Director in the
Private Equity team at 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.
Linda was appointed Company Secretary of
Wesfarmers in April 2002 and retired from this role
on 30 June 2019. During her tenure, Linda was also
company secretary of a number of Wesfarmers
Group subsidiaries. Linda joined Wesfarmers in
1987 as legal counsel and held that position until
2000 when she was appointed Manager of the
responsible entity for the listed BWP Trust (formerly
Bunnings Warehouse Property Trust). She is a
Fellow of the Governance Institute of Australia.
* Linda retired from this role on 30 June 2019.
SARAH HUNTER
MANAGING DIRECTOR
OFFICEWORKS
Sarah was appointed Managing Director,
Officeworks in January 2019. Prior to this, Sarah
was Demerger Program Director at Coles,
overseeing the successful implementation of the
demerger of the business from Wesfarmers in
November 2018. Sarah joined Coles in 2010, and
held various senior positions across finance,
strategy, convenience, liquor and supermarket
operations. Before joining Coles, Sarah worked in
the United Kingdom for more than 10 years, holding
a number of senior commercial positions in banking
and airports.
Sarah holds a Bachelor of Commerce from Bond
University, a Graduate Diploma in Applied Finance
and Investment from the Financial Services Institute
of Australasia and a Masters of Commerce from the
University of NSW. In addition, she is a Fellow of
the Association of Chartered Certified Accountants,
a Fellow of the Financial Services Institute of
Australasia and a member of the Australian Institute
of Company Directors.
12
Wesfarmers 2019 Annual ReportOverview MICHAEL SCHNEIDER
MANAGING DIRECTOR
BUNNINGS GROUP
IAN BAILEY
MANAGING DIRECTOR
KMART GROUP
DAVID BAXBY
MANAGING DIRECTOR
WESFARMERS INDUSTRIALS
Michael was appointed Managing Director,
Bunnings Australia and New Zealand in March 2016
and Managing Director, Bunnings Group in May
2017. Michael joined Bunnings in 2005, and prior to
that he held a range of senior operational,
commercial and human resource roles across
regional and national markets, both in retail and
financial services. Michael holds a Bachelor of Arts
degree from the University of NSW and has
completed the Advanced Management Program at
INSEAD, and the Advanced Strategic Management
Program at IMD.
Ian was appointed Managing Director, Kmart in
February 2016 and assumed the responsibility for
leading the Kmart Group division (formerly the
Department Stores division) from 1 November
2018. Prior to this, Ian was Kmart’s Chief Operating
Officer where he was instrumental in Kmart’s
turnaround. Ian’s experience, both national and
international, covers a number of industries
including retail, professional services, consulting,
technology and healthcare in positions that include
general management, sales, business development
and project management. Ian holds a Bachelor of
Science degree in Civil Engineering and has
completed the Advanced Management Program at
Harvard Business School.
David commenced as Managing Director,
Wesfarmers Industrials in August 2017. Prior
to this, he was President and Chief Executive Officer
of Global Blue, a cross-border transaction
processing business. From 2004, David held a
number of commercial and leadership roles within
the Virgin Group, and was Co-Chief Executive
Officer from 2011 to 2014. Earlier in his career, David
was a Partner and Executive Director of Goldman
Sachs in both London and Sydney. Prior to joining
Wesfarmers, David was Chairman of Frontier Digital
Ventures, and a director of Virgin Australia, Velocity
Frequent Flyer and Workpac Limited. David is also a
Councillor of Bond University.
NAOMI FLUTTER
EXECUTIVE GENERAL MANAGER
CORPORATE AFFAIRS
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
and head of the Trust and Agency business across
Asia. 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.
JENNY BRYANT
CHIEF HUMAN RESOURCES OFFICER
WESFARMERS
Jenny was appointed as Chief Human Resources
Officer in October 2016 and leads the Wesfarmers
Advanced Analytics team in addition to her human
resources responsibilities. She joined Wesfarmers in
2011 as the Human Resources Director for Coles and
held this role until 2015 when 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 human resources. Jenny
holds a Masters of Arts (MA) with honours from
Cambridge University.
ALEKSANDRA SPASESKA
EXECUTIVE GENERAL MANAGER
COMPANY SECRETARIAT
& GROUP RISK
WESFARMERS
Aleksandra was appointed Executive General
Manager, Company Secretariat & Group Risk in
June 2019. In her role, Aleksandra is the Company
Secretary of Wesfarmers* and a number of subsidiary
companies, and has responsibility for the coordination
of risk management across the Wesfarmers Group.
Prior to this, Aleksandra was General Manager,
Investor Relations. Aleksandra joined Wesfarmers in
April 2008 in Business Development. She moved to
Target in 2013 where she held general management
positions in property and operations.
Aleksandra holds a Bachelor of Commerce
(Honours) and a Doctor of Philosophy from
The University of Western Australia. She is a
CFA Charterholder and a Fellow of the
Governance Institute of Australia.
* Aleksandra commenced in this role on 1 July 2019.
13
Wesfarmers 2019 Annual ReportSigned reportsShareholder and ASX informationFinancial statementsDirectors’ reportGovernanceOperating and financial reviewOverview OPERATING AND
FINANCIAL REVIEW
On behalf of the Board,
I’m very pleased to present the
operating and financial review of
Wesfarmers for shareholders.
14
Wesfarmers’ primary objective is to deliver satisfactory returns to shareholders
through financial discipline and exceptional management of a diversified portfolio
of businesses. A key focus of the Group is ensuring that each of its divisions has
a strong management capability that is accountable for strategy development
and execution, as well as day-to-day operational performance. Each division is
overseen by a divisional board of directors or a steering committee that includes
the Wesfarmers Managing Director and Chief Financial Officer, and is guided by
a Group-wide operating cycle and governance framework.
This operating and financial review sets out the Group’s objective, values, growth
enablers and strategies. It also outlines a review of operational performance
for the 2019 financial year, as well as summarising its risks and prospects. The
2019 financial performance is also outlined for each division, together with its
competitive environment, strategies, risks and prospects. This year, I am pleased
that we have expanded our sustainability disclosures in this annual report and
will shortly launch a new, dynamic sustainability portal - together replacing our
annual sustainability report.
The review should be read in conjunction with the financial statements, which
are presented on pages 111 to 160 of this annual report.
ANTHONY GIANOTTI
– Chief Financial Officer
Above: Anthony Gianotti in the
Wesfarmers corporate office with The
Wesfarmers Collection of Australian
Art, Perth
Seen here: JUDY WATSON | Stake
| 2010 | pigment, acrylic, acquarelle
and chinagraph pencil
| 209cm x 195cm ©Judy Watson/
Copyright Agency 2018
Operating and financial reviewWesfarmers 2019 Annual Report THE WESFARMERS WAY
From our origins in 1914 as a Western Australian farmers’ cooperative,
Wesfarmers has grown into one of Australia’s largest listed companies
and private sector employers, with more than 105,000 team members and
484,000 shareholders.
Wesfarmers’ diverse businesses in this year’s review cover: home
improvement; apparel, general merchandise and office supplies; an
Industrials division with businesses in chemicals, energy and fertilisers and
industrial safety products. Prior to demerger and divestment, the Group’s
businesses also included supermarkets, liquor, hotels and convenience
retail; and coal. Wesfarmers’ businesses predominantly operate in Australia
and New Zealand with the portfolio including some of these countries’
leading brands.
The Wesfarmers Way is the framework for the company’s business
model and comprises core values, growth enablers and value-creating
strategies directed at achieving the Group’s primary objective of providing a
satisfactory return to shareholders.
OBJECTIVE
TO DELIVER A SATISFACTORY
RETURN TO SHAREHOLDERS
CORE VALUES
Integrity
Openness
Accountability
Entrepreneurial spirit
GROWTH ENABLERS
Outstanding
people
Commercial
excellence
Empowering
culture
Innovation
Social
responsibility
Robust
financial
capacity
VALUE-CREATING STRATEGIES
Strengthen existing
businesses through
operating excellence
and satisfying
customer needs
Secure growth
opportunities
through
entrepreneurial
initiatives
Renew the
portfolio through
value-adding
transactions
Ensure
sustainability
through responsible
long-term
management
15
Wesfarmers 2019 Annual ReportSigned reportsShareholder and ASX informationFinancial statementsDirectors’ reportGovernanceOperating and financial reviewOverview OUR OBJECTIVE
The primary objective of Wesfarmers is to provide a satisfactory return to shareholders. The measure used by the Group
to assess satisfactory returns is total shareholder return (TSR) over the long term. We measure our performance by
comparing Wesfarmers’ TSR against that achieved by the broader Australian market.
Performance measures
Growth in TSR relies on improving returns from invested capital relative to the cost of that capital and growing the capital
base at a satisfactory rate of return on capital (ROC)1.
Given a key factor in determining TSR performance is the movement in Wesfarmers’ share price, which can be affected
by factors outside the control of the company (including market sentiment, business cycles, interest rates and exchange
rates), the Group focuses on return on equity (ROE) as a key internal performance indicator.
While ROE is recognised as a fundamental measure of financial performance at a Group level, ROC has been adopted
as the principal measure of business unit performance. ROC focuses divisional businesses on increasing earnings and/
or increasing capital productivity by managing existing assets efficiently, as well as making an adequate return on any new
capital deployed.
Minimum ROC targets for each division are set based on their pre-tax cost of capital, while satisfactory ROC targets are
established based on the Group’s ROE targets, which are reviewed annually with reference to the performance of the
broader market.
1 ROC = Earnings before interest and tax / Capital employed (which is defined as working capital, fixed assets and investments less provisions and other liabilities).
APPROACH TO DELIVERING SATISFACTORY RETURNS TO SHAREHOLDERS
The Group seeks to:
• continue to invest in Group businesses where capital investment opportunities exceed return requirements;
• acquire or divest businesses where doing so is estimated to increase long-term shareholder value; and
• manage the Group’s balance sheet to achieve an appropriate risk profile, an optimised cost of capital and flexibility
to take advantage of opportunities as they arise.
CASH FLOW GENERATION
Drive long-term earnings growth
Manage working capital effectively
Strong capital expenditure processes
Invest above the cost of capital
Maintain financial discipline
In generating cash flow and earnings, the Group seeks to employ excellent
management teams who are empowered to drive long-term earnings growth.
This is achieved through deploying best practice principles in operational
execution and maintaining a long-term focus in regards to strategy and results.
The Group continuously looks to improve the working capital efficiency of all
of its businesses. In addition, the Group ensures strong discipline in relation
to capital expenditure investment decisions.
Diversity of funding sources
Optimise funding costs
Maintain strong credit metrics
Risk management of maturities
BALANCE SHEET STRENGTH
The Group endeavours to achieve a cost of capital advantage while maintaining
balance sheet strength and flexibility in order to be able to act when
opportunities arise.
This includes maintaining access to diverse sources of funding, including bank
facilities and global bond markets, and optimising funding costs.
The Group maintains strong credit metrics, in line with strong investment grade
credit ratings, supported by good cash flow generation and disciplined capital
management.
Risk is managed by smoothing debt maturities over time, limiting total
repayments in any given year.
DELIVERY OF LONG-TERM SHAREHOLDER RETURNS
Improve returns on invested capital
Efficient distribution of franking credits
to shareholders
Effective capital management
With a focus on generating strong cash flows and maintaining balance sheet
strength, the Group aims to deliver satisfactory returns to shareholders through
improving returns on invested capital. Recognising the value of franking credits
to shareholders, Wesfarmers also seeks to distribute these to shareholders.
Depending upon circumstances, capital management decisions may also be
taken from time to time where this activity is in shareholders’ interests.
16
Operating and financial reviewWesfarmers 2019 Annual Report APPROACH TO CAPITAL ALLOCATION
The Group evaluates a broad range of investment opportunities, including:
EXISTING
PORTFOLIO
ADJACENT
OPPORTUNITIES
• deploying capital in its existing portfolio to build businesses with unique
capabilities and platforms in expanding markets
• leveraging existing assets and capabilities to take advantage of
adjacent opportunities
VALUE-ACCRETIVE
TRANSACTIONS
• disciplined investments in opportunistic and value-accretive
transactions through various ownership models (e.g. minority interest,
full control, partnerships)
Importantly, in assessing these opportunities the Group applies a long-term horizon to investment decisions and remains
very disciplined in its approach to evaluating opportunities with the most important criteria being whether the investment is
going to create value for shareholders over time.
OUR VALUE-CREATING
STRATEGIES
GROWTH ENABLERS
Consistent with the Wesfarmers
Way, the Group’s primary objective
to provide a satisfactory return
to shareholders is driven by four
overarching strategies. These are:
• strengthening existing businesses
through operating excellence and
satisfying customer needs;
• securing growth opportunities
through entrepreneurial initiative;
• renewing the portfolio through
value-adding transactions; and
• ensuring sustainability
through responsible long-term
management.
Each strategy is underpinned by the
Group’s well established strategic
planning framework. A key attribute
of this approach is the maintenance
of a long-term focus and acting
sustainably in the creation of value
and the building of businesses.
At a divisional level, detailed
strategies are developed specific to
the opportunities to improve each of
our individual businesses. Divisional
strategies are discussed within their
respective summaries, starting on
page 24.
A core attribute of the Wesfarmers
operating model is that each of our
businesses operates with a high
degree of autonomy. Rather than
mandating detailed strategies or
implementation plans, the Group
focuses on ensuring that the
following six key enablers are in
place in our businesses, with a goal
of driving operating performance to
best practice.
Outstanding people
Wesfarmers seeks to be an employer
of choice. Attracting outstanding
people and utilising their individual
talents is the most critical element
in striving for sustainable success.
Wesfarmers recognises that while
great assets and strategies are
critical, it is people who ultimately
drive outcomes.
Commercial excellence
Wesfarmers seeks to ensure that it
employs strong financial discipline
in all of its decisions across the
Group. Wesfarmers has a clear bias
towards promoting strong commercial
capability across its leadership base.
Empowering culture
Wesfarmers recognises that an
empowering culture is critical to
engendering accountability for
delivering the results agreed upon
through the Group’s corporate
planning framework. Wesfarmers
uses stretch targets in objective
setting and encourages team
members to be proactive in driving the
creation of value in their businesses.
Innovation
Wesfarmers seeks to develop a
culture that encourages innovation,
and rewards entrepreneurial initiative
and creativity.
Social responsibility
Respect for employees, customers
and suppliers and a relentless
focus on providing safe workplaces
are fundamental to the way that
Wesfarmers operates. Wesfarmers’
social responsibility extends to
maintaining high standards of ethical
conduct, environmental responsibility
and community contribution.
Robust financial capacity
By maintaining a strong balance
sheet, the Group aims to provide a
competitive cost and access to capital
in order to allow the Group to invest
in its existing portfolio of businesses
and to act when value-creating
opportunities present themselves.
17
Wesfarmers 2019 Annual ReportSigned reportsShareholder and ASX informationFinancial statementsDirectors’ reportGovernanceOperating and financial reviewOverview CORE VALUES
INTEGRITY
OPENNESS
ACCOUNTABILITY
Acting honestly and ethically
in all dealings
Openness and honesty in
reporting, feedback and ideas
Delegation of authority and
decision-making to divisions
Reinforcing a culture of doing
what is right
Accepting that people make
mistakes and seeking to learn
from them
Accountability for performance
Protecting and enhancing our
reputation
ENTREPRENEURIAL
SPIRIT
Adopt an owner mindset
Encourage our teams to
identify opportunities and
apply commercial and
financial acumen to support
calculated risk-taking
Encourage our teams to
take the initiative and pursue
new and innovative ways of
delivering value
OPERATING EXCELLENCE
Our strategies
Our achievements
Our focus for the coming years
Strengthen existing
businesses through
operating excellence
and satisfying
customer needs
• Continued improvements in our
customer offers, including reinvesting
in value to drive business growth and
improving merchandise ranges.
• Provided even greater value for
customers by lowering prices following
productivity gains.
• Bunnings will maintain its focus on driving long-term value
creation by delivering more customer value, creating better
experiences for customers and the wider community,
investing in new and existing stores, delivering greater digital
reach and strengthening the core of the business. The
business will also deepen its engagement with commercial
customers and continue its merchandise innovation.
• Focused on production plant
efficiency and maintaining and
growing customer relationships in
our industrial businesses.
• Made further operational productivity
improvements and reduced costs
across our businesses.
• Further investment in digital offer
across all divisions.
• Kmart will remain focused on its strategy of creating a great
place to shop that is simple to run and delivering better
products at even lower prices. Maintaining price leadership
in the market, continued enhancement in product range,
relentless pursuit of lowest cost and the expansion of digital
and data capabilities will remain key priorities for the business.
• Target will accelerate its plans for a repositioned and
more focused customer proposition, which aims to inspire
customers to live better by providing great style and quality
at an affordable price. Target will continue to invest in its
online capabilities and in creating an easy customer
shopping experience.
• WesCEF will continue to focus on maintaining strong
operational performance while delivering new and innovative
products to its customers.
• Industrial and Safety continues to work on improving
business performance through improving the offer to
customers and investing in its core systems.
• Officeworks will continue to drive growth and improve
productivity by executing its refreshed strategy. Key focus
areas include the continued improvement of the every-
channel offer and growing Geeks2U services to customers.
18
Operating and financial reviewWesfarmers 2019 Annual Report ENTREPRENEURIAL INITIATIVE
Our strategies
Our achievements
Our focus for the coming years
Secure growth
opportunities
through
entrepreneurial
initiative
• Further optimised and invested in our retail
• Continue to reinforce entrepreneurial initiative as
store networks.
a growth enabler.
• Continued to innovate our product ranges and
• Continue to rigorously apply financial disciplines and
financial evaluation methodologies.
• Increase and encourage collaboration across
divisions, where appropriate.
• Continue to invest data capabilities to embed the use
of advanced analytics in everyday decision making.
categories across all businesses, providing value
and quality to customers.
• Further improved and extended channel and brand
reach in the retail portfolio, focusing on store format
innovation and the expansion of online offers.
• Expanded customer programs, particularly the
PowerPass offer at Bunnings and the flybuys
loyalty program.
• Continued to better leverage data, supported by
continued investment in the Advanced Analytics Centre.
• Acquisition of Geeks2U to expand services offering
in Officeworks.
• Further development of Coregas’ specialty gas offer
to health sector.
RENEWING THE PORTFOLIO
Our strategies
Our achievements
Our focus for the coming years
Renew the
portfolio through
value-adding
transactions
• Successfully demerged Coles, setting the company
up for growth as a standalone entity.
• Divested our interest in the Bengalla coal mine, realising
a very successful investment for shareholders over the
period of Wesfarmers ownership since the initial interest
was acquired in 1991.
• Maintain a strong focus and capability to evaluate
growth opportunities where long-term shareholder
value can be created.
• Consider innovative investment approaches to
complement traditional growth models and provide
future optionality.
• Divested Kmart Tyre and Auto, crystallising the
significant value created under the period of
Wesfarmers ownership.
• Ensure a patient, disciplined and broad
scanning approach to investment opportunities
is maintained.
• Divested Quadrant Energy, which generated
• Apply rigorous due diligence and post-acquisition
good returns for shareholders through a flexible
ownership structure.
integration processes.
• Maintain a strong balance sheet to enable the
• Acquired Catch Group, an exciting adjacent
Group to act opportunistically.
opportunity for Wesfarmers and the Kmart Group
which will support the development of Kmart and
Target’s omni-channel and fulfilment capabilities.
• Consider opportunities to divest assets either in
full or in part, where long-term shareholder value
can be created.
• Acquired Kidman Resources, and with it a
50 per cent interest in Mt Holland, a globally
significant lithium deposit. With its joint venture
partner Wesfarmers plans to construct a mine,
concentrator and lithium hydroxide refinery,
drawing on WesCEF’s deep expertise in
chemicals processing.
OPERATING SUSTAINABLY
Our strategies
Our achievements
Our focus for the coming years
Ensure
sustainability
through
responsible
long-term
management
• Further strengthened the Group’s balance sheet.
• Continue to foster a more inclusive work
• Continued to improve our safety performance.
• Maintained a very strong focus on the development
and management of our teams.
• Continued to promote diversity in our workplaces, with
over six per cent more self-identified Indigenous team
members this year, in our continuing businesses.
• Advanced our executive development, retention and
succession programs.
• Continued to actively contribute to the communities in
which we operate. In the 2019 financial year, we made
community contributions, both direct and indirect, of
more than $72 million.
• Maintained strong focus on ethical sourcing
program to increase supply chain transparency and
identify, report, address and ultimately eliminate the
exploitation of vulnerable people in our supply chain.
environment, with particular focus on diversity (gender,
age and ethnicity).
• Increase the number of women in leadership positions
across the Group.
• Continue to look after the health, safety and
development of our people.
• Minimise our environmental footprint.
• Contribute positively to the communities in
which we operate.
• Provide appropriate governance structures to
safeguard future value creation.
• Continue to source products in a responsible manner
while working with suppliers to improve their social and
environmental practices.
• Continue to refine our climate change strategy.
19
Wesfarmers 2019 Annual ReportSigned reportsShareholder and ASX informationFinancial statementsDirectors’ reportGovernanceOperating and financial reviewOverview YEAR IN REVIEW
Overview
The Group reported a net profit
after tax (NPAT) of $5,510 million for
the full-year ended 30 June 2019.
The reported profit includes post-tax
significant items of $3,171 million
relating to discontinued operations
including gains on the demerger
of Coles and disposals of Bengalla,
KTAS and Quadrant Energy, which
were completed during the first
half of the financial year. NPAT from
continuing operations increased
13.5 per cent, excluding significant
items in the prior year.
It was pleasing to have recorded
strong results and improved
shareholder returns during a year
of portfolio renewal.
The successful repositioning of the
portfolio for sustainable growth
has strengthened the balance
sheet while also distributing a
special dividend to shareholders.
Importantly, during this period of
change, Wesfarmers’ operating
divisions have also continued to
generate solid returns while remaining
focused on long-term value creation.
After adjusting for the $128 million
contribution from the Group’s
15 per cent investment in Coles,
earnings before interest and tax
from the Group’s continuing
operations increased 7.4 per cent
during the year, benefiting from
continued growth in Bunnings
Australia and New Zealand,
Officeworks and WesCEF.
Divisional financial performances
are outlined in pages 24 to 56.
Operating cash flow
Operating cash flows of $2,718 million
were 33.4 per cent below the prior
year, primarily due to the demerger of
Coles and disposals of Bengalla, KTAS
and Quadrant Energy. Divisional cash
generation1 from continuing operations
remained strong at 97 per cent, in line
with the previous year.
The Group’s cash realisation2 ratio
declined to 86 per cent, driven by
the timing of the Coles demerger,
increased non-cash earnings from the
Group’s investments in associates, the
one-off non-cash gain on the Group’s
investment in Barminco and the gain
on property disposals in Bunnings.
In particular, the Group’s 15 per cent
share of Coles’ NPAT of $128 million
impacted the Group’s cash realisation
ratio as Coles did not pay a dividend
during the period.
Capital expenditure
Strict capital disciplines were
maintained while investment in organic
growth opportunities continued.
Gross capital expenditure of
$1,356 million was $459 million lower
than the prior year, primarily due to
lower capital expenditure following
the demerger and disposal of
discontinued operations.
Proceeds from property disposals of
$529 million were $77 million below
the prior year, with the increase in
property disposals at Bunnings offset
by lower property disposals following
the demerger of Coles. The resulting
net capital expenditure of $827 million
was $382 million or 31.6 per cent
below the prior year.
Free cash flow
Free cash flows of $2,963 million
were 13.4 per cent below the prior
year, primarily reflecting the reduction
in operating cash flows following the
portfolio activity completed during
the year.
1 Divisional operating cash flows before tax and
after net capital expenditure divided by divisional
earnings. Includes KTAS and Quadrant Energy.
2 Operating cash flows as a percentage of
net profit after tax, before depreciation and
amortisation and significant items.
Net profit after tax
(excluding significant items)
$2,339m
Earnings per share
(excluding significant items)
206.8 cents
FY19 2,339
FY18 2,772
FY17 2,873
FY16 2,353
FY15 2,440
FY19
19.2
FY18
11.7
FY17
12.4
FY16
FY15
9.6
9.8
Return on equity
(excluding significant items)
19.2%
20
Free cash flow
$2,963m
FY19 EXCLUDING SIGNIFICANT ITEMS
EXCLUDING SIGNIFICANT ITEMS
REPORTED
•
Includes operational results of discontinued
operations.
• 2019 excludes post-tax items comprising
$2,264 million gain on demerger of Coles,
$645 million gain on sale of Bengalla, $244 million
gain on sale of KTAS, $120 million gain on sale of
Quadrant Energy, partially offset by a $102 million
provision for Coles supply chain automation.
• 2018 excludes the following post-tax impairments:
$1,323 million relating to BUKI and Target, as
well as the $375 million loss on sale of BUKI and
$123 million gain on sale of Curragh.
• 2016 excludes the following post-tax significant
items: $1,249 million non-cash impairment of
Target; $595 million non-cash impairment of
Curragh; and $102 million of restructuring costs
and provisions to reset Target.
FY19 206.8
FY18 245.1
FY17 254.7
FY16 209.5
FY15 216.1
FY19 2,963
FY18 3,422
FY17 4,173
FY16 1,233
FY15 1,893
Operating and financial reviewWesfarmers 2019 Annual Report Balance sheet
Net financial debt at the end of the
period, comprising interest-bearing
liabilities net of cross-currency interest
rate swaps and cash at bank and on
deposit, was $2,116 million, a reduction
of $1,464 million on the net financial
debt position at 30 June 2018 as a
result of portfolio management activity
and strong cash generation in the
Group’s operating businesses.
Operating lease commitments also
reduced by $9.7 billion to $8.5 billion
at 30 June 2019, primarily due to the
demerger of Coles.
Capital employed at year-end
was $12,114 million. This was
$13,827 million lower than last year
mainly due to the demerger of Coles
and divestments of KTAS, Bengalla
and Quadrant Energy.
Debt management and
financing
The Group’s financing strategy is to
diversify its funding sources, pre-fund
upcoming maturities and maintain a
presence in key markets.
In March 2019, a $500 million
domestic bond matured and was
repaid using existing cash balances.
Finance costs decreased by
$46 million to $175 million as a result
of a lower average net debt balance.
The Group’s ‘all-in’ effective borrowing
cost increased 0.8 percentage points
to 5.10 per cent due to repayment of
lower cost bank debt. Wesfarmers’
liquidity metrics continued to improve,
with cash interest cover increasing to
30.6 times and fixed charges cover
increasing to 3.2 times.
Following major portfolio activity
including the demerger of Coles,
the Group’s strong credit ratings
remained unchanged with a rating
from Moody’s Investors Services of A3
(stable outlook) and rating of A– (stable
outlook) from Standard & Poor’s.
Group capital employed
Year ended 30 June1
Inventory
Receivables and prepayment
Payables
Other
Net working capital
Property, plant and equipment
Goodwill and intangibles
Other assets
Provisions and other liabilities
Total capital employed
Net financial debt excluding financial services debt2
Net tax balances
Total net assets
2019
$m
4,246
1,203
(3,620)
266
2,095
3,877
4,076
3,550
(1,484)
12,114
(2,116)
(27)
9,971
2018
$m
6,011
1,939
(6,552)
492
1,890
8,408
17,860
970
(3,187)
25,941
(3,580)
393
22,754
1 Balances reflect the management balance sheet, which is based on different classification and groupings
than the balance sheet in the financial statements.
2 Net financial debt is net of cross-currency interest rate swaps and interest rate swap contracts.
Cash capital expenditure
(From continuing operations)
Year ended 30 June
Bunnings Australia & NZ
Kmart Group
Officeworks
WesCEF
Industrial and Safety
Other
Gross capital expenditure
Sale of property, plant and equipment
Net cash capital expenditure
Net capital expenditure
in discontinued operations
2019
$m
470
205
42
58
83
2
860
(497)
363
464
2018
$m
497
286
45
60
50
2
940
(364)
576
633
21
Wesfarmers 2019 Annual ReportSigned reportsShareholder and ASX informationFinancial statementsDirectors’ reportGovernanceOperating and financial reviewOverview YEAR IN REVIEW
Dividends
A key component of total
shareholder return is the dividends
paid to shareholders.
The Group’s dividend policy
considers available franking credits,
current earnings and cash flows,
future cash flow requirements and
targeted credit metrics.
The Board declared a fully-
franked final ordinary dividend
of 78 cents per share, reflecting
Wesfarmers’ earnings from
continuing operations and its
15 per cent interest in Coles. This
takes the full-year ordinary dividend
to 178 cents per share, plus a special
dividend of 100 cents per share,
which was paid in April 2019.
The final dividend will be paid on
9 October 2019 to shareholders
on the company’s register on
2 September 2019, the record date
for the final dividend. Due to the
accumulation of New Zealand franking
credits, the final dividend will also
carry a New Zealand franking credit,
in addition to the Australian franking
credit, of 10 cents per share.
Given the preference of many
shareholders to receive dividends in
the form of equity, the directors have
decided to continue the operation
of the Dividend Investment Plan
(the ‘Plan’). The allocation price for
shares issued under the Plan will be
calculated as the average of the daily
volume weighted average price of
Wesfarmers shares on each of the
15 consecutive trading days from and
including the third trading day after the
record date, being 5 September 2019
to 25 September 2019.
The last date for receipt of
applications to participate in, or to
cease or vary participation in the Plan,
was 3 September 2019. No discount
will apply to the allocation price and
the Plan will not be underwritten.
Shares to be allocated under the Plan
will be transferred to participants on
9 October 2019. Given the Group’s
strong credit metrics, any shares to
be issued under the Plan will be
acquired on-market and transferred
to participants.
Net financial
debt reduced by
$1,464 million
to $2,116 million
Fixed financial obligations
Dividends per share
(includes special dividend)
278 cents
Operating leases1
Bank facilities & bonds2
$8.5b
$2.6b
FY191
178
FY18
FY17
FY16
FY15
223
223
186
200
1 Represents future undiscounted minimum rentals
payable under non-cancellable operating leases.
2 Cash repayable.
ORDINARY DIVIDENDS
SPECIAL DIVIDENDS
1 Excluding a fully-franked special dividend of 100
cents per share, paid on 10 April 2019.
Finance costs ($m) and
weighted average cost
of debt (%)
Debt maturity profile ($m)
TSR: Wesfarmers and ASX100
(last 10 years)
FINANCE COSTS (LHS) FY19
FINANCE COSTS (LHS)
WEIGHTED AVERAGE COST OF DEBT (RHS)
BANK FACILITIES
CAPITAL MARKETS
CASH AT BANK AND ON DEPOSIT
WESFARMERS LIMITED TSR INDEX1
ASX100 ACCUMULATION INDEX
1200
800
400
0
(400)
(800)
19
20
21
22
23
500
400
300
200
100
0
09
10
11
12
13
14
15
16
17 18
19
1 Assumes 100 per cent dividend reinvestment
on the ex-dividend date, and full participation in
capital management initiatives (e.g. rights issues
and share buybacks).
Source: Bloomberg.
22
Operating and financial reviewWesfarmers 2019 Annual Report !
RISKS
Wesfarmers recognises the
importance of, and is committed
to, the identification, monitoring
and management of material risks
associated with its activities across
the Group.
The following information sets out
the major Group-wide risks. These
are not in any particular order and
do not include generic risks such
as changes to macro-economic
conditions affecting business and
households in Australia, which would
affect all companies with a large
domestic presence and which could
have a material effect on the future
performance of the Group. This year,
Wesfarmers has provided increased
information on climate-related risks,
which can be found on pages 66 to
68 of this annual report.
Further information on risk
management, including policies,
responsibility and certification, can be
PROSPECTS
Actions taken during the year
to reposition the portfolio have
significantly strengthened the
balance sheet and enabled the
delivery of improved shareholder
returns. Given the diversity and
resilience of the Group’s portfolio,
it remains well placed for a range
of economic conditions.
The Group’s retail divisions are well
positioned within their respective
markets and will continue to invest
in their offer to customers to deliver
even greater value, quality and
convenience. This includes further
developing the digital offer to meet
the changing needs of customers
and to create a platform for expanding
addressable markets, while improving
operating efficiencies. Bunnings,
Kmart Group and Officeworks will
remain steadfast in their focus on
customers and on managing the
businesses for long-term success
and value creation.
found on page 79 of this annual report
and in the corporate governance
section of the company’s website at
www.wesfarmers.com.au/cg
Strategic
• Increased competition
• Ineffective execution of strategy
• Loss of key management personnel
• Damage or dilution to Wesfarmers’
reputation or brands
• Digital disruption to industry
structures
Operational
• Loss of critical supply inputs or
infrastructure, including IT systems
• Loss of privacy or data breaches
• Business interruption arising from
industrial disputes, work stoppages
and accidents
• Risks inherent in distribution and
sale of products
• Breaches of the Group’s Code
of Conduct
• Failure to source goods or services
in an ethical and responsible
manner
Regulatory
• Non-compliance with applicable
laws, regulations and standards
• Adverse regulatory or legislative
change
Financial
• Currency volatility
• Adverse commodity price
movements
• Reduced access to funding
The performance of the Group’s
industrial businesses will continue
to be subject to international
commodity prices, exchange rates,
competitive factors and seasonal
outcomes. The short-term outlook
for the WesCEF business is generally
positive, but earnings beyond this are
expected to be adversely affected
by an oversupply of explosive grade
ammonium nitrate (EGAN) in the
Western Australian market.
Wesfarmers will continue to build
on its unique capabilities and
platforms to take advantage of
growth opportunities within its
existing businesses, recently acquired
investments and other value-accretive
transactions.
The Group will maintain its disciplined
approach to capital allocation and will
only pursue growth opportunities that
deliver value to shareholders over the
long term.
23
Wesfarmers 2019 Annual ReportSigned reportsShareholder and ASX informationFinancial statementsDirectors’ reportGovernanceOperating and financial reviewOverview BUNNINGS
YEAR IN REVIEW
Revenue
$13,166m
2019
13,166
2018
2017
2016
2015
12,544
11,514
10,575
9,534
Key financial indicators
EBIT
$1,626m
2019
1,626
2018
2017
2016
2015
1,504
1,334
1,212
1,088
For the year ended 30 June
2015
2016
2017
2018
2019
Revenue ($m)
9,534
10,575
11,514
12,544
13,166
Earnings before interest and tax ($m)
1,088
1,212
Capital employed (R12) ($m)
Return on capital employed (%)
Capital expenditure ($m)
3,244
3,312
33.5
711
36.6
533
1,334
3,192
41.8
367
1,504
3,045
49.4
497
1,626
3,220
50.5
470
24
Operating and financial reviewWesfarmers 2019 Annual Report Founded in 1886 in WA, Bunnings opened its first warehouse in
Sunshine, Melbourne in 1994. Bunnings is the leading retailer of
home improvement and outdoor living products in Australia and
New Zealand and a major supplier to project builders, commercial
tradespeople and the housing industry.
PROSPECTS
In Australia and New Zealand,
Bunnings remains focused on driving
growth through our strategic pillars of
price, range and service. Creating
better experiences for our customers
and the wider community remains at
the heart of who we are and what we
do as we continue to offer a wide
range of products and services to
meet their needs.
Ongoing development of Bunnings’
digital capability will remain a focus,
building towards a full online
transactional offer for Australia and
New Zealand in the 2020 financial year.
A broader addressable market offers
many opportunities for further growth in
consumer and commercial markets,
opening up new category opportunities
and enabling further improvements in
existing categories. In addition, tailoring
product ranges to suit different regions
makes us even more relevant to our
customers in the markets where they
live and run their businesses.
We continue to accelerate and evolve
our digital and analytical capabilities
to ensure that the experiences our
customers and local communities know
us for are even stronger and more
convenient than before. Leveraging our
physical network, embracing technology,
and a strong commitment to making our
business simpler to run are focus areas
that strengthen our core and allow us to
continue to invest in service, value and
growth initiatives.
Bunnings is well placed for future growth.
– MICHAEL SCHNEIDER
Managing Director, Bunnings Group
PERFORMANCE DRIVERS
Operating revenue from Bunnings
Australia and New Zealand increased
5.0 per cent to $13,166 million. Total
store sales growth of 5.2 per cent was
achieved during the year, underpinned
by an increase of 3.9 per cent in
store-on-store sales. Bunnings Australia
and New Zealand recorded earnings
of $1,626 million, an increase of
8.1 per cent on last year.
Sales growth was achieved in both
consumer and commercial markets,
across all major trading regions and
product categories. Sustained business
momentum reflected a continued focus
on delivering a strategic agenda aimed
at creating long-term customer value.
Ongoing merchandise innovation, the
introduction of a click and collect
service and broader engagement
across commercial construction and
maintenance markets were highlights.
Despite mixed trading conditions
throughout the year from adverse
weather and softening conditions in the
residential housing market, underlying
business momentum continued to
support growth.
Good execution of Bunnings’ strategic
agenda including driving growth,
creating better experiences for
customers and the wider community
and delivering long-term customer
value, was reflected in a solid trading
performance during the year. Bunnings’
broader digital aspirations continue to
evolve with pleasing progress in
developing digital and data analytics
capabilities not only in omni-channel
retailing, but also in business process
improvements, data insights and
supplier relationships.
Continued favourable commercial
property market conditions resulted in
higher than usual property divestment
contributions in the 2019 financial year.
Investment in new stores and store
refurbishments continued to be offset
by funds released from the property
recycling program. The combination of
solid earnings growth and disciplined
capital management delivered an
increase in return on capital to
50.5 per cent.
During the period Bunnings opened 17
new trading locations, including 10
replacement stores. At the end of the
year, there were 267 warehouses, 75
smaller format stores and 32 trade
centres in the Bunnings network.
25
Wesfarmers 2019 Annual ReportSigned reportsShareholder and ASX informationFinancial statementsDirectors’ reportGovernanceOperating and financial reviewOverview BUNNINGS
Revenue exceeded
S13.1b
Earnings grew to
S1,626m
Return on capital
employed of
50.5%
Click and collect rollout
in Tasmania.
26
OUR BUSINESS
OUR MARKET
In Australia and New Zealand,
Bunnings caters for consumers as
well as light and heavy commercial
customers across the home and
lifestyle market, operating from a
network of large warehouse stores,
smaller format stores, trade centres,
and frame and truss sites.
Bunnings Australia and New Zealand is
expanding its brand reach across its
market through the opening of new
stores and flexible formats, along with
greater digital engagement. The focus
is on delivering the best offer
everywhere, be that digital, in-home,
in-store or on-site.
Bunnings is the leading retailer of home
improvement and outdoor living products
in Australia and New Zealand. Bunnings
is a major supplier to project builders,
commercial tradespeople and the
housing industry.
Bunnings is focused on creating value
for its customers over the long term.
The long-term value creation approach
is based on four interlinked principles:
a winning offer to customers; an
engaged, focused and committed
workforce; business behaviour that
builds trust; and sustainable
satisfactory shareholder returns.
Bunnings employs more than 44,000
team members across Australia and
New Zealand. Bunnings stores stock
more than 45,000 products and an
expanded range of over 30,000
products is available through a special
order service both online and in-store.
Operating and financial reviewWesfarmers 2019 Annual Report STRATEGY
Bunnings provides its customers with the widest range of home improvement and lifestyle products and is committed to
delivering the best service supported by our policy of lowest prices every day. Bunnings sets out to attract high quality team
members and to provide them with a safe and rewarding working environment.
Growth strategies
Achievements
Focus for the coming years
More customer value
– Continued investment in lowest prices
– Ongoing focus on delivering even more value for customers
– Consistency in service basics lifted
– Improved stock availability
– Greater product and project knowledge
– Further enhancements to PowerPass
trade accounts
– Opened 17 new trading locations, including
10 replacement stores
– Significantly expanded digital ecosystem
– Existing store reinvestment
– Created more value and deeper relationships
– Leveraged the network for customer
convenience – stores and trade centres
– Improved service with more localised
engagement, easier to deal with
– Over 500 dedicated trade-focused team
members
– Expanded ranges and products and easier
and innovative DIY
– Further product and project innovation with
wider ranges and new products
Better customer
experiences
Greater brand reach
Deeper commercial
engagement
More merchandise
innovation
RISK
– Better customer experiences and deeper engagement: in-store,
online and in-home
– More stores, with increased format innovation
– Further expansion of online transactional capabilities
– Targeted store reinvestment
– Continue to leverage core strengths of a total market capability:
stores, trade centres, in-field and digital
– Wider market focus to expand selling opportunities
– Creating, leveraging and responding to lifestyle trends,
technology trends and environmental and economic changes
– Development and implementation of services that complement
the core DIY offer
Bunnings recognises that taking appropriate business risks is a critical aspect of generating acceptable business returns.
In doing so, it seeks to appropriately manage risks to minimise losses and maximise opportunities.
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.
The level of controls implemented is commensurate with the impact (likelihood and consequence) on the business from the
risk occurring.
Risk
Safety
Mitigation
– Continued focus and targeted in-store awareness campaigns
Talent recruitment
and retention
– Strategies directed at creating and maintaining status as employer of choice
– Succession planning, retention and development plans
New and existing
competitors
– Relentless focus on strategic pillars of ‘lowest price, widest range and best service’
– Ongoing strategies to increase customer centricity and deepen customer engagement
Reputation
– Strong culture of ‘doing the right thing’
– Focus on ethical sourcing and product standards
– Ongoing regulatory compliance training
27
Wesfarmers 2019 Annual ReportSigned reportsShareholder and ASX informationFinancial statementsDirectors’ reportGovernanceOperating and financial reviewOverview BUNNINGS
SUSTAINABILITY PERFORMANCE
Bunnings defines sustainability within its operations as actions that are socially responsible, environmentally
aware and economically viable. During the year, Bunnings managed the following material sustainability issues.
WASTE AND PACKAGING
Managing waste is a significant issue
and reducing operational and packaging
waste will be a significant focus for the
business in the next financial year.
As the industry continued to be impacted
by the effects of the China National
Sword Policy which aims to improve the
quality of recyclable material entering
China, Bunnings focused more on
reducing the contamination rates in
recycling streams. For Bunnings, this
meant that only soft, clear plastic could
be accepted for recycling at a store level
and that black plastic, coloured plastic
and plastic containing labels and/or tape
could not be accepted.
Bunnings is a signatory to the Australian
Packaging Covenant Organisation
(APCO) and has developed an action
plan for the next 12 months in line with
the APCO targets. Assisting customers
with product recycling and take-back
options is also a priority.
During the year, Bunnings worked with
stakeholders to provide recycling
programs for products including
batteries, paint, small electrical items
and power tools. Collectively, these
initiatives resulted in customers bringing
back 5,800 kilograms of batteries for
recycling through 13 metropolitan
Melbourne stores, and customers
dropping off 200,000 kilograms of
waste paint through 27 Paintback
events held at Bunnings stores during
the year.
For more information about Bunnings’
sustainability program, please visit
sustainability.wesfarmers.com.au
Bunnings is confident that more than
99 per cent of its timber products are
confirmed as originating from low-risk
sources including plantation or verified
legal or independently certified
responsibly sourced forests. Within
that, more than 81 per cent of all
timber products are sourced from
independently certified forests or from
forests with demonstrated progress
towards achieving independent
certification, such as that provided by
the Forest Stewardship Council (FSC)
and the Programme for the Endorsement
of Forest Certification (PEFC). In August
2018, Bunnings revised its timber
policy to require all native forest timber
products to be independently certified
to FSC or other equivalent standard by
the end of 2020.
For the 2020 financial year, Bunnings has
identified responsible recruitment, animal
welfare, responsible raw materials and
emerging countries as key focus areas.
COMMUNITY
During the year, Bunnings stores helped
raise and contribute almost $50 million
through over 90,000 community
activities. Support for local community
groups included provision of fundraising
sausage sizzle facilities, team member
involvement in community projects,
product contributions and other local
fundraising initiatives.
ENERGY EFFICIENCY
Bunnings continued to work on
reducing its reliance on grid-sourced
energy as part of a longer-term goal of
reducing its overall carbon footprint. As
at June 2019, there were 31 sites with
solar PV with a further 40 scheduled for
completion in the next financial year.
There are 91 stores with LED lighting
and a further 31 expected to follow in
the 2020 financial year. Preparatory
work on electric vehicle charging
stations is underway with trials at three
Australian sites and three New Zealand
sites expected to commence in the next
financial year.
PEOPLE
Bunnings team members are the most
important part of its business and their
safety and wellness remained the primary
focus this year. There was a 2.3 per cent
reduction in the number of injuries
recorded and a 3.4 per cent reduction in
the TRIFR. Key safety initiatives included
a new online ForkSafe Performance
Tracker which manages forklift operator
licence and training requirements
and tracks safety performance via
observation entries. The Tracker, along
with a continued focus on delivering
site forklift forums, contributed to a
35 per cent improvement in the
forklift incident frequency rate.
PRODUCTS
Bunnings continued to proactively
engage with suppliers to strongly
encourage adherence to product safety
standards. As part of its engagement,
Bunnings conducts regular product
audits to monitor conformance with
mandatory standards and undertakes
independent safety tests on selected
products to confirm compliance to safety
standards and customer expectations.
Bunnings is committed to working
collaboratively with suppliers to
introduce new and innovative products
that meet the changing expectations of
customers. These include pursuing a
long-term goal to increase the range of
low and non-toxic alternative products,
supported by global research to identify
new and safer active ingredients to be
included in products. Further work is
planned to identify chemicals of
concern and develop a customer
education program.
RESPONSIBLE SOURCING
Bunnings has a robust ethical sourcing
and modern slavery framework which
is underpinned by trading terms,
sourcing policies, supplier codes of
conduct, training and education.
Addressing modern slavery is a key
focus, with the introduction during the
year of the Malaysian Worker Voice
Program to focus on responsible
recruitment and educate factory
workers on their rights.
28
Operating and financial reviewWesfarmers 2019 Annual Report Safety performance
(from continuing operations)
TOTAL RECORDABLE INJURY
FREQUENCY RATE (TRIFR)1
11.2
2019
2018
2017
2016
2015
11.2
11.6
18.92
22.62
25.02
1 TRIFR is the number of lost time and medical
treatment injuries per million hours worked.
2 Prior to 2018, Bunnings reported an all injury
frequency rate (AIFR) which is the number of
‘all’ injuries per million hours worked.
Community contributions
(from continuing operations)
$50.0m
DIRECT INDIRECT
2019
5.4 44.6
2018
2017
2016
2015
5.0 41.7
4.4 38.8
3.7 34.2
3.1 32.8
Greenhouse gas emissions
(from continuing operations)
SCOPE 1 & 21
269.5 ktCO2e
2019
269.5
2018
2017
2016
2015
259.7
250.1
251.1
232.6
1 Scope 1 and 2 data includes emissions for
businesses where we have operational control
under the NGER Act, and our emissions in
New Zealand.
Waste
(from continuing operations)
58.8 kt
RECYCLED DISPOSED
2019 31.0 27.8
2018
25.7 34.1
2017
27.9 28.4
2016
42.0 31.1
2015
37.9 28.5
Disaster support for impacted communities
Extreme weather events continued to impact communities throughout the
year, with bushfires, floods and severe drought conditions affecting many parts
of Australia.
In August 2018, Bunnings team members hosted a national sausage sizzle to
raise funds for rural farmers, families and communities impacted by drought.
More than $1.25 million was raised and contributed, with thousands of people
heading to their local Bunnings to ‘buy a snag’ to support the cause. All funds
raised were donated to Rural Aid’s Buy a Bale Campaign which delivers hay
and other essential items to farmers.
Bunnings team members also hosted a national sausage sizzle in February 2019
to raise funds for those impacted by the Townsville floods and Tasmanian
bushfires. More than $310,000 was raised and contributed, and donated to
not-for-profit organisation GIVIT, an online giving platform. All of those funds went
towards essential items such as washing machines, fridges and beds.
In Townsville, local Bunnings teams also assisted at evacuation centres by
donating products, cooking a daily sausage sizzle and providing hands-on
support during the recovery effort.
Bunnings builds citizen science capability with Frog ID
Throughout the year Bunnings supported
the Australian Museum’s Frog ID initiative
as part of its decade-long Schools
Sustainability Program, helping to build
140 frog ponds with students.
The initiative seeks to raise awareness
about the decline in frog species and to
track changes in frog populations using
the Frog ID app. Bunnings’ involvement
took the citizen science project to a
new level with team members helping to
construct ‘frog friendly’ environments
with local schools, allowing students to
monitor the pond and attract and
identify frogs.
In the first year of support, the initiative helped to identify 66,000 frog calls and
detected 28 globally-threatened species. Several Bunnings stores also hosted
Frog ID Scientist Workshops which saw experts from the Australian Museum
provide information on frog biodiversity.
29
Wesfarmers 2019 Annual ReportSigned reportsShareholder and ASX informationFinancial statementsDirectors’ reportGovernanceOperating and financial reviewOverview KMART GROUP
YEAR IN REVIEW
Revenue
$8,713m
2019
8,713
2018
2017
2016
2015
8,837
8,528
8,646
7,991
EBIT
$550m
2019
20181
2017
20162
2015
550
660
543
275
522
Key financial indicators
For the year ended 30 June
2015
20162
2017
20181
2019
Revenue ($m)
7,991
8,646
8,528
8,837
8,713
Earnings before interest and tax ($m)
522
275
543
660
550
Capital employed (R12) ($m)
3,778
3,629
2,253
2,013
1,872
Return on capital employed (%)
Capital expenditure ($m)
13.8
295
7.6
293
24.1
222
32.8
293
29.4
201
Note: Includes Kmart Tyre & Auto until divestment in November 2018.
1 The 2018 earnings before interest and tax for Kmart Group excludes the pre-tax non-cash
impairment of $306 million for Target.
2 The 2016 earnings before interest and tax for Kmart Group includes $145 million of cash
restructuring and provision costs to reset the Target business, but excludes the non-cash Target
impairment of $1,266 million.
30
Operating and financial reviewWesfarmers 2019 Annual Report The Kmart Group, comprising Kmart and Target, was formed as
the Department Stores division in February 2016 and rebranded
to the Kmart Group in November 2018. The division operates 520
stores across Australia and New Zealand and employs more than
46,000 team members.
PROSPECTS
The Kmart Group is well positioned for
the future. The focus will remain on
delivering strong returns over the long
term and leveraging the group structure
to improve operational performance and
reduce operating costs.
Kmart will continue to deliver
sustainable growth through a focus on
creating a great place to shop that is
simple to run and delivering better
products at lower prices. Maintaining
price leadership in the market,
continued enhancement in product
range, relentless pursuit of lowest cost
and the expansion of digital and data
capabilities will remain key priorities for
the business. This coming year will see
continued growth in online, further focus
on category growth opportunities and
ongoing refinement of operating
efficiencies, as well as continued
investment in the store network.
Target will accelerate its plans for a
repositioned and more focused customer
proposition, which aims to inspire
customers to live better by providing
great style and quality at an affordable
price. The expansion of online offering
continues to be a priority for Target, with
emphasis on improving click and collect,
website content and personalisation to
create a better customer experience.
Rationalisation of the store network will
continue in the 2020 financial year.
The previously announced acquisition
of Australian retailer Catch Group for
$230 million was successfully completed
on 12 August 2019. Catch Group is an
exciting development for Wesfarmers
and the Kmart Group and provides a
platform to meet evolving customer
needs and enhance future growth.
– IAN BAILEY
Managing Director, Kmart Group
PERFORMANCE DRIVERS
Revenue for the Kmart Group continuing
operations was $8,598 million for the
year. This was an increase of 1.1 per cent
reflecting the moderation in sales growth
compared to the prior corresponding
period. Earnings decreased 13.7 per cent
to $540 million which reflected the
challenging trading conditions.
Kmart’s total sales increased 1.5 per cent,
with flat comparable sales growth.
Comparable sales growth for the year was
affected by lower growth in apparel, and
non-seasonal products and the planned
exit from the DVD category that previously
accounted for approximately one per cent
of sales, offset by modest growth in home
and kids general merchandise.
During the financial year, a number of
initiatives were implemented to optimise
product flow and store processes to
support growth. Some of these changes
resulted in a temporary reduction in
availability which impacted sales growth.
This was largely resolved by the end of
the financial year.
Kmart’s earnings for the year were
impacted by the moderation in sales
growth. Despite a strong focus on cost
control, higher operational costs were
incurred from the implementation of
a number of supply chain efficiency
initiatives and an increase in stock loss.
Kmart continued to invest in its store
network, opening four new stores, and
completing 23 store refurbishments
during the year.
Target’s total sales decreased
1.5 per cent, following ongoing
rationalisation of the store network.
While sales in Target’s ‘Best’ ranges
have continued to grow, particularly
in the womenswear, menswear and
homewares categories, this growth
was more than offset by lower sales
in the lifestyle, entertainment and
beauty categories.
Target’s earnings for the year remained
positive but decreased as a result of the
decline in sales. Costs remained well
controlled and inventory health continued
to be tightly managed.
Target continued to invest in its online
offering, driving increased website
visitation and customer conversion,
which resulted in strong growth in
online sales.
31
Wesfarmers 2019 Annual ReportSigned reportsShareholder and ASX informationFinancial statementsDirectors’ reportGovernanceOperating and financial reviewOverview 50 years
In April 2019, Kmart celebrated
its 50th anniversary.
231 stores
Kmart operates 231 stores
throughout Australia and
New Zealand.
KMART
OUR BUSINESS
OUR MARKET
Kmart was established in 1969, with
the opening of its first store in Burwood,
Victoria. In April 2019, Kmart celebrated
its 50th anniversary. Kmart operates
231 stores throughout Australia and
New Zealand, offering customers a
wide range of apparel and general
merchandise products at low prices,
every day.
Kmart employs more than 33,000 team
members, who are focused on the
Kmart vision of delivering the lowest
prices on everyday items for Australian
and New Zealand families. During the
2019 financial year, Wesfarmers
completed the sale of Kmart Tyre and
Auto Service to Continental A.G.
Kmart operates in the clothing,
homewares and general merchandise
retail sector, both locally and
internationally. This sector is competitive
and comprises department stores,
specialty retailers and a growing online
channel. It is also characterised by an
expanding presence of international
retailers, an increasing level of direct
sourcing and online growth. Kmart
sources from both local and
international suppliers, with product-
sourcing offices in Hong Kong, China,
Bangladesh, India and Indonesia.
32
Operating and financial reviewWesfarmers 2019 Annual Report 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 prices. The
business is focused on leveraging the store network and evolving digital capability to ensure Kmart provides customers with a
shopping experience that is seamless between channels. The business is focused on improving availability of its products while
reducing inventory and is committed to maintaining its price leadership position in the market. Kmart will also continue to identify
opportunities for productivity improvements in its end-to-end product development-to-shelf operating model. 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 that
is simple to run
– Continued strong growth of the online channel through
the expansion of the click and collect service
– Opened four new stores and completed 23 store
refurbishments during the year
– Implementation of productivity and cost reduction
initiatives
– A customer focus on a rewarding shopping experience
through all channels
– Continued development of the online offer while
leveraging store network infrastructure
– Simplifying ways of working in stores and supply chain
– Ongoing investment in the store network through new
store openings and refurbishment
Better products at even
lower prices
– Continued market leadership in perception of
lowest price
– Increased proportion of products sourced through
strategic relationships with the right factories
– Leading the lowest price in a highly competitive market
– Elevating product desirability in the apparel category
– Profitable growth through increased volumes and
improved product offering
– Maintaining strong brand perception for on-trend
everyday items
– Leveraging data insights to drive better decisions
RISK
Kmart’s risks include foreign exchange rate fluctuations, new market entrants and the expansion of existing competitors, and
ensuring that its products are ethically sourced. Price is a key differentiator between Kmart and its competitors, given high levels
of product substitution exist within the market.
Risk
Mitigation
Competitor activity
– Monitoring of competitor activity and consumer trends
– Maintaining price leadership position in the market by making use of extensive overseas sourced ranges,
in-house design capabilities and volume-driven efficiencies
– Continuing to innovate the store format to improve the customer experience, through new layouts and
leveraging technology
– Continuing to improve consistency of product quality
Exchange rate volatility
– Hedging, and product and pricing frameworks will be used to effectively manage foreign exchange movements
Sustainability and ethical
sourcing
– Ongoing improvements to Kmart’s environmental compliance across all factories
– Updates to Ethical Sourcing Code including integration of strategies to prevent instances of modern slavery
– Further expansion of ‘Better Together’ program focused on making a positive difference to our people and our planet
– Conducted product lifecycle assessment for all merchandise as part of development of circular economy strategy
33
Wesfarmers 2019 Annual ReportSigned reportsShareholder and ASX informationFinancial statementsDirectors’ reportGovernanceOperating and financial reviewOverview TARGET
OUR BUSINESS
OUR MARKET
Target began as a drapery store in
1926 in Geelong, Victoria, and has
since grown to become a national
apparel and general merchandise
retailer with 289 stores across
Australia. Its objective is to provide
quality and style at affordable prices.
Target employs more than 13,000 team
members across its stores, support
offices and direct sourcing operations
– all focused on delivering high quality
products with contemporary style.
Like Kmart, Target participates in the
Australian clothing, homewares and
general merchandise retail sector.
Target’s strategy is focused around
delivering elevated style and quality
through an optimised store network and
engaging online proposition. This is
supported by a strong brand heritage.
13,000
team members
Target employs more than
13,000 team members
across its stores, support
offices and direct
sourcing operations.
289 stores
Target operates a national
network of 289 stores.
34
Operating and financial reviewWesfarmers 2019 Annual Report STRATEGY
Target is focused on its ongoing repositioning and improvement through delivering elevated style and quality at affordable prices.
Target’s strategy will deliver a more focused product offering, make the end-to-end customer journey easy and
personalised, irrespective of channel, and ensure the customer experience leverages Target and the Kmart Group’s
assets to lift digital engagement.
The implementation of the store network plan will continue work done in the 2019 financial year. This will include the continuation
of the plan to optimise the store network, which in 2019 included the closure of 15 stores and the continued focus on reducing
lease tenure and overall lease commitments reflecting the desire for flexibility and optionality.
Growth
strategies
Elevate quality
and style
Achievements
Focus for the coming years
– Continued improvement of processes and disciplines
across merchandise and sourcing functions
– Stock levels and inventory health well managed
– Stock keeping unit (SKU) rationalisation continued
– Quality and style standards reset
– Increased focus on fabric mix and sustainability
– More focused offer progressively re-weighted towards apparel, soft
home and toys
– Stronger elevation of quality and style to provide a clearly
differentiated offer
– End-to-end operating model alignment and simplification
– Increased focus on design capabilities and digital customer
channels
Optimise and
leverage store
network
– Optimise the store network (15 store closures)
– Reduced average lease tenure and overall lease
commitments, improving capital structure and
flexibility of store portfolio
Expand and
enable online
– Availability improvement in store ranges and
expansion of exclusive ranges
– Increased store fulfilment
– Foundational app improvements
– Order management system commissioning
– Implementation of store network plan, focused on creating value for
Kmart Group
– Focus on leveraging network to support increased customer
convenience across all channels (e.g. click and collect
enhancement)
– Online fulfilment and leverage DC capacity, including automation
– Enhanced user digital and in-store experience
– Improved website including content and site personalisation
– Improved in-store collection experience to drive store traffic
– Continued app advancement
RISK
Target’s strategy to reset the business continues to progress with the business focused on making further changes to the operating
model and delivering a clear and differentiated customer proposition to ensure sustainable growth and earnings improvement into
the future. This journey is being undertaken in an increasingly competitive apparel and general merchandise market.
Risk
Mitigation
Competitor
activity
– Monitoring of competitor activity and consumer trends
– Analysis of business performance to identify future opportunity and clarify our business proposition and purpose
– Online proposition advancement to enhance customer experience, support in-store traffic and leverage store network
Sustainability and
ethical sourcing
– Ongoing improvements to Target’s environmental compliance across all factories
– Updates to Ethical Sourcing Code including integration of strategies to prevent instances of modern slavery
– Further expansion of ‘Better Together’ program focused on making a positive difference to our people and our planet
– Conducted product lifecycle assessment for all merchandise as part of developing a circular economy strategy
Business
transformation
Team member
attraction and
retention
Exchange rate
volatility
– Clarity of strategy with operational plans and governance related to key strategic initiatives
– Effective communication (internal and external) of strategic reset and related action plans
– Clear accountabilities, objectives and performance indicators
– Business simplification
– Improved culture, ways of working and values embedded across the business
– Implementation of learning and development strategies, and talent and succession cycle
– Relocation of Target Store Support Office during the financial year
– Hedging, and product and pricing frameworks will be used to effectively manage foreign exchange movements
35
Wesfarmers 2019 Annual ReportSigned reportsShareholder and ASX informationFinancial statementsDirectors’ reportGovernanceOperating and financial reviewOverview
KMART GROUP
SUSTAINABILITY PERFORMANCE
Kmart Group has continued to strengthen its ‘Better Together’ sustainable development program, which
guides its broader sustainability initiatives. During the year, Kmart Group managed the following material
sustainability issues.
WASTE
Minimising waste remains a significant
challenge for businesses in the
Australian retail sector and Kmart Group
is committed to playing its part through
its ongoing efforts to reduce, reuse and
recycle its store and distribution centre
waste and consumer packaging.
Waste diversion from stores and
distribution centres across Kmart Group
improved from 75 per cent last year to
79 per cent in the 2019 financial year, a
period challenged by volatile markets for
recycled materials.
In response to our need to improve
waste diversion and manage recycling
and waste system volatility following
the collapse of Asian markets for
Australian and New Zealand waste,
Kmart Group has commenced
implementation of the Better Together
Waste Diversion Program.
PRODUCT QUALITY AND SAFETY
The Kmart Group is committed to
developing high quality, safe and
compliant products that enhance
customer experiences and deliver
commercial growth.
The safety of customers when using
Kmart and Target products is
paramount. Product safety recalls are
enacted when necessary or as a
precautionary measure to eliminate
customer exposure to potentially unsafe
products. Kmart conducted four recalls
and Target 17 recalls during the 2019
financial year.
For more information about Kmart Group’s
sustainability program, please visit
sustainability.wesfarmers.com.au
increased from 1.7 per cent to
1.9 per cent. There were 150 people
with disabilities employed in Australia
during the financial year.
At Target, women in leadership roles
increased from 44.8 per cent to
48 per cent. Target team members with
Indigenous backgrounds now represent
1.4 per cent of the total Australian
headcount, increasing from 1.3 per cent
at the same time last year.
COMMUNITY
Throughout the year, the Kmart Group
continued to work with the local
communities in which it operates and
on whose support it depends upon.
In total, Kmart directly and indirectly
contributed more than $6 million and
Target contributed $1.4 million to
charities and community groups.
NATURAL RESOURCES
The sustainable use of natural resources
continues to be a key focus of Kmart
Group’s sustainability commitments.
Energy
Following five years of investment in
energy data analytics and technology
upgrades, Target Australia was
awarded ‘Australia’s Leading Energy
User’ in the Energy Efficiency Council’s
2018 National Energy Efficiency Awards.
Energy efficiency across Kmart Group’s
store network improved by two per cent
during a period which was challenged
by record hot weather.
Sustainable materials
Kmart and Target continued the
implementation of their sustainable
cotton commitments. In March 2019,
Kmart launched a Better Cotton
Initiative (BCI) marketing campaign
across Australia. The campaign
included over 800 products in-store
and online and the world’s first BCI
television commercial, helping to
significantly boost public awareness
of the BCI program in Australia.
HUMAN RIGHTS AND
ETHICAL SOURCING
Kmart Group acknowledges its
responsibility to respect human
rights and promote environmental
sustainability within its supply chains.
During the year, Target and Kmart
continued their efforts to strengthen the
Kmart Group Ethical Sourcing Program.
Achievements this year included a
comprehensive modern slavery risk
review across the Kmart Group’s
supply chains and operations. This
review sets out a one-year road map
to address gaps identified in the
current risk management approach.
The complexity and depth of the Kmart
and Target supply chains remains a key
challenge for Kmart Group’s Ethical
Sourcing Program and wider sustainability
efforts. This will be addressed with a new
focus on improving traceability of tier two
and tier three factories (particularly for
clothing, bedding and towel ranges) in the
next three years.
SAFE AND INCLUSIVE CULTURE
Kmart Group recognises that
fostering a safe and inclusive culture
for its team members is critical to its
long-term success.
Safety
Kmart finished the year with a
8.3 per cent increase in its TRIFR
of 20.8 from continuing operations.
Target achieved a sixth year of
improved safety performance with a
11.2 per cent TRIFR reduction to 16.7.
Kmart and Target’s focus for the
coming year will be delivery of the
Driving Peak Performance Plan to
further improve the safety, wellbeing
and engagement of our people,
community and business partners.
Diversity and inclusion
At Kmart in the 2019 financial year,
women in leadership roles reduced
slightly from 43.1 per cent to
42.6 per cent. Kmart team members
with Indigenous backgrounds
36
Operating and financial reviewWesfarmers 2019 Annual Report KMART GROUP
Safety performance
(from continuing operations)
TOTAL RECORDABLE INJURY
FREQUENCY RATE1
19.4
2019
2018
19.4
19.1
1 TRIFR is the number of lost time and medical
treatment injuries per million hours worked.
Community contributions
$7.4m
DIRECT INDIRECT
2019
20181
1.4
1.5
6.0
8.4
20171
2.2 10.5
20161
2.2
9.9
20151
2.6 11.2
1 Includes discontinued operations.
Greenhouse gas emissions
(from continuing operations)
SCOPE 1 & 21
318.6 ktCO2e
2019
318.6
2018
2017
2016
2015
330.8
360.2
414.2
414.7
1 Scope 1 and 2 data includes emissions
for businesses where we have operational
control under the NGER Act, other known
non-reportable Australian-based emissions
over which we have control, and our
emissions in New Zealand and Asia.
Waste
74.6 kt
RECYCLED DISPOSED
2019 58.6 16.0
20181 70.9 24.0
20171 63.6 25.3
20161 68.6 21.6
20151 65.6 17.3
1 Includes discontinued operations.
Kmart Group Waste Diversion Program
Kmart Group’s Better Together Waste Diversion Program is informed by the
findings of 50 waste audits across Target and Kmart stores and distribution
centres in Australia and New Zealand and a review of waste practices in our two
store support offices. Implementation of the new program commenced across
both businesses in June 2019. This included hiring a dedicated waste program
manager, establishing a central waste and recycling monitoring and data
analytics centre, team member training and induction programs and improved
back-of-house waste separation systems and signage.
These activities aim to lift Kmart Group’s waste diversion rate from 75 per cent
in the 2018 financial year to 82 per cent by 2022 and 85 per cent by 2025.
Additionally, the Better Together Waste Diversion Program allows Kmart and
Target to better manage the financial impacts arising from the issues in
Australia and New Zealand’s waste and recycling industries, while improving
management of waste supplier services and contracts.
Kmart South Hedland recognised for Indigenous recruitment
The Kmart team at South Hedland in
Western Australia has been working with
local organisations to forge stronger
connections with their community.
Through Ashburton, a local Aboriginal
employment agency, the store
management team were able to attract a
strong group of young talent to work at
the store. The team’s efforts did not go
unnoticed and were recognised by local
MP, the Honourable Peter Tinley AM MLA
(Minister for Youth), for being the leading
retail store in Australia for Aboriginal and
Torres Strait Islander recruitment.
Both the store management team and the new young team members, many of
whom were taking on their first job, built a great support system to fill shifts and
build confidence for various in-store roles. One team member, Ashonique Coffin,
remarked she felt “very proud” of the moment when during one shift three
Aboriginal team members were controlling the front end of the store.
The South Hedland store recognised Aboriginal and Torres Strait Islander
culture during NAIDOC week with a range of festive activities, including crafts
for children, morning tea and cultural performances.
37
Wesfarmers 2019 Annual ReportSigned reportsShareholder and ASX informationFinancial statementsDirectors’ reportGovernanceOperating and financial reviewOverview INDUSTRIALS
YEAR IN REVIEW
38
Revenue
$3,830m
2019
3,830
2018
2017
2016
2015
3,580
3,415
3,664
3,611
Key financial indicators
EBIT
$524m
2019
2018
2017
2016
2015
524
508
510
357
303
For the year ended 30 June1
2015
2016
20171
2018
2019
Revenue ($m)
3,611
3,664
3,415
3,580
3,830
Earnings before interest and tax ($m)
303
357
510
508
524
Capital employed (R12) ($m)
2,792
2,893
2,806
2,816
2,833
Return on capital employed (%)
Capital expenditure ($m)
11
12
121
104
18
78
18
110
18
141
Note: Includes Quadrant Energy until divestment in November 2018.
1 Refer to individual businesses’ key financial indicators for footnotes.
Operating and financial reviewWesfarmers 2019 Annual Report The Industrials division includes Wesfarmers’ two industrial
businesses: Chemicals, Energy and Fertilisers, and Industrial and
Safety. The businesses, under focused leadership, continue to invest
in digital systems, supply chain improvements and adjacent market
opportunities to position each business for future growth.
PROSPECTS
Production and demand for chemical
products from WesCEF is expected to
remain robust. The Chemicals business
will continue to benefit from the ongoing
disruption at the competing Burrup plant
but beyond this, earnings are expected to
be affected by an oversupply of explosive
grade ammonium nitrate in Western
Australia. Ammonium nitrate (AN) margins
will be further impacted in the 2020
financial year as some customers roll onto
new pricing under long-term contracts.
WesCEF’s overall earnings will continue to
be impacted by international commodity
prices in particular ammonia and Saudi CP,
exchange rates, competitive factors and
seasonal outcomes.
Performance improvement activities
continue across the Industrial and
Safety portfolio. These turnaround
initiatives in Blackwoods, Workwear
Group and Greencap include investment
in customer service, the ERP system,
supply chain automation and improving
the digital offer. These activities are
expected to continue for at least
18 months. The Coregas business is
focused on growth opportunities in
healthcare and other specialist gas
market adjacencies to help offset some
of the margin challenges due to rising
input costs and competition.
– DAVID BAXBY
Managing Director, Industrials
PERFORMANCE DRIVERS
Reported earnings from continuing
operations in the Industrials businesses
increased by 4.4 per cent to $519 million
compared to $497 million in the prior year.
WesCEF generated earnings of
$433 million, 14.2 per cent above the
prior year. Excluding insurance proceeds
of $30 million and a one-off provision
of $19 million for removal of redundant
equipment in the current year, earnings
increased 11.3 per cent to $422 million.
The improved performance was driven
by higher earnings in the Energy and
Fertilisers businesses. Earnings from the
Chemicals business were comparable
to the prior year with a decline in AN
earnings offset by growth in the other
Chemicals businesses.
The Industrial and Safety business
generated earnings of $86 million,
27.1 per cent below the prior year.
Decreased earnings in Blackwoods
as a result of lower gross margins and
the impact of ongoing investment in
digitisation and automation activities
which was partially offset by increased
earnings from the Workwear Group and
Coregas.
39
Wesfarmers 2019 Annual ReportSigned reportsShareholder and ASX informationFinancial statementsDirectors’ reportGovernanceOperating and financial reviewOverview CHEMICALS, ENERGY
AND FERTILISERS
YEAR IN REVIEW
Revenue
$2,078m
2019
2,078
2018
2017
2016
2015
1,830
1,639
1,820
1,839
EBIT
$438m
2019
2018
2017
2016
2015
438
390
395
294
233
Key financial indicators
For the year ended 30 June
20153
20162
20171
2018
2019
Revenue ($m)
1,839
1,820
1,639
1,830
2,078
Earnings before interest and tax ($m)
233
294
395
390
438
Capital employed (R12) ($m)
1,535
1,554
1,443
1,407
1,358
Return on capital employed (%)
15.2
18.9
27.4
27.7
32.6
Capital expenditure ($m)
56
60
44
60
58
Note: Includes Quadrant Energy until divestment in November 2018.
1 2017 includes $33 million relating to WesCEF’s share of revaluation gains in Quadrant Energy and profit
on sale of land of $22 million.
2 2016 includes $32 million of one-off restructuring costs associated with the decision to cease PVC
manufacturing.
3 2015 includes a net $10 million gain comprising insurance proceeds and the gain on sale of Kleenheat’s
east coast LPG operations, partially offset by asset writedowns.
1,300
team members
WesCEF employs
approximately 1,300 team
members across its eight
businesses.
14.2%
Increase in annual
revenue growth.
40
Operating and financial reviewWesfarmers 2019 Annual Report OUR BUSINESS
WesCEF operates eight businesses in
Australia and employs approximately
1,300 team members. WesCEF’s
business units are Chemicals, Energy
(Kleenheat), and Fertilisers.
OUR MARKET
Chemicals includes:
− the manufacture and supply of
ammonia, ammonium nitrate (AN)
and industrial chemicals primarily to
the Western Australian resources
and industrial sectors through CSBP;
− Queensland Nitrates (QNP), CSBP’s
50 per cent joint venture with Dyno
Nobel Asia Pacific which
manufactures and supplies AN to the
resources sector in the Bowen Basin
coal fields;
− Australian Gold Reagents (AGR),
CSBP’s 75 per cent joint venture with
Coogee Chemicals which
manufactures and supplies sodium
cyanide to the Western Australian
and international gold mining sectors;
− Australian Vinyls, which supplies PVC
resin and specialty chemicals to the
Australian industrial sector; and
− ModWood, which manufactures
wood-plastic composite decking and
screening products.
Kleenheat extracts LPG from natural
gas and distributes bulk and bottled
LPG to the residential and commercial
markets in Western Australia and the
Northern Territory. It distributes bulk
LNG through its subsidiary, EVOL LNG,
primarily to the remote power generation
market in Western Australia. Kleenheat is
also a retailer of natural gas to residential
and commercial markets, and electricity
to businesses in Western Australia.
Fertilisers manufactures, imports and
distributes phosphate, nitrogen and
potassium-based fertilisers for the
Western Australian agricultural sector
through CSBP. CSBP also provides
technical support services for growers
through a network of employees and
accredited partners in regional
Western Australia. The Fertilisers
business also includes Decipher, an
agricultural technology business, which
allows growers and their advisers to
visualise farm data and make more
informed nutritional decisions.
PERFORMANCE DRIVERS
Revenue of $2,078 million was
13.6 per cent above last year, with
Chemicals, Energy and Fertilisers all
contributing to revenue growth. The
Fertilisers business contributed strongly
to the growth in revenue driven by
growth in sales volumes, following
a strong 2018 harvest for Western
Australian growers and despite a
late 2019 seasonal break.
WesCEF generated earnings of
$433 million, 14.2 per cent above the
prior year. Excluding insurance proceeds
of $30 million and a one-off provision of
$19 million for the removal of redundant
equipment in the current year, earnings
increased 11.3 per cent to $422 million.
The improved performance was driven
by higher ammonia production following
an unplanned shutdown in the prior year,
record sodium cyanide production,
higher Saudi Contract Price (the
international benchmark indicator for
LPG price), higher natural gas retail sales
volumes, strong growth in fertilisers sales
volumes and lower input natural gas unit
costs. These factors were partially offset
by decreased earnings from the
ammonium nitrate business due to lower
margins and higher operational costs.
41
Wesfarmers 2019 Annual ReportSigned reportsShareholder and ASX informationFinancial statementsDirectors’ reportGovernanceOperating and financial reviewOverview STRATEGY
WesCEF’s vision is to grow a portfolio of leading, sustainable businesses. WesCEF has a high quality portfolio of assets and seeks to
leverage these assets and grow through investment and innovation to meet the needs of its customers. WesCEF also focuses on
investment in adjacent opportunities where it can add value through its strengths and competitive advantages.
Growth strategies
Achievements
Focus for the coming years
Safe person, safe
process, safe place
– Business-wide safety intervention to empower employees to
identify hazards and develop action plans to mitigate risks
– Launched a safety initiative to have employees from different
parts of the business observe safety practices
– Reduction in recordable injuries compared to the prior year
Foster a culture
that recognises
our diverse people
and their focus on
customers as central
to our success
– Significant investment in the Aboriginal Engagement and
Employment Plan with an emphasis on job creation, skill
building, creating an inclusive culture and supplier engagement
– Delivery of structured programs for employees across leadership,
innovation, management essentials, wellness and inclusivity
– Programs for vacation students, cadets and graduates
across disciplines but with a focus on engineering, data science
and commercial
– Trialling and implementing new ways to attract and retain female
employees, especially in leadership and non-traditional roles
– Good progress in development of data analytics capability
Evolve through
innovation and
investment
– Achieved record sodium cyanide production realising the
benefit from investment in debottlenecking and expansion
projects
– Secured long-term commitments from key AN customers
– Delivered further discounts to natural gas retailing customers
– Investment in technology and digital including development
of the Decipher platform
– Direct community contributions of $403,619 supporting the
Clontarf Gilmore College, Moorditj Koort and Lifeline, STEM-
based initiatives in Kwinana and Rockingham and grass-
roots community grants that directly benefit members of the
communities in which we operate
– Delivery of the Teacher Accelerator Program in partnership
with Scitech
– STEM education program, Bright Sparx Club, incorporated into
the Kwinana Industries Council’s suite of education programs
– Developed and commenced implementation of a modern
slavery and ethical sourcing policy
– Invested in our cyber security posture in line with our plan
Enhance our
reputation
RISK
– Ongoing commitment to improve safety performance and
employee safety capability
– Continue to track and close out actions from the safety
intervention
– Launch a program to support physical fitness for work
– Develop and trial program on critical risk controls to
support risk reduction
– Implement and measure success of further targeted
programs to attract, develop and retain an engaged,
diverse workforce
– Continue a strong focus on leadership development,
innovation and a more inclusive culture
– Ongoing development of technical competence through
training and skills enhancement across our complex and
diverse operations
– Launch a full-access online learning library
– Pursue expansion of LNG capacity and assess other
opportunities to leverage existing infrastructure to expand
capacity
– Invest in fertilisers infrastructure and new products and
services to meet the needs of WA growers
– Consider further opportunities for operational efficiency and
automation
– Continued investment in technology
– Integration of Kidman and support of the Mt Holland lithium
joint venture project
– Continue to deliver on local community investment
strategies with a focus on teacher capability in STEM
education and environmental responsibility
– Continued focus on regulatory compliance
– Ongoing implementation of the modern slavery and ethical
sourcing policy
– Continued investment in cyber security
WesCEF manages risk as an intrinsic part of its business and is committed to conducting its activities in a way that ensures the
continued and sustainable creation of shareholder value. Risks deemed unacceptable are transferred (through contractual
arrangements or insurance), mitigated or avoided.
Risk
Mitigation
Serious injury, safety or
environmental incident
– Continue to invest in improving safety culture and performance for the safe operation of facilities and distributing products in a
way that minimises any adverse effect on employees, contractors, local communities or the environment
– Maintain a strong focus on operating facilities and distribution systems in a manner which minimises the effect on the environment
Sustained intense
competition
– Maintain and build brand awareness
– Focus on consistently satisfying the needs of customers and continued investment in initiatives that further improve the
customer experience
– Continue to review and expand product and service offering
– Positive contributions to the communities in which we operate
– Establishing a balance of short- and long-term contracts and spot arrangements, including leveraging export markets as appropriate
Meeting community
expectations
– Minimise the risk of modern slavery occurring in our businesses or supply chains
– Maintain strong governance and compliance in an evolving legal and community landscape
– Continue to invest in systems and processes to ensure responsible use of data and security of information
42
Operating and financial reviewWesfarmers 2019 Annual Report WESCEF
SUSTAINABILITY PERFORMANCE
Sustainability is key to WesCEF’s vision to grow a portfolio of leading, sustainable businesses. WesCEF continues its
strong focus on operating responsibly and ethically, maintaining its commitment to safety and environmental
stewardship, developing leadership capability and an inclusive culture contributing positively to the communities in
which it operates. This underpins WesCEF’s ongoing efforts to add value for its customers. During the year, WesCEF
managed the following material sustainability issues.
SAFETY AND WELLBEING
During the year, WesCEF initiated a
safety program to further empower
teams to identify workplace hazards and
suggest actions to mitigate risk. Of the
441 actions raised, 68 per cent were
completed with the remainder being
regularly tracked.
WesCEF’s total number of recordable
injuries for the 2019 financial year was
13 compared to 16 in the prior period
(a nearly 20 per cent reduction). The
TRIFR was 4.2 compared to 5.4 at the
same time last year.
SUPPORTING COMMUNITIES
WesCEF and its businesses continue to
invest in ‘grassroot grants’ that directly
benefit members of the communities in
which it operates.
For example, WesCEF’s Teacher
Accelerator Program was delivered
during the year in partnership with
Scitech. The program involved working
with the Leda Primary School in
Kwinana, Western Australia to help
its teachers better understand new
design and technology aspects of the
curriculum. All teachers involved in the
program reported a significant increase
in their confidence and capability,
increased student engagement and
a decrease in discipline problems.
WesCEF has engaged Scitech to run
a similar program next year.
After three years, WesCEF’s successful
science, technology, engineering and
mathematics (STEM) education
program, the Bright Sparx Club, has
been incorporated into the Kwinana
Industries Council’s award-winning
suite of education programs and will
continue to run twice a year. WesCEF
has stepped away as the major
sponsor to focus on developing new
partnership opportunities.
OPERATING EFFICIENTLY,
RESPONSIBLY AND SAFELY
CAPABILITY, DIVERSITY
AND CULTURE
WesCEF aspires to operate in a
responsible manner that meets
stakeholder expectations.
During the year, WesCEF developed
and started implementing its modern
slavery and ethical sourcing policy.
The policy seeks to minimise the risk
of modern slavery occurring in its
businesses and supply chains.
WesCEF’s total number of identified
regulatory non-conformances remains
on a downward trend, improving from
five non-conformances in the 2018
financial year to one in the 2019
financial year.
ENVIRONMENTAL STEWARDSHIP
Water security is a business-critical risk at
CSBP’s Kwinana site with current and
future threats to availability, reliability and
cost of traditional water supply options.
Failure to mitigate these risks could lead
to an increase in cost and regulatory risk,
and negatively impact plant reliability.
During the year, WesCEF commenced
developing a long-term water strategy to
ensure water sustainability at its CSBP
Kwinana site. The strategy examines
options to manage water volume to meet
current and future needs and the
management of wastewater including
reuse and recycling.
Focus areas for 2020 financial year include:
− identifying a new climate independent
water supply option;
− optimising existing water treatment;
and
− reducing water intensity.
Scope 1 and 2 greenhouse gas emissions
increased by 17 per cent compared to
last year. Increased production across
some of our operations and a reduction
in the abatement efficiency of the catalyst
in the nitric acid plants contributed to
this increase.
Over the year, WesCEF continued to
focus on building a diverse and inclusive
culture through improving gender
balance and Indigenous employment:
− Overall female representation increased
from 33.1 to 35.1 per cent and from
24.8 to 28.9 per cent in leadership
roles; and
− 13 Indigenous employment
opportunities were created although
overall representation reduced
marginally from 2.2 per cent to
2.1 per cent.
WesCEF considers a diverse and
inclusive workplace to be a key
contributor to achieving our objective
of growing a portfolio of leading,
sustainable businesses. WesCEF has a
strong focus on attracting diverse talent
through various strategies including
LinkedIn searches, piloting of job
videos, use of gender-balanced
shortlisting and promotion of flexibility.
These strategies seek to increase the
number of female applicants which have
traditionally been lower in chemical
production, engineering, sales and
information technology roles.
During the 2020 financial year, WesCEF
will remain focused on building a diverse
workforce and inclusive culture while
implementing a communications and
engagement roadmap which is focused
on celebrating various diversity events
across the division. Additional initiatives
include a review of the parental leave
policy, the Inclusive Workplace Behaviour
program for leaders and an analysis of the
results of the engagement survey.
Indigenous employment will receive
additional focus in the 2020 financial year
with the establishment of a senior leader
led Indigenous Working Group to identify
further opportunities for progress.
For more information about WesCEF’s
sustainability program, please visit
sustainability.wesfarmers.com.au
43
Wesfarmers 2019 Annual ReportSigned reportsShareholder and ASX informationFinancial statementsDirectors’ reportGovernanceOperating and financial reviewOverview Safety performance
TOTAL RECORDABLE INJURY
FREQUENCY RATE1
4.2
2019
2018
2017
2016
2015
4.2
5.4
2.2
7.8
5.3
1 TRIFR is the number of lost time and medical
treatment injuries per million hours worked.
Community contributions
$0.4m
DIRECT INDIRECT
0.4
0.4
0.41
0.3
0.4
0.0
0.0
0.0
0.0
0.0
2019
2018
2017
2016
2015
1 This number has been restated due to a
review conducted in 2018.
Greenhouse gas emissions
SCOPE 1 & 21
897.3 ktCO2e
2019
897.3
2018
2017
2016
2015
769.8
798.2
808.8
760.7
1 Scope 1 and 2 data includes emissions from
continuing operations for businesses where
we have operational control under the NGER
Act and other non-reportable Australian-based
emissions over which we have control.
Waste
11.0 kt
RECYCLED DISPOSED
2019
8.2
2.8
2018
2017
2016
2015
8.0
4.6
3.3
2.1
4.4
2.0
3.2
4.7
44
Algae to treat wastewater – CSBP
CSBP is investigating whether algae can be used to treat nutrient-rich wastewater.
Wastewater at CSBP Kwinana’s operations in Western Australia is currently treated
via a nutrient-stripping wetland. As facilities at the Kwinana site expand, CSBP will
explore other technologies to support the wetlands, including algal ponds.
Algae cleans the water by using the nutrients to grow, reducing contaminants in
the water. Other advantages of using algae are that while it grows it removes
carbon dioxide and the resulting algal biomass can be used in other products
such as liquid fertiliser.
Traditionally, algal ponds are used to treat wastewater from aquaculture farms,
but CSBP is working with James Cook University in Queensland to test if they
can be used in an industrial setting.
Laboratory trials have shown that marine algae were able to grow in CSBP
Kwinana’s wastewater. Further work will be conducted to determine whether
the algae can grow in wastewater from the Country Works Fertiliser depots.
LNG as an alternative to diesel – EVOL LNG
Increasingly, the community expects businesses to operate in a sustainable
way and to reduce their environmental footprint.
With this trend, more companies are turning to EVOL LNG to provide them
with a cleaner energy source. LNG has better emissions performance than
conventional fuels and energy solutions and is used as an alternative to diesel.
EVOL LNG has been working with the mining industry to provide a cost-
efficient and cleaner way to fuel their site power stations. LNG-fuelled power
stations produce 25 per cent less CO2 emissions than diesel-fuelled power
stations. A recent EVOL LNG customer estimates that their greenhouse
emissions will be reduced by 50,000 tonnes over the next six years which
is the equivalent of keeping around 3,000 cars off the road.
In addition to lowering carbon emissions, utilising LNG reduces customers’
dependence on imported diesel, significantly reducing their energy costs.
Operating and financial reviewWesfarmers 2019 Annual Report INDUSTRIAL
AND SAFETY
Revenue increase
S1,752m
Earnings
$86m
YEAR IN REVIEW
Revenue
$1,752m
2019
1,752
2018
2017
2016
2015
1,750
1,776
1,844
1,772
EBIT
$86m
2019
2018
2017
2016
2015
86
118
115
63
70
Key financial indicators
For the year ended 30 June
20152
20161
2017
2018
2019
Revenue ($m)
1,772
1,844
1,776
1,750
1,752
Earnings before interest and tax ($m)
70
63
115
118
86
Capital employed (R12) ($m)
1,257
1,339
1,363
1,409
1,475
Return on capital employed (%)
Capital expenditure ($m)
5.5
65
4.7
44
8.4
34
8.4
50
5.8
83
1 2016 includes $35 million of restructuring costs associated with the ‘Fit for Growth’ transformation.
2 2015 includes restructuring costs of $20 million related to branch closures, business consolidation
and organisational redesign.
45
Wesfarmers 2019 Annual ReportSigned reportsShareholder and ASX informationFinancial statementsDirectors’ reportGovernanceOperating and financial reviewOverview OUR BUSINESS
Industrial and Safety operates
four main businesses: Blackwoods,
Workwear Group, Coregas and Greencap.
Blackwoods is the largest business in
terms of revenue and is a distributor of
tools, safety gear, workwear and
industrial supplies. It services a wide
variety of customers of different sizes
across Australia and New Zealand with
a broad stock keeping unit count of
around 200,000.
Workwear Group is Australia’s largest
provider of industrial and corporate
workwear, featuring iconic Australian
brands Hard Yakka and King Gee.
Workwear Group also supplies bespoke
and catalogue uniforms to leading
airlines, financial services providers,
retailers and other large corporates
through NNT and Incorporatewear (UK),
as well as specialised garments to
defence and emergency services
customers in Australia and New Zealand.
Coregas is a supplier of industrial,
specialty and medical gases in Australia
and New Zealand, serving customers of
all sizes through multiple sales channels
and distribution networks. Coregas
successfully launched into healthcare in
December 2018.
Greencap is a management consulting
business which has a market leading
contractor induction digital platform.
OUR MARKET
The Industrial and Safety business
portfolio services customers across
diverse industries such as construction,
mining, manufacturing, retail, food and
beverage, utilities, transport, facilities
maintenance and government. The
businesses also service a wide range of
customer groups including large
corporate enterprises, government
organisations and small-to-medium
sized businesses.
PERFORMANCE DRIVERS
Revenue of $1,752 million was broadly in
line with the prior year. Blackwoods’
revenue declined, with increased demand
in mining offset by lower sales in
construction and the small and medium
enterprise market. Workwear Group
revenue was broadly in line with the prior
year, with higher uniform sales offset by
impacts from the retail store divestment
program. Coregas’ revenue increased due
to demand in the bulk sales channels and
the successful launch of its new
healthcare offering in December 2018.
Reported earnings of $86 million was
27.1 per cent below the prior year.
Blackwoods’ earnings decreased due
to a lower gross margin and the impact
of ongoing investment in customer
service, the ERP system, supply chain
automation and improving the digital offer.
Workwear Group earnings improved,
while Coregas’ earnings were marginally
higher due to higher sales offset by
margin pressure from higher input costs.
46
Operating and financial reviewWesfarmers 2019 Annual Report STRATEGY
Industrial and Safety continues to focus on performance improvement activities and investment in digital capability. Across
Blackwoods, Workwear Group and Greencap this includes focussing on data, ERP and supply change activities aimed at
creating a seamless customer service experience while optimising supply chain processes. Other strategic priorities include
investing in product customisation and building specialty gas capabilities for Coregas.
Growth strategies
Achievements
Focus for the coming years
Implementation of a
world-class business-
to-business wholesale
distribution platform for
Blackwoods
– Customer service improvements achieved – delivery in full
on time (DIFOT) above 95 per cent for large customers
– New web platform (blackwoods.com.au) launched
in May 2019
– Own brand refresh complete
– Distribution centre automation being implemented
at Scoresby and Greystanes
– Implementing a new ERP system
– Investment in data and digital systems
– Investigating further automation opportunities
– Building sales force effectiveness
Digital transformation
and supply chain
optimisation of
Workwear Group
– Supply chain optimisation progressed
– Sourcing rationalisation progressed
– Customised apparel offer introduced
– Investment in digital transformation
– Further refinement of the operating model to improve
efficiencies
– Investment in product customisation and brand
Grow Coregas through
new distribution
channels
– Continued to leverage Blackwoods and Bunnings
distribution channels in Australia and New Zealand
– Growth in medical gases offer and customers, including
successful Healthcare launch in December 2018
– Further expanding product offers such as healthcare
and other specialty gases
– Geographic expansion
Leverage online
capability of Greencap
– Acquired 100 per cent ownership of leading contractor
induction digital platform CM3
– Grow digital services
RISK
As a supplier of industrial, safety and work wear products, the business is exposed to the performance of customers’ industry
sectors, new and existing competitor activity and trends as well as macro-economic factors such as capital investment,
employment, exchange rates and interest rates.
Risk
Mitigation
Growth of new and
existing competitors,
including digital market
entrants
– Develop new and improve existing systems and processes
– Build data and digital capabilities
– Develop a more customer-centric and relevant platform
– Continue to optimise range, price and supply chains
Subdued growth and
margin pressure in
traditional customer
segments
– Continue development of customer-centric platforms, for example, development of a business-to-business
marketplace platform for Blackwoods
– Continue to develop Workwear Group’s product customisation and brand offering
– Further develop new distribution channels for Coregas and expand speciality gas capabilities
Safety or environmental
incident
– Continue to focus on quality systems and ensuring compliance with standards
– Fully operational safety program including regular monitoring and the continuation of the safety culture
– Active safety engagement by senior management
47
Wesfarmers 2019 Annual ReportSigned reportsShareholder and ASX informationFinancial statementsDirectors’ reportGovernanceOperating and financial reviewOverview INDUSTRIAL AND SAFETY
SUSTAINABILITY PERFORMANCE
The Industrial and Safety portfolio of businesses has progressed its target-based sustainability plan during the
year, with team member safety and wellbeing a top priority. People development, balance and inclusion and
community contributions were also key development areas, reaffirming the businesses’ commitments to their
people and the communities they serve. For the 2019 financial year, a more comprehensive and consultative
approach was adopted with internal and external stakeholders. During the year, Industrial and Safety managed
the following material sustainability issues.
SAFETY AND WELLBEING
The Industrial and Safety businesses
have maintained a relentless focus on
driving initiatives to mitigate fatal risk,
prevent injuries, support operational
excellence in design and ensure team
members’ physical and psychological
wellbeing. While TRIFR increased from
6.6 to 6.9 in the 2019 financial year,
all lead indicators were above target.
Health and wellbeing initiatives included
team members flu vaccinations, a
10,000 steps challenge and the first in a
series of mental health first aid training
for leaders and team members,
including a course which aimed to
provide support for Indigenous team
members. Blackwoods also undertook
load restraint training for over 1,000
team members, while Workwear Group
implemented improvements in its
warehouse layout to reduce interactions
between pedestrians and material
handling equipment.
PEOPLE DEVELOPMENT
The Industrial and Safety businesses
delivered targeted leadership and sales
capability development programs to
improve workforce performance and
bench strength. We are proud to
develop and promote talent by
delivering tailored programs and other
opportunities to develop team members
and better equip the businesses for
future growth.
BALANCE AND INCLUSION
The Industrial and Safety businesses
audited their recruitment practices
and reviewed relevant policies to align
with gender balance and inclusion
objectives. At this time 30.6 per cent
of leadership roles are held by women.
Flexibility for working parents was a
focus, with a review and update of
parental leave policies undertaken.
Industrial and Safety also placed
greater emphasis on supporting
48
Indigenous students and enhancing the
quality of Indigenous team members’
experience. Blackwoods’ Indigenous
employment increased to 3.4 per cent,
with the business completing a review
of career advancement, training and
qualifications and gender balance
among its Indigenous team members.
ETHICAL SOURCING
Leveraging strong supplier relationships,
the Industrial and Safety businesses work
with supply partners to continuously
improve ethical business practices and
deliver sustainable solutions. The
businesses have detailed risk assessment
processes that profile suppliers based on
a number of inherent risks including
country, product type and manufacturing
process. Aligning to the Supplier Ethical
Data Exchange (Sedex) and the Sedex
Members Ethical Trade Audit (SMETA)
frameworks, the businesses continue to
audit high-risk suppliers to global best
practice with the aim of ensuring
compliance across social and
environmental standards.
COMMUNITY CONTRIBUTION
The Industrial and Safety businesses
are proud of the partnerships they have
with local organisations, making positive
contributions across a spectrum of
causes aligned with their values and
local community needs. During the
year, approximately $1.2 million was
contributed via donated stock,
financial contributions and corporate
sponsorships. The direct contributions
included over $620,000 to The Fred
Hollows Indigenous Australia program
from Blackwoods, $200,000 worth of
uniforms from Workwear Group for the
2018 Invictus Games volunteers and
support staff and $92,000 from NZ
Safety Blackwoods to KidsCan.
Additional indirect contributions such
as team member donations, mentoring
and volunteer hours were also made.
PRODUCT SAFETY
To ensure the Industrial and Safety
businesses provide customers with
safe products, each consumer product
business constantly looks to improve
standards, controls and processes;
particularly in high-risk product safety
areas and own-brand products. In the
2019 financial year, Blackwoods,
NZ Safety Blackwoods, Coregas and
Workwear Group reported zero product
recalls for all own-brand products. As a
technical services business, Greencap
focuses on service quality rather than
product safety. During the year, Greencap
received ISO14001 Environmental
Management System Accreditation
certification and continued to maintain its
ISO 9001 Quality Management System
independent accreditation.
WASTE AND PACKAGING
Each Industrial and Safety business
strives to reduce waste-to-landfill and
water use and to improve energy
efficiencies where possible. As
members of APCO each business is
committed to reviewing its packaging
strategy including considering recycling
and the grade of cardboard used in
cartons. In the 2019 financial year,
Workwear Group continued to explore
potential solutions for redirection from
landfill to reduce environmental impact.
Blackwoods is in the process of
conducting a review of waste providers
and services.
For more information about
Industrial and Safety’s sustainability
program, please visit
sustainability.wesfarmers.com.au
Operating and financial reviewWesfarmers 2019 Annual Report Safety performance
TOTAL RECORDABLE INJURY
FREQUENCY RATE1
6.9
2019
2018
2017
2016
2015
6.9
6.6
8.1
9.2
11.4
1 TRIFR is the number of lost time and medical
treatment injuries per million hours worked.
Community contributions
$1.2m
DIRECT INDIRECT
2019
1.2
0.0
2018
2017
2016
2015
0.6
0.0
0.1
0.1
0.1
0.0
0.0
0.0
Greenhouse gas emissions
SCOPE 1 & 21
25.9 ktCO2e
2019
25.9
2018
2017
2016
2015
26.0
29.2
30.0
28.7
1 Scope 1 and 2 data includes emissions from
continuing operations for businesses where we
have operational control under the NGER Act
and some of our emissions in New Zealand.
Waste
14.8 kt
RECYCLED DISPOSED
20191 4.4 10.4
1 Waste not previously reported in 2015 to 2018
because it was not material to the Group.
Industrial and Safety initiatives to support
Indigenous students
Across all of its businesses, Industrial and Safety has committed to supporting
Indigenous students by providing them with training, development and employment
opportunities. In 2019, every Industrial and Safety business hosted an intern from
CareerTrackers, a national non-profit organisation with the goal of creating pathways
and support systems for Indigenous tertiary students. Three interns transitioned into
full-time roles at Blackwoods following graduation.
Bullivants selected the recipients of its inaugural Indigenous Scholarship in
Engineering (or other related study), with two Indigenous students receiving
$10,000 each for every year of study. Caitlin Ramsay (pictured above left) is one
of the scholarship recipients. The funding will support their tertiary education and
both students will receive the opportunity to gain relevant hands-on business
experience within the Bullivants business during university breaks.
A group of Clontarf students began or continued their employment journey at
Blackwoods through school-based traineeships. For Junathean Coady (pictured
above right) the combination of his hard work completing Year 12 in 2018,
obtaining an industry-recognised certification and relevant experience through his
traineeship has helped him secure a full-time role at Blackwoods.
Greencap raising funds to
alleviate asbestos exposure
Greencap’s commitment to safety
extends beyond its people, which is
why Greencap has partnered with the
Bernie Banton Foundation (BBF), an
organisation providing support to
sufferers of asbestos-related diseases
and their families.
Since the partnership commenced in
2017, Greencap has provided corporate
sponsorship and raised over $20,000
for the foundation through various
fundraising drives. Greencap is the foundation’s Risk Management Supporter,
using its stature in the asbestos and hazardous materials industry to support
the foundation by generating awareness among the industry, the general public
and those at risk.
The Greencap mission to make a world a safer place aligns perfectly with BBF’s
focus on alleviating asbestos exposure through awareness and advocacy.
49
Wesfarmers 2019 Annual ReportSigned reportsShareholder and ASX informationFinancial statementsDirectors’ reportGovernanceOperating and financial reviewOverview OFFICEWORKS
YEAR IN REVIEW
Revenue
$2,314m
2019
2,314
2018
2017
2016
2015
2,142
1,964
1,851
1,714
EBIT
$167m
2019
2018
2017
2016
2015
167
156
144
134
118
Key financial indicators
For the year ended 30 June
2015
2016
2017
2018
2019
Revenue ($m)
Earnings before interest and tax ($m)
Capital employed (R12) ($m)
Return on capital employed (%)
Capital expenditure ($m)
1,714
1,851
1,964
2,142
2,314
118
1,034
11.4
39
134
994
13.5
41
144
980
14.7
36
156
939
16.6
45
167
980
17.0
42
50
Operating and financial reviewWesfarmers 2019 Annual Report Celebrating its 25-year anniversary in June 2019, Officeworks remains committed to making bigger
things happen for its customers, team, the community and stakeholders. It operates 167 stores
across Australia, a website that is home to more than 40,000 products, a national call centre, and a
business team that helps micro-, small- and medium-sized businesses start, run and grow. It offers
customers a wide range of office supplies, technology, furniture, art supplies, education resources
and helpful services like print and copy and on-site tech support through Geeks2U.
PROSPECTS
The past 12 months have delivered
positive progress for Officeworks with
improved team member safety, improved
customer service satisfaction levels, the
acquisition of Geeks2U and the opening
of our biggest store yet in Mentone,
Victoria. We also launched a new paid
parental leave policy ‘Growing Families’
for our team members, directly and
indirectly contributed $4.1 million to our
national partners and local community
groups, reduced carbon emissions by
seven per cent year-on-year and
celebrated our 25-year anniversary.
Great progress has been made, but
Officeworks is not being complacent.
We are refreshing our strategy and
making focused investments to enable
us to better meet our customers’ needs
as their expectations change. This will
ensure we can continue to deliver
satisfactory returns over the long term.
Earnings growth in the 2020 financial
year will be impacted by investments in
maintaining price leadership as well as
delivering higher team member wages
following the implementation of the new
store enterprise agreement. Productivity
initiatives are expected to partially offset
the investment in team member wages.
This is an exciting journey for Officeworks.
Our team is passionate about helping
customers make bigger things happen in
the 2020 financial year and beyond.
– SARAH HUNTER
Managing Director, Officeworks
PERFORMANCE DRIVERS
Officeworks delivered revenue of
$2,314 million for the year, an increase of
8.0 per cent on the prior corresponding
period. Earnings increased 7.1 per cent
to $167 million.
The safety, health and wellbeing of its
8,000 team members is a priority for
Officeworks. In the 2019 financial year,
TRIFR decreased from 10.2 to 8.5, the
safest year-to-date for its team members
under Wesfarmers ownership.
Providing a seamless customer
experience also remained a strong focus
throughout the year, which was reflected
in Officeworks’ continued improvement
in customer satisfaction levels.
The every channel approach continues
to resonate with customers, with strong
sales growth achieved in both stores and
online. Strong momentum in the B2B
segment was maintained with more
customers choosing Officeworks to help
them start, run and grow their business.
Earnings growth was delivered through
continued investment in price leadership
and effective management of cost of
doing business, which resulted in an
increase in return on capital of
0.4 percentage points to 17.0 per cent.
The growth in sales and earnings was
underpinned by investment in new and
expanded product ranges, online
enhancements and improvements to
the click and collect offer.
During the year, four new stores were
opened, and two stores were closed. At
30 June 2019 there were 167 stores
operating across Australia.
As part of its growth strategy, on
1 March 2019 Officeworks acquired
Geeks2U – a national provider of on-site
information, communication and
technology services.
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Wesfarmers 2019 Annual ReportSigned reportsShareholder and ASX informationFinancial statementsDirectors’ reportGovernanceOperating and financial reviewOverview OFFICEWORKS
OUR MARKET
Officeworks’ current addressable
market in Australia is approximately
$20 billion, which incorporates core
office products such as paper, pens,
ink and toner and filing, as well as
categories such as technology, print
and copy, furniture, kitchen and
cleaning products and packaging.
Over the past decade, Officeworks has
expanded its presence in the market
through range and category expansion,
and also by introducing new solutions
for customers.
Officeworks will continue to expand its
addressable market in line with
customer needs and explore growth in
new areas such as education and
services for small and medium-sized
businesses. In total, it is estimated that
these opportunities could expand
Officeworks’ potential total addressable
market to $41 billion, more than double
the current addressable market.
OUR BUSINESS
Established 25 years ago in Richmond,
Victoria, Officeworks is committed to
making bigger things happen for its
customers, team, the community and
stakeholders. As part of Wesfarmers,
Officeworks is focused on continuing to
deliver satisfactory returns to
shareholders over the long term. It
operates 167 stores across Australia, a
website that is home to more than
40,000 products, a national call centre,
and a business team that helps micro-,
small- and medium-sized businesses
start, run and grow. Officeworks offers
customers a wide range of office
supplies, technology, furniture, art
supplies, education resources and
helpful services like print and copy and
on-site tech support through Geeks2U
– delivering an experience that is easy
and engaging, no matter how
customers choose to shop. Officeworks
is focused on the safety, wellbeing and
career progression of the nearly 8,000
team members it employs. It is also
dedicated to operating in a sustainable
manner, including building and
maintaining meaningful connections
with the communities in which it
operates, fundraising for its national
partners and local community groups,
continuing to reduce its impact on the
environment and source responsibly.
7.1% increase in
earnings to
$167m
Sales growth
Sales growth achieved in
both stores and online.
52
Operating and financial reviewWesfarmers 2019 Annual Report STRATEGY
Officeworks is committed to making bigger things happen for its customers, team, the community and other stakeholders, in order
to continue to deliver satisfactory returns to shareholders over the long term.
Officeworks will continue to drive growth and productivity by executing its refreshed strategy which is centred around:
− Our team
− Customer experience
− Connecting with our communities
− Operational excellence
− Growing our business
Growth strategies
Achievements
Focus for the coming years
Our team
We are skilled,
committed and healthy
– Safest year under Wesfarmers ownership with a TRIFR of 8.5
– Launched paid parental leave policy, ‘Growing Families’
– Of the 83 per cent of store team members who voted on a
new Enterprise Agreement, 97 per cent voted in favour
– Develop a broader health and wellbeing strategy while
continuing to reduce TRIFR
– Increase focus on diversity and belonging
– Continue focus on training and skills development
– Implementation of new Enterprise Agreement
Customer experience
We make things easy
and engaging
– Continued improvement in customer service levels
– 45 per cent increase in click and collect orders year-on-year
– Trialled new store format (Mentone, Victoria)
– Enhance data analytics capability
– Upgrade every channel functionality and features
– Improve range curation and in-store experience
Connecting with
our communities
We are a part of
where we live
Operational
excellence
We strive to do
things better
– Recycled 82 per cent of all operational waste
– Seven per cent reduction in carbon emissions year-on-year
– Directly and indirectly contributed $4.1 million to national and
local community groups
– New consolidated distribution centre nearing completion
in WA
Growing our business
We are ambitious in
driving growth
– Four new stores opened
– New and expanded product ranges
– Acquisition of Geeks2U
– Reduce operational impact on the environment and source
responsibly
– Build closer connections with the communities in which we
live and work
– Continue to do more to help educate disadvantaged students
– Continue to modernise supply chain
– Implement a new people management system
– Continued improvement in inventory planning and stock
management
– Evolve and expand product and service offers
– Invest in the every channel offer including store renewal, new
stores, and click and collect
– Grow Geeks2U offer for Officeworks customers
– Print & Copy platform upgrade
RISK
Officeworks recognises that taking appropriate business risks is a critical aspect of generating acceptable business returns. In doing
so, it seeks to appropriately manage risks to minimise losses and maximise opportunities.
Risk
Mitigation
New and existing
competitors
– Relentless focus on providing a seamless experience for customers that is easy and engaging
– Investment in data analytics to better understand customer needs
– Continue to focus on innovative range, service and marketing formats
– Effective cost control and disciplined inventory management
Changing customer
behaviours
– Regular reviews of range to ensure it meets the evolving demands and preferences of Officeworks’ customers
– Continue investment in the every channel model, making it easier and more convenient for customers to shop
whenever, wherever and however they choose
– Innovation within existing categories and expansion into new areas
Data and IT security
– Dedicated internal capability focused on IT systems and security
– Appropriate IT system controls in place
– Security awareness training program to keep all team members educated and informed
Reputation loss
– Investment in leadership capability and a strong culture
– Ongoing regulatory compliance training
– Focus on reputational risk through governance framework
Ethical sourcing and
sustainability
– Five-year sustainability strategy (Positive Difference Plan) to identify and mitigate sustainability risks and opportunities
– Responsible sourcing policies supported by investment in detailed compliance programs
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Wesfarmers 2019 Annual ReportSigned reportsShareholder and ASX informationFinancial statementsDirectors’ reportGovernanceOperating and financial reviewOverview OFFICEWORKS
SUSTAINABILITY PERFORMANCE
Officeworks understands the importance of operating a responsible and sustainable business that supports
the communities where its customers, suppliers and team members live and work. During the year Officeworks
managed the following material sustainability issues.
Organization and the principles of the
Ethical Trading Initiative.
This year Officeworks welcomed the
introduction of Australian modern slavery
laws, which establish a national reporting
requirement. In preparation, Officeworks
completed an independent gap analysis
to ensure that the scope and governance
of its ethical sourcing program is effective
and to understand opportunities for
continuous improvement. As a result of
the review, Officeworks increased its
focus on suppliers of goods not for
resale and services and is developing an
approach to investigate key suppliers
beyond the primary site of manufacturing
as its program expands to consider
suppliers of raw materials.
RECYCLING ELECTRONIC WASTE
With electronic waste growing three
times faster than other waste streams,
Officeworks assists customers to
dispose responsibly of unwanted
technology items for free at dedicated
in store recycling collection points,
enabling the recovery of valuable
materials for reuse.
During the 2019 financial year,
customers recycled a total of 867 tonnes
of e-waste and consumables, an
increase of 25 per cent on the prior year.
In August 2018, the Basel Action
Network released a report following an
investigation into e-waste recycling in
Australia, which claimed that two
devices left at Officeworks stores in
Queensland in September 2017 were
exported to Hong Kong, placing the
government-approved co-regulator in
potential contravention of international
law. Officeworks conducted an
investigation which resulted in
immediate corrective actions plans and
changed providers to an alternative
government approved co-regulator
with greater levels of governance and
traceability to reduce the risk of similar
issues in the future.
SOURCING WOOD FIBRE
RESPONSIBLY
As a leading retailer of paper products,
Officeworks recognises the importance
of responsible and sustainable sourcing
of products that contain wood fibre. All
suppliers of products containing wood
fibre must disclose detailed information
before those products can be ordered.
Officeworks acknowledges the FSC as
the leading forestry certification scheme
due to its high environmental and
social standards for responsible and
sustainable forest management, as well
as its chain of custody processes and
balanced governance structure. As at
the end of the 2019 financial year,
81 per cent of all paper products sold
at Officeworks met this criterion, up
from 68 per cent at the end of the 2018
financial year.
RESTORING AUSTRALIA
Restoring Australia is Officeworks’
long-term commitment to making a
positive difference to the environment,
native wildlife, landholders and
communities. Restoring Australia
delivers tree planting and land
restoration projects and allows
customers to make sustainable
purchases simply by shopping at
Officeworks.
Launched in July 2017, the initiative
sees Officeworks committing to
planting two trees for every one used,
based on the weight of paper-based
products purchased by its customers.
In partnership with Greening Australia,
a total of 202,436 trees were planted
throughout the 2019 financial year,
with a further 40,564 planted from
July to September 2019.
For more information about Officeworks’
sustainability program, please visit
sustainability.wesfarmers.com.au
SAFETY
Officeworks is committed to ensuring
everyone goes home safe. Throughout
the 2019 financial year, Officeworks
continued its safety journey and finished
the year with a TRIFR of 8.5, the safest
year for its team members under
Wesfarmers ownership.
OPERATIONAL WASTE
During the year, Officeworks recycled
82 per cent of all waste, an increase
from 76 per cent in the previous
financial year. This change resulted in an
18 per cent reduction in waste sent to
landfill for the period. This was achieved
by taking a dynamic approach to waste
service schedules that reduced the
frequency of general waste collections
to favour recycling services, in turn
driving improved behaviours.
As the industry continued to be impacted
by the effects of the China National Sword
Policy, reducing contamination rates of
recycling streams became more of a
focus.
COMMUNITY CONTRIBUTIONS
Officeworks recognises that connecting
with communities at local, regional and
national levels is important because the
relationships formed with customers go
beyond the products and services they
purchase in our stores.
During the year, Officeworks directly
and indirectly contributed $4.1 million
to communities, of which $3.2 million
was contributed towards education
and environmental causes, including
committing to 243,000 trees being
planted as part of Restoring Australia
and supporting 2,394 disadvantaged
students on their education journeys.
ETHICAL SOURCING AND
MODERN SLAVERY
Officeworks’ suppliers are required to
adhere to its Ethical Sourcing and Modern
Slavery Policy. The policy is built upon the
standards set by the International Labour
54
Operating and financial reviewWesfarmers 2019 Annual Report Safety performance
TOTAL RECORDABLE INJURY
FREQUENCY RATE1
8.5
2019
2018
2017
2016
2015
8.5
10.2
11.92
15.9
19.2
1 TRIFR is the number of lost time and medical
treatment injuries per million hours worked.
2 Restated due to maturation of data.
Community contributions
$4.1m
DIRECT INDIRECT
2019
2.6
1.5
2018
2017
2016
2015
2.4
1.7
0.3
0.5
1.3
0.8
0.9
1.0
Greenhouse gas emissions
SCOPE 1 & 21
45.8 ktCO2e
2019
45.8
2018
2017
2016
2015
49.1
51.2
56.6
58.9
1 Scope 1 and 2 data includes emissions from
continuing operations for businesses where we
have operational control under the NGER Act.
Waste
6.3 kt
RECYCLED DISPOSED
2019
5.2
1.1
2018
2017
2016
2015
4.4
4.5
4.6
3.5
1.4
2.5
1.9
2.1
Getting hands on to reduce waste
As part of its journey towards zero waste to landfill, Officeworks set a target to
recycle at least 85 per cent of all operational waste generated across stores,
distribution centres and support centres. Central to achieving the target was
ensuring all team members understood the importance of reducing the
amount of waste sent to landfill and ensuring recyclable materials were
recovered through the correct waste streams. To support this, a waste and
recycling workshop was developed in partnership with Officeworks’ waste
provider, Cleanaway, based on the principles of the waste hierarchy: reduce,
reuse and recycle.
Ahead of an offsite workshop, general waste bins from the participating team
members’ stores were delivered to a Cleanaway facility. On arrival, team
members conducted a waste audit of their store’s bin which involved
segregating recyclable materials from non-recyclable materials. The results
demonstrated that although some stores were already recycling 80 per cent
of their waste, a further 46 per cent of their general waste bin could have
been recycled.
Following the audit, team members reflected on why certain waste may have
ended up in the wrong bin and what corrective actions could be implemented
to address it. Examples included better education of cleaners and team
members, ensuring that bins are in appropriate locations in store and
combatting illegal dumping.
The results demonstrated that participation in the workshop and understanding
the opportunity, team members were able to drive significant improvements at
their stores with the Western Australian region demonstrating the greatest
improvement lifting recycling rates from 73 per cent in July 2018 to 86 per cent
in June 2019.
In addition, Officeworks assists customers to dispose reponsibly of unwanted
technology items for free at dedicated in-store recycling collection points,
enabling the recovery of valuable materials for reuse.
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Wesfarmers 2019 Annual ReportSigned reportsShareholder and ASX informationFinancial statementsDirectors’ reportGovernanceOperating and financial reviewOverview OTHER
ACTIVITIES
Wesfarmers is also a major investor in Coles, flybuys, the BWP Trust, Gresham Partners and Wespine Industries.
COLES
BWP TRUST
Coles is a leading Australian retailer which
sells everyday products including fresh
food, groceries, household goods, liquor,
fuel and financial services via its national
store networks and online platforms.
Following the demerger of the
Coles division from Wesfarmers on
28 November 2018 and its listing as a
standalone company on the Australian
Securities Exchange, Wesfarmers
became a significant shareholder in
Coles Group Limited (Coles), holding
15 per cent of Coles’ total shares on
issue as at 30 June 2019.
Earnings from the Group’s 15 per cent
share of Coles’ net profit after tax
since demerger totalled $128 million.
For more information on Coles’
performance during the year, please
visit www.colesgroup.com.au
Wesfarmers’ investment in the BWP
Trust (the Trust) contributed earnings
of $42 million, compared to $45 million
last year.
The Trust was established in 1998 with
a focus on warehouse retailing properties
and, in particular, warehouses leased to
Bunnings. BWP Management Limited,
the responsible entity for the Trust, is a
wholly-owned subsidiary of Wesfarmers
Limited. Units in the Trust are listed on
the Australian Securities Exchange and
Wesfarmers holds, through a wholly-
owned subsidiary, 24.8 per cent of the
total units issued by the Trust as at
30 June 2019.
The Trust’s portfolio as at 30 June 2019
consisted of a total of 75 properties. For
more information on the Trust, please
visit www.bwptrust.com.au
FLYBUYS
GRESHAM PARTNERS
Wesfarmers owns a 50 per cent
shareholding in leading loyalty and
data company flybuys, with Coles Group
Limited holding the other 50 per cent.
Formerly part of Coles, following the
demerger in November 2018 the flybuys
business was set up as an independent,
standalone business.
As at 30 June 2019, there were
6.6 million active households in the
flybuys loyalty scheme. For more
information on flybuys, please visit
www.flybuys.com.au
Wesfarmers has a 50 per cent
shareholding in Gresham Partners
Group Limited, the holding company
for the Gresham Partners operations.
Gresham is a leading independent
financial services business with
activities in corporate advisory,
funds management, property, and
capital solutions.
Wesfarmers is a participant in the
Gresham Private Equity funds, which
had one remaining investment as at
1 July 2018 in an underground mining
services business, Barminco Limited.
In August 2018, Ausdrill Limited
agreed to acquire Barminco. As
part of the transaction, Wesfarmers
recorded a $42 million gain on the
Group’s investment in Barminco
following its purchase by Ausdrill and
a subsequent $19 million revaluation
of the Ausdrill shares received.
In September 2019, Wesfarmers
disposed of its interest in Ausdrill.
For more information on Gresham Partners,
please visit www.gresham.com.au
WESPINE INDUSTRIES
The 50 per cent-owned Wespine
Industries operates a plantation
softwood sawmill in Dardanup,
Western Australia.
Despite WA housing approvals at
the lowest level in 20 years, Wespine
increased timber sales by 4 per cent to
$96.7 million with nearly 30 per cent of
production shipped to customers in the
Eastern States. Contribution margins
also improved during the year reflecting
both efficient operations and favourable
production mix. Disappointingly, an
increase in recordable injuries occurred
during the year to 30 June 2019 following
a record low frequency rate in the year to
30 June 2018. Workforce safety continues
to be a focus area for management
including supervision practices, hazard
awareness and housekeeping.
For more information on
Wespine Industries, please visit
www.wespine.com.au
56
Operating and financial reviewWesfarmers 2019 Annual Report GROUP
SUSTAINABILITY
PERFORMANCE
At Wesfarmers we believe long-term value creation is only
possible if we play a positive role in the communities we serve.
For over 100 years, Wesfarmers has
been focused on the long term. Since
Wesfarmers publicly listed in 1984,
our core objective has been to deliver
satisfactory returns to shareholders.
We believe it is only possible to achieve
this over the long term if we manage our
businesses in a sustainable manner and
this means managing and understanding
the impact we have on people, the
environment and playing a positive role
in the communities we serve.
Wesfarmers seeks to minimise our
footprint and to deliver solutions that
help our customers and the community
do the same. We are committed
to making a positive contribution
to the communities in which we
operate through strong partnerships
and by providing direct and indirect
employment. We endeavour to
continuously improve our performance
and publicly report on our progress
and challenges.
At Wesfarmers, sustainability is a
critical, board level, governance
and strategic issue. Management is
responsible for assessing and managing
sustainability risks and opportunities
and both the Board of Wesfarmers and
the divisional boards have oversight of
these risks and opportunities.
For further information please
visit our website at
sustainability.wesfarmers.com.au
Wesfarmers 2019 Annual Report
57
Signed reportsShareholder and ASX informationFinancial statementsDirectors’ reportGovernanceOperating and financial reviewOverview Safety performance
TOTAL RECORDABLE INJURY
FREQUENCY RATE1
13.52
2019
13.52
2018
2017
2016
2015
24.12,3
28.72,3
33.63
39.43
1 TRIFR measures the number of lost time injuries
and medical treatment injuries per million
hours worked.
2 Restated due to maturation of data.
3 Includes discontinued operations, including
Coles. 2018 TRIFR from continuing operations
was 13.7.
SAFETY
We maintain a relentless focus on
providing safe workplaces.
At all times, safety must be our highest
priority. Our overriding principle is that
every single team member is entitled to
go home safely at the end of their working
day. If any team member is injured at work,
then our safety performance requires more
relentless focus.
To monitor our safety performance, we
use TRIFR (or total recordable injury
frequency rate) which shows injuries per
million hours worked by team members
and long-term contractors. This year, our
TRIFR decreased by 1.5 per cent from
13.7 to 13.5 (continuing operations), with
improvements across most divisions.
Workers compensation claims increased
from 1,699 to 1,750 on a continuing
operations basis.
Tragically, during the year there was a
fatality of a contractor at the Bengalla
coal operation joint venture in the
Hunter Valley of New South Wales. The
fatality was thoroughly investigated and
support was provided to those involved.
This has reinforced the importance
of our relentless focus on continuous
improvement in making our workplaces
safer. At the time Wesfarmers held a
non-operational 40 per cent interest in
the Bengalla coal operation. This interest
has since been sold.
PEOPLE DEVELOPMENT
Our greatest competitive advantage
is our people and we are committed
to providing them with opportunities
to improve their performance and
advance their careers.
Wesfarmers is one of Australia’s largest
employers with approximately 105,000
team members. This year we paid
$6.5 billion in salaries, wages and
benefits to our team members.
Workplace relations
More than 85 per cent of our workforce
is covered by collective agreements.
We recognise the right of our team
members to negotiate either individually
or collectively, with or without the
involvement of third parties. Collective
agreements typically include provisions
for notice periods and provisions for
consultation and negotiation. We also
believe in maximising the flexibility of
workplace arrangements available to
our team members and their managers.
Training and development
Wesfarmers’ businesses provide job-
specific and career development training
which includes technical skills, product
knowledge, customer service, team
work and leadership. These programs
are available to full-time, part-time and
casual team members.
At the Wesfarmers Group level, the
Talent Team is focused on connecting
leaders to our guiding principles and
strategic focus areas and to other
leaders across the Group. We seek to
support our leaders’ development in
collaboration with the businesses in
which they are employed.
At the Group level, a key area of work
is increasing our analytics capability in
line with Wesfarmers’ focus on data
and digital. Following the launch of our
Advanced Analytics Centre in 2018, this
year marked the introduction of Group-
wide capability building associated with
data analytics.
58
Intergenerational
workforce
As one of the largest employers
in Australia with approximately
105,000 team members,
Wesfarmers understands that a
diverse and inclusive workforce
is a key success driver.
Recent employment trends have
seen a significant decrease in the
provision of meaningful work to
older Australians according to the
Melbourne Institute’s Household,
Income and Labour Dynamics in
Australia Survey.
The Australian Institute of Health
and Welfare also asserts that
despite a significant increase in
work participation rates for
Australians aged 65 and over,
shifting from eight per cent to
13 per cent between 2006 and
2018, underemployment rates
among this community are
also increasing.
Wesfarmers understands that
older workers can provide a
valuable contribution and wealth
of experience.
Bunnings proudly acknowledges
that over 30 per cent of its team
members are over the age of 50,
employing team members of all
working ages including one who
is 84. This diversity contributes
significant value, demonstrated
by two Bunnings team members
interviewed recently by the
Australian Financial Review.
John Baker, 69, is currently
enjoying his third year at Bunnings
after a 40-year management
career in businesses from
McDonald’s to Myer, and Glenda
Borello, 61, (shown above) has
been a valued Bunnings team
member for over 40 years. John
believes he brings ‘experience,
energy and enthusiasm’ to the
role, while Glenda says she
does not think about retirement,
preferring instead to continue
her career at Bunnings.
Bunnings sees its diverse workforce,
including its age profile, as an
important aspect of its success.
Wesfarmers 2019 Annual ReportOperating and financial review Female representation
across the Group
2019
2018
WESFARMERS LIMITED
NON-EXECUTIVE DIRECTORS
38%
33%
WESFARMERS LEADERSHIP TEAM
45%
31%
SENIOR EXECUTIVE POSITIONS
(GENERAL MANAGER OR ABOVE)
27%
28%
ALL MANAGEMENT AND
PROFESSIONAL POSITIONS
36%
34%
TOTAL WORKFORCE
58%
54%
Indigenous team members1
2019
1,755
2018
2017
2016
2015
1,647
1,342
990
977
1 Excludes Coles.
Target Kununurra store
‘wrapped’ in art
During the year, the Target team in
Kununurra was invited by Cally Bugg,
the director of local art gallery Artopia,
to be part of an inspiring local art
project. The project’s aim was to
bring community groups and
businesses together to help address
anti-social behaviour, including graffiti
on store walls, through the
introduction of local art to the
landscape. What resulted was the
Target store being wrapped in unique
artwork displaying a range of iconic
places and animals of the Kimberley.
The Target Kununurra team will
use this celebration of Aboriginal
culture and the friendships formed
to create opportunities for local
Indigenous people.
DIVERSITY AND INCLUSION
At Wesfarmers, we aspire to be diverse
and inclusive which means everyone
has a part to play. Through diverse
and inclusive teams, we have insight
into our diverse customers and other
stakeholders, and how best to meet
their needs. Diversity and inclusivity
also strengthens creativity and problem
solving in teams, and helps to equip
our businesses with the wide range
of skills and experiences required
to support our businesses’ future
growth. It also helps to create an
environment that attracts and retains
high performing team members.
Our diversity and inclusivity helps us
achieve our objective of providing
satisfactory returns to shareholders.
GENDER BALANCE
We believe gender-balanced businesses
enable us to better deliver on our
objective of satisfactory returns to
shareholders. ‘Gender balance’ at
Wesfarmers is defined as a minimum
of 40 per cent of either gender.
The Wesfarmers Leadership Team is
balanced with 45 per cent women,
as is our total workforce, made up of
58 per cent women. There is room to
strengthen gender balance in senior
executive positions with women holding
27 per cent of roles. There is also room
to improve among management and
professional roles where women hold
36 per cent of positions.
OUR VISION FOR
RECONCILIATION
Our vision for reconciliation is an
Australia that affords equal opportunities
to all. Wesfarmers is focused on
ensuring that Aboriginal and Torres
Strait Islander people feel welcome
in our businesses as team members,
customers, suppliers and visitors.
Wesfarmers’ Reconciliation Action
Plan is focused on five core areas.
1. Sustainable employment
As one of Australia’s largest employers,
we believe we can provide Indigenous
people with opportunities to participate
in sustainable employment. As at
30 June 2019, we employed 1,755
Indigenous team members which is
1.8 per cent of our Australian workforce.
2. Career progression
We want to provide our Indigenous
team members with fulfilling jobs
including opportunities to build
successful careers which progress
through the organisation. We have an
opportunity to increase the number
of Indigenous people in management
positions and have plans to support
the leadership development of high
potential Indigenous team members
in the coming year.
3. Indigenous procurement
Increasing the diversity of our supplier
base is an important area where we can
make a real difference to the economic
prosperity of Indigenous communities.
During the year, we paid approximately
$25 million to Indigenous suppliers.
We recognise that there is more we
can do in this area to help Indigenous
businesses develop and scale and we
are committed to this.
4. Community partnerships
We recognise the value in collaborating
with national and local community
partners. We are particularly proud of our
partnership with The Clontarf Foundation
which dates from 2001, as a founding
supporter. We currently employ around
260 young Indigenous men through
Clontarf. It is rewarding to see students
complete their high school education
and enter the workforce, sometimes with
our businesses.
5. Celebrating Indigenous culture
Indigenous art stands as Australia’s most
significant contribution to world culture.
As a nation, we benefit enormously
from the opportunity to understand
more about the richness and diversity of
Indigenous culture through the work of
Indigenous artists.
Wesfarmers has supported Indigenous
cultural organisations, artists and
communities for over four decades
– both through actively collecting the
work of living Indigenous artists for The
Wesfarmers Collection of Australian
Art and through our partnerships with
premier Indigenous arts companies like
Yirra Yaakin Aboriginal Theatre and the
National Gallery of Australia.
59
Wesfarmers 2019 Annual ReportSigned reportsShareholder and ASX informationFinancial statementsDirectors’ reportGovernanceOperating and financial reviewOverview SUPPLIERS
We are committed to engaging fairly
with our suppliers and to sourcing
ethically and sustainably. We seek
strong and respectful relationships
with our suppliers.
Across the Group, our relationships with
more than 14,500 suppliers are very
important. This year we paid suppliers
$29.6 billion.
Building strong and collaborative
relationships with suppliers is key to
delivering responsibly-sourced products
to our customers.
Our major supplier initiatives relate
to responsible sourcing of products
containing wood fibre (such as
paper and timber) at Bunnings and
Officeworks, responsible sourcing of
raw materials in the Kmart and Target
supply chains and modern slavery
vigilance in all our businesses.
ETHICAL SOURCING AND
HUMAN RIGHTS
We strive to source products in a
responsible manner while working with
suppliers to improve their social and
environmental practices.
Wesfarmers continues to identify ethical
sourcing and human rights in our supply
chain as one of our most material
areas of focus. Wesfarmers believes
the new Australian Modern Slavery Act
will improve transparency and support
the goal of eliminating modern slavery
in Australian public and private sector
entities and their supply chains.
Our businesses directly source products
from more than 14,500 suppliers in
more than 20 countries. Some of the
major locations we source from outside
Australia include China, Bangladesh,
New Zealand, India, Thailand and
Vietnam. While our operations and
supply chains are complex, our aim
is to ensure that human rights are
understood, respected and upheld
across our supply chain.
Our Modern Slavery
Statement is available at
sustainability.wesfarmers.com.au
of products (both goods for resale and
not for resale) and services including
those procured by our Corporate Office.
This year, our audit programs covered
more than 3,700 factories supplying
to our businesses. The number of
factories audited this year has fallen,
relative to last year, in part due to
the Coles demerger. In addition, our
businesses have continued to reduce
their supplier numbers. This reflects the
preference among our businesses for
longer-term strategic partnerships with
fewer suppliers and factories.
Factories in our audit programs must
undertake an assessment as mandated
by our businesses. Where an audit
identifies non-compliance, the factory
is required to fix the issue within an
appropriate period. During the year, we
identified 127 critical breaches across
90 factories. The critical breaches
included allegations of excessive
overtime, transparency, safety, forced
labour, unauthorised subcontracting and
bribery. Sixty-nine issues were remedied
immediately, 43 had action plans that
were on-track at the end of the reporting
period, five were exited immediately and
no further supply orders were placed at
the remaining 10.
Increasing transparency
To manage business and sustainability
issues in our complex supply chain,
we map our tier-one suppliers. Where
possible, we are also mapping tier-
two and tier-three suppliers (suppliers
producing components which go into
a final product) for high-risk products.
Long-term relationships
We aim to build long-term direct supplier
relationships which helps us to work
over time with our suppliers to safeguard
human rights.
Collaboration
Collaboration with industry-wide
initiatives, government and non-
government organisations is an
important part of managing modern
slavery risks. Our businesses have
programs in place including BCI in
Kmart and a focus on FSC timber and
pulp in Bunnings and Officeworks.
Ethical sourcing audit programs
Training and capacity building
To mitigate the risk of unethical practices
in our supply chain, all our businesses
apply a human rights and ethical sourcing
audit program to certain suppliers. We
take a risk-based approach to managing
ethical sourcing issues and concentrate
on suppliers supplying own-brand
products as well as services, both in
Australia and overseas. This year, we
expanded our ethical sourcing due
diligence program to consider all suppliers
Our buying and sourcing teams are kept
up-to-date on our ethical sourcing and
human rights commitments and how
their actions may impact workers’ rights
through training, collaboration, information
sharing and capacity building. The Group
also trains relevant team members on
how to incorporate respect for human
rights into all business decisions, making
team members aware of the impact their
actions can have on human rights.
60
Ethical sourcing in
Bangladesh and India
Wesfarmers recognises that
respecting human rights across our
operations and supply chain is an
area of growing importance to our
employees, shareholders, customers
and communities. There is both a
moral and a business case for the
steps we take to identify, report,
address and ultimately eliminate the
exploitation of vulnerable people
in our supply chain, directly or
indirectly, overseas and at home.
In September 2018, members of
the Wesfarmers Leadership Team
travelled to Bangladesh and India to
visit factories supplying garments to
Kmart and Target.
They observed that our team
members are the first line of
defence and that investing in our
people and integrating ethical
sourcing as part of our procurement
processes is important. Choosing
the right supplier partners is
critical as is establishing strong
relationships. Our businesses are
focused on rationalising factory
numbers to make it easier to better
know our partners. We also look
to collaborate with third parties
to deliver initiatives which aim to
improve working conditions.
Ethical sourcing audit
program findings
3,773
TOTAL NUMBER OF FACTORIES1,2
Approved
Conditionally approved
Newly engaged
Expired audits
Critical breaches
Ceased business3
Major and/or numerous
minor violations identified
1,066
1,503
345
83
90
339
347
1 Factories include supplier sites.
2 The classification of non-conformances
differs between Wesfarmers’ divisions
depending on whether the division aligns
to the Sedex framework, reclassifies
non-conformances using professional
judgement, or whether the division has
a bespoke ethical sourcing assessment
framework.
3 A business may cease ordering from a
factory for a range of reasons, including
relating to commercial terms or
consolidation of their supplier base.
Wesfarmers 2019 Annual ReportOperating and financial review
PRODUCT SAFETY
We are committed to providing our
customers with safe products.
All of the consumer products we supply
must be safe and meet consumer
protections under the consumer laws
of the countries where we sell them.
We ensure that all our products comply
with relevant mandatory standards
before they are offered for sale. As
well as safety testing and compliance
with required standards, our divisions
implement product recalls where safety
issues may arise.
During the year, Target signed a
three-year Australian Competition
and Consumer Commission (ACCC)
Enforceable Undertaking not to sell
a convertible tricycle (with features
associated with a stroller) unless it
has evidence of compliance with
the Mandatory Standard. Target has
also been required to amend product
review processes, so that any sale
of a pram, stroller, baby products or
toys for children up to 36 months of
age, complies with these relevant
safety standards.
The safety of team members,
customers, suppliers and visitors
across all our sites is our highest priority
and during the year, we continued
to make improvements to safety. A
safety incident at Target received some
attention when a customer sustained an
injury from an apparel display arm. As
with any safety incidents in our stores,
the corrective actions from the incident
included a thorough risk assessment of
the equipment involved.
Half-sized stackable
pallets improving
efficiencies at Coregas
Half-sized stackable pallets are being
introduced to Coregas sites nationally
to improve storage utilisation and
simplify transportation — with the
additional benefit of potential carbon
dioxide emissions reduction.
The new pallets are designed to
transport smaller cylinders on top of
standard-size pallets. Certificates of
conformity were generated to ensure
the safest possible design and
adherence to applicable standards.
The new pallets enable greater
utilisation of truck space through
more efficient storage and reduce
transport costs associated with our
small cylinders fleet.
It is also expected that local truck
use will be improved by up to
30 per cent, leading to a possible
reduction of 300 tonnes per year
of carbon dioxide emissions.
61
Wesfarmers 2019 Annual ReportSigned reportsShareholder and ASX informationFinancial statementsDirectors’ reportGovernanceOperating and financial reviewOverview ECONOMIC AND COMMUNITY
CONTRIBUTIONS
We make a positive contribution
to the communities in which
we operate.
Wesfarmers is a successful company
that creates value for all its stakeholders.
We have a significant positive impact
on the Australian economy with a total
economic contribution of $48.7 billion.
This includes $29.6 billion in payments to
suppliers, $6.5 billion in salaries, wages
and other benefits to team members,
$4.6 billion in payments for rent, services
and other external costs and $1.5 billion
in taxes and royalties to governments.
Despite the demerger of Coles during
the year, Wesfarmers remains as one
of Australia’s largest private sector
employers. The vast majority of our
shares are held in Australia, and we
invest in the local communities where
our businesses operate.
Community contribution
This year, the Wesfarmers Group
contributed approximately $72 million
to community organisations in Australia
and New Zealand and other regions
where we operate. This includes almost
$20 million in direct social investment
to community organisations. The Group
also facilitated donations from customers
and team members totalling just over
$52 million. We make and enable these
investments in addition to our economic
contribution because we believe that
a strong business environment is
underpinned by a cohesive, healthy
and inclusive community.
Reflecting the Group’s divisional
autonomy, our approach to community
engagement is principally driven and
managed by our businesses to ensure
value is created in ways that best
address the needs of their customers
and communities.
While Wesfarmers has a local
footprint in many communities, many
of our divisions have major, long-term
partnerships at a national level, including
between Kmart and The Salvation Army
through the Kmart Wishing Tree Appeal
or Officeworks’ relationships with The
Smith Family to sponsor disadvantaged
students and The Australian Literacy and
Numeracy Foundation to provide literacy
packs for Indigenous students in need
across Australia.
Our retail businesses all support
local community groups through the
provision of gift cards, products or by
facilitating the collection of customer
donations for local fundraising initiatives.
As a result of these locally-driven
activities, a significant number of
community groups and programs have
received support from our businesses
across a wide range of areas.
62
An example of Wesfarmers' Corporate
Office contribution is our long-term
partnership with the Telethon Kids
Institute in Western Australia which
spans 26 years. Telethon Kids is a
medical research institute, recognised
as a world leader in the prevention
of paediatric diseases and improved
treatment for children. The Wesfarmers
Centre of Vaccines and Infectious
Diseases was established at Telethon
Kids in 2014 and, since that time,
Wesfarmers has committed over
$11 million in funding to advance their
work until 2021.
Wesfarmers Arts
Our support for the cultural life of the
community is reflected in our long-term
support for a wide range of premier
performing and visual arts organisations
and the ongoing development of The
Wesfarmers Collection of Australian Art.
From rare watercolours dating from the
earliest years of European settlement to
contemporary Indigenous art, spanning
painting, photography, sculpture and
digital media, the Wesfarmers Collection
reflects the diversity of creative Australia
through the work of our country’s defining
artists. During the year, we shared works
from our collection with museums and
galleries throughout Australia and online
via Instagram and the Wesfarmers Art
Collection app, which is available free
from the App Store.
A highlight of the Wesfarmers Collection
is our holding of more than 300 premier
works of art by Indigenous artists,
reflecting the rich diversity of Indigenous
culture in Australia. As part of our
commitment to celebrating the work
of living Australian Indigenous artists
on the world stage, we are sharing
our Indigenous collection with the
international community in the exhibition
Indigenous Masterpieces from the
Wesfarmers Collection and National
Gallery of Australia touring to Singapore
and China in 2020 and 2021.
In 2019, the Wesfarmers Arts
sponsorship program provided
$3.4 million in support of the activities
of 14 leading arts organisations
including the National Gallery of
Australia, Perth Festival, the Art Gallery
of Western Australia, West Australian
Ballet, West Australian Opera, West
Australian Symphony Orchestra, Black
Swan Theatre Company, Awesome
Children’s Festival, Form Contemporary
Craft and Design, Co3 Contemporary
Dance and Yirra Yaakin Aboriginal
Theatre, as well as the Western
Australian tours of the Australian
Chamber Orchestra, Bell Shakespeare
Company and Musica Viva Australia.
Community contributions
$72.1m
DIRECT INDIRECT
2019 19.9 52.2
20181 86.6 60.9
20171 72.9 59.3
20161 57.8 53.8
20151 50.0 52.8
1
Includes discontinued operations,
including Coles.
Wesfarmers and The
Australian Red Cross
Blood Service
During 2019, Wesfarmers and its
businesses proudly participated in
the life-saving Australian Red Cross
Blood Service Red25 program.
Red25 facilitates workplace,
university and community group
participation in the vital service of
saving lives through blood donation.
It is estimated that one in every three
Australians will need blood in their
lifetime. Developing a sustainable
blood supply is important to support
those affected by cancer, illness,
undergoing surgery and numerous
other medical conditions.
A single donation can save up to
three lives, meaning the 470,000
donations received by Red25
during the year impacted the lives
of over 1.4 million Australians and
contributed nearly a third of
Australia’s overall blood supply.
Wesfarmers team members
contributed 3,082 donations
meaning that Wesfarmers and its
businesses were able to have an
impact on over 9,200 lives. This
significant contribution from the
Group ranks Wesfarmers among
the top 15 groups nationally.
Wesfarmers 2019 Annual ReportOperating and financial review WASTE AND WATER USE
We strive to reduce our waste to
landfill and water use where possible.
Water management is a material issue
for WesCEF and Bunnings. Senior
management of those businesses is
responsible for assessing and managing
water-related risks and opportunities.
Their divisional boards have oversight of
these strategic risks and opportunities.
We recognise that Australia is a water
stressed country and our focus is on
using water more efficiently, reducing
our water use intensity and replacing
scheme water with reclaimed or recycled
water where possible.
This year, the Group recorded water use
of approximately 5,480 megalitres which
is broadly in line with water use last year.
Bunnings has 229 rainwater systems
across Australian mainland sites where
water is collected for use in nurseries and
as greywater in some sites. Bunnings
also delivered water wise information
and education for customers through
in-store programs. This included working
with Sydney Water where information
and waterwise products were displayed
during Water Wise Week, as well as Tiny
Homes in five metro Sydney stores to
demonstrate how customers can save
water around the home.
Recycling and waste
Managing waste is a significant issue
for all our businesses and reducing
operational and packaging waste will
be a major focus in the year ahead.
Our retail businesses are signatories
to APCO and report in line with its
targets annually.
On a continuing operations basis
this year, we decreased our waste
to landfill by nine per cent to
Waste
165.6 tonnes ’000
RECYCLED DISPOSED
2019 107.4 58.2
20181 351.3 153.6
20171 373.5 160.1
20161 356.1 151.2
20151 303.4 136.1
1
Includes discontinued operations, including Coles.
58,167 thousand tonnes while keeping
waste recycled comparable to last year,
at 107,383 tonnes.
All Kmart and Target stores have
stopped providing single-use shopping
bags following the implementation of
voluntary bans across Australia, with
all entry level reusable bags now
containing recycled material. This
move has reduced plastic bag use in
Western Australia and Queensland
by 80 per cent since July 2018.
Assisting customers with product
recycling and take-back options has
also been a priority. Bunnings worked
with multiple stakeholders to provide
recycling programs for various products
including batteries, paint, small electrical
items and power tools. Collectively,
these initiatives resulted in the recycling
of 5,800 kilograms of batteries,
200,000 kilograms of waste paint, and
over 770,000 kilograms of e-waste.
ROBUST
GOVERNANCE
We maintain robust corporate
governance policies in all our
businesses.
This year, data privacy emerged as
a key material issue for Wesfarmers
and its businesses.
Wesfarmers is committed to
complying with the laws and
regulations of the countries in which
its businesses operate and act in
an ethical manner, consistent with
the principles of honesty, integrity,
fairness and respect. This includes
complying with the Australian Privacy
Act and all relevant legislation.
All aspects of governance
are covered in the Corporate
Governance Statement in the
corporate governance section of
the company website
(www.wesfarmers.com.au/cg).
Wesfarmers is committed to being
transparent with all our stakeholders
about our sustainability risks and
opportunities. We measure and
publish our performance for our
material issues at (sustainability.
wesfarmers.com.au). Our website
contains case studies, detailed
information about our focus areas
and data available for download.
Our reporting is prepared in
accordance with Global Reporting
Initiative (GRI) Standards and
assured by Ernst & Young.
63
Wesfarmers 2019 Annual ReportSigned reportsShareholder and ASX informationFinancial statementsDirectors’ reportGovernanceOperating and financial reviewOverview CLIMATE-RELATED
FINANCIAL DISCLOSURES
Wesfarmers acknowledges the
scientific consensus on climate
change and supports the 2015
Intergovernmental Panel on Climate
Change (IPCC) Paris Climate
Agreement (Paris Agreement). This
year, our businesses have adopted
absolute and intensity emissions
targets and we have climate change
strategies, governance systems and
disclosures which support the
global goal of reducing greenhouse
gas emissions.
The transition to a low carbon
economy presents both risks and
opportunities for our businesses,
shareholders, customers, team
members and the communities in
which we operate.
This year, Wesfarmers continued
its work embedding our climate
change strategy across our portfolio
of businesses, in an effort to reduce
our environmental footprint while
also delivering long-term sustainable
growth. Wesfarmers recognises the
complex nature of this challenge for
our businesses and communities.
Our climate change strategy is
reflected in a diverse range of
projects across the Group. We look
forward to facing the challenges
ahead and being part of the solution
to achieve a low carbon economy.
As part of our strategy, Wesfarmers
continues to implement the
recommendations of the Financial
Standards Board Taskforce on
Climate-related Financial Disclosures
(TCFD). We recognise the importance
of climate-related financial disclosures
to enable efficient allocation of
capital within markets and to drive
the transition to a sustainable global
economy for all. This year, we have
substantially increased our climate-
related disclosures.
64
Above: Bunnings has increased its focus on energy
efficiency, prioritising the rollout of LED lighting. Pilot
trials with daylight harvesting and motion sensors are
also underway at two locations in Victoria.
Wesfarmers 2019 Annual ReportOperating and financial review The following table illustrates the evolving focus of our climate change strategy and climate-related disclosures.
Phase I – Early engagement
To 2016
Phase II – Current focus
2016 – present
Phase III – Future focus
From 2020
Governance
• Group Environment Policy
• Climate Change Policy developed
• Climate Change Policy
introduced
• Climate risks governed through
the Board and the Audit and Risk
Committee
• Additional reporting included in the
Operating and Financial Review in
the annual report
implemented and refined
• Reporting against Climate Change
Policy
Strategy
• Initial analysis of the impact of
• Impact of climate change analysed
climate change
under different scenarios
• Commitment to support the
• Risks, opportunities and strategic
objectives of the Paris Agreement
responses identified for our
divisions
• Further climate scenario analysis
based on updated scenarios
and the latest available scientific
information
• Further analysis of the impact
of climate change on our supply
chains and product mix
• Portfolio-level strategic analysis
Risk
management
• Climate change elevated as an
• Climate change elevated to a
• Continue to review internal carbon
emerging risk and long-term driver
of financial and non-financial risk
• Internal carbon price developed
strategic risk
price
• Internal carbon price reviewed
• Climate change assessment
included in acquisition due
diligence
• Further analysis of climate change
on our transport and product value
chains including selected detailed
physical assessments
Metrics &
targets
• Scope 1 and 2 emissions from our
• Divisions adopted emissions
operations reported
targets
• Measurement of Scope 3
emissions by some divisions
• Develop our understanding of our
Scope 3 emissions and consider
strategic responses for our
businesses
• Wesfarmers senior executive
performance goals to include
an assessment of performance
against the Climate Change
Policy and towards the relevant
emissions targets
Climate governance
Wesfarmers treats climate change as a critical governance and strategic issue.
The board of Wesfarmers has the highest level of oversight and responsibility for climate change within Wesfarmers.
Climate change risk management is a permanent item on the Wesfarmers Operating Cycle and is discussed by the Board
and the Wesfarmers Audit and Risk Committee. The Board approves the Group’s strategy including Climate Change
Policy, targets and strategic climate change-related decisions. The Board also receives reporting and oversees climate
change risk management. A consolidated group risk report is provided to the Audit and Risk Committee and the Board
of Wesfarmers for review and approval. The corporate plan is subject to a similar process and, in future years, will include
emissions forecasts.
The Wesfarmers Leadership Team reviews emerging risks and opportunities, leads stakeholder engagement and facilitates
sharing of best practice throughout the Group.
Each divisional board or steering committee and each divisional management team has responsibility for identifying and
managing any material risks and opportunities and business performance including against the climate change strategy,
in accordance with the Group’s Risk Management Framework. Divisional audit, risk and compliance committees also
oversee climate change-related risks for each division.
From the 2020 financial year, climate change risk management and opportunity assessment will be further embedded into the
existing annual risk reviews and the corporate plan processes.
Since 2014, Wesfarmers has considered an internal carbon price as part of capital allocation decisions for projects likely
to result in direct carbon emissions.
These governance arrangements facilitate the consideration of potential financial and non-financial impacts of a range of climate
scenarios and build resilience into our mitigation and adaptation efforts.
Additional information on Wesfarmers’ approach to corporate governance is available on pages 76 to 79 of this annual report.
The full 2019 Corporate Governance Statement is available on the Wesfarmers website at www.wesfarmers.com.au/cg
65
Wesfarmers 2019 Annual ReportSigned reportsShareholder and ASX informationFinancial statementsDirectors’ reportGovernanceOperating and financial reviewOverview Development of a Group climate change strategy
Wesfarmers’ climate change strategy sits alongside our environmental, energy, waste and water initiatives. By taking a
proactive approach to managing climate-related risks and opportunities throughout the portfolio, we aim to prioritise those
projects that achieve abatement at a relatively lower marginal cost.
During the 2019 financial year, Wesfarmers completed a Group-wide scenario analysis to understand the potential risks
and opportunities associated with climate change and to strengthen the climate change resilience of the Group. As part
of the analysis, each division undertook a detailed risk assessment and examined strategic opportunities.
Each division has assessed three distinct climate change scenarios. The scenarios are not forecasts or predictions nor
are they intended to fully describe possible future outcomes. Rather the scenarios are intended to draw attention to the
key factors that may impact our businesses. While the scenarios draw upon global practice and scientific information, it is
important to note that they are hypothetical and the future may resemble none, one or some of the scenarios.1
The three scenarios reflect, respectively, the limiting of global average temperature increases above pre-industrial levels by
1.5°C, 2°C and 4°C by 2100. Each scenario was assessed over the short term (1 to 5 years), medium term (5 to 15 years)
and long term (15+ years). The scenarios combine elements of the International Energy Agency’s 2017 World Energy
Outlook, the Representative Concentration Pathways established by the IPCC’s Fifth Assessment Report and the Global
Climate Models available from the Climate Change in Australia Projections for Australia’s NRM Regions Report. The three
scenarios are outlined in the table below.
Scenario 1 snapshot (1.5°C)
Scenario 2 snapshot (2.0°C)
Scenario 3 snapshot (4.0°C)
• Strong, very fast reduction in emissions
driven by government policy, with a
focus on minimising climate change
• A market-led transition, enabled by a
policy environment which drives rapid
reductions in emissions
• No coordinated global action on
emission reduction
• Business does not change significantly
• The energy system rapidly transitions
to zero emissions, via the uptake of
renewables
• Carbon intensive industries can only
continue if they invest in carbon capture
and storage technologies and/or are
among the most efficient in their industry
• Consumption of non-essential items falls
and people re-use and recycle more
• A decentralised energy system
to address climate change
emerges, dominated by demand
management, renewable energy and
storage technology
• Global trade flows remain strong, and
the focus on circular economies grows
with an increase in recycling and a
decoupling of resource use and growth
• Acute (extreme) and chronic (long-term)
physical impacts of climate change are
felt, with significant cumulative impact
on the economy
• Fossil fuels deliver approximately
50 per cent of the global energy mix
• Economic growth continues to 2030
and then declines as ecosystems
struggle to support the increased
environmental impact
• Resource depletion causes food and
water scarcity and increases the risk
of conflict
Physical and transition risks
Wesfarmers has assessed two broad categories of climate-related risks for our divisions – risks of significant physical
impact (physical risks) and risks associated with the transition to a lower carbon economy (transition risks). We have done
this to deepen our understanding of ways to mitigate and adapt to those risks and to build resilience during the transition
to a low carbon economy.
The physical and transition risks need to be considered in the context of the diversity of Wesfarmers’ businesses including
in industry, operations, products, supply chain, customers, geography and scale. Even where a risk applies to several or all
of our businesses, that risk is likely to impact each business differently.
Wesfarmers adopts a proactive approach to managing climate-related risks and opportunities. We respond to changes
in climate with diverse strategies, appropriate to each business, to reduce our environmental footprint while also achieving
long-term sustainable growth.
1 TCFD Technical Supplement: The Use of Scenario Analysis in Disclosure of Climate-Related Risks and Opportunities (June 2017)
66
Wesfarmers 2019 Annual ReportOperating and financial review Physical risks
Flooding
Storms
Extreme heat
and drought
Bushfires
Sea level rises
m
r
e
t
t
r
o
h
S
m
r
e
t
m
u
i
d
e
M
m
r
e
t
g
n
o
L
• Extreme weather in localised areas may disrupt our supply chain, damage infrastructure or stores and damage
stock. We may hold additional stock to manage this risk.
• Suppliers of certain commodities or key inputs may be impacted. For example, certain timber suppliers to Bunnings
and pulp suppliers to Officeworks may experience shortages because there is insufficient domestic supply and
extreme weather is impacting timber production.
• For some of our industrial businesses, extreme weather may impact the productivity of certain chemical processes.
• Global and domestic supply chains may be disrupted.
• Supply of some raw materials and inputs such as cotton, linen, rubber, metals and plastics may be impacted or
more expensive.
• Extreme heat and more regular hot days may impact employee health and safety.
• Extreme heat and prolonged drought may increase water scarcity, impacting our customers or our water intensive
operations.
• Retail customers may prefer air-conditioned stores and undercover parking requiring refurbishment to store
environments and increasing operating costs. Customer behaviour may change with reduced foot traffic in retail
stores and increased online shopping.
• In some areas, extreme weather including flooding, rising temperatures and associated water scarcity may:
-
in relation to some of our retail businesses, damage agricultural-based inputs, reduce yields and impact growing
regions; and
-
in relation to some of our industrial businesses, reduce plant productivity and increase downtime.
• Extreme weather may mean some lines of commercial insurance become harder to obtain or more expensive.
• Extended extreme weather may disrupt or damage our supply chains or infrastructure for extended periods or
eliminate the supply of or render prohibitively expensive certain products or raw materials.
• For our WesCEF businesses, extreme weather and prolonged drought may impact the amount of arable land in
the Western Australian Wheatbelt or cause agriculture to relocate to northern Western Australia, reducing fertiliser
demand or making alternative suppliers more competitive. Extreme heat and increased humidity may also reduce
plant productivity, increase downtime and reduce product quality.
Strategic response
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o
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e
e
s
4
D
e
g
r
e
e
s
2
D
e
g
r
e
e
s
• Proactively manage physical risks by implementing appropriate strategies for each division and the Group.
The divisions’ strategies will be influenced by factors including their industry, operations, products, supply chain,
customers, geography and scale. The Group’s strategy will be influenced by our value-creating strategies and approach
to capital allocation.
• Continue to review our approach to store and distribution centre design and location, noting our store and distribution
centre network already delivers significant geographic diversification. For example, we may further develop our
processes to assess future sites for weather risk, update design standards to include solar power and improved energy
efficiency and use renewable energy for air conditioning and heating systems.
• Continue to review our approach to supply chain management. For example, we may further develop plans with
suppliers to reduce the impact of weather interruption, diversify source countries and regions and diversify raw materials.
• Continue to review product offerings. For example, we may consider product offerings based on factors including future
availability of raw materials, product demand and market trends.
• Assess the potential acute and chronic physical effects on our owned and leased assets and throughout the value chain.
67
Wesfarmers 2019 Annual ReportSigned reportsShareholder and ASX informationFinancial statementsDirectors’ reportGovernanceOperating and financial reviewOverview
Transition risks
m
r
e
t
t
r
o
h
S
m
r
e
t
m
u
i
d
e
M
Market
Regulatory
Legal
Reputation
Technology
Customer
expectations
• Regulatory changes such as carbon pricing (subject to the scale of the pricing) may impact the financial performance
of our businesses or impact the supply or price of certain inputs including raw materials, energy, fuel and water.
• Prices may increase as a result of input cost pressures (including carbon pricing, subject to the scale of the pricing)
leading to a decrease in consumer demand and cost of living pressures.
• It may be difficult on leased premises to access renewable energy or install renewable generation.
• Carbon intensive inputs and products may become scarcer or more expensive if these sectors cannot transition
or offset their emissions.
• Customers and other stakeholders may increasingly focus on the sustainability of our products.
• Carbon pricing (subject to the scale of the pricing) and other regulations may impact the competitiveness of our
trade-exposed businesses (especially WesCEF) if our international competitors do not face similar carbon pricing
and other regulation.
• Our businesses may need to adapt as the economy transitions to low carbon products and customer demand
changes or costs increase.
• Reputational concerns may drive businesses to more proactively manage carbon and other environmental risks.
• For our retail businesses:
-
-
they may need to respond to increasingly environmentally conscious consumers;
the fast-fashion and electronics markets may transition to more durable products or products that are easier
to reuse or recycle; and
- certain products may evolve to support the replacement of components rather than the replacement of
entire item.
• For Bunnings and Officeworks, timber and pulp shortages may occur because supply decreases as plantations
are used to instead generate carbon offsets or logging is reduced to slow land degradation.
• For WesCEF, demand for natural gas may fall as consumers favour renewables and hydrogen.
m • For our retail businesses, an increased focus on reusing or recycling may impact demand.
r
e
t
g
n
o
L
• For the Kmart Group, synthetic fabrics and chemicals used to produce certain textiles for clothing and accessories
may become more expensive as the cost of polymers and other inputs including energy increases.
• For Officeworks, as economies digitise, the consumption of paper and associated products such as printers and
ink may contract.
Strategic response
S
c
e
n
a
r
i
o
2
D
e
g
r
e
e
s
1
.
5
D
e
g
r
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2
D
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r
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1
.
5
D
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s
4
D
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g
r
e
e
s
2
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r
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s
• Proactively manage transition risks by implementing appropriate strategies for each division and the Group. The divisions’
strategies will be influenced by factors including their industry, operations, products, supply chain, customers, geography
and scale. The Group’s strategy will be influenced by our value-creating strategies and approach to capital allocation.
• Prioritise our uptake of projects to improve energy efficiency and increase reliance on renewable energy.
• Develop our understanding of our Scope 3 emissions and consider strategic responses for our businesses.
• Expand our analysis of the impact of carbon pricing throughout our value chains.
• Focus on opportunities to reduce our costs and improve our efficiency to offset the impact from any increases in raw
materials and other prices.
• Develop and implement strategies to optimise our freight operations.
• Ensure the carbon footprint of our inputs and products is minimised and understood by suppliers and customers.
• Continue to review our approach to supply chain management. For example, we may further develop plans with
suppliers to reduce the impact of weather interruption, diversify source countries and regions and diversify raw materials.
• Build further awareness of the circular and low carbon economy into all of our businesses including to:
-
-
-
-
reduce our use of carbon-intensive and virgin-raw materials and increase our use of recycled and carbon-efficient
raw materials;
reduce waste to landfill and design our products for recycling, reuse or responsible disposal;
reduce use or sale of materials that cannot be recycled, implement sustainable packaging and increase product
takeback offerings for priority materials or products; and
improve customer engagement around sustainable product use, strategies to extend product life, recycling and
responsible disposal.
• For our industrial businesses, continue to evaluate and implement commercial technologies that deliver products at
lower emissions intensities. This may include additional abatement technology when it becomes commercially viable.
68
Wesfarmers 2019 Annual ReportOperating and financial review
Opportunities
While climate change presents risks, there are also opportunities for the Group and our businesses. Consistent with our value-
creating strategies, the Group will continue to consider opportunities to invest in existing businesses and take advantage of the
flexibility of the Wesfarmers conglomerate model to renew the portfolio through opportunistic and value-accretive acquisitions
or divestments of businesses. This may include businesses with particular climate-related characteristics. In assessing these
opportunities, the Group applies a long-term horizon to its disciplined evaluation of investment decisions.
Across the Group’s existing businesses, our climate-related opportunities are in five broad categories: resource efficiency and
cost savings, renewable energy, new products and services, access to new markets and resilience in our supply chain.
Opportunities
Resource efficiency
Energy source
Products & services
Markets
Resilience
m
r
e
t
t
r
o
h
S
m
r
e
t
m
u
i
d
e
M
m
r
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t
g
n
o
L
• Install energy efficiency technology and source renewable energy to reduce costs and emissions.
• Work with landlords to invest in renewable energy on rooftops and energy efficiency projects.
• Continue to build further circular and low carbon economy awareness in our business. For example, by continuing
to reduce the waste to landfill use of plastic bags and to increase recycling.
• Continue to build the capabilities and skills of our teams by training, developing and recruiting outstanding team
members to mitigate and adapt to risks and to take advantage of the opportunities associated with climate change.
• Transitioning to lower carbon operations ahead of our competitors may provide efficiency, cost or marketing
opportunities.
• Opportunities may arise for the Group to make investments in or adjacent to the existing portfolio or to implement
opportunistic and value-accretive transactions, including in sectors subject to increased regulation or that benefit
from low carbon products, renewable energy assets or an increased focus on energy efficiency.
• For our retail businesses:
-
the fast-fashion and electronics markets may transition to more durable products or products that are easier
to reuse or recycle and certain products may evolve to support the replacement of components rather than
the replacement of entire item; and
- as economies digitise, the use of electronic products may increase.
• For WesCEF, there may be an increase in demand for and price of natural gas if the economy transitions from
coal and oil as fuel for energy generation. The WesCEF energy business does not own any generation assets
which provides flexibility to respond to changing customer demands.
• For our retail businesses:
- population density may increase in inner-city areas providing opportunities in product range. For example, in
Bunnings, demand for storage products may increase while demand for garden products may contract; and
- consumer preferences may increasingly favour more sustainable inputs and products. Trialling or introducing
products that are green, ethical or made from recycled materials may increase market share, especially in
clothing and homewares.
• For our industrial businesses, there may be opportunities for efficient operators as relatively inefficient and more
carbon-intensive operators become less competitive.
Strategic response
S
c
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n
a
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i
o
2
D
e
g
r
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s
1
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5
D
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4
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2
D
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1
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5
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2
D
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r
e
e
s
1
.
5
D
e
g
r
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e
s
• Proactively take advantage of opportunities by implementing appropriate strategies for each division and the Group. The
divisions’ strategies will be influenced by factors including their industry, operations, products, supply chain, customers,
geography and scale. The Group’s strategy will be influenced by our value-creating strategies and disciplined approach
to capital allocation.
• Wesfarmers’ conglomerate model does not have a sector or industry focus, which provides flexibility to minimise our
exposure to sectors or industries with particular climate risks and to maximise our exposure to sectors or businesses that
offer particular climate-related opportunities. This flexible approach allows the Group to take advantage of opportunities in
or adjacent to the existing portfolio and to renew the portfolio through opportunistic and value-accretive transactions.
69
Wesfarmers 2019 Annual ReportSigned reportsShareholder and ASX informationFinancial statementsDirectors’ reportGovernanceOperating and financial reviewOverview
Group greenhouse
gas emissions
(from continuing operations)
SCOPE 1 & 21
1,557.7 ktCO2e
2019 1,557.7
2018
2017
2016
2015
1,435.9
1,489.7
1,561.3
1,496.2
Climate change metrics
for this year
Wesfarmers’ Climate Change Policy
is designed to ensure that the Group
and its businesses are managed
with a carbon awareness. Consistent
with the Climate Change Policy,
we report regularly on key metrics
in order to measure our progress
and hold ourselves accountable
to our shareholders and other key
stakeholders.
This year, Wesfarmers emitted a
total of 1,558 thousand tonnes of
carbon dioxide equivalent (CO2e) in
Scope 1 and Scope 2 emissions. Our
Scope 1 emissions predominantly
came from the manufacture of
ammonia, ammonium nitrate, sodium
cyanide, LPG and LNG as well as
the use of natural gas and fuel in
our retail businesses. Our Scope 2
emissions came from electricity use,
predominantly in our retail businesses.
Our Scope 1 and Scope 2 emissions
were eight per cent more than last year
(adjusted to reflect the Coles demerger
and other divestments during the year).
The increase in our emissions is largely
attributable to WesCEF's increased
EGAN production levels in response to
ongoing disruption at the competing
Burrup plant and a reduction in
abatement efficiency of the catalysts in
the nitric acid plants. Reinvestment in
the catalyst is planned for 2020, during
scheduled maintenance shutdowns.
It also reflects the net impact of
growth in our store network and the
introduction of new energy-efficiency
projects in our businesses.
This year, our total energy use
increased by 11 per cent compared to
the prior corresponding period, with
19 gigajoules of energy consumed.
The graph to the right shows the
Group’s Scope 1 and Scope 2
emissions for FY18 and FY19,
by division.
70
Wesfarmers divisional Scope 1 and 2 greenhouse gas emissions1
ktCO2e
1,000
900
800
300
200
100
0
331
17
319
16
260
13
270
13
314
303
247
257
SCOPE 1
SCOPE 2
923
796
738
855
58
68
49
0
49
46
0
46
1
1
1
1
FY18
FY19
BUNNINGS
FY19
FY18
KMART GROUP
FY19
FY18
INDUSTRIALS
FY19
FY18
OFFICEWORKS
FY18
FY19
OTHER
1 Scope 1 and Scope 2 data includes emissions from continuing operations for Australian businesses where we have
operational control under the NGER Act, other known non-reportable Australian-based emissions over which we have
control, and our emissions in New Zealand and Asia.
Above: WIS continues to focus on energy efficiency projects and installation of monitored solar PV arrays to
reduce the carbon footprint of its operations.
Wesfarmers 2019 Annual ReportOperating and financial review Our Climate Change Policy and emissions targets
Wesfarmers has recently introduced a
Climate Change Policy and set 2025
emissions targets for our divisions.
The policy acknowledges the scientific
consensus on climate change and
the diverse effects that climate
change may have on our businesses,
shareholders, customers, team
members and the communities in
which we operate.
The policy is designed to ensure that the
Group and its businesses continue to
be managed with a carbon awareness.
It reflects the Group’s desire to support
the global goal of reducing greenhouse
gas emissions, consistent with the Paris
Agreement.
Consistent with the Wesfarmers’
model of divisional autonomy, the
policy operates at a divisional level
with a focus on governance, targets,
risks and opportunities.
The Board and senior executives are
provided with information to consider
the potential impact of climate change
on our businesses including risks and
opportunities. The Board approves
policies and sets targets.
Targets
Each division must set Scope 1 and
Scope 2 emissions targets for the
year ending 30 June 2025, based on
2018 emissions levels. The targets
must reflect the Group’s desire to
support the global goal of reducing
greenhouse gas emissions, consistent
with the Paris Agreement. The targets
must be approved by the Board. Each
year, as part of their operating cycle,
the divisions must forecast and report
against the policy and their targets,
and assess the risks and opportunities
associated with climate change.
Potential for baseline changes
The policy provides flexibility to
accommodate significant changes
to the scale of an existing business.
Changes to a baseline must be
approved by the Board.
Mergers and acquisitions
The policy recognises the dynamic
and evolving nature of the Group and
specifically contemplates changes
to the portfolio. Where Wesfarmers
acquires a business or operation, that
business or operation must, within a
reasonable timeframe, comply with the
policy and establish an appropriate
emissions target.
Performance goals
With effect from July 2020, Wesfarmers
senior executive performance
goals to include the requirement to
demonstrate progress on sustainability
initiatives including an assessment of
performance against this policy and
towards the relevant emissions targets.
Our emissions targets
Targets have been set for each division or business, as appropriate. No single Group-wide target has been set.
Responsibility for complying with the Climate Change Policy and meeting targets is with divisional management, with
oversight by the Wesfarmers Board and Leadership Team. The target for each business reflects its particular attributes
including its emissions profile, expected future growth, recent emissions reductions and opportunities to reduce emissions.
Baseline1
(ktCO2e)
Emissions target for year ending 30 June 2025
WesCEF
904
WesCEF is largely a Scope 1 business and so its target is intensity-based. WesCEF’s target
is that its emissions per unit of production are below the mean of comparable peers.
Kmart Group
331
While significant progress has been made over many years, Kmart is targeting a reduction in
emissions by 20 per cent from its baseline.
Bunnings
260
Reflecting the strong expected growth in its store network over coming years, Bunnings is
targeting a reduction in emissions by 10 per cent from its baseline.
Officeworks
49
Reflecting the opportunities associated with the physical characteristics of its store network,
Officeworks is targeting a reduction in emissions by 25 per cent from its baseline.
Industrial
and Safety
(ex-Coregas)
15
Coregas
11
Industrial and Safety (ex-Coregas) is targeting a reduction in emissions by 12 per cent
from its baseline.
Coregas is largely a Scope 1 business and so its target is intensity-based. Coregas’ target
is that its emissions per unit of production are below the mean of comparable peers.
1 Baselines have been derived based on emissions reported in the FY18 NGER submission, less discontinued operations, plus other known non-reportable emissions
over which we have control, plus other known international Scope 1 and 2 emissions. For WesCEF, the baseline has been increased to normalise for production
outages during FY18.
71
Wesfarmers 2019 Annual ReportSigned reportsShareholder and ASX informationFinancial statementsDirectors’ reportGovernanceOperating and financial reviewOverview Sources of Wesfarmers Scope 1, 2 and 3 emissions
The graphic below illustrates the sources of Wesfarmers’ Scope 1, Scope 2 and Scope 3 emissions, with reference to the
Greenhouse Gas Protocol (GHG Protocol).
Refrigerant
leakage
Commercial & urban
heating & cooling
network
Chemical production &
Industrial processes
T
E
G
R
A
T
Controlled
professional
transport
Electricity
network
TARGET
1. Purchased goods,
services & consumables
2. Capital goods
3. Fuel & energy-related activities
4. Upstream transportation
& distribution
5. Waste
6. Air travel or
business travel
7. Commuting employees
& customers
8. Upstream leased assets
9. Downstream transportation
& distribution
10. Processing
of sold products
11. Use of
sold products
12. End of life treatment
of sold products
13. Downstream leased assets
14. Franchises
15. Investments
& JV’s
Scope 3 emissions
Historically Wesfarmers’ main focus
has been on our own emissions
from our divisions. Increasingly,
Wesfarmers is focused on developing
a more comprehensive understanding
of our carbon footprint including our
Scope 3 emissions and emissions in
our supply chain and as our products
are used by customers.
Across Wesfarmers, Scope 3
emissions derive largely from the
production of goods for sale by our
suppliers, transportation and waste
generated across our operations.
The divisions have previously
reported Scope 3 emissions from
72
the following sources, consistent
with the methodologies and protocol
categories in four GHG Protocol
Corporate Value Chain (Scope 3)
Accounting Reporting Standard:
(3) Fuel- and energy-related activities
using the average data method;
(5) Waste generated in operations
using the waste type-specific method;
(6) Business travel using the distance-
based method; and
(15) Investments using the investment-
specific method.
During the year, the divisions continued
to work on expanding their assessment
of Scope 3 emissions in the following
additional GHG Protocol categories:
(1) Upstream-purchased goods and
services using the spend-based
method for Bunnings and Officeworks
and the average data method for the
Kmart Group and WesCEF;
(4) Upstream transportation and
distribution using the distance-based
method for all divisions;
(11) Downstream use of sold products
using the average data method for the
Kmart Group; and
(12) Downstream end-of-life treatment
of sold products using the average
data method for the Kmart Group.
Wesfarmers 2019 Annual ReportOperating and financial reviewScope 1Scope 2Scope 3 Ernst & Young
11 Mounts Bay Road
Perth WA 6000 Australia
GPO Box M939 Perth WA 6843
Independent Limited Assurance Statement to the
Management and Directors of Wesfarmers Limited
Tel: +61 8 9429 2222
Fax: +61 8 9429 2436
ey.com/au
Our Conclusion:
greenhouse gas emissions in tonnes of
carbon dioxide equivalent (tCO2-e)
Basis for opinion
• Waste disposed and recycled (tonnes)
• Water consumption (megalitres)
Ernst & Young was engaged by Wesfarmers Limited (‘Wesfarmers’) to undertake limited assurance, as defined by Australian Auditing Standards
and hereafter referred to as a ‘review’, over selected sustainability information disclosed in Wesfarmers’ 2019 Annual Report for the financial
year ended 30 June 2019 ('2019 Sustainability Reporting'). Based on our review, nothing came to our attention that caused us to believe that the
Independent auditor's report to the Members of Wesfarmers Limited
sustainability information in the 2019 Annual Report had not been prepared and presented fairly, in all material respects, in accordance with the
criteria defined below.
Report on the audit of the financial report
What our review covered
Ernst & Young (‘EY’ or ‘we’) reviewed:
Opinion
• Selected sustainability information
Our responsibility was to express a conclusion
on the Wesfarmers 2019 Sustainability
detailed substantive testing to source
Reporting based on our review.
documentation for material qualitative
We have audited the financial report of Wesfarmers Limited (the Company) and its subsidiaries
We were also responsible for maintaining
and quantitative information
(collectively the Group), which comprises the consolidated balance sheet as at 30 June 2017, the
our independence and confirm that we
have met the requirements of the APES 110
consolidated income statement, the consolidated statement of comprehensive income, the consolidated
Code of Ethics for Professional Accountants,
statement of changes in equity and the consolidated cash flow statement for the year then ended, notes
including independence, and have the required
competencies and experience to conduct this
to the financial statements and the directors' declaration.
assurance engagement.
− The Wesfarmers 'Group Sustainability
Performance' and 'Climate-related
financial disclosures' sections of
the Operating and Financial Review
(‘OFR’), excluding any content related
to the Coles business or operations
support key assumptions in calculations
and other data
disclosed in the Annual Report, limited
to the following:
of systems and processes for data
aggregation and reporting
• Where relevant, gaining an understanding
• Checking the accuracy of calculations
• Obtaining and reviewing evidence to
EY’s responsibility and independence
• Performing analytical tests and
Key responsibilities
performed
− The 'Sustainability Performance'
Wesfarmers’ responsibility
sections for Bunnings, Kmart Group,
Industrials and Officeworks
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act
information and documentation supporting
assertions made in the subject matter
2001, including:
• A selection of performance metrics, as
shown in the table below, excluding
information related to the Coles business
or operations:
giving a true and fair view of the consolidated financial position of the Group as at 30 June 2017
and of its consolidated financial performance for the year ended on that date; and
Wesfarmers’ management (‘management’)
was responsible for selecting the Criteria
and preparing and fairly presenting the
Sustainability Reporting in accordance with
that Criteria. This responsibility includes
establishing and maintaining internal controls,
adequate records, and making estimates that
are reasonable in the circumstances.
been accurately transcribed from corporate
systems and/or supporting evidence
studies and data against the relevant GRI
principles contained in the criteria
• Reviewing the presentation of claims, case
• Checking that data and statements had
Performance metrics
• Scope 1, Scope 2, and Scope 3
b)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
a)
• Reviewing selected management
Our approach to conducting
the review
We believe that the evidence obtained was
sufficient and appropriate to provide a basis
for our limited assurance conclusion.
employee numbers
Limited Assurance
procurement spend (AUD)
Summary of review procedures
performed
We conducted our review in accordance
with the Australian Auditing and Assurance
Standards Board’s Australian Standard on
• Energy consumption (petajoules)
Procedures performed in a limited assurance
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
Assurance Engagements Other Than Audits
engagement vary in nature and timing from,
• Workplace health and safety data
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
or Reviews of Historical Financial Information
and are less in extent than, for a reasonable
(including number of workers’
(‘ASAE 3000’), Assurance Engagements
assurance engagement. Consequently, the level
Report section of our report. We are independent of the Group in accordance with the auditor
compensation claims, lost time injury
on Greenhouse Gas Statements (‘ASAE
of assurance obtained in a limited assurance
frequency rate [LTIFR], employee hours
independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting
3410’), and the terms of reference for this
engagement is substantially lower than the
worked, and total recordable injury
engagement as agreed with Wesfarmers on
Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the
assurance that would have been obtained had
frequency rate [TRIFR])
21 February 2017.
a reasonable assurance engagement been
Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other
• Community contributions (AUD)
performed. Our procedures were designed to
ethical responsibilities in accordance with the Code.
obtain a limited level of assurance on which to
• Aboriginal and Torres Strait Islander
base our conclusion and do not provide all the
A review consists of making enquiries,
evidence that would be required to provide a
• Aboriginal and Torres Strait Islander
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
primarily of persons responsible for preparing
reasonable level of assurance.
the Wesfarmers 2019 Sustainability Reporting
our opinion.
• Ethical sourcing audit program data
and related information and applying analytical
and other review procedures. Our procedures
included:
While we considered the effectiveness
of management’s internal controls when
determining the nature and extent of our
Key audit matters
procedures, our assurance engagement was
Criteria
• Assessing Wesfarmers’ adherence to the
not designed to provide assurance on internal
In preparing its 2019 Sustainability Reporting,
GRI Standards Reporting Principles for
controls. Our procedures did not include
Wesfarmers applied the following criteria:
Key audit matters are those matters that, in our professional judgment, were of most significance in our
defining report quality and report content,
testing controls or performing procedures
including the processes involved at a
• GRI Standards, including the Reporting
relating to checking aggregation or calculation
audit of the financial report of the current year. These matters were addressed in the context of our audit
Divisional and Corporate level
Principles for defining report quality and
of data within IT systems.
of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate
report content
• Determining whether material topics and
opinion on these matters. For each matter below, our description of how our audit addressed the matter
performance issues identified during our
• National Greenhouse and Energy Reporting
procedures had been adequately disclosed
We disclaim any assumption of responsibility
is provided in that context.
for any reliance on this assurance report to
any persons other than management and the
Directors of Wesfarmers, or for any purpose
other than that for which it was prepared.
• Performing site visits to corporate and
divisional offices and sites, interviewing
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
selected personnel, including senior
• Other selected Criteria, as determined
leaders, to understand the key
Financial Report section of our report, including in relation to these matters. Accordingly, our audit
by Wesfarmers, and as set out in its
sustainability issues related to the subject
Sustainability Reporting.
included the performance of procedures designed to respond to our assessment of the risks of material
matter and processes for collecting,
misstatement of the financial report. The results of our audit procedures, including the procedures
collating and reporting the Performance
Data during the reporting period
performed to address the matters below, provide the basis for our audit opinion on the accompanying
financial report.
Act 2007 (for Scope 1 and 2 greenhouse gas
data) and Scope 3 Protocol GHG Guidance
(for Scope 3 greenhouse gas data)
Use of our Assurance Statement
Dr Matthew Bell
Brisbane, Australia
25 September 2019
Ernst & Young
A member firm of Ernst & Young Global Limited.
Liability limited by a scheme approved under Professional Standards Legislation
Wesfarmers 2019 Annual Report
73
73
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
DSL:JT:WESFARMERS:019
Wesfarmers 2019 Annual ReportSigned reportsShareholder and ASX informationFinancial statementsDirectors’ reportGovernanceOperating and financial reviewOverview
BOARD OF
DIRECTORS
74
MICHAEL CHANEY AO
CHAIRMAN
BSc, MBA, Hon. LLD W.Aust, FAICD
Age 69
Term: Chairman since November 2015;
Director since June 2015.
Skills and experience: After an early career
in petroleum geology and corporate finance,
Michael joined Wesfarmers in 1983 as Company
Secretary and Administration Manager. He
became Finance Director in 1984 and was
appointed Managing Director in July 1992.
He retired from that position in July 2005.
Directorships of listed entities (last three years),
other directorships/offices (current and recent):
- Chairman of Woodside Petroleum Limited
(retired April 2018)
- Chancellor of The University of Western Australia
(retired December 2017)
- Chair of the National School Resourcing Board
(since November 2017)
- Member of Commonwealth Science Council
(retired December 2018)
VANESSA WALLACE
DIRECTOR
B.Comm (UNSW), MBA (IMD Switzerland), MAICD
Age 56
Term: Director since July 2010.
Skills and experience: Vanessa is an experienced
board director and strategy management consultant
who had been with Strategy& (formerly Booz &
Company) for more than 25 years. She has global
experience and deep expertise in the financial services
sector across the spectrum of wealth management,
retail banking and insurance, with particular functional
depth in risk management, post-merger integration
and capturing business opportunities associated with
channels, customers and markets.
Directorships of listed entities (last three years),
other directorships/offices (current and recent):
- Director of SEEK Limited (since 1 March 2017)
- Director of AMP Limited (resigned May 2018)
- Chairman of AMP Capital Holdings Limited
(resigned June 2018)
- Executive Chairman of Strategy& (Japan) Inc
(retired June 2015)
- Founding Chairman of Drop Bio Pty Ltd, a digital health
company (since January 2019)
- Managing Director of MF Advisory (since 2015)
ROB SCOTT
MANAGING DIRECTOR
B.Comm, MAppFin, CA, GradDipAppFin
Age 50
DIANE SMITH-GANDER AO
DIRECTOR
B.Ec, MBA, Hon.DEc W.Aust (UWA), FAICD, FGIA
Age 61
Term: Director since November 2017.
Term: Director since August 2009.
Skills and experience: Rob joined Wesfarmers
in 1993 before moving into investment banking in
various roles in Australia and Asia. Rob rejoined
Wesfarmers in 2004 in Business Development
before being appointed Managing Director of
Wesfarmers Insurance in 2007 and then Finance
Director of Coles in 2013. He was Managing
Director, Financial Services in 2014 and Managing
Director of the Wesfarmers Industrials division
in 2015. Rob became the Group’s Deputy Chief
Executive Officer in February 2017 and assumed
the role of Managing Director and Chief Executive
Officer at the conclusion of the 2017 Annual
General Meeting in November 2017.
Directorships of listed entities (last three years),
other directorships/offices (current and recent):
- Director of Gresham Partners Group Limited
(resigned July 2018)
- Director of Gresham Partners Holding Limited
(resigned July 2018)
- Member of UWA Business School Advisory Board
(since August 2017)
- Chairman of the flybuys joint venture with Coles Group
Limited (since December 2018)
- Chairman of Rowing Australia (since October 2014)
Skills and experience: Diane has extensive
experience in corporate governance and providing
strategic advice to corporations in Australia and
overseas. She was a partner with McKinsey &
Company in the USA, became a senior adviser to
McKinsey & Company in Australia in 2016 and has
more than a decade of executive experience in the
banking industry.
Directorships of listed entities (last three years),
other directorships/offices (current and recent):
- Director of AGL Energy Limited (since September 2016)
- Chairman of Broadspectrum Limited (formerly known as
Transfield Services Limited) which delisted in June 2016
(director since October 2010, Chairman since October
2013, retired September 2016)
- Chair of Safe Work Australia (since February 2016)
- Trustee and director of CEDA – Committee for
Economic Development of Australia (trustee since
September 2014, director since November 2015)
- Director of Keystart Home Loans group of companies
(since July 2016)
- Board member of Henry Davis York (resigned July 2019)
- Chair of the Asbestos Safety and Eradication Council
(since December 2016)
- Member Australian Partnership Council Norton Rose
Fulbright Australia (since February 2019)
Wesfarmers 2019 Annual ReportGovernance WAYNE OSBORN
DIRECTOR
Dip Elect Eng, MBA, FAICD, FTSE
Age 68
Term: Director since March 2010.
Skills and experience: Wayne started working in
the iron ore industry in the mid-1970s and joined
Alcoa in 1979. He worked in various roles across
the Australian business, including accountability
for Alcoa’s Asia Pacific operations, prior to being
appointed Managing Director in 2001, retiring
in 2008.
Directorships of listed entities (last three years),
other directorships/offices (current and recent):
- Director of South32 Limited (since May 2015)
- Director of Alinta Holdings (retired April 2017)
- Director of Alinta Energy Limited (retired April 2017)
SHARON WARBURTON
DIRECTOR
B Bus (Accounting & Business Law), FCA GAICD FAIB
Age 49
TONY HOWARTH AO
DIRECTOR
CitWA, Hon.LLD (UWA), SF Fin, FAICD
Age 67
Term: Director since August 2019.
Term: Director since July 2007.
Skills and experience: Sharon has extensive
board and executive experience in corporate
strategy, business operations, finance,
accounting and risk management, particularly in
the resources, construction and infrastructure
sectors, along with significant expertise in
governance and remuneration.
In her executive career, Sharon was previously
Executive Director Strategy and Finance, at
Brookfield Multiplex, and before that held senior
management roles with ALDAR Properties PJSC
in the United Arab Emirates, Citigroup in Sydney
and Rio Tinto Limited in London and Perth.
Directorships of listed entities (last three years),
other directorships/offices (current and recent):
Skills and experience: Tony has more than 30
years’ experience in the banking and finance
industry. He was Chairman of Home Building
Society Limited and Deputy Chairman of Bank of
Queensland Limited. Tony has held several senior
management positions during his career, including
Managing Director of Challenge Bank Limited and
Chief Executive Officer of Hartleys Limited.
Directorships of listed entities (last three years),
other directorships/offices (current and recent):
- Director of BWP Management Limited, the responsible
entity for the BWP Trust (since October 2012)
- Chairman of MMA Offshore Limited
(retired November 2017)
- Chairman of St John of God Health Care Inc.
- Fortescue Metals Group Ltd; (director since November
(retired May 2018)
2013, Co-Deputy Chairman since July 2017)
- Chairman of the West Australian Rugby Union Inc.
- Director of Gold Road Resources Limited (since May 2016)
(retired December 2017)
- Director of NEXTDC Limited (since April 2017)
- Director of Alinta Holdings (since March 2011)
- Director of WorleyParsons Limited (since February 2019)
- Director Alinta Energy Pty Limited (since September 2016)
- Member of the Australian Takeovers Panel (since 2015)
- Director of Viburnum Funds Pty Ltd (since July 2007)
JENNIFER WESTACOTT AO
DIRECTOR
BA (Honours), FAICD, FIPAA, FANZSOG
Age 59
Term: Director since April 2013.
Skills and experience: Jennifer is Chief
Executive of the Business Council of Australia.
Prior to that, she was a Board director and
lead partner at KPMG. Jennifer has extensive
experience in critical leadership positions in the
New South Wales and Victorian governments.
Directorships of listed entities (last three years),
other directorships/offices (current and recent):
- Adjunct Professor at the City Futures Research Centre
of the University of New South Wales
- Chair of the Mental Health Council of Australia
(retired August 2019)
- Chair of the Western City & Aerotropolis Authority
(since February 2019)
- Chair of Studio Schools of Australia (since July 2019)
- Co-chair of the Australia-Canada Economic Leadership
Forum Organising Committee (since February 2016)
- Member of the Prime Minister’s Cyber Security Review
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)
- Patron of The Pinnacle Foundation (since March 2019)
THE RIGHT HONOURABLE
BILL ENGLISH KNZM
DIRECTOR
BA (Honours), BCom (Otago)
Age 57
Term: Director since April 2018.
Skills and experience: Bill was Minister of
Finance and Deputy Prime Minister of New
Zealand from October 2008 to December
2016 and Prime Minister until the change of
government in October 2017. He retired from
parliament in March 2018. Bill has also held
ministerial roles in health, education, housing,
and revenue since his election to Parliament in
1990. He has long-term interests in economic
restructuring, sound microeconomic policy, and
social policy reform.
Directorships of listed entities (last three years),
other directorships/offices (current and recent):
- Chairman of Mount Cook Alpine Salmon
(since July 2018)
- Chair of Manawanui Support Ltd (since April 2019)
- Chair of Impact Lab Ltd (since May 2019)
- Member of the New South Wales Federal Financial
Relations Review panel (since August 2019)
MIKE ROCHE
DIRECTOR
BSc, GAICD, FIA (London), FIAA (Australia)
Age 66
Term: Director since February 2019.
Skills and experience: Mike has more than 40
years’ experience in the finance sector where he
held senior positions firstly as an actuary with
National Mutual/AXA and then in investment banking
where he provided strategic, financial, merger and
acquisition, and capital advice to major corporations,
private equity and government clients. Mike spent
more than 20 years with Deutsche Bank including
10 years as Head of Mergers and Acquisitions where
he advised on major takeovers and privatisations.
He stepped down as Deutsche Bank’s Chairman
of Mergers and Acquisitions (Australia and New
Zealand) in 2016, and was a member of the
Takeovers Panel for two terms from 2008 to 2014.
Directorships of listed entities (last three years),
other directorships/offices (current and recent):
- Director of MaxCap Group Pty Ltd (since April 2019)
- Director of Six Park Asset Management
(since December 2017)
- Director of Te Pahau Management Ltd
(since November 2017
- Trustee Director of Energy Industries Superannuation
Scheme Pty Ltd (since November 2016)
- Panel member of Adara Partners (Aust) Pty Ltd
(since April 2017)
75
Wesfarmers 2019 Annual ReportSigned reportsShareholder and ASX informationFinancial statementsDirectors’ reportGovernanceOperating and financial reviewOverview Governance
CORPORATE GOVERNANCE OVERVIEW
The Board of Wesfarmers Limited
The Board of Wesfarmers Limited is committed to providing a
satisfactory return to its shareholders and fulfilling its corporate
governance obligations and responsibilities in the best interests
of the company and its stakeholders. This statement details
the key aspects of the governance framework and practices
of Wesfarmers. Wesfarmers regularly reviews its governance
framework and practices so as to ensure it consistently reflects
market practice and stakeholder expectations.
The Board believes that the governance policies and practices
adopted by Wesfarmers during the reporting period for the year
ended 30 June 2019 follow the recommendations contained in
the third edition of the ASX Corporate Governance Council’s
Corporate Governance Principles and Recommendations
(ASX Principles). It is noted that the fourth edition of the ASX
Principles was released on 27 February 2019, and takes effect
for a listed entity’s first full financial year commencing on or after
1 January 2020. Many of Wesfarmers' corporate governance
policies and practices set out in the 2019 Corporate Governance
Statement also comply with the fourth edition of the ASX
Principles.
Roles and responsibilities of the Board and
management
The role of the Board is to approve the purpose, values and
strategic direction of the Group, to guide and monitor the
management of Wesfarmers and its businesses in accordance
with the purpose, values and strategic plans, and to oversee good
governance practice. The Board aims to protect and enhance the
interests of its shareholders, while taking into account the interests
of other stakeholders, including employees, customers, suppliers
and the wider community.
In performing its role, the Board is committed to a high standard
of corporate governance practice and to fostering a culture of
compliance which values ethical behaviour, personal and corporate
integrity, accountability, transparency and respect for others.
The Group Managing Director has responsibility for the day-to-day
management of Wesfarmers and its businesses, and is supported
in this function by the Wesfarmers Leadership Team.
Details of the members of the Wesfarmers Leadership Team
are set out on pages 12 and 13 of this annual report and in the
corporate governance section of the company’s website at
www.wesfarmers.com.au/cg. The Board maintains ultimate
responsibility for strategy and control of Wesfarmers and its
businesses.
In fulfilling its roles and responsibilities, the key focus areas of the
Board during the 2019 financial year are set out below.
Key focus areas of the Board during the 2019 financial year
included:
– Overseeing management’s performance in strategy
implementation
– Reviewing business operations and the development plans
of each division likely to impact long-term shareholder value
creation whether through portfolio management, consideration
of divestment options or other strategies
– Overseeing the implementation of strategy to address areas
of underperformance and reposition the portfolio to deliver
growth in shareholder returns
– Overseeing the implementation of the Coles demerger
– Approving the sale of Wesfarmers’ 40 per cent interest in the
Bengalla Joint Venture for $860 million with a pre-tax gain on
disposal of $679 million (August 2018)
– Approving the sale of the Kmart Tyre and Auto Service
business for $350 million with a pre-tax gain on disposal of
$267 million (August 2018)
– Approving the sale of Wesfarmers’ 13.2 per cent interest in
Quadrant Energy for approximately US$170 million with a
pre-tax gain on disposal of US$98 million (November 2018)
– Monitoring the Group’s operating and cash flow performance,
financial position and key metrics, including financial
covenants and credit ratings
– Reviewing the Group’s risk management framework and
monitoring that the Group is operating with due regard to the
risk appetite set by the Board
– Monitoring the Group’s safety performance and overseeing
implementation of strategies to improve safety performance
and enhance workplace safety awareness
– Reviewing talent management and development
– Monitoring and evaluating growth opportunities to
complement the existing portfolio
– Reviewing policies, reporting and processes to improve the
Group’s system of corporate governance
– Appointing the Company Secretary
76
Wesfarmers 2019 Annual Report
CORPORATE GOVERNANCE OVERVIEW
Structure and composition of the Board
Wesfarmers is committed to ensuring that the composition of the
Board continues to include directors who collectively bring an
appropriate mix of skills, commitment, experience, expertise and
diversity (including gender diversity) to Board decision-making.
In particular, the Board focuses on the factors relevant to assessing
the independence of a director set out in recommendation 2.3;
the materiality guidelines applied in accordance with Australian
Accounting Standards; any independent professional advice sought
by the Board at its discretion; and developments in international
corporate governance standards.
The Board currently comprises ten directors, including nine
non-executive and independent directors. Detailed biographies of
the directors as at 30 June 2019 are set out on pages 74 and 75 of
this annual report.
The Board has reviewed the position and relationships of all
directors in office as at the date of the company’s 2019 annual
report and considers that all nine non-executive directors are
independent.
On 23 July 2018, James Graham retired as a non-executive director
of Wesfarmers coinciding with his appointment as Chairman-elect
of the demerged Coles Group. The demerger was implemented on
28 November 2018.
Skills, experience and expertise
Paul Bassat retired as a non-executive director from the Board at
the end of the 2018 Annual General Meeting on 15 November 2018
after serving as a director for six years.
CEO level experience
ASX-listed company experience
Capital markets
Finance and banking
Strategy and risk management
E-commerce, data and digital
Governance
Human resources and executive remuneration
Financial acumen and transaction experience
Mergers and acquisitions
Marketing/customers/retail
Regulatory and government policy
Resources and industrial
International business experience
Corporate sustainability
International and domestic political experience
Crisis and disaster management and recovery
Community engagement
International trade experience
Construction and infrastructure
Mike Roche was appointed a director on 19 February 2019. He
has more than 40 years’ experience in the finance sector including
the provision of strategic, financial, merger and acquisition and
capital advice to major corporate, private equity and government
clients. He has advised on a large number of major transactions
in most sectors over his career and brings extensive and valuable
experience to the Board including as a leading innovator in capital
markets.
Sharon Warburton was appointed a director on 1 August 2019.
She has extensive board and executive experience in corporate
strategy, business operations, finance, accounting and risk
management, particularly in the resources, construction and
infrastructure sectors, along with significant expertise in
governance and remuneration. She brings valuable, complementary
and diverse experience to the Board as the Group continues to
evolve its portfolio.
The current directors possess an appropriate mix of skills,
commitment, experience, expertise (including knowledge of the
Group and the relevant industries in which the Group operates)
and diversity to enable the Board to discharge its responsibilities
effectively and deliver the company’s strategic priorities as a
diversified corporation with current businesses operating in home
improvement and outdoor living; apparel and general merchandise;
office supplies; and an Industrials division with businesses
in chemicals, energy and fertilisers, and industrial and safety
products.
The Board skills matrix set out on this page, describes the
combined skills, experience and expertise presently represented on
the Board.
To the extent that any skills are not directly represented on the
Board, they are augmented through management and external
advisors. The Nomination Committee considers the Board skills
matrix when assessing the professional development needs of the
Board.
David Cheesewright who has extensive experience in international
retailing and manufacturing, including 19 years with Walmart, was
appointed as an advisor to the Wesfarmers Board in August 2018
and is the Wesfarmers nominee on the board of Coles Group
Limited of which Wesfarmers holds a 15 per cent interest.
Director independence
Directors are expected to bring views and judgement to Board
deliberations that are independent of management and free of
any business, interest, position, association or other relationship
or circumstance that could materially interfere with the exercise of
objective, unfettered or independent judgement, having regard to
the best interests of the company as a whole.
The Board’s assessment of independence and the criteria against
which it determines the materiality of any facts, information or
circumstances is formed by having regard to the ASX Principles.
Wesfarmers 2019 Annual Report
77
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Governance
CORPORATE GOVERNANCE OVERVIEW
Committees of the Board
The Board has established a Nomination Committee, a
Remuneration Committee and an Audit and Risk Committee
as standing committees to assist with the discharge of its
responsibilities. Details of the current membership and composition
of each committee are set out in the 2019 Corporate Governance
Statement.
Role of the Nomination Committee
As part of the Nomination Committee’s oversight of Board
succession planning, it is also responsible for identifying suitable
candidates to fill Board vacancies as and when they arise, or
to identify candidates to complement the existing Board, and
to make recommendations to the Board on their appointment.
Where appropriate, external consultants are engaged to assist
in searching for candidates. The Nomination Committee is
responsible for scheduling regular performance reviews of the
Board, its committees and individual non-executive directors.
The performance review process involves a one-on-one meeting
between the Chairman and each individual non-executive director.
The outcomes of the review are discussed by the Board and its
committees. From time to time, the evaluation process may be
facilitated by an external consultant.
More details are available in the 2019 Corporate Governance
Statement.
Key focus areas of the Nomination Committee during the 2019
financial year included:
–
Identification and nomination of Mike Roche and
Sharon Warburton as new non-executive directors for election
to the Board bringing skills, experience and expertise to
augment those of current directors
– Consideration of feedback from major shareholders during the
Chairman’s Roadshow conducted prior to the 2018 Annual
General Meeting
Role of the Remuneration Committee
Full details of the remuneration paid to non-executive directors,
the executive director and senior executives, along with details on
Wesfarmers’ policy on the remuneration of senior executives are
set out in the remuneration report on pages 85 to 110 in this annual
report.
Senior executives comprising members of the Wesfarmers
Leadership Team have a variable or ‘at risk’ component as part of
their total remuneration package under the Key Executive Equity
Performance Plan (KEEPP). The mix of remuneration components
and the performance measures used in the KEEPP have been
chosen to ensure that there is a strong link between remuneration
earned and the achievement of the Group’s strategy and business
objectives, alignment with the Group’s values, management of
risk in accordance with the Group’s risk appetite, and, ultimately,
generating satisfactory returns for shareholders.
Annual performance reviews of each member of the Wesfarmers
Leadership Team, including the Group Managing Director, for the
2019 financial year have been undertaken. More details about
Wesfarmers' performance and development review process for
senior executives is set out in the 2019 Corporate Governance
Statement.
78
Wesfarmers 2019 Annual Report
Key focus areas of the Remuneration Committee during the
2019 financial year included:
– Reviewing and making a recommendation to the Board in
relation to the fixed and variable remuneration of the Group
Managing Director and his direct reports
– Reviewing and making recommendations to the Board in
relation to the Wesfarmers variable remuneration plans,
including recommending to the Board the vesting outcomes
of the 2015 Wesfarmers Long Term Incentive Plan shares,
based on the achievement of the performance conditions as at
30 June 2019
– Reviewing the succession and transition plans for the
Wesfarmers Leadership Team
– Reviewing the senior executive remuneration framework
and policies, including terms of employment such as notice
periods, restraint and non-solicitation clauses
– Reviewing and recommending to the Board in relation to the
impact, if any, upon the senior executive long-term incentive
plans as a result of significant portfolio change including the
demerger of Coles
– Reviewing and making a recommendation to the Board on
non-executive director fees
Governance policies
The corporate governance section of the company's website
(www.wesfarmers.com.au/cg) contains access to all relevant
corporate governance information, including Board and committee
charters, and Group policies referred to in the 2019 Corporate
Governance Statement.
Ethical and responsible behaviour
Wesfarmers’ primary objective is to deliver satisfactory returns
to shareholders through financial discipline and exceptional
management of a diversified portfolio of businesses. The
Wesfarmers Way is the framework for the company’s business
model and comprises our values of integrity, openness,
accountability and entrepreneurial spirit, details of which are
published on Wesfarmers’ website. The Wesfarmers Way, together
with the Code of Conduct and other policies, guide the behaviour
of everyone who works at Wesfarmers as we strive to achieve our
primary objective. The Board and senior executives of the Group
strive to ensure that their own actions and decisions are consistent
with Wesfarmers' core values.
Investor engagement
Wesfarmers recognises the importance of providing its
shareholders and the broader investment community with facilities
to access up-to-date high quality information, participate in
shareholder decisions of the company and provide avenues for
two-way communication between the company, the Board and
shareholders. Wesfarmers has developed an investor engagement
program for engaging with shareholders, debt investors, the media
and the broader investment community. In addition, the company's
shareholders have the ability to elect to receive communications
and other shareholding information electronically.
Role of the Audit and Risk Committee
The Audit and Risk Committee assists the Board in fulfilling its
responsibilities in overseeing the company’s financial reporting,
compliance with legal and regulatory requirements, the setting
and reviewing of risk parameters and the risk appetite of the
Wesfarmers Group, and proactively managing the Group’s
systems of internal control and its financial and non-financial risk
management framework in accordance with the Group’s purpose,
values and strategic direction.
CORPORATE GOVERNANCE OVERVIEW
Key focus areas of the Audit and Risk Committee during the
2019 financial year included:
– Reviewing and assessing the Group’s processes which
ensure the integrity of financial statements and reporting, and
associated compliance with accounting, legal and regulatory
requirements
– Monitoring the Group’s cyber security framework, including
data protection management, third party data risk
management and the reporting structure and escalation
process on information security risks
– Monitoring the ethical sourcing of products for resale
through the Group’s retail networks to ensure that there are
appropriate safeguards and processes in place
– Monitoring the retail shrinkage control measures and reporting
procedures in the Group’s divisions
– Reviewing the processes and controls around the recognition
of commercial income by the retail divisions to ensure
recognition is in accordance with Accounting Standards and
accepted industry practice
– Reviewing and evaluating the adequacy of the Group’s
insurance arrangements to ensure appropriate cover for
identified operational and business risks
– Monitoring the Group’s tax compliance program both in
Australia and overseas, including cross-border intra-Group
transactions, to ensure its obligations are met in the
jurisdictions in which the Group operates
– Monitoring the processes and framework established for the
divisional audit and risk committees
– Appointing the Group’s internal auditor for a three-year term
following a competitive tender process
– Overseeing the Group’s transition to the new lease accounting
standard AASB 16 Leases, including reviewing the transition
plan for the implementation of the new standard and ensuring
associated disclosures are consistent with work undertaken
and accepted industry practice
– Monitoring compliance with Group policies including the Code
of Conduct and reporting processes
Role of the external auditor
The company’s external auditor is Ernst & Young and
Darren Lewsen was appointed as the lead audit partner from
1 July 2013. In accordance with the requirements of the
Corporations Act 2001, the Board, on the recommendation of the
Audit and Risk Committee, approved Mr Lewsen to act as the lead
partner for a sixth consecutive year for the 2018/2019 financial year.
Mr Lewsen retired as the lead audit partner on completion of the
audit of the financial statements for the year ended 30 June 2019.
Mr Trevor Hammond (Partner-Assurance Ernst & Young) was
appointed as the new lead audit partner from 1 July 2019.
Ernst & Young has provided the required independence declaration
to the Board for the financial year ended 30 June 2019. The
independence declaration forms part of the directors’ report and is
provided on page 84 of this annual report.
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Risk management
Wesfarmers is committed to the identification, monitoring
and management of material financial and non-financial risks
associated with its business activities across the Group.
The Board recognises that a sound culture is fundamental to an
effective risk management framework. Wesfarmers, through the
Board, instils and promotes a culture which values the principles
of honesty, transparency, integrity, fairness, constructive challenge
and accountability, and these values are reflected in the Group’s
Code of Conduct.
Management is responsible for the Group’s day-to-day compliance
with risk management systems. Management monitors compliance
with, and the effectiveness of, the risk management systems and
controls at a divisional level. Senior management across the Group
is responsible for reinforcing and modelling the key behaviours
required to maintain a sound risk culture, including encouraging
constructive challenge and transparency. Wesfarmers’ senior
management reports to the Board on the adequacy of the risk
management systems and processes on a consolidated basis
across the Group and reports any material issues to the Board.
Divisional Managing Directors are accountable for risk management
outcomes, and day-to-day compliance, in their respective divisions.
Risk Management Framework
The Risk Management Framework of Wesfarmers is reviewed
on an annual basis by the Board to satisfy itself that the Risk
Management Framework continues to be sound and that the Group
is operating with due regard to the risk appetite set by the Board.
The Risk Management Framework was approved in May 2019.
This framework details the overarching principles and risk
management controls that are embedded in the Group’s risk
management processes, procedures and reporting systems and
the division of the key risk management functions between the
Board, Group Managing Director and Chief Financial Officer, Audit
and Risk Committee, divisional management and Group Assurance
and Risk.
Wesfarmers accepts that risk is part of doing business and
the Group is committed to the identification, monitoring and
management of material risks associated with its business
activities.
Further details on the Wesfarmers Risk Management Framework are
set out on page 15 of the 2019 Corporate Governance Statement
on the company's website at www.wesfarmers.com.au/cg
Diversity
Wesfarmers considers building a diverse and inclusive workforce
as an opportunity to deliver on our objective of satisfactory returns
to shareholders. Our customers and stakeholders are diverse and
to gain the best insight into their needs, and how to meet them,
diverse and inclusive teams are required. A diversity of perspectives
and backgrounds also strengthens creativity in teams. Moreover,
creating an environment that attracts, retains, and promotes team
members with a wide range of strengths and experiences ensures
Wesfarmers is best equipped for future growth.
Wesfarmers has developed an Inclusion Policy to encourage an
inclusive work environment where everybody feels respected at
work and diversity in all its facets is fostered at all levels across the
Group.
Further details on diversity are set out on page 59 of this annual
report and in the 2019 Corporate Governance Statement on the
company's website at www.wesfarmers.com.au/cg
Wesfarmers 2019 Annual Report
79
Directors' report
DIRECTORS' REPORT
Wesfarmers Limited and its controlled entities
The information appearing on pages 6 to 79 forms part of the directors’ report for the financial year ended 30 June 2019 and is to be read
in conjunction with the following information:
Results and dividends
Year ended 30 June
Profit
Profit attributable to members of the parent entity
Dividends
The following dividends have been paid by the company or declared by the directors since the
commencement of the financial year ended 30 June 2019:
(a) out of the profits for the year ended 30 June 2018 and retained earnings on the fully-paid ordinary
shares:
(i) fully-franked final dividend of 120 cents (2017: 120 cents) per share paid on 27 September 2018 (as
disclosed in last year’s directors’ report)
(b) out of the profits for the year ended 30 June 2019 on the fully-paid ordinary shares:
(i) fully-franked interim dividend of 100 cents (2018: 103 cents) per share paid on 10 April 2019
(ii) fully-franked special dividend of 100 cents (2018: nil) per share paid on 10 April 2019
(iii) fully-franked final dividend of 78 cents (2018: 120 cents) per share to be paid on 9 October 2019
Principal activities
The principal activities of entities within the consolidated Group during the year were:
2019
$m
2018
$m
5,510
1,197
1,361
1,361
1,134
1,134
884
1,168
-
1,361
retailing of home improvement and outdoor living products and
supply of building materials;
• chemicals and fertilisers manufacture;
• gas processing and distribution;
•
•
retailing operations, including supermarkets (to
November 2018), general merchandise and apparel;
•
fuel, liquor and convenience outlets (to November 2018);
Directors
The directors in office at the date of this report are:
• M A Chaney (Chairman)
• R G Scott (Group Managing Director)
• S W English
• A J Howarth
• W G Osborn
•
•
retailing of office and technology products;
industrial and safety product distribution; and
• management of the Group's investments.
• M Roche
• D L Smith-Gander
• V M Wallace
• S L Warburton
• J A Westacott
All directors served on the Board for the period from 1 July 2018 to 30 June 2019, except:
• M Roche who was appointed as a director of the company on 19 February 2019; and
• S L Warburton who was appointed a director of the company on 1 August 2019.
The following directors retired during the year:
• J P Graham retired as a director of the company on 23 July 2018, coincident with his appointment as Chairman-elect of
Coles Group Limited (Coles); and
• P M Bassat retired as a director of the company on 15 November 2018, at the conclusion of the 2018 Annual General Meeting.
The qualifications, experience, special responsibilities and other details of the directors in office as at the date of this report appear on
pages 74 and 75 of this annual report.
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Wesfarmers 2019 Annual Report
DIRECTORS' REPORT
Wesfarmers Limited and its controlled entities
Directors' shareholdings
Securities in the company or in a related body corporate in which directors had a relevant interest as at the date of this report are:
M A Chaney
S W English
A J Howarth
W G Osborn
M Roche
R G Scott*
D L Smith-Gander
V M Wallace
S L Warburton
J A Westacott
BWP Trust
Units
–
–
20,000
–
–
–
–
–
–
–
Wesfarmers Limited
Performance Rights
–
–
–
–
–
–
–
–
–
–
Shares
87,597
1,082
19,960
14,728
2,000
751,365
12,045
13,483
1,036
5,493
* R G Scott holds 223,230 Restricted Shares and 223,230 Performance Shares under the Key Executive Equity Performance Plan (KEEPP). For further details, please see
the remuneration report on pages 85 to 110 of this annual report.
J P Graham retired as a director on 23 July 2018, coincident with his appointment as Chairman-elect of Coles. As at 23 July 2018,
Mr Graham had a relevant interest in 785,155 shares in Wesfarmers Limited and a relevant interest in 15,120 units in the BWP Trust.
P M Bassat retired as a director of the company on 15 November 2018, at the conclusion of the 2018 Annual General Meeting. As at that
date, Mr Bassat had a relevant interest in 19,411 shares in Wesfarmers Limited and he did not have a relevant interest in the BWP Trust.
Directors’ meetings
The following table sets out the number of directors’ meetings (including meetings of Board committees) held during the year ended
30 June 2019 and the number of meetings attended by each director. The Gresham Mandate Review Committee was dissolved
in August 2018, following Mr Graham's resignation as a director of the company on 23 July 2018. There were no meetings of the
Gresham Mandate Review Committee held between 1 July 2018 and the committee's dissolution.
Board
Audit and Risk
Committee
Remuneration
Committee
Nomination Committee
Eligible to
attend1
Attended2
Eligible to
attend1
Attended2
Eligible to
attend1
Attended2
Eligible to
attend1
Attended2
P M Bassat3
M A Chaney4
S W English
J P Graham5
A J Howarth6
W G Osborn6
M Roche7
R G Scott
D L Smith-Gander8
V M Wallace
J A Westacott
4
12
12
-
12
12
7
12
12
12
12
4
12
12
-
12
12
7
12
11
12
12
-
-
6
-
6
-
-
-
6
-
6
-
-
6
-
6
-
-
-
6
-
6
2
6
-
-
-
6
3
-
-
6
-
2
6
-
-
-
6
3
-
-
6
-
3
5
5
-
5
5
2
-
5
5
5
3
5
5
-
4
4
2
-
5
5
5
1 Number of meetings held while the director was a member of the Board/Committee.
2 Number of meetings attended.
3
P M Bassat resigned as a director of the company on 15 November 2018, at the conclusion of the 2018 Annual General Meeting.
4 Notwithstanding he is not a member, M A Chaney attended all meetings of the Audit and Risk Committee held during the year.
5
J P Graham resigned as a director of the company on 23 July 2018, coincident with his appointment as Chairman-elect of Coles.
A J Howarth and W G Osborn were granted a leave of absence for one Nomination Committee meeting.
6
7 M Roche was appointed as a director of the company effective 19 February 2019.
8 D L Smith-Gander was granted a leave of absence for one Board meeting.
Wesfarmers 2019 Annual Report
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Directors' report
DIRECTORS' REPORT
Wesfarmers Limited and its controlled entities
Insurance and indemnification of directors and officers
During or since the end of the financial year, the company has paid premiums in respect of a contract insuring all directors and officers
of Wesfarmers Limited and its related entities against certain liabilities incurred in that capacity. Disclosure of the nature of the liability
covered by the insurance and premiums paid is subject to confidentiality requirements under the contract of insurance.
In accordance with the company’s constitution, the company has entered into Deeds of Indemnity, Insurance and Access with each of the
directors of the company. These Deeds:
•
indemnify a director to the full extent permitted by law against any liability incurred by the director:
– as an officer of the company or of a related body corporate; and
–
to a person other than the company or a related body corporate, unless the liability arises out of conduct on the part of the
director which involves a lack of good faith;
• provide for insurance against certain liabilities incurred as a director; and
• provide a director with continuing access, while in office and for a specific period after the director ceases to be a director, to certain
company documents which relate to the director’s period in office.
In addition, the company’s constitution provides for the indemnity of officers of the company or its related bodies corporate from liability
incurred by a person in that capacity.
No indemnity payment has been made under any of the documents referred to above during or since the end of the financial year.
Directors’ and other officers’ remuneration
Discussion of the Board’s policy for determining the nature and amount of remuneration for directors and senior executives and the
relationship between such policy and company performance are contained in the remuneration report on pages 85 to 110 of this annual
report.
Options
No options over unissued shares in the company were in existence at the beginning of the financial year or granted during, or since the
end of the financial year.
Company Secretary
Linda Kenyon was appointed as Company Secretary of Wesfarmers Limited in April 2002 and retired from the role effective 30 June 2019.
Linda holds Bachelor of Laws and Bachelor of Jurisprudence degrees from The University of Western Australia and is a Fellow of the
Governance Institute of Australia (formerly the Chartered Secretaries Australia). She joined Wesfarmers in 1987 as legal counsel and
held that position until 2000 when she was appointed Manager of BWP Management Limited (formerly Bunnings Property Management
Limited), the responsible entity for the listed BWP Trust (formerly Bunnings Warehouse Property Trust). For the 2019 financial year, Linda
was also Company Secretary of a number of Wesfarmers Group subsidiaries, and a member of the Wesfarmers Leadership Team.
Aleksandra Spaseska was appointed Executive General Manager, Company Secretariat & Group Risk in June 2019 and was appointed
as Company Secretary of Wesfarmers Limited effective 1 July 2019. Aleksandra is a member of the Wesfarmers Leadership Team,
the Company Secretary of a number of Wesfarmers Group subsidiary companies, and has responsibility for the coordination of risk
management across the Group. Prior to this, Aleksandra was General Manager, Investor Relations. Aleksandra started with Wesfarmers
in April 2008 in Business Development. She moved to Target in 2013, where she held general management positions in property and
operations. Aleksandra holds a Bachelor of Commerce (Honours) and a Doctor of Philosophy from The University of Western Australia.
She is a CFA Charterholder and a Fellow of the Governance Institute of Australia.
Significant changes in the state of affairs
Particulars of the significant changes in the state of affairs of the consolidated entity during the financial year are as follows:
•
revenue from continuing operations up from $26,763 million to $27,920 million
• profit for the year up from $1,197 million to $5,510 million. The profit for the year included:
– $297 million post-tax trading results for Coles, Bengalla, KTAS and Quadrant Energy, including a $102 million post-tax provision for
supply chain automation in Coles;
– $2,264 million post-tax gain on demerger of Coles;
– $645 million post-tax gain on disposal of Bengalla;
– $244 million post-tax gain on disposal of KTAS; and
– $120 million (US$85 million) post-tax gain on disposal of Quadrant Energy.
• dividends per share of $2.78 (2018: $2.23 per share)
•
total assets down from $36,933 million to $18,333 million
• shareholders’ equity down from $22,754 million to $9,971 million
• net debt down from $3,933 million to $2,500 million
• net cash flows from operating activities down from $4,080 million to $2,718 million
Review of results and operations
The operations, financial position, business strategies and prospects for future financial years of the consolidated entity are detailed in the
operating and financial review on pages 14 to 73 of this report.
82
Wesfarmers 2019 Annual Report
DIRECTORS' REPORT
Wesfarmers Limited and its controlled entities
Events after the reporting period
The following significant events have arisen since the end of the financial year:
Dividend
On 26 August 2019, a fully-franked final dividend of 78 cents per share resulting in a total dividend of $884 million was declared for a
payment date of 9 October 2019. This dividend has not been provided for in the 30 June 2019 full-year financial statements.
Acquisition of Kidman Resources Limited
On 23 May 2019, Wesfarmers announced that it had entered into a Scheme Implementation Deed with Kidman Resources Limited
(Kidman) under which it is proposed that Wesfarmers will acquire 100 per cent of the outstanding shares in Kidman for $1.90 per share by
way of Scheme of Arrangement. The transaction was completed on 23 September 2019.
Acquisition of Catch Group Holdings Limited
On 12 June 2019, Wesfarmers announced that it had entered into an agreement to acquire Catch Group Holdings Limited (Catch) for cash
consideration of $230 million. The transaction was completed on 12 August 2019. Due to the timing of the acquisition and the restriction
on access to the books and records of Catch until after completion, the accounting for the business combination has not yet been
determined. Further information in relation to this acquisition is unable to be provided due to the limited time between completion and the
release of this report.
Non-audit services
Ernst & Young provided non-audit services to the consolidated entity during the year ended 30 June 2019 and received, or is due to
receive, the following amounts for the provision of these services:
Tax compliance
Other
Total
$’000
1,067
102
1,169
The total non-audit services fees of $1,169 thousand represents 13.6 per cent of the total fees paid or payable to Ernst & Young
and related practices for the year ended 30 June 2019. Total non-audit services fees and assurance-related services fees were
$3,995 thousand. Further details of amounts paid or payable to Ernst & Young and its related practices are disclosed in note 25 to the
financial statements.
The Audit and Risk Committee has, following the passing of a resolution of the Committee, provided the Board with written advice in
relation to the provision of non-audit services by Ernst & Young.
The Board has considered the Audit and Risk Committee’s advice, and the non-audit services provided by Ernst & Young, and is satisfied
that the provision of these services during the year by the auditor is compatible with, and did not compromise, the general standard of
auditor independence imposed by the Corporations Act 2001 for the following reasons:
•
the non-audit services provided do not involve reviewing or auditing the auditor’s own work or acting in a management or
decision-making capacity for the company;
• all non-audit services were subject to the corporate governance procedures and policies adopted by the company and have been
reviewed by the Audit and Risk Committee to ensure they do not affect the integrity and objectivity of the auditor; and
•
there is no reason to question the veracity of the auditor’s independence declaration (a copy of which has been reproduced on the
following page).
Auditor
On 21 December 2017, the Board granted approval under section 324DAA of the Corporations Act 2001 for Mr Darren Lewsen to continue
as lead auditor, to play a significant role in the audit of the company for one additional successive financial year, being the financial year
ending 30 June 2019. The approval was granted in accordance with a recommendation from the Audit and Risk Committee which was
satisfied the approval:
•
is consistent with maintaining the quality of the audit provided to the company; and
• would not give rise to a conflict of interest situation (as defined in section 324CD of the Corporations Act 2001).
Reasons supporting this decision include:
•
•
•
the benefits associated with the continued retention of knowledge regarding key audit matters and significant judgements, in light of
changes to Wesfarmers’ key management and the demerger of Coles;
the Audit and Risk Committee has been satisfied with the quality of Ernst & Young and Mr Lewsen’s work as auditor; and
the company maintains, and will continue to maintain, robust auditor independence policies and controls to ensure the
independence of the auditor is maintained.
A copy of the Board resolution granting approval was lodged with ASIC in accordance with section 324DAC of the Corporations Act 2001.
The Board has undertaken a process and agreed Mr Trevor Hammond will succeed Mr Lewsen as the company's lead audit partner
following completion of the audit of the financial statements for the year ended 30 June 2019.
Wesfarmers 2019 Annual Report
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Directors' report
DIRECTORS' REPORT
Wesfarmers Limited and its controlled entities
The directors received the following declaration from Ernst & Young:
Ernst & Young
11 Mounts Bay Road
Perth WA 6000, Australia
GPO Box M939 Perth WA 6843
Tel: +61 8 9429 2222
Fax: +61 8 9429 2436
ey.com/au
Auditor’s Independence Declaration to the Directors of Wesfarmers Limited
Independent auditor's report to the Members of Wesfarmers Limited
As lead auditor for the audit of Wesfarmers Limited for the financial year ended 30 June 2019, I declare to the best of my knowledge
and belief, there have been:
a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
Report on the audit of the financial report
b) no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Wesfarmers Limited and the entities it controlled during the financial year.
Opinion
We have audited the financial report of Wesfarmers Limited (the Company) and its subsidiaries
(collectively the Group), which comprises the consolidated balance sheet as at 30 June 2019, the
consolidated income statement, the consolidated statement of comprehensive income, the consolidated
statement of changes in equity and the consolidated cash flow statement for the year then ended, notes
D S Lewsen
Ernst & Young
to the financial statements and the directors' declaration.
Partner 25 September 2019
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act
2001, including:
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
a)
giving a true and fair view of the consolidated financial position of the Group as at 30 June 2019
and of its consolidated financial performance for the year ended on that date; and
Environmental regulation and performance
b)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
The activities of the consolidated entity are subject to environmental regulation by various authorities throughout Australia and the other
countries in which the Group operates.
Basis for opinion
Licences granted to the consolidated entity regulate the management of air and water quality and quantity, the storage and carriage of
hazardous materials, the disposal of wastes and other environmental matters associated with the consolidated entity’s operations.
Proceedings on behalf of the company
During the year there have been no known material breaches of the consolidated entity’s licence conditions.
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the auditor
independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting
Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the
Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other
ethical responsibilities in accordance with the Code.
No proceedings have been brought on behalf of the company, nor have any applications been made in respect of the company under
section 237 of the Corporations Act 2001.
Corporate governance
In recognising the need for high standards of corporate behaviour and accountability, the directors of Wesfarmers Limited support and
have followed the third edition of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations.
An overview of the company’s corporate governance statement can be found on pages 76 to 79 of this annual report. The full corporate
governance statement is available on the corporate governance section of the company’s website at www.wesfarmers.com.au/cg
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Corporate information
Key audit matters
Rounding
Wesfarmers Limited is a company limited by shares that is incorporated and domiciled in Australia. The company’s registered office and
principal place of business is Level 14, Brookfield Place Tower 2, 123 St Georges Terrace, Perth, Western Australia.
Key audit matters are those matters that, in our professional judgement, were of most significance in our
audit of the financial report of the current year. These matters were addressed in the context of our audit
of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate
opinion on these matters. For each matter below, our description of how our audit addressed the matter
is provided in that context.
The amounts contained in this report and in the financial statements have been rounded to the nearest million dollars unless otherwise
stated (where rounding is applicable) under the option available to the company under ASIC Corporations (Rounding in Financial/Directors’
Reports) Instrument 2016/191. The company is an entity to which the instrument applies.
84
Wesfarmers 2019 Annual Report
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
Financial Report section of our report, including in relation to these matters. Accordingly, our audit
included the performance of procedures designed to respond to our assessment of the risks of material
misstatement of the financial report. The results of our audit procedures, including the procedures
performed to address the matters below, provide the basis for our audit opinion on the accompanying
financial report.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Draft
REMUNERATION REPORT 2019
MESSAGE FROM THE CHAIRMAN OF
THE REMUNERATION COMMITTEE
Dear Shareholders,
On behalf of the Board, I am pleased to present the 2019 Remuneration Report.
The 2019 financial year saw the delivery of strong financial
results for the Group as a whole, the execution of significant
portfolio change to reposition the Group for future growth,
most notably with the demerger of Coles from the Group in
November 2018, and increased distributions to shareholders,
including the payment of a special dividend. We believe the
remuneration outcomes for the executive key management
personnel (KMP) appropriately reflect our company performance
for the year.
The fixed annual remuneration for the Group Managing Director,
Rob Scott, has remained unchanged from his appointment in
November 2017, and non-executive director fees have remained
unchanged since January 2017. Our approach to executive
remuneration, which is reflected in the structure of the Key
Executive Equity Performance Plan (KEEPP), is differentiated
in a number of important respects which align with the Group’s
objective of providing satisfactory returns to shareholders over
the long term. We were pleased to receive continued strong
shareholder support for our remuneration practices, including
the KEEPP, at the 2018 Annual General Meeting.
Executive remuneration framework
- 2019 awards
The key principles of the KEEPP remain unchanged in 2019. The
size of the KEEPP awards is determined with reference to annual
scorecards which comprise both financial and strategic targets
specific to each executive KMP. In assessing these scorecards
each year the Board aims to ensure that outcomes reflect
shareholders’ interests and experience and appropriately reflect
business performance and the individual contribution of each
executive KMP.
The KEEPP awards are primarily delivered in shares. The
maximum cash payable to the Group Managing Director and the
Group Chief Financial Officer under the 2019 KEEPP reduced to
five per cent of the target award. From the 2020 financial year no
cash will be payable to these participants.
KEEPP share awards are equally divided between Performance
Shares, which carry four-year performance conditions, including
shareholder return hurdles, and Restricted Shares which are
restricted from trading for five and six years. The Board believes
that the long-dated nature of these awards drives strong
alignment with shareholder interests and outcomes and, when
coupled with the clawback and malus provisions under the
KEEPP, allow the Board to ensure that the realised outcomes are
justified and reflect performance.
Executive remuneration framework
- vesting of past awards
Following sustained, successful efforts in executing the
company’s strategy, the relative compound annual growth rate
(CAGR) in return on equity (ROE) and total shareholder return
(TSR) hurdles that applied to the 2015 Wesfarmers Long Term
Incentive Plan (WLTIP) were tested at 30 June 2019. The hurdles
have been satisfied and 88.8 per cent of the overall awards have
vested. Further details are set out in this report.
Impact of Coles demerger on remuneration outcomes
The demerger of Coles resulted in significant impacts to the
Group’s reported financial results. In assessing remuneration
outcomes, the committee adopted the principle that executives
should not be afforded any undue benefits or detriments as a
result of the demerger. This was reflected in the Board exercising
discretion to remove the favourable impact of the demerger
on Group NPAT and ROE when assessing the 2019 KEEPP
scorecards and vesting under the 2015 WLTIP.
To preserve the integrity of the KEEPP, the Board resolved
to cancel the original 2016 and 2017 KEEPP allocations
immediately prior to the demerger and replace these with new
awards wholly in Wesfarmers shares post the demerger. This
ensured continued long-term alignment between executives
and Wesfarmers shareholders. Under the original 2017
KEEPP allocation, the Group Managing Director and Group
Chief Financial Officer had an absolute ROE performance
hurdle. Following the significant changes to the portfolio as a
result of the demerger and other activities, the absolute ROE
of the Group will be significantly higher going forward. Setting
an absolute ROE target in future could result in perverse
outcomes (for example, a higher target could disincentivise
against investing in lower but acceptable ROE opportunities;
and a lower target could reward diminished return performance).
Accordingly, the Board did not consider it appropriate for the
replacement 2017 KEEPP allocation to retain this measure and
as a result it was removed and the relative TSR component was
increased.
WLTIP performance rights did not carry a right to participate in
the demerger nor a right to receive Coles shares in respect of
them. Without any adjustment, the value of existing performance
rights would have fallen as a consequence. To ensure the
participants were not unfairly disadvantaged by the demerger,
the Board approved a grant of additional WLTIP performance
rights (Additional Performance Rights) to eligible executive KMP
who continued to be employed within the Group.
Thank you for your ongoing support of Wesfarmers. The Board
believes Mr Scott is supported by a strong executive Leadership
Team and that the company is well positioned to continue to
improve performance and to deliver on its long-term goal of
providing satisfactory returns to shareholders.
MIKE ROCHE
– Chairman, Remuneration Committee
Wesfarmers 2019 Annual Report
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Directors' Report
REMUNERATION REPORT 2019 (AUDITED)
CONTENTS
Executive remuneration
Section 1: 2019 outcomes snapshot
Section 2: Remuneration governance
2.1 Responsibility for setting remuneration
2.2 Culture and risk management in remuneration
2.3
Alignment between remuneration and Wesfarmers'
core objective
Section 3: Executive KMP remuneration framework
3.1 2019 executive remuneration framework
3.2 Executive KMP
3.3 Executive service agreements
Section 4: 2019 Executive KMP remuneration
4.1 Fixed annual remuneration
4.2 KEEPP
4.3 WLTIP
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4.4 Executive remuneration (statutory presentation)
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Non-executive director remuneration
Section 5: Non-executive directors
5.1
Overview of non-executive director remuneration
policy and arrangements
5.2 Non-executive director fees and other benefits
5.3 Non-executive director remuneration
Other remuneration information
Section 6: Further information on remuneration
6.1 KMP share ownership
6.2 Share trading restrictions
6.3 Other transactions and balances with KMP
6.4
Impact of the demerger of Coles on the 2016 and
2017 KEEPP awards and 2015 WLTIP
Section 7: Annexures
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105
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106
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Section 8: Independent audit of remuneration report
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REMUNERATION REPORT 2019 (AUDITED)
EXECUTIVE REMUNERATION
1. 2019 outcomes snapshot
Business performance
Refer to section 4
Linking business performance to remuneration
outcomes
Refer to section 4
• Reported NPAT of $5,510 million, including post-tax
2019 KEEPP Scorecards:
significant items of $3,171 million relating to the demerger
of Coles, the divestments of the Bengalla coal mine, Kmart
Tyre and Auto Service (KTAS) and Quadrant Energy, and the
provision for supply chain automation in Coles.
• NPAT from continuing operations was $1,940 million.
• Bunnings, Officeworks and the Industrials division as a
whole continued to deliver solid results.
• The 2019 KEEPP outcomes varied from 33.3 per cent to
89.6 per cent of the maximum opportunity.
• The outcome for Mr Scott was 86.6 per cent of the
maximum opportunity and for Anthony Gianotti,
Group Chief Financial Officer, was 89.6 per cent of the
maximum opportunity.
• The maximum cash payable for Mr Scott and Mr Gianotti
• The performance of Kmart Group was below expectations
reduced to five per cent of the target award.
and was affected by moderated trading conditions.
• Outcomes for remaining executive KMP:
Board discretion:
• Board discretion was exercised in assessment of the
2019 KEEPP scorecards to ensure that no undue benefit
was afforded to executive KMP as a result of the Coles
demerger or divestments of Bengalla and KTAS:
– Gain on the demerger of Coles and the gains on the
divestments of KTAS and Bengalla were excluded from
reported Group NPAT and, where relevant, divisional
EBIT.
– Reported ROE was adjusted to remove the favourable
impact of the Coles demerger and the sale of KTAS and
Bengalla, resulting in adjusted ROE of 14.4 per cent
versus reported ROE of 38.7 per cent.
• An adjusted ROE was also used to test performance hurdles
for the 2015 WLTIP.
– David Baxby, Managing Director, Wesfarmers Industrials
was awarded 83.3 per cent of the maximum opportunity.
– Michael Schneider, Managing Director, Bunnings Group,
was awarded 67.1 per cent of the maximum opportunity.
–
Ian Bailey, Managing Director, Kmart Group received
33.3 per cent of the maximum opportunity, with
Mr Bailey not awarded any 2019 KEEPP outcome in
relation to the Kmart Group financial results, and no
cash component.
2015 WLTIP:
• Relative TSR (rTSR) and CAGR in ROE hurdles were tested
at 30 June 2019.
• 88.8 per cent of the performance rights vested into shares.
Fixed remuneration and non-executive director fee
outcomes
Refer to section 4 and section 5
Impact of the demerger of Coles from the Wesfarmers
Group on existing incentive plans
Refer to section 6.4
• Mr Scott's fixed annual remuneration (FAR) remained
KEEPP:
unchanged at $2,500,000 and Mr Gianotti's FAR remained
unchanged at $1,350,000.
• Mr Bailey's FAR was set at $1,350,000 upon appointment
as Managing Director, Kmart Group in November 2018,
representing a 27 per cent reduction relative to the FAR of
his predecessor.
• The FAR for Mr Baxby was increased to $1,300,000 as part
of the October 2018 review, reflecting his performance in the
role.
• Mr Schneider's FAR remained unchanged at $1,500,000.
• There have been no increases to non-executive director fees
since January 2017.
• To preserve the integrity of the KEEPP, following approval
of the demerger, the Board resolved to cancel the original
2016 and 2017 KEEPP allocations and then, following the
implementation of the demerger, to replace these with new
awards, made wholly in Wesfarmers shares. Participants
were no better off immediately following the demerger.
• The terms of the replacement KEEPP awards are consistent
with the original design principles of the KEEPP, including,
for example, the allocation of Restricted Shares that are
restricted for the long term and Performance Shares that
vest based upon the achievement of divisional and/or Group
performance conditions.
WLTIP:
• The 2015 WLTIP performance rights held by executive KMP
did not participate in the demerger of Coles and no Coles
shares were allocated in respect of them.
• To preserve the overall value of the performance rights
following the demerger and to ensure that participants
were not unfairly disadvantaged, the Board approved a
grant of additional performance rights to participants in
the 2015 WLTIP who continued to be employed within the
Group.
• The Additional Performance Rights were granted in
December 2018 on substantially the same terms as the
original award of performance rights under the WLTIP.
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REMUNERATION REPORT 2019 (AUDITED)
2. Remuneration governance
2.1 Responsibility for setting remuneration
Responsibility for setting a remuneration policy and determining non-executive director, executive director and executive KMP
remuneration rests with the Board.
The Remuneration Committee has delegated responsibility to review and make recommendations to the Board in relation to remuneration
policy and incentives. The Remuneration Committee assists the Board to evaluate Wesfarmers’ remuneration framework so that it aligns,
supports and drives achievement against the company's strategic objectives with regard to its risk management framework. Management
and remuneration consultants provide information to assist the Board and Remuneration Committee, but do not substitute the Board and
committee processes. No remuneration recommendations as defined in section 9B of the Corporations Act 2001 were obtained during the
financial year ended 30 June 2019.
Details of the composition of the Remuneration Committee is set out in section 5.2. Further information regarding the objectives and role
of the Remuneration Committee are contained in its charter, which is available in the Corporate Governance section of the company’s
website at www.wesfarmers.com.au/cg
2.2 Culture and risk management in remuneration
The Board believes that cultivating the right culture and ensuring the company operates within effective risk management protocols are
enablers of strategic execution over the long term. Wesfarmers can only achieve its primary objective of generating satisfactory returns
for shareholders by: looking after our team members, customers and suppliers; taking care of the environment and making sure that we
are environmentally conscious in all of our activities; by acting ethically and honestly in all of our dealings; and by making meaningful
contributions to the communities in which we operate.
Through its use of the governance frameworks and consultation with the Audit and Risk Committee, for example in the assessment of
the outcomes of the KEEPP scorecards, the Board ensures the executive KMP remuneration framework has a positive impact upon the
company and all remuneration outcomes are aligned with the Board's approach to risk management. Fixed remuneration levels sufficiently
reward the executive KMP for performing the key requirements of their roles. Under the KEEPP, the performance conditions set by the
Board are designed to drive strategic outcomes that benefit the company and its shareholders and are assessed by the Board to be
suitably risk-adjusted in accordance with the risk management framework so as to avoid unnecessary customer, team member or financial
risk in the pursuit of the KEEPP outcomes. Further, in assessing the annual KEEPP scorecards, the Board considers 'how' the outcomes
have been achieved, through demonstration of behaviours aligned with appropriate ethics, values and culture.
2.3 Alignment between remuneration and Wesfarmers' core objective
Since public listing in 1984, Wesfarmers’ core objective has been to deliver satisfactory returns to shareholders over the long term. The
Group’s strong focus on this objective has enabled Wesfarmers to navigate changes in markets, industry, technology and regulations.
The focus and flexibility afforded by this core objective has been a key factor in the 19 per cent per annum CAGR in shareholder returns
delivered since listing in 1984. This requires the Group and divisions to compete effectively in their respective markets. Through its
remuneration governance framework and guiding principles (shown opposite) the Board sets the remuneration policies to ensure we
attract and retain the talent we require.
The Board recognises that Wesfarmers and its divisions compete robustly in business and for talent against a variety of companies
with different ownership and governance structures. Notably, some of the key competitors to Wesfarmers and its divisions are
domestic and international private equity firms, foreign subsidiaries of large international companies, privately owned businesses and
technology-enabled start ups. Many of these organisations adopt remuneration and incentive programs that are quite different to the
structures commonly used in ASX-listed companies and are not subject to the same disclosure obligations in Australia as Wesfarmers.
Wesfarmers acknowledges its disclosure obligations as a listed company and the importance of meeting community expectations.
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3. Executive KMP remuneration framework
3.1 2019 executive remuneration framework
Wesfarmers’ primary objective is to provide satisfactory returns to shareholders over the long term and its guiding remuneration
principles are focused on driving the leadership performance and behaviours consistent with achieving this objective, while ensuring
we remunerate fairly and responsibly. Each of the guiding principles is reflected within the design of the KEEPP.
Our remuneration objective:
To drive leadership performance and behaviours to deliver satisfactory returns to shareholders over the long term
Our guiding remuneration principles:
1
2
3
4
5
6
Align executive and stakeholder interests through share ownership while strengthening focus on Group results
through awards of long-term, at-risk deferred equity
Be transparent and fit for purpose, recognising our autonomous operating model by linking rewards to the
achievement of objectives for which executives are directly accountable and responsible while retaining a link to
Group performance
Attract, motivate and retain world-class talent and outstanding people to drive outcomes
Recognise and reward high performance with a strong focus on the long term
Align effective risk management and demonstration of appropriate behaviours, ethics and values with rewards
Drive strategic achievement which aligns with long-term shareholder interests
The remuneration framework for the executive KMP comprises FAR and ‘at-risk’ remuneration (through participation in the KEEPP). The
graphs below show these components as a percentage of total remuneration for each executive KMP:
Components of remuneration
Total target remuneration
Total maximum remuneration
Fixed remuneration
At-risk remuneration – KEEPP
33%
67%
Fixed remuneration
At-risk remuneration – KEEPP
25%
75%
The target ‘at-risk’ KEEPP opportunity for each executive KMP is 200 per cent of FAR and the maximum opportunity is 300 per cent of
FAR. The remuneration mix for the executive KMP is structured to reward executives for performance at a Group or divisional level, as
appropriate, and to align executive and stakeholder interests through share ownership.
Fixed remuneration
Total remuneration is set at a competitive level to attract, retain and engage key talent, with fixed remuneration set at a level that is
appropriate for the requirements of the role. The level of differentiation between the roles is based upon: role and responsibility; business
and individual performance; internal and external relativities; and contribution, competencies and capabilities.
At-risk remuneration – KEEPP
The KEEPP was introduced in the 2017 financial year, and was the only variable remuneration plan the current executive KMP were invited
to participate in during the 2019 financial year.
One of the Board's main aims in the introduction of the KEEPP was to move away from short-term incentive plans (STI) and large cash
payments for the executive KMP. The KEEPP has a significantly reduced cash component compared to the previous STI. Mr Scott and
Mr Gianotti, since appointment in 2017 as Group Managing Director and Group Chief Financial Officer respectively, received an initial cash
component equal to 10 per cent of the target award in the 2018 financial year, reducing to five per cent in the 2019 financial year and zero
thereafter.
The KEEPP strongly aligns the interests of the Group and its shareholders by delivering the major part of the KEEPP award in shares.
Further details on the KEEPP is provided in section 4.2.
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3.2 Executive KMP
Guiding principle
The remuneration framework is designed to enable the Group to attract, engage and retain
world-class talent and outstanding people
The executive KMP includes the Group Managing Director and the Group Chief Financial Officer and those executives who have authority
and responsibility for planning, directing and controlling the activities of a major profit generating division of Wesfarmers.
The executive KMP for 2019 are as follows:
Current executive KMP
Rob Scott, Group Managing Director
Anthony Gianotti, Group Chief Financial Officer
David Baxby, Managing Director, Wesfarmers Industrials
Michael Schneider, Managing Director, Bunnings Group
Ian Bailey, Managing Director, Kmart Group
Former executive KMP
Steven Cain, Managing Director, Coles
John Durkan, Managing Director, Coles
Guy Russo, Chief Executive Officer, Department Stores
These executive KMP held their position throughout the whole of
the 2019 financial year.
Mr Bailey became a member of the executive KMP when he
commenced in the role of Managing Director, Kmart Group on
1 November 2018.
Mr Cain became a member of the executive KMP for the period
17 September 2018 to 20 November 2018 when he commenced
in the role of Managing Director, Coles until the successful
demerger of Coles from the Group.
Mr Durkan ceased in the role of Managing Director, Coles and as
a member of the executive KMP on 14 September 2018.
Mr Russo ceased in the role of Chief Executive Officer,
Department Stores and as a member of the executive KMP on
31 October 2018.
3.3 Executive service agreements
The remuneration and other terms of employment for the Group Managing Director, the Group Chief Financial Officer and other executive
KMP are covered in formal employment contracts. All service agreements are for unlimited duration and may be terminated immediately
for serious misconduct. All executives are entitled to receive pay in lieu of any accrued but untaken annual and long service leave on
cessation of employment.
The executive KMP must give a minimum 12 months’ notice should they wish to resign and Wesfarmers must give 12 months’ notice
should it wish to terminate employment (other than for cause).
The Group Managing Director and the Group Chief Financial Officer may terminate their employment within 30 days of an event giving
rise to fundamental change. This includes Mr Scott ceasing to be the most senior executive of the Group, a delisting of Wesfarmers or a
material reduction in role, status or delegated authority.
In addition, and upon further payment (where required), Wesfarmers may invoke a restraint period of up to 12 months following separation,
preventing the executive KMP from engaging in any business activity with competitors of the Group.
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4. 2019 Executive KMP remuneration
4.1 Fixed annual remuneration
Wesfarmers’ practice is not to increase fixed remuneration by reference to inflation or indexation as a matter of course. Changes are
based on merit, a material change in role or responsibility, the market rate for comparable roles varying materially, or as a result of internal
relativities, while protecting the significant investment of Wesfarmers in developing its key talent.
As the Wesfarmers Group continues to be a diverse and complex conglomerate with business lines across a range of industries and an
active portfolio manager, the fixed remuneration for the Group Managing Director and Group Chief Financial Officer is considered to be
appropriate. Benchmarking, based on the post-demerger size of the Group, supported this conclusion.
During the annual remuneration review in October 2018, Mr Scott recommended, and the Board approved, that Mr Baxby’s fixed
remuneration be increased to $1.3 million, an increase of 8.3 per cent, reflecting his performance in the role. There were no other changes
to the fixed remuneration of the executive KMP at that time. In November 2018, following his appointment as Managing Director,
Kmart Group, Mr Bailey’s fixed remuneration was increased to $1.35 million. This continues the rebasing of remuneration packages for the
executive KMP, with the fixed remuneration for Mr Bailey set by the Board at a level significantly less than approved for his predecessor,
Mr Russo.
4.2 KEEPP
(a) Detailed summary of the KEEPP
The KEEPP was designed to reduce focus on short-term incentives. It reflects Wesfarmers’ model and rewards the executive KMP for
the financial results of the Group or their division, as applicable, while providing strong long-term alignment with shareholder returns. The
plan operates over a total of seven years. Outcomes are delivered predominantly in Wesfarmers shares, split between Restricted Shares
(50 per cent) and Performance Shares (50 per cent), to align with shareholder interests, with long restriction periods (up to six years from
the grant date), and a relatively small, if any, cash component.
For the 2019 financial year, the maximum cash component available for the Group Managing Director and the Group Chief Financial
Officer was five per cent of the target award. For the divisional managing directors, the maximum cash component was 20 per cent of the
target award. The cash component is only paid to the extent the total KEEPP award is above 100 per cent of FAR.
From the 2020 financial year, the Group Managing Director and the Group Chief Financial Officer will not receive any of the KEEPP award
in cash and for the divisional managing directors, the cash component will reduce further to a maximum of 17.5 per cent of the target
award.
The diagram below shows the remuneration lifecycle for each element of the KEEPP.
2018 KEEPP
Initial (annual)
performance
period
Performance
assessed against
KEEPP scorecard
comprising
financial and strategic
measures
Cash
(if applicable)
Paid after Year 1 only to the extent that total KEEPP award > 100% of FAR
Cash component is capped (maximum depends on role)
Performance Shares –
50% of KEEPP allocation
after cash (if applicable)
Performance tested
After four years, the
role-specific performance
conditions are tested and
shares will vest to the
extent these are achieved
Restricted Shares –
50% of KEEPP allocation
after cash (if applicable)
Time tested
Restrictions
lift (50%) after
five years
Time tested
Restrictions
lift (50%) after
six years
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Year 3
Year 4
Year 5
Year 6
Year 7
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The key details of the KEEPP are summarised below.
Initial
(annual)
performance
period -
scorecard
measures
The initial (annual) performance period is one year, commencing 1 July and ending 30 June in the relevant financial
year, over which period the executive KMP’s annual KEEPP award is determined using a KEEPP scorecard. The target
opportunity is 200 per cent of FAR and the maximum opportunity is 300 per cent of FAR.
The scorecard (agreed between participants and the Group Managing Director or Chairman, as applicable, and by the
Remuneration Committee and the Board) is used in determining the amount to be recommended by the Group Managing
Director or Chairman, as the overall value of the KEEPP award.
The scorecard comprises financial (Group or divisional, as applicable) performance conditions that are quantifiable and
measurable and specific to the Group or each division, as applicable (see section 4.2(b)), measured over the relevant
annual performance period, as well as strategic objectives that are specific to the role. In order to achieve an award, the
performance conditions need to be assessed as above threshold performance. In respect of the financial measures for the
2019 financial year, which include Group NPAT and ROE or divisional EBIT and ROC targets, threshold vesting begins at
either 92.5 per cent or 95 per cent of target and maximum is awarded at or above 105 per cent or 110 per cent of target.
Annual
scorecard
assessment
The value of the full KEEPP award for the financial year is determined using performance against the annual scorecard in the
year, and as recommended by the Group Managing Director or Chairman, as appropriate. If there is no scorecard in place
(for example, if the executive becomes a member of the executive KMP during the preceding financial year) the value of the
award is recommended by the Group Managing Director, based on a number of factors.
Allocation of
awards (after
the initial
(annual)
performance
period)
Restricted
Shares –
conditions
and vesting
Performance under the scorecards is assessed by the Board after the preparation of the financial statements each year
(in respect of the financial measures), with consideration given to demonstration of behaviours aligned with appropriate
ethics, values and culture, and after a review of performance against strategic measures by the Group Managing Director or
Chairman, as appropriate, at the end of the financial year.
In accordance with the terms of the plan, the Board has discretion to make adjustments to the performance conditions,
where the Board considers this appropriate.
After the end of the initial (annual) performance period and scorecard assessment and following determination and approval
of the participant’s KEEPP award amount by the Board, the KEEPP awards are granted in cash, Restricted Shares and
Performance Shares. Restricted Shares and Performance Shares are granted at no cost to the participants.
Cash will only be paid to an executive KMP if the executive KMP’s total KEEPP award is greater than 100 per cent of FAR.
The KEEPP cash payments are made in late August.
The remainder of the KEEPP award is granted as Restricted Shares and Performance Shares as follows:
–
50 per cent will be granted as Restricted Shares, which are subject to a 12-month service condition and any performance
conditions that may be set by the Board at the date of allocation and restricted from trading for five and six years; and
the remaining 50 per cent will be granted as Performance Shares, which will vest subject to performance conditions over
four years.
–
The number of Restricted Shares and Performance Shares allocated is typically determined using a face value calculated
based upon the 10-day volume-weighted average price (VWAP) of Wesfarmers shares over the period immediately
following the full-year results announced in August of that year. In anticipation of the expected impact of the proposed
Coles demerger on the KEEPP, the 2018 KEEPP allocation was determined using a face value calculated based upon the
10-day VWAP of Wesfarmers shares over the period immediately following the demerger of Coles from the Wesfarmers
Group (i.e. 21 November – 4 December 2018).
2018 KEEPP award
The Restricted Shares do not have further performance conditions but there is a service condition in the first 12 months
from the Restricted Share grant date. The Restricted Shares provide alignment with shareholders over the long term. Half
of the Restricted Shares will be restricted from trading for five years and half will be restricted for six years, providing a
significant portion of remuneration linked to Group performance over the long term.
The Restricted Shares are held in trust subject to a holding lock applied as follows:
–
50 per cent of the Restricted Shares will be subject to a restriction from trading until the day following the FY23 results
announcement in August 2023; and
the remaining 50 per cent of the Restricted Shares will be subject to a restriction from trading until the day following the
FY24 results announcement in August 2024.
–
2019 KEEPP award
As at 30 June 2019, the performance and service conditions to determine vesting of the 2019 KEEPP allocation had not yet
been finalised.
Performance
Shares –
conditions
and vesting
2018 KEEPP award
The Performance Shares have performance conditions over a four-year performance period, from 1 July 2018 to
30 June 2022.
Performance Shares will vest based on the extent of the satisfaction of performance conditions described below.
Group Managing Director and Group Chief Financial Officer:
– Wesfarmers’ rTSR against the S&P/ASX 100 Index (60 per cent weighting);
– Wesfarmers’ portfolio management and investment outcomes (20 per cent weighting); and
– Strategic measures (20 per cent weighting).
Divisional Managing Directors:
– Cumulative EBIT and ROC (80 per cent weighting); and
– Wesfarmers’ rTSR against the S&P/ASX 100 Index (20 per cent weighting).
EBIT and ROC condition
The cumulative EBIT condition measures the respective division’s creation of profit against their Corporate Plan over the
four-year performance period subject to an average ROC gate, calculated using their Corporate Plan.
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Vesting schedule against EBIT and ROC:
–
50 per cent of the Performance Shares vest if 90 per cent of the cumulative EBIT target is achieved, subject to achieving
90 per cent of the average ROC target; and
100 per cent of the Performance Shares vest if 100 per cent of the cumulative EBIT target is achieved, subject to achieving
90 per cent of the average ROC target.
–
Straight-line vesting occurs in between.
rTSR condition
The rTSR condition measures the performance of an ordinary Wesfarmers share (including the value of any dividend and
any other shareholder benefits paid during the performance period) against total shareholder return performance of a
comparator group of companies, comprising the S&P/ASX 100 Index, over the same period.
Vesting schedule against rTSR:
Percentile ranking
Below the 50th percentile
Equal to the 50th percentile
Percentage of awards vesting
0% vesting
50% vesting
Between the 50th and 75th percentile
Straight-line vesting between 50% and 100%, i.e. an
additional 2% of awards vest for each percentile increase
Equal to the 75th percentile or above
100% vesting
Non-financial conditions
At the end of the four-year period the Board will consider the performance of the Group Managing Director and the
Group Chief Financial Officer in relation to the acquisition, investment and disposal activities of the Group over that period
as well as other strategic targets such as in relation to talent development, leadership and corporate reputation.
2019 KEEPP award
As at 30 June 2019, the performance and service conditions to determine vesting of the 2019 KEEPP allocation had not yet
been finalised.
Performance
Shares –
rationale for
performance
conditions
The strategic intent of the performance conditions is set out below:
–
rTSR was chosen because it provides a relative external market performance measure having regard to Wesfarmers’
ASX 100 peers, and ensures all executive KMP are remunerated against Group results.
– Wesfarmers’ portfolio management and investment outcomes was chosen to recognise the criticality of decision-making
with regards to acquisitions, investments and disposals.
– Strategic outcomes were chosen to reflect the importance placed by the Board on the achievement of non-financial
outcomes, in addition to financial outcomes, that continue to build value for all stakeholders (shareholders, customers, and
team members), support long-term sustainable performance and reinforce our strong corporate reputation.
– Four-year divisional EBIT, subject to average ROC, was chosen to ensure that the remuneration of divisional managing
directors is directly linked to the achievement of long-term financial returns for the business for which they are directly
accountable.
Performance
Shares –
testing
Testing of the Performance Shares occurs shortly after the end of the four-year performance period.
TSR performance is independently assessed over the performance period against the constituents of the S&P/ASX 100
Index as at the start of the performance period.
The cumulative EBIT and average ROC are calculated after the preparation and audit of the financial statements following the
end of the final year of the performance period and assessed against the targets set at the start of the performance period.
The portfolio and investment outcomes and the strategic targets are assessed by the Board at the end of the performance
period, following appraisal of the relative success of each over the period.
These methods of assessing the performance conditions have been chosen as the Board believes they are the most
appropriate way to assess the true financial performance of the company and determine remuneration outcomes. In
accordance with the terms of the KEEPP, the Board has discretion to make adjustments to the performance conditions
where it is considered appropriate to do so.
Following testing, any Performance Shares that do not vest will be forfeited.
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Directors' Report
REMUNERATION REPORT 2019 (AUDITED)
Cessation of
employment
If an executive KMP ceases employment with Wesfarmers before the end of the service period, restriction period or
performance period (as applicable), their entitlement to the shares (if any) will depend on the circumstances of cessation.
For the Group Managing Director, the grant of Restricted Shares and Performance Shares under the 2018 KEEPP was made
in accordance with the terms approved at the Wesfarmers 2018 Annual General Meeting.
Restricted Shares
Where an executive KMP resigns within 12 months from the Restricted Share grant date, is dismissed for cause, significant
underperformance or breach of a restraint in their service agreement during the applicable restriction period or is otherwise
dismissed by the Board, all Restricted Shares will be forfeited.
In all other circumstances, the Restricted Shares will remain on foot and subject to the original conditions, as if the executive
KMP (including the Group Managing Director) had not ceased employment.
If, following cessation of employment, the Board determines in good faith that:
–
–
the executive KMP has breached any restriction or undertaking owed to the Wesfarmers Group or any compromise or
arrangement in relation to their cessation of employment; or
the executive KMP’s circumstances have changed making it no longer appropriate for them to retain the benefit of their
award,
the Board may determine that:
–
–
some or all of the executive KMP’s Restricted Shares will be forfeited; and/or
the executive KMP is required to pay or repay as a debt the net proceeds of the sale of shares or dividends provided to
them.
However, the Board retains absolute discretion to determine to treat the Restricted Shares other than as outlined above in all
circumstances.
Performance Shares
Where an executive KMP ceases employment during the performance period for cause, significant underperformance,
breach of a restraint in their service agreement or is otherwise dismissed by the Board, and in the case of the
Group Managing Director, if he resigns during the performance period, all Performance Shares will be forfeited. Where an
executive KMP resigns within four years of the Performance Share grant date, it is expected that the Board will determine
that Performance Shares are forfeited.
In all other circumstances, the Performance Shares will remain on foot and subject to the original performance conditions,
as if the participant had not ceased employment. However, the Board retains absolute discretion to determine to treat the
Performance Shares other than as outlined above in all circumstances.
Change of
control
If a change of control event occurs, the Board has broad discretion to determine the treatment of Restricted Shares and
Performance Shares, having regard to any matter that the Board considers relevant.
Clawback
Dividends
and voting
rights
The terms of the KEEPP contain a mechanism for the Board to clawback or adjust any incentive awards which vest (or
may vest) as a result of a material misstatement in, or omission from, the financial statements or otherwise as a result of
fraud, dishonesty or breach of obligations. The Board has discretion to adjust any conditions applicable to an award, if
considered appropriate. The Board may, up to the value of the overpaid remuneration, reduce or defer or otherwise require
the repayment of any amount paid or payable to the executive to ensure no unfair benefit is derived.
Restricted Shares
Restricted Shares carry dividend and voting rights. Dividends will be escrowed until the end of the 12-month service period
and thereafter be paid to the executive KMP. If Restricted Shares are forfeited during the 12-month service period, the
executive KMP is not entitled to the escrowed dividends.
Performance Shares
Performance Shares carry dividend and voting rights. Dividends will be escrowed for the full four-year performance period
and only paid to the executive KMP to the extent that the underlying shares vest.
A portion of the escrowed dividend amounts will be paid to the executive KMP to satisfy their tax liability on dividends paid
in respect of their Restricted Shares and Performance Shares.
Changes for the 2019 KEEPP awards
Following 30 June 2019, the Board has approved an adjustment to the weighting of the performance conditions to apply to the
Performance Shares to be allocated to the divisional managing directors under the 2019 KEEPP. It is expected that the performance
conditions will be weighted equally between Wesfarmers' rTSR against the S&P/ASX 100 Index and divisional cumulative EBIT and
ROC, a change from the 20 per cent and 80 per cent respective weighting that applies to the 2018 KEEPP Performance Shares for the
divisional managing directors. This change has been made to further align divisional performance with company performance over the
longer term yet retain a link to the individual's divisional performance. There is no expected change for the weighting of the performance
conditions to apply to the Performance Shares to be allocated to the Group Managing Director and the Group Chief Financial Officer under
the 2019 KEEPP.
Further information will be provided in the 2020 Remuneration Report.
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Wesfarmers 2019 Annual Report
REMUNERATION REPORT 2019 (AUDITED)
(b) 2019 KEEPP annual scorecard
Guiding principle
The 2019 KEEPP scorecards are transparent and fit for purpose, recognising our
autonomous operating model, linking rewards to achievement of objectives for which
executives are directly accountable and responsible
The 2019 KEEPP scorecards are comprised of financial and strategic measures relevant to the role of each executive KMP. The results of
the performance against the annual scorecard for the 2019 KEEPP allocation are outlined below and on the following pages.
2019 KEEPP scorecards
Group
Managing
Director
Group Chief
Financial Officer
Divisional
Managing
Directors
Group financial measures (60%)
Strategic measures (40%)
Group NPAT and ROE
Threshold performance is required for both Group NPAT and ROE before
any award is made in respect of the financial measures
Specific to the role of each
executive KMP
Divisional financial measures (60%)
Strategic measures (40%)
Divisional EBIT and ROC
Threshold performance is required for both divisional EBIT and ROC
before any award is made in respect of the financial measures
Specific to the role of each
executive KMP
0%
20%
40%
60%
80%
100%
(c) Overview of Group performance
The Group reported NPAT of $5,510 million for the 2019 financial year, an increase of $4,313 million from the 2018 financial year. The result
for the year included post-tax significant items relating to the $2,264 million gain on demerger of Coles; $645 million gain on disposal of
Bengalla; $244 million gain on disposal of Kmart Tyre and Auto Service; and $120 million gain on disposal of the Group's indirect interest
in Quadrant Energy, partially offset by a $102 million provision for supply chain automation in Coles.
The 2019 financial year has seen continued good performance from Bunnings, Officeworks and the Industrials division as a whole. The
competitiveness of the retail market and subdued consumer sentiment has provided challenges for Kmart Group to maintain the strong
performance delivered in the prior financial year. The table below summarises details of Wesfarmers’ performance for key financial
measures over the past five financial years.
Financial year ended 30 June (as reported)
Net profit after tax (NPAT) ($m)
NPAT (excluding significant items) ($m)1
Earnings per share (EPS) (cents)
EPS (excluding significant items) (cents)1
Return on equity (ROE) (rolling 12) (%)
Total dividends per share (declared) (cents)
Capital management distribution (paid) (cents)
Closing share price ($ as at 30 June)2
Adjusted closing share price ($ as at 30 June)3
Five-year rolling Total Shareholder Return (%, per annum)
2015
2,440
2,440
216.1
216.1
9.8
200
100
39.03
27.88
11.5
2016
407
2,353
2017
2,873
2,873
2018
1,197
2,772
2019
5,510
2,339
36.24
254.7
105.84
487.2
209.5
254.7
245.1
206.8
1.74
186
-
40.10
28.64
10.0
12.4
223
-
40.12
28.66
11.3
5.24
223
-
49.36
35.26
9.8
38.75
2786
-
36.16
36.16
9.8
1
2
3
4
5
6
2019 significant items include $2,264 million gain on demerger of Coles, $645 million gain on sale of Bengalla, $244 million gain on sale of KTAS, $120 million gain on
sale of Quadrant Energy, partially offset by a $102 million provision for supply chain automation in Coles. 2018 significant items include impairments of $1,323 million
relating to BUKI and Target, as well as the $375 million loss on sale of BUKI and $123 million gain on sale of Curragh. 2016 significant items include non-cash
impairments of $1,844 million relating to Target and Curragh and $102 million of restructuring costs and provisions to reset Target.
The opening share price on 1 July 2014 was $42.00.
The adjusted closing share price excludes the proportional impact of the Coles demerger, based on the volume-weighted average share price of Coles Group Limited on
the first five days of trading.
2016 and 2018 EPS and ROE includes the items outlined in footnote 1 above.
2019 ROE was 17.7 per cent when adjusted to remove the increase in the ROE as a result of the demerger.
2019 total dividends per share includes the 100 cent special dividend.
Wesfarmers 2019 Annual Report
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Directors' Report
REMUNERATION REPORT 2019 (AUDITED)
(d) 2019 KEEPP annual scorecard outcomes
The 2019 KEEPP annual scorecard measures performance from 1 July 2018 to 30 June 2019. The table below sets out specific
information relating to the actual KEEPP annual scorecard outcomes for the 2019 financial year.
Name
R G Scott
A N Gianotti
I Bailey
D A Baxby
M D Schneider
Total outcome
2019 KEEPP
scorecard
($)
Cash award
($)
Balance available for
Restricted Shares and
Performance Shares1
($)
Percentage of maximum
2019 KEEPP opportunity
awarded
%
Percentage of maximum
2019 KEEPP opportunity
forfeited
%
6,493,709
3,628,103
1,350,000
3,250,000
3,020,860
250,000
135,000
-
520,000
600,000
6,243,709
3,493,103
1,350,000
2,730,000
2,420,860
86.6
89.6
33.3
83.3
67.1
13.4
10.4
66.7
16.7
32.9
1
50 per cent allocated as Restricted Shares and 50 per cent allocated as Performance Shares.
The cash component for the 2019 KEEPP award was paid on 29 August 2019. The Restricted Shares and Performance Shares are
expected to be allocated in December 2019. Details of these share grants will be provided in the 2020 Remuneration Report.
The 2019 KEEPP award will be delivered to the executive KMP as follows:
R G Scott
A N Gianotti
I Bailey
D A Baxby
M D Schneider
Cash
Restricted Shares
Performance Shares
Total outcome: $1,350,000
Total outcome: $6,493,709
Total outcome: $3,628,103
Total outcome: $3,250,000
Total outcome: $3,020,860
0
20
40
60
80
100
120
140
160
180
200
220
240
260
280
300
Percentage of FAR
The chart below shows the achievement of each of the executive KMP for the financial measures and the strategic measures in their
2019 KEEPP annual scorecard as a percentage of the maximum opportunity per measure.
Financial measures
Strategic measures
R G Scott
A N Gianotti
I Bailey
D A Baxby
M D Schneider
Nil for financial measures
Total outcome: 86.6% of overall
maximum opportunity
Total outcome: 89.6% of overall
maximum opportunity
Total outcome: 33.3% of overall
maximum opportunity
Total outcome: 83.3% of overall
maximum opportunity
Total outcome: 67.1% of overall
maximum opportunity
0
10
20
30
40
50
60
70
80
90
100
Percentage of maximum opportunity per measure
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Wesfarmers 2019 Annual Report
REMUNERATION REPORT 2019 (AUDITED)
Wesfarmers Limited
The Group achieved a reported NPAT of $5,510 million and a reported ROE of 38.7 per cent during the 2019 financial year (refer to section 1
for details). The Board used its discretion to adjust both the NPAT and ROE to account for the impact of the demerger of Coles that resulted in
a significant profit on sale and material change to Wesfarmers' equity base and capital structure, along with the profit from the divestment of
KTAS and the Group's interest in Bengalla when determining the outcome of the financial measures for the Group Managing Director and the
Group Chief Financial Officer under the 2019 KEEPP.
Group Managing Director (R G Scott)
Group Chief Financial Officer (A N Gianotti)
The Board considered Mr Scott to have achieved above target
results against his overall strategic objectives, demonstrated
through the examples set out below.
The Board considered Mr Gianotti to have achieved above target
results against his overall strategic objectives, demonstrated
through the examples set out below.
– The demerger of Coles was successfully implemented within an
– The demerger of Coles was successfully implemented and, at
ambitious timetable and to budget. At the end of June 2019, both
Wesfarmers and Coles were trading ahead of their respective
demerger prices. Further, flybuys transitioned to a joint venture
structure.
– Other divestments from the Group were completed within the
2019 financial year (for example, KTAS, the interest in Bengalla
and Quadrant Energy), the acquisition of Catch Group which was
well progressed in the 2019 financial year and then completed
in August 2019 and the acquisition of Kidman Resources which
completed in September 2019. The Group continues to actively
evaluate other growth and investment opportunities.
the end of June 2019, both Wesfarmers and Coles were trading
ahead of their respective demerger prices. Further, Mr Gianotti has
been integrally involved in the significant volume of other portfolio
management changes across the Group in the 2019 financial year
that have generated positive results.
– Mr Gianotti led the process that delivered the very positive
outcomes with capital structure, financing and ratings post
demerger and has led other internally focused initiatives that
continue to generate further improvements in relation to the balance
sheet and capital management.
– Mr Gianotti has been instrumental in driving a greater focus on risk
– The 2019 financial year was a transformational year in relation to
across the group, including cyber risk.
the Group’s approach to data analytics and the outcomes from this
investment continue to improve.
–
–
In relation to gender balance, very good progress was made over
the 2019 financial year with five of the 11 Group Leadership Team
positions now held by women. Further, there has been a general
improvement in the women in leadership results across the Group
with a number of significant female appointments during the year.
In relation to talent, Mr Gianotti has overseen a review and
restructure of a number of key leadership areas within the Corporate
office as well as developing the financial talent capabilities within the
Group. This is positioning the Group well for the future.
2019 KEEPP scorecard outcome: 86.6 per cent of maximum
2019 KEEPP scorecard outcome: 89.6 per cent of maximum
Kmart Group
Managing Director, Kmart Group (I Bailey)
Mr Bailey did not achieve threshold performance for his financial measures during the 2019 financial year. Accordingly, Mr Bailey did not receive
any KEEPP outcome in respect of the Kmart Group 2019 financial results.
The Board considered Mr Bailey to have achieved above target results against his overall strategic objectives, demonstrated through the
examples set out below.
– Mr Bailey’s strategic leadership and support during the divestment of KTAS was critical to its success, which has delivered a good outcome for
shareholders. The acquisition of Catch Group provides a strategic, profitable platform from which to accelerate e-commerce sales.
– Mr Bailey has strengthened the Kmart Group’s data analytics and digital capability and has delivered pleasing progress in relation to
e-commerce and click and collect within both Kmart and Target.
– Since commencing as Managing Director, Kmart Group, Mr Bailey has made significant progress on the organisational structure of the division
and strengthened the talent in strategic roles while continuing to focus on improving gender balance.
2019 KEEPP scorecard outcome: 33.3 per cent of maximum
Wesfarmers 2019 Annual Report
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Directors' Report
REMUNERATION REPORT 2019 (AUDITED)
Wesfarmers Industrials
Managing Director, Wesfarmers Industrials (D A Baxby)
Mr Baxby delivered a strong result for the Industrials division as a whole during the 2019 financial year. In particular, the Chemicals, Energy
and Fertilisers business delivered strong earnings growth in each one of its businesses which offset the below expectations performance in
the Industrial and Safety business, due to a disappointing result in Blackwoods. The Board determined that Mr Baxby achieved maximum
performance for his financial measures and as a result received the maximum KEEPP outcome for the overall Industrials division in relation to
these.
The Board considered Mr Baxby to have achieved between threshold and target results against his overall strategic objectives, influenced by
the disappointing result in Blackwoods. Examples of Mr Baxby's strategic achievements are set out below.
– Mr Baxby has played a critical strategic role in the portfolio management within the Industrials division, including, for example, the divestment
of Bengalla and the acquisition of Kidman Resources which completed in September 2019, and provided instrumental support with other
portfolio management assessments throughout the Group. Mr Baxby has also played a key role within the flybuys joint venture.
–
In relation to talent, Mr Baxby has continued to strengthen the capabilities within the Industrials division and has assisted the transition of the
new senior leadership team within Blackwoods. Over the course of the 2019 financial year, Mr Baxby has also supported the identification of
talent for key strategic roles within the Group.
2019 KEEPP scorecard outcome: 83.3 per cent of maximum
.
Bunnings Group
Managing Director, Bunnings Group (M D Schneider)
Mr Schneider was determined to have achieved between threshold and target performance for his financial measures and accordingly,
Mr Schneider received a KEEPP outcome between threshold and target in respect of the Bunnings Group 2019 financial results.
The Board considered Mr Schneider to have achieved above target results against his overall strategic objectives, demonstrated through the
examples set out below.
– Over the course of the 2019 financial year, Mr Schneider has made good progress in relation to the Bunnings strategy including the offering in
commercial and trade, and through growing capabilities within data analytics and the digital arena.
– Significant progress has been made with e-commerce and the customer experience while aligning with the Bunnings brand.
–
In relation to talent, Mr Schneider has undertaken a review of the Bunnings Leadership Team and made key appointments to strengthen the
team and also improved gender balance.
2019 KEEPP scorecard outcome: 67.1 per cent of maximum
Additional details regarding the scorecard measures
Group financial measures such as Group NPAT and ROE were chosen because they reflect how Wesfarmers uses capital to generate
earnings, manages total costs within the business and ultimately generates a profit to provide shareholder returns. Group NPAT and ROE
performance is assessed following the preparation and audit of the annual financial statements.
Divisional financial measures such as EBIT and ROC were chosen because they are key financial measures at a divisional level that align
with the Group financial measures and drive successful and sustainable financial business outcomes. Divisional performance is also
assessed following the preparation and audit of the annual financial statements.
The strategic measures, such as supporting portfolio management, growing data analytics and digital capabilities, and accelerating
the e-commerce offering, were chosen because they are key areas in enabling the Group to achieve its primary objective of generating
satisfactory returns to shareholders over the long term. Focusing on the strategic priorities set as objectives within the KEEPP scorecards
will enable our divisions to retain and improve their leading positions in their respective markets as well as to generate long-term growth.
Gender balance remains a focus as Wesfarmers recognises the importance and value of diverse teams throughout our businesses. These
are assessed by the Board following a review of performance against strategic measures by the Group Managing Director or Chairman, as
appropriate, at the end of the financial year.
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Wesfarmers 2019 Annual Report
REMUNERATION REPORT 2019 (AUDITED)
4.3 WLTIP
(a) Overview of the 2015 WLTIP
In 2015, eligible executive KMP were invited to receive performance rights in the company under the WLTIP. There are two equally
weighted performance hurdles, Wesfarmers’ CAGR in ROE and Wesfarmers’ TSR, relative to the CAGR in ROE and TSR of the
constituents of the S&P/ASX 50 Index. Further details of the WLTIP and the terms of the 2015 WLTIP grant are set out in the
2016 Remuneration Report.
Additional Performance Rights were granted to existing eligible executives following the demerger of Coles from the Group to ensure they
were not impacted by the demerger. Refer to section 6.4 for further information on the Additional Performance Rights.
Performance rights granted under the 2015 WLTIP and the Additional Performance Rights granted after the demerger were eligible to vest
in 2019.
(b) Vesting outcomes during the year – 2015 WLTIP and Additional Performance Rights
Vesting condition
CAGR in ROE (50% of the award)
rTSR (50% of the award)
Outcome
(2015-2019)
15.93%
50.06%
Percentile
ranking vs
ASX 50
85.7%
63.8%
% of maximum
opportunity
100.0%
77.6%
Total % of
performance
rights vested
Number of
performance
rights vested1
88.8%
68,323
1
This includes the outcome of the 2015 WLTIP performance rights and the Additional Performance Rights granted following the demerger of Coles from the
Wesfarmers Group held by the current executive KMP.
The table above shows the performance of the Group against the targets for the 2015 WLTIP award (and the Additional Performance
Rights), whose four-year performance period ended on 30 June 2019.
The Board exercised its discretion in relation to the calculation of the CAGR in ROE hurdle to ensure participants were not afforded any
undue benefit from the increase in ROE that occurred as a result of the demerger of Coles from the Group and as such, the ROE from
the 2019 financial year was reduced to 17.7 per cent from the reported ROE of 38.7 per cent. In this case, no adjustments to the NPAT
outcome were made for the profit arising from the sale of KTAS and Bengalla. This was consistent with the historical treatment of the
WLTIP (for example, where no adjustment was made in 2018 for the Bunnings United Kingdom and Ireland (BUKI) impairment, resulting
in the 2014 WLTIP not vesting). As the standard methodology for calculating rTSR already incorporated the demerger of Coles into the
calculation of Wesfarmers’ TSR, the Board was not required to exercise any discretion in relation to the calculation of the rTSR hurdles as
a result of the demerger.
The Group outperformed the majority of its peers over the vesting period, with regard to CAGR in ROE and rTSR leading to a majority of
the awards vesting (88.8 per cent of the potential total award). The shares were allocated to participating executive KMP on vesting of
performance rights on 23 September 2019 and are shown below in section 4.3(c). As permitted by the plan, in 2015 Mr Scott elected to
apply a trading restriction to the shares allocated on vesting of his 2015 WLTIP rights until 13 November 2020.
(c) Movement in performance rights held under WLTIP
The table below sets out details of performance rights vested and lapsed in relation to the 2015 WLTIP and Additional Performance Rights
during the 2019 financial year. No peformance rights are held by related parties of executive KMP.
Vested
Lapsed during year4
Name
R G Scott
A N Gianotti
Held at
1 July 20181,2
34,299
20,399
Granted during year3
13,949
8,296
Number
(42,843)
(25,480)
%
88.8
88.8
Number
(5,405)
(3,215)
%
11.2
11.2
Held at
30 June 2019
–
–
1 Reflects prior year WLTIP allocations which are subject to performance conditions at that time which remain unvested (i.e. the 2015 WLTIP allocation of performance
rights).
2 As at 1 July 2018, J P Durkan held 79,608 performance rights and G A Russo held 55,725 performance rights. There was no change to either holding as at the date each
ceased to be a member of the executive KMP, being 14 September 2018 and 31 October 2018 respectively.
3 Reflects the WLTIP Additional Performance Rights allocated following the demerger of Coles from the Wesfarmers Group. Additional Performance Rights were
granted to R G Scott and A N Gianotti on 6 December 2018. It was determined that there was no material incremental fair value to expense from the 2015 Additional
Performance Rights. Following the introduction of the KEEPP it is not expected that there will be any further WLTIP allocations in the future.
4 Both the 2015 WLTIP performance rights and Additional Performance Rights vested during the financial year. The performance rights that did not vest, because the
performance hurdles were not met, lapsed.
Wesfarmers 2019 Annual Report
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Directors' Report
REMUNERATION REPORT 2019 (AUDITED)
4.4 Executive remuneration (statutory presentation)
How remuneration outcomes are presented
Remuneration outcomes are presented based on the requirements of accounting standards (which has the benefit of being readily
comparable with other companies) rather than a take-home pay basis (being cash and benefits and the value of equity on vesting during
the financial year). Examples of this are:
• The KEEPP cash component is recognised for the year to which it relates. The KEEPP Restricted Shares are recognised as an
expense over a 12-month period typically spanning two financial years and the KEEPP Performance Shares are recognised over the
performance period (four years) based on their assessed value when originally granted to the executive. The value recognised for
the KEEPP Restricted Shares and Performance Shares may be significantly different to their value if and when the incentive vests to
the executive.
• WLTIP awards are recognised over the performance period (four years) based on their assessed value when originally granted to the
executive. This may be significantly different to their value, if and when the incentive vests to the executive.
•
In some circumstances, amounts are recorded as remuneration when no shares or rights vest to the executive and in other cases
there can be negative remuneration from equity awards in a given year, for example due to non-vesting.
Under the Accounting Standards, and as a result of the demerger of Coles, the Coles Group Limited directors pre-demerger are
recognised as Coles Group Limited KMP for 2019 up to the date of demerger. The information on the following page for Mr Durkan and
Mr Cain is duplicated, for the applicable period, in the 2019 Coles Group Limited Annual Report and they were not separately remunerated
by both Wesfarmers and Coles Group Limited over the relevant period.
Footnotes to statutory executive KMP remuneration table on the following page
1
2
Long-term benefits relate to leave entitlements earned during the year.
The amounts included in ‘share-based payments’ relate to the KEEPP, WLTIP, Wesfarmers Employee Share Acquisition Plan (WESAP) and annual incentive, as
applicable:
• The portion of the 2017 and 2018 annual incentive shares that continue to be expensed in the 2019 financial year based on probability of vesting, as these shares
are subject to performance and forfeiture conditions. Annual incentive shares are share-based awards received by the executive KMP under other incentive plans
prior to commencing as KMP and participating in the KEEPP.
• The portion of the 2015, 2016 and 2017 WESAP shares that continue to be expensed in the 2019 financial year based on probability of vesting, as these shares are
subject to performance and forfeiture conditions.
• The portion of the 2016 KEEPP, 2017 KEEPP and the 2015 WLTIP that continue to be expensed in the 2019 financial year based on probability of vesting, as these
shares are subject to performance and forfeiture conditions, together referred to as the service period.
• The amounts included for the 2018 KEEPP are detailed in section 7(a) and the incremental fair value of the 2016 KEEPP replacement allocation and the 2017 KEEPP
replacement allocation are shown in section 6.4.
• The expensing for the Restricted Shares and Performance Shares that are yet to be granted under the 2019 KEEPP will be included in the remuneration table in the
2020 Remuneration Report.
3 The percentage performance related for the 2019 financial year is the sum of the KEEPP cash and share-based payments divided by the total remuneration, reflecting
the actual percentage of remuneration at risk for the year. The percentage of total remuneration that consists of performance rights and KEEPP shares only, being the
amount expensed in the 2019 financial year for the 2015 WLTIP and the 2016, 2017 and 2018 KEEPP shares (including the 2016 KEEPP replacement allocation and
2017 KEEPP replacement allocation), as applicable, is as follows – R G Scott 58.0 per cent, A N Gianotti 50.5 per cent, I Bailey 27.3 per cent, D A Baxby 43.8 per cent,
M D Schneider 42.4 per cent, J P Durkan 24.0 per cent and G A Russo 16.8 per cent.
4 Cash payments made to eligible participants in relation to the KEEPP for the 2019 financial year. S A Cain, J P Durkan and G A Russo did not participate in the KEEPP
for the 2019 financial year.
Mr Durkan participated in a cash-based performance bonus during the 2019 financial year. The target opportunity was 100 per cent of FAR and the maximum
opportunity was 200 per cent of FAR. The outcome of the performance bonus was based on achievement against strategic hurdles. The hurdles were chosen to support
the demerger of Coles and the leadership transition within Coles as well as to deliver other projects as required by the Group Managing Director. Mr Durkan’s outcome
under the performance bonus was assessed by the Board after a review of performance against the strategic measures by the Group Managing Director. Mr Durkan was
determined to have exceeded his strategic objectives and received an above target award. Overall, Mr Durkan received 75 per cent of the maximum opportunity (and
25 per cent of the maximum opportunity was forfeited) and this was paid to him in cash on 29 August 2019.
Mr Russo participated in a cash-based performance bonus during the 2019 financial year. The target opportunity was 100 per cent of FAR and the maximum opportunity
was 200 per cent of FAR. The outcome of the performance bonus was based on the achievements of Kmart Group financial hurdles (60 per cent weighting) and strategic
hurdles (40 per cent weighting). The financial performance hurdles (being, EBIT, ROC and sales) were chosen because they are key divisional measures and the strategic
hurdles were chosen to support the transition of Mr Bailey as Managing Director, Kmart Group, to deliver key initiatives regarding data analytics, ethical sourcing and
talent as well as to deliver other projects as required by the Group Managing Director. Mr Russo’s outcome under the performance bonus was assessed by the Board
after the preparation of the financial statements and after a review of performance against the strategic measures by the Group Managing Director. None of the financial
targets were met and Mr Russo has not received any award in relation to these. Mr Russo was determined to have met his strategic objectives and received an on target
award in relation to this component. Overall, Mr Russo received 15 per cent of the maximum opportunity (and 85 per cent of the maximum opportunity was forfeited)
and this was paid to him in cash on 29 August 2019.
5 Short-term benefits, ‘non-monetary benefits’, include the cost to the company of providing vehicles, life insurance and travel. Short-term benefits, ‘other’, includes the
cost of directors and officers liability insurance.
6 Superannuation contributions are made on behalf of the executive KMP in accordance with Wesfarmers’ statutory superannuation obligations. Also included is any part
of the executive KMP’s salary that has been sacrificed into superannuation.
7 Payments made on termination to R J B Goyder and T J Bowen, principally in relation to contractual notice period and in relation to a restraint.
8
The cash salary for R G Scott for the 2018 financial year proportionately reflects his salary and time in role as Deputy Chief Executive Officer prior to his appointment as
Group Managing Director on 16 November 2017. Mr Scott's cash salary for the 2019 financial year reflects a full year in role as Group Managing Director.
9 A N Gianotti became a member of the KMP, effective 13 November 2017.
10
I Bailey became a member of the KMP, effective 1 November 2018.
11 D A Baxby became a member of the KMP, effective 14 August 2017.
12 J P Durkan ceased to be a member of the KMP effective 14 September 2018. The remuneration outcomes presented for Mr Durkan are required to be duplicated, for the
applicable period, in the 2019 Remuneration Report for Coles Group Limited in their 2019 annual report and he was not separately remunerated by both Wesfarmers and
Coles Group Limited over the relevant period.
13 G A Russo ceased to be a member of the KMP effective 31 October 2018.
14 S A Cain became a member of the KMP, effective 17 September 2018 and then ceased following the implementation of the Coles demerger scheme, effective
20 November 2018. The remuneration outcomes presented for Mr Cain are required to be duplicated, for the applicable period, in the 2019 Remuneration Report for
Coles Group Limited in their 2019 annual report and he was not separately remunerated by both Wesfarmers and Coles Group Limited over the relevant period.
15 R J B Goyder ceased to be a member of the KMP following his retirement on 16 November 2017.
16 T J Bowen ceased to be a member of the KMP following his departure from the Group on 10 November 2017.
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REMUNERATION REPORT 2019 (AUDITED)
Statutory executive KMP remuneration table
Short-term benefits
Bonus
and
KEEPP
cash4
($)
Non-
monetary
benefits5
($)
Cash
salary
($)
Long-
term
benefits1
Post-
employment
benefits
Share-based
payments2
Termination
benefits
Total
Performance
related3
Other5
($)
Leave
($)
Super-
annuation6
($)
KEEPP and
other equity
($)
Termination
payments7
($)
($)
(%)
Executive director
R G Scott8 – Group Managing Director, Wesfarmers Limited
2019
2,349,890
250,000
157,169
14,093
41,666
20,531
3,915,183
2018
2,177,046
500,000
148,876
545,052
41,666
20,049
3,117,541
Senior executives
A N Gianotti9 – Group Chief Financial Officer, Wesfarmers Limited
2019
1,275,409
135,000
59,311
14,093
22,500
20,531
2,037,622
2018
799,266
270,000
49,305
432,517
14,178
12,698
1,050,857
I Bailey10 – Managing Director, Kmart Group
2019
888,886
-
2,119
9,344
14,918
11,114
1,047,297
D A Baxby11 – Managing Director, Wesfarmers Industrials
2019
1,254,469
520,000
2018
1,040,821
540,000
3,195
2,810
14,093
21,667
20,531
1,429,300
8,116
17,589
20,049
734,361
M D Schneider – Managing Director, Bunnings Group
2019
1,389,505
600,000
91,886
14,093
25,000
21,804
2,025,464
2018
1,306,451
675,000
133,273
9,228
25,000
21,804
1,830,986
Former senior executives
J P Durkan12 – Managing Director, Coles
2019
447,089
687,123
2018
2,179,951
990,000
3,567
3,195
2,934
7,635
5,133
365,158
9,228
36,666
20,049
1,673,163
G A Russo13 – Chief Executive Officer, Department Stores
2019
605,977
187,027
10,552
4,749
10,390
10,690
167,019
2018
1,828,196
832,500
3,195
9,228
30,833
21,804
2,749,201
S A Cain14 – Managing Director, Coles
2019
345,795
-
-
2,510
5,936
10,266
-
R J B Goyder15 – Group Managing Director, Wesfarmers Limited
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6,748,532
6,550,230
3,564,466
2,628,821
61.7
55.2
61.0
50.2
1,973,678
53.1
3,263,255
2,363,746
4,167,752
4,001,742
1,518,639
4,912,252
996,404
5,474,957
59.7
53.9
63.0
62.6
69.3
54.2
35.5
65.4
364,507
-
2018
1,270,041
-
142,153
3,514
22,253
10,689
372,188
968,720
2,789,558
13.3
T J Bowen16 – Group Chief Financial Officer, Wesfarmers Limited
2018
661,971
-
8,681
3,363
11,235
10,756
279,772
950,196
1,925,974
14.5
Total
2019
8,557,020 2,379,150
327,799
75,909
149,712
120,600
10,987,043
- 22,597,233
2018
11,263,743 3,807,500
491,488
1,020,246
199,420
137,898
11,808,069
1,918,916
30,647,280
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Directors' Report
REMUNERATION REPORT 2019 (AUDITED)
NON-EXECUTIVE DIRECTOR REMUNERATION
5. Non-executive directors
All non-executive directors held their positions and were KMP for the whole of the 2019 financial year unless otherwise stated. See
section 5.2 for details of non-executive directors, including dates of appointment or cessation (where relevant).
5.1 Overview of non-executive director remuneration policy and arrangements
Our policy objectives and guiding principles:
1
2
To be market competitive: aim to set fees at a level competitive with non-executive directors in comparator companies
To safeguard and preserve independence: to not include any performance-related element in remuneration
Aggregate fees approved by shareholders
The current maximum aggregate fee pool for non-executive directors of $3,600,000 was approved by shareholders at the
2015 Annual General Meeting. Fees paid to Wesfarmers’ non-executive directors for membership of Wesfarmers’ divisional boards, in
addition to Wesfarmers’ Board and committee fees and superannuation contributions made on behalf of the non-executive directors in
accordance with Wesfarmers’ statutory superannuation obligations, are included in this aggregate fee pool.
Regular reviews of remuneration
The Board periodically reviews the level of fees paid to the non-executive directors, including consideration of external benchmarking.
A review was undertaken during the 2019 financial year. No change was made to the main board fees, Audit and Risk Committee fees
or Remuneration Committee fees as the current level of fees were considered appropriate, including after the demerger of Coles, for a
diverse and complex conglomerate with business lines across a range of industries and an active portfolio manager. The current fee levels
were determined to be in line with those of similarly sized (post-demerger) companies.
5.2 Non-executive director fees and other benefits
Guiding principle
Non-executive director fees are set at competitive levels to enable Wesfarmers to attract,
engage and retain world-class talent
The fees shown in the table below (inclusive of superannuation) took effect from 1 January 2017, and no changes were made in relation
to the fees for the 2019 calendar year. Members of the Nomination Committee and Gresham Mandate Review Committee (which
was dissolved in August 2018 following the resignation of Mr Graham from the Board in July 2018) do not receive any additional fees.
Non-executive directors are entitled to reimbursement for business-related expenses, including travel expenses and also receive the
benefit of coverage under a directors and officers liability insurance policy.
Fees/benefits
Description
Board fees
Main Board1
Chairman – M A Chaney
Members – all non-executive directors
Committee fees
Audit and Risk Committee
Chairman – A J Howarth
Members – D L Smith-Gander, J A Westacott, S W English
Remuneration Committee
Chairman – W G Osborn2
Members – M A Chaney3, V M Wallace, M Roche4, J P Graham5, P M Bassat6
Superannuation
Made to the Wesfarmers Group Superannuation Plan or another regulated superannuation fund.
An amount is deducted from gross fees to meet statutory superannuation obligations.
Other Group fees
Non-executive directors are paid additional fees, where applicable, for participation on the boards
of Wesfarmers’ related bodies corporate (for example BWP Management Limited).
2019 ($)
770,000
230,000
80,000
40,000
52,000
26,000
The Chairman of the Board does not receive a separate fee for membership of any of the Board’s committees.
1 S L Warburton was appointed to the Board of Wesfarmers Limited, effective 1 August 2019 and is expected to be KMP for part of the 2020 financial year.
2 W G Osborn stepped down as Chairman of the Remuneration Committee on 30 June 2019 but continues as a member of the committee.
3
4 M Roche was appointed to the Remuneration Committee, effective 19 February 2019, and became Chairman of the committee on 30 June 2019.
5
6 P M Bassat retired from the Board, effective 15 November 2018.
Following the announcement of J P Graham as Chairman-elect of the proposed demerged Coles group, Mr Graham retired from the Board, effective 23 July 2018.
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REMUNERATION REPORT 2019 (AUDITED)
5.3 Non-executive director remuneration
The fees paid or payable to the non-executive directors in relation to the 2019 financial year are set out below:
Short-term
benef its
Post-employment
benef its
Fees –
Wesfarmers
Limited
($)
Fees –
Wesfarmers
Group
($)
Other
benef its1
($)
Superannuation2
($)
Total
($)
749,469
749,951
249,469
40,725
289,469
289,951
261,469
261,951
85,897
249,469
249,951
235,469
235,951
249,469
249,951
87,827
235,951
21,333
256,000
2,479,340
2,570,382
-
-
-
-
105,500
104,300
-
-
-
-
-
-
-
-
-
-
-
-
-
105,500
104,300
15,161
10,206
14,093
1,567
14,093
9,228
14,093
9,228
5,097
14,093
9,228
14,093
9,228
14,093
9,228
6,412
9,228
888
9,228
112,116
76,369
20,531
20,049
20,531
4,275
20,531
20,049
20,531
20,049
7,970
20,531
20,049
20,531
20,049
20,531
20,049
8,173
20,049
-
-
159,860
144,618
785,161
780,206
284,093
46,567
429,593
423,528
296,093
291,228
98,964
284,093
279,228
270,093
265,228
284,093
279,228
102,412
265,228
22,221
265,228
2,856,816
2,895,669
Non-executive directors
M A Chaney
S W English3
A J Howarth4
W G Osborn
M Roche5
D L Smith-Gander
V M Wallace
J A Westacott
Former non-executive directors
P M Bassat6
J P Graham7
Total
2019
2018
2019
2018
2019
2018
2019
2018
2019
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
1 Short-term benefits, ‘other benefits’, includes the cost of directors and officers liability insurance and the cost of other business-related expenses.
2 Superannuation contributions are made on behalf of non-executive directors in accordance with Wesfarmers’ statutory superannuation obligations. Also included is any
part of a non-executive director’s fees that have been sacrificed into superannuation.
3 S W English was appointed as a non-executive director on 30 April 2018.
4 A J Howarth receives fees for participation on the board of BWP Management Limited.
5 M Roche was appointed as a non-executive director on 19 February 2019.
6 P M Bassat retired from the Board, effective 15 November 2018.
7
Following the announcement of J P Graham as Chairman-elect of the proposed demerged Coles group, Mr Graham retired from the Board, effective 23 July 2018.
Mr Graham’s fees were paid to Gresham Partners Group Limited for participation on the Board of Wesfarmers Limited.
Wesfarmers 2019 Annual Report
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Directors' Report
REMUNERATION REPORT 2019 (AUDITED)
OTHER REMUNERATION INFORMATION
6. Further information on remuneration
6.1 KMP share ownership
Guiding principle
A focus on awards of long-term, at-risk deferred equity rather than cash for executives and a
minimum shareholding level for directors, aligns director, executive and stakeholder interests
The Board considers it an important foundation of the Wesfarmers remuneration framework that the executive KMP and directors hold a
significant number of Wesfarmers shares to encourage them to behave like long-term ‘owners’.
• At the date of this report, all current executive KMP hold at least one year’s FAR in Wesfarmers shares, with the majority holding
significantly more.
• Non-executive directors are required to hold a minimum of 1,000 Wesfarmers shares within two months of appointment.
• Non-executive directors are also expected to increase their holdings in Wesfarmers shares to the equivalent of their annual main
board fee within a five-year period of appointment.
The following table sets out the number of shares held directly, indirectly or beneficially by directors and senior executives (including their
related parties).
Director and executive KMP equity holdings
Name
Balance at
beginning of
year1
Allocated
under
remuneration
framework2
Breakdown of balance at year-end
Held in an equity plan
Net
change3
Balance at
year-end4
Vested and
restricted5
Vested and
unrestricted6
Not
vested7
Other
shares8
Non-executive directors and former non-executive directors
P M Bassat9
M A Chaney
S W English
J P Graham10
A J Howarth
W G Osborn
M Roche11
D L Smith-Gander
V M Wallace
J A Westacott
19,411
87,597
1,000
790,188
18,654
14,728
-
12,045
13,483
5,493
Executive KMP and former executive KMP
-
-
-
-
-
-
-
-
-
-
-
-
82
-
1,306
-
2,000
-
-
-
19,411
87,597
1,082
790,188
19,960
14,728
2,000
12,045
13,483
5,493
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,406
-
-
-
12,512
986
-
-
-
-
-
-
-
-
-
-
19,411
87,597
1,082
790,188
17,554
14,728
2,000
12,045
971
4,507
446,460
(142,943)
751,365
166,617
12,386
315,727
256,635
R G Scott
A N Gianotti
I Bailey12
D A Baxby
S A Cain13
J P Durkan14
G A Russo15
M D Schneider
447,848
152,666
-
163,506
427,878
102,731
190,526
(38,948)
304,244
-
85,708
71,698
157,406
35,792
136,056
(35,792)
136,056
-
-
-
10,000
10,000
-
8
163,506
427,886
64,595
19,839
25,174
-
33,377
161,094
45,178
-
-
-
137,567
110,882
-
-
-
10,000
62,935
7,120
93,451
107,365
192,333
128,188
-
-
-
177,698
(75,423)
205,006
60,709
-
144,297
Total
2,293,020
1,036,448
(208,012)
3,121,456
507,234
261,120
1,091,206
1,261,896
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Footnotes to director and executive KMP equity holdings table on prior page
1
2
3
4
5
6
7
This number reflects the fully-paid ordinary shares held directly, vested equity under the incentive plans as well as unvested equity under the incentive plans. The
unvested equity may include the 2016 KEEPP Performance Shares, 2017 KEEPP Restricted Shares and Performance Shares and 2017 annual incentive shares, as
appropriate. Annual incentive shares are share-based awards received by the executive KMP under other incentive plans prior to commencing as KMP and participating
in the KEEPP.
This number reflects the equity allocated under the 2016 KEEPP Replacement Shares, 2017 KEEPP Replacement Shares and 2018 KEEPP Restricted Shares and
Performance Shares. The number for I Bailey also includes the 2018 annual incentive shares allocated in August 2018, awarded prior to commencing as KMP and
participating in the KEEPP.
The net change may include changes due to personal trades, equity granted as remuneration (including the cancellation of the 2016 KEEPP allocations and 2017 KEEPP
allocations and their associated replacement allocations) and forfeited equity.
This number reflects the fully-paid ordinary shares held directly, vested equity under the incentive plans as well as unvested equity under the incentive plans. The
unvested equity may include the 2016 KEEPP Replacement Performance Shares, the 2017 KEEPP Replacement Performance Shares, and the 2018 KEEPP Restricted
Shares and Performance Shares and the 2018 annual incentive shares as appropriate. Annual incentive shares are share-based awards received by the executive KMP
under other incentive plans prior to commencing as KMP and participating in the KEEPP. Where a director or executive KMP has ceased to be a director or executive
KMP throughout the year, the balance at year-end reflects the balance of equity as at the date they ceased to be a director or executive KMP.
The vested and restricted equity includes any share-based awards received by the executive KMP that are now fully vested but remain subject to a restriction within the
incentive plans. This includes the 2016 KEEPP Replacement Restricted Shares, 2017 KEEPP Replacement Restricted Shares and the 2017 annual incentive shares as
appropriate. Annual incentive shares are share-based awards received by the executive KMP under other incentive plans prior to commencing as KMP and participating
in the KEEPP. For KMP who ceased to be KMP during the financial year, the table reflects their equity holding at the date they ceased to be KMP.
The vested and unrestricted equity includes any share-based awards received by the executive KMP that are now fully vested and available to be removed from the
incentive plans upon instruction from the executive KMP.
The unvested equity includes the 2016 KEEPP Replacement Performance Shares, the 2017 KEEPP Replacement Performance Shares, and the 2018 KEEPP Restricted
Shares and Performance Shares and the 2018 annual incentive shares as appropriate. Annual incentive shares are share-based awards received by the executive KMP
under other incentive plans prior to commencing as KMP and participating in the KEEPP. For KMP who ceased to be KMP during the financial year, the table reflects
their equity holding at the date they ceased to be KMP.
This number reflects the the fully-paid ordinary shares held directly outside of an equity plan.
8
9 P M Bassat retired as a director of the Group on 15 November 2018.
10 J P Graham retired as a director of the Group on 23 July 2018.
11 The information for M Roche reflects his time as a member of the KMP, from 19 February 2019.
12 The information for I Bailey reflects his time as a member of the KMP, from 1 November 2018.
13 The information for S A Cain reflects his time as a member of the KMP, from 17 September 2018 to 20 November 2018.
14 J P Durkan ceased to be a member of the KMP effective 14 September 2018.
15 G A Russo ceased to be a member of the KMP effective 31 October 2018.
6.2 Share trading restrictions
Wesfarmers’ Securities Trading Policy reflects the Corporations Act 2001 prohibition on KMP and their closely related parties entering into
any arrangement that would have the effect of limiting the KMP’s exposure to risk relating to an element of their remuneration that remains
subject to restrictions on disposal.
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, BWP Trust
and Coles Group Limited securities and for short selling, short-term trading, security interests, margin loans and hedging relating to
Wesfarmers, BWP Trust and Coles Group Limited securities. The Wesfarmers 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.
The policy is available in the Corporate Governance section of the company’s website at www.wesfarmers.com.au/cg. Breaches of the
policy are subject to disciplinary action, which may include termination of employment.
6.3 Other transactions and balances with KMP
Mr Graham, who was a director of Wesfarmers until he retired on 23 July 2018, has a majority shareholding interest in a company which
jointly owns Gresham Partners Group Limited on an equal basis with a wholly-owned subsidiary of Wesfarmers. For the period in 2019 in
which Mr Graham was a director of Wesfarmers, fees of $138,974 (2018: $5,596,377) were paid to Gresham Partners Group Limited for
the provision of office accommodation and advisory services.
From time to time, directors of the company or its controlled entities, or their director-related entities, may purchase goods or services
from the Group. These purchases are on the same terms and conditions as those entered into by other Group team members or
customers and are minor or domestic in nature.
There were no loans made during the year, or remaining unsettled at 30 June 2019, between Wesfarmers and its KMP and/or their related
parties.
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Directors' Report
REMUNERATION REPORT 2019 (AUDITED)
6.4 Impact of the demerger of Coles on the 2016 and 2017 KEEPP awards and 2015 WLTIP
As foreshadowed in the 2018 Remuneration Report and the demerger scheme booklet, the demerger of Coles from the Wesfarmers Group
had implications for the KEEPP and the WLTIP and these are explained below.
Impact on the 2016 and 2017 KEEPP awards
The Wesfarmers Board considered it of the utmost importance that the integrity of the KEEPP was preserved by having awards under the
KEEPP wholly aligned with Wesfarmers shares. The design of the KEEPP is to incentivise the executive KMP to demonstrate performance
and behaviours which deliver satisfactory returns to Wesfarmers shareholders over the long term. Accordingly, following shareholder
and court approval of the Coles demerger, the Wesfarmers Board resolved on 14 September 2018 to cancel the existing KEEPP share
allocations made in 2016 and 2017, subject to the scheme receiving all the required approvals.
After the demerger was completed, the cancelled 2016 and 2017 KEEPP Restricted Shares and Performance Shares were replaced with
new KEEPP awards made wholly in Wesfarmers shares. The terms and conditions of the replacement KEEPP awards are consistent with
the original design principles of the KEEPP, including, for example, the allocation of Restricted Shares that are restricted over the long
term and Performance Shares that vest based upon the achievement of divisional and/or Group performance conditions, depending on
the participant’s role. The Board also ensured that the KEEPP participants were no better or worse off immediately following the demerger,
including by setting performance conditions that remain appropriately challenging in light of the demerger. Details of the cancelled KEEPP
awards along with the replacement KEEPP awards are set out below.
Cancelled 2016 and 2017 KEEPP awards
The table below sets out the details of the shares originally granted to the executive KMP under the 2016 and 2017 KEEPP.
Name
R G Scott
A N Gianotti
D A Baxby
M D Schneider
Year1
2016 KEEPP
2017 KEEPP
2017 KEEPP
2017 KEEPP
2017 KEEPP
Number of
Restricted Shares cancelled
Number of
Performance Shares cancelled
32,088
60,848
32,214
17,896
35,793
32,088
60,848
32,214
17,896
35,793
1
The share price on the date the 2016 and 2017 KEEPP awards were cancelled was $31.96.
Replacement 2016 and 2017 KEEPP awards
The table below sets out the details of the replacement 2016 and 2017 KEEPP awards to the executive KMP.
Name
R G Scott
A N Gianotti
D A Baxby
Year1,2
2016 KEEPP
2017 KEEPP
2017 KEEPP
2017 KEEPP
M D Schneider6
2017 KEEPP
Number of replacement
Restricted Shares3,5
Number of replacement
Performance Shares4,5
Incremental fair value of
replacement KEEPP
allocation ($)
45,138
85,595
45,315
25,174
50,350
45,138
85,595
45,315
25,174
42,294
-
-
-
-
-
1
2
3
4
5
6
The grant date for the replacement 2016 and 2017 KEEPP awards was 6 December 2018.
The share price on the grant date of the replacement 2016 and 2017 KEEPP awards was $31.73.
The number of replacement Restricted Shares were calculated using the formula set out on the following page. All of the Replacement 2016 KEEPP Restricted Shares
and the Replacement 2017 KEEPP Restricted Shares vested on 30 June 2019.
The number of replacement Performance Shares were calculated using the formula set out on the following page. No Replacement 2016 KEEPP Performance Shares or
Replacement 2017 KEEPP Performance Shares vested or were forfeited during this reporting period.
The maximum possible value of the replacement 2016 and 2017 KEEPP is the fair value at grant date. For the replacement 2016 KEEPP, the Performance Shares subject
to market conditions (rTSR hurdle) have a fair value of $14.49. The Restricted Shares and the Performance Shares subject to non-market conditions (e.g. divisional
EBIT and ROC) have been valued with reference to the Wesfarmers share price on grant date, being $31.73. For the replacement 2017 KEEPP, the Performance
Shares subject to market conditions (rTSR hurdle) have a fair value of $20.35. The Restricted Shares and the Performance Shares subject to non-market conditions
(e.g. divisional EBIT and ROC) have been valued with reference to the Wesfarmers share price on grant date, being $31.73. Should the executive KMP resign prior to
vesting, the Restricted Shares and Performance Shares would be forfeited. Accordingly, the minimum value of the unvested award would be nil.
The Replacement 2017 KEEPP Performance Shares granted to M D Schneider has been reduced to reflect the portion of the original 2017 KEEPP Performance Share
allocation that was subject to the cumulative EBIT and ROC performance of BUKI, subsequently divested from the Group in June 2018.
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REMUNERATION REPORT 2019 (AUDITED)
Terms of the Replacement 2016 and 2017 KEEPP awards
The key details of the replacement 2016 and 2017 KEEPP share awards are summarised below. The terms relating to cessation of
employment, change of control, clawback, and dividends and voting rights are as per the table in section 4.2(a), noting the service periods,
restriction periods and performance periods for the Replacement 2016 and 2017 KEEPP, as applicable, are as set out below.
Allocation of
awards
The replacement 2016 and 2017 KEEPP awards were granted as Restricted Shares and Performance Shares as follows:
–
–
50 per cent was granted as Restricted Shares, which will vest subject to a service condition followed by an additional
restriction period; and
50 per cent was granted as Performance Shares, which will vest subject to performance conditions over a four-year period.
Restricted Shares and Performance Shares were granted at no cost to the executive.
The number of shares allocated under the Replacement 2016 and 2017 KEEPP allocation were determined using the following
calculation:
Number of shares
originally granted
under the 2016/2017
KEEPP
X
Wesfarmers 5-day
post-demerger VWAP
+
Coles 5-day
post-demerger VWAP
Wesfarmers 5-day post-demerger VWAP
Replacement 2016 KEEPP
Replacement
2016
Restricted
Shares –
conditions and
vesting
Replacement
2016
Performance
Shares –
conditions and
vesting
Replacement Restricted Shares are subject to a continued service condition, commencing on the grant date and ending on
30 June 2019.
After the end of the service period, the Replacement Restricted Shares will vest and the vested Replacement Restricted Shares
will be held in trust with a holding lock applied as follows:
–
–
50 per cent of the vested Replacement Restricted Shares will be subject to a restriction from trading until the day following the
FY21 results announcement in August 2021; and
the remaining 50 per cent of the vested Replacement Restricted Shares will be subject to a restriction from trading until the
day following the FY22 results announcement in August 2022.
Replacement Performance Shares have financial performance conditions over a four-year performance period, from
1 July 2016 to 30 June 2020.
The performance conditions and weightings are as follows:
– Cumulative EBIT and ROC (80 per cent weighting); and
– Wesfarmers’ rTSR against the S&P/ASX 50 Index (20 per cent weighting).
EBIT and ROC condition
The vesting schedule against the EBIT and ROC condition for the Replacement 2016 Performance Shares is consistent with
the vesting schedule of the EBIT and ROC condition for the 2018 KEEPP, as set out in the table in section 4.2(a) of this report.
TSR condition
The vesting schedule against the rTSR condition for the Replacement 2016 Performance Shares is consistent with the vesting
schedule of the rTSR condition for the 2018 KEEPP, as set out in the table in section 4.2(a) of this report.
Following testing, any Replacement Performance Shares that do not vest will be forfeited. In accordance with the terms of the
plan, the Board has discretion to make adjustments to the performance conditions where it is considered appropriate to do so.
Replacement 2017 KEEPP
Replacement
2017
Restricted
Shares –
conditions and
vesting
Replacement
2017
Performance
Shares –
conditions and
vesting
Replacement Restricted Shares are subject to a continued service condition, commencing on the grant date and ending on
30 June 2019.
After the end of the service period, the Replacement Restricted Shares will vest and the vested Replacement Restricted Shares
will be held in trust with a holding lock applied as follows:
–
–
50 per cent of the vested Replacement Restricted Shares will be subject to a restriction from trading until the day following the
FY22 results announcement in August 2022; and
the remaining 50 per cent of the vested Replacement Restricted Shares will be subject to a restriction from trading until the
day following the FY23 results announcement in August 2023.
Replacement Performance Shares have performance conditions over a four-year performance period, from 1 July 2017 to
30 June 2021.
Group Managing Director and Group Chief Financial Officer:
– Wesfarmers’ rTSR against the S&P/ASX 100 Index (70 per cent weighting); and
– Strategic measures (30 per cent weighting).
Under the original 2017 KEEPP allocation, the Group Managing Director and the Group Chief Financial Officer also had
an absolute ROE performance hurdle. Given the significant changes to the portfolio as a result of the demerger and other
activities, the Board did not consider it appropriate for the Replacement 2017 KEEPP allocation to also have an absolute
ROE hurdle and as a result the weighting of the rTSR hurdle was increased from 50 per cent to 70 per cent and the strategic
measures weighting is unchanged at 30 per cent weighting.
Divisional Managing Directors:
– Cumulative EBIT and ROC (80 per cent weighting); and
– Wesfarmers’ rTSR against the S&P/ASX 100 Index (20 per cent weighting).
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Directors' Report
REMUNERATION REPORT 2019 (AUDITED)
Replacement
2017
Performance
Shares
conditions
and vesting
(continued)
EBIT and ROC condition
The vesting schedule against the EBIT and ROC condition for the Replacement 2017 Performance Shares is consistent with
the vesting schedule of the EBIT and ROC condition for the 2018 KEEPP, as set out in the table in section 4.2(a) of this report.
rTSR condition
The vesting schedule against the rTSR condition for the Replacement 2017 Performance Shares is consistent with the vesting
schedule of the rTSR condition for the 2018 KEEPP, as set out in the table in section 4.2(a) of this report.
Non-financial condition
The Board will assess the performance of the Group Managing Director and the Group Chief Financial Officer in respect of their
strategic targets.
Following testing, any Replacement Performance Shares that do not vest will be forfeited. In accordance with the terms of the
plan, the Board has discretion to make adjustments to the performance conditions where it is considered appropriate to do so.
2015 WLTIP and Additional Performance Rights
The 2015 WLTIP performance rights allocated did not carry a right to participate in the demerger of Coles. In order to preserve the overall
value of the performance rights following the demerger of Coles from the Group, and to ensure that participants were not disadvantaged
by the demerger, the Board decided to grant participants in the 2015 WLTIP who continued to be employed within the Wesfarmers Group
Additional Performance Rights.
The Additional Performance Rights were granted in December 2018 on substantially the same terms as the participant’s original
2015 award of performance rights under the WLTIP. The terms of the 2015 WLTIP are set out in the 2016 Remuneration Report. The
WLTIP Additional Performance Rights are a grant of performance rights subject to a four-year performance period in line with the
original performance rights, from 1 July 2015 until 30 June 2019. The Additional Performance Rights vest subject to satisfaction of two
performance hurdles: Wesfarmers’ CAGR in ROE (with a 50 per cent weighting) and Wesfarmers’ TSR (with a 50 per cent weighting),
relative to the CAGR in ROE and TSR of the S&P/ASX 50 Index. Shares allocated on vesting of the Additional Performance Rights are not
subject to any trading restrictions. Additional Performance Rights do not carry any right to dividends or voting rights prior to vesting. The
Additional Performance Rights were granted at no cost and no payment was required to be made in order for the Additional Performance
Rights to vest and for participants to receive their share allocation.
The calculation method used to determine the number of Additional Performance Rights to be granted (rounding down to the nearest
whole performance right) was as follows:
(
Number of performance
rights held immediately
prior to demerger
X
Wesfarmers 5-day
post-demerger VWAP
+
Coles 5-day
post-demerger VWAP
Wesfarmers 5-day post-demerger VWAP
)
-
Number of performance
rights held immediately
prior to demerger
Additional Performance Rights granted
The table below sets out the number of the Additional Performance Rights granted to the executive KMP on 6 December 2018.
Name
R G Scott
A N Gianotti
Number of 2015 WLTIP Performance Rights
granted in November 2015
Number of 2015 Additional Performance
Rights granted in December 20181
34,299
20,399
13,949
8,296
1
It was determined that there was no material incremental fair value to expense from the 2015 Additional Performance Rights.
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REMUNERATION REPORT 2019 (AUDITED)
7. Annexures
Additional information in relation to the KEEPP allocations from previous financial years is set out in these annexures.
(a) 2018 KEEPP allocations – awards made during the 2019 financial year
As presented in the 2018 Remuneration Report, during the 2019 financial year, following the testing of the 2018 KEEPP annual scorecards
in August 2018, where applicable, the executive KMP received cash on 17 August 2018 and were granted shares on 6 December 2018, as
their 2018 KEEPP award. As Mr Bailey participated in the KEEPP for the first time in the 2019 financial year and there was no scorecard in
place for him in relation to the 2018 KEEPP allocation, the amount of KEEPP awarded to Mr Bailey during the year was approved by the
Board on 15 August 2018 on recommendation from the Group Managing Director. Mr Bailey received 200 per cent of FAR and there was
no cash component.
The 2018 KEEPP award was delivered to the executive KMP as follows:
Cash
Restricted Shares
Performance Shares
R G Scott
A N Gianotti
I Bailey
D A Baxby
M D Schneider
Total outcome: $6,327,646
Total outcome: $3,416,929
Total outcome: $2,700,000
Total outcome: $3,240,000
Total outcome: $3,354,355
0
20
40
60
80
100
120
140
160
180
200
220
240
260
280
300
Percentage of FAR
Details of 2018 KEEPP Restricted Shares and Performance Shares component
The table below sets out details of the Restricted Shares and Performance Shares that were allocated to executive KMP under the
2018 KEEPP in the 2019 financial year.
Restricted Shares
allocated (subject to
a five- and six-year
restriction from trading)1
Performance Shares
allocated (vesting
subject to performance
conditions over a
four-year performance
period)2
92,497
49,948
42,854
42,854
42,527
92,497
49,948
42,854
42,854
42,527
Name
R G Scott
A N Gianotti
I Bailey
D A Baxby
M D Schneider
Fair value of
Restricted Shares
and Performance
Shares at
grant date4
($)
Maximum amount
that could be
expensed over
remaining
performance period5
($)
5,377,396
2,818,751
2,619,148
2,619,148
2,599,158
2,905,722
1,613,355
1,806,718
1,541,838
1,543,293
Total Share
Award value3
($)
5,827,608
3,146,884
2,699,940
2,699,940
2,679,338
1
2
3
4
The 2018 KEEPP Restricted Shares were granted on 15 November 2018 for R G Scott and 6 December 2018 for the remaining executive KMP and are still subject to
restrictions. No 2018 KEEPP Restricted Shares vested or were forfeited during the reporting period.
The 2018 KEEPP Performance Shares were granted on 15 November 2018 for R G Scott and 6 December 2018 for the remaining executive KMP and are still subject to
performance conditions until 30 June 2022. Accordingly, no 2018 KEEPP Performance Shares vested or were forfeited during the reporting period.
The number of Restricted Shares and Performance Shares allocated was determined using the face value of Wesfarmers shares, based upon the 10-day VWAP of
Wesfarmers shares over the period immediately following the demerger of Coles from the Wesfarmers Group (i.e. 21 November – 4 December 2018) being $31.501605.
This amount shown represents the total face value upon allocation, being the total number of Restricted Shares and Performance Shares multiplied by the 10-day VWAP.
For accounting purposes, the fair value at grant is shown above, in accordance with AASB 2 Share-Based Payment. The Performance Shares subject to market
conditions (rTSR hurdle) have been independently valued using the Monte Carlo simulation using the Black-Scholes framework. The Restricted Shares and the
Performance Shares subject to non-market conditions (e.g. divisional EBIT and ROC) have been valued with reference to the Wesfarmers share price on grant date.
For Mr Scott, the value per Performance Share for the rTSR performance hurdle is $20.78 and the value per Restricted Share and per Performance Share subject to
the portfolio management and investment outcomes hurdle and other strategic hurdles is $32.62, valued as at 15 November 2018 following approval of the grant at the
Wesfarmers 2018 Annual General Meeting. For all other KEEPP participants the value per Performance Share for the rTSR performance hurdle is $20.02 and the value
per Restricted Share and per Performance Share subject to the portfolio management and investment outcomes hurdle and other strategic hurdles or the divisional EBIT
and ROC hurdle is $31.73, valued as at 6 December 2018. The fair value at the grant date represents the maximum possible total fair value of the shares. The minimum
value of unvested shares is nil.
5 Should the executive KMP resign prior to vesting, the Restricted Shares and Performance Shares would be forfeited. Accordingly, the minimum value of the unvested
award would be nil.
Wesfarmers 2019 Annual Report
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Directors' Report
REMUNERATION REPORT 2019 (AUDITED)
(b) 2017 KEEPP - KEEPP awards that vested during the 2019 financial year
The table below sets out details of shares that vested in relation to the 2017 KEEPP allocation during the 2019 financial year.
Restricted Shares vested
during the year1,3
Performance Shares vested
during the year2,3
Name
R G Scott
A N Gianotti
D A Baxby
M D Schneider
Number
60,848
32,214
17,896
35,793
%
100
100
100
100
Number
-
-
-
-
Maximum amount that
could be expensed over
remaining performance
period4
($)
791,067
418,815
346,376
484,251
%
-
-
-
-
1
The 2017 Restricted Shares were subject to a 12-month forfeiture period and vested in September 2018, although these remained subject to a five- and six-year trading
restriction until August 2022 and August 2023 respectively.
2 No Performance Shares reached the end of the four-year performance period in the year. The performance period is due to end 30 June 2021.
3
Following shareholder and court approval of the demerger of Coles from the Group, this allocation was subsequently cancelled. Further details are provided in
section 6.4.
4 Should the executive KMP resign prior to vesting, the Restricted Shares and Performance Shares would be forfeited. Accordingly, the minimum value of the unvested
award would be nil.
(c) 2016 KEEPP – Performance Shares that vested during the 2019 financial year
The table below sets out details of Performance Shares that vested in relation to the 2016 KEEPP allocation during the 2019 financial year.
Restricted Shares vested
during the year1,3
Performance Shares vested
during the year2,3
Name
R G Scott
Number
-
%
-
Number
-
Maximum amount that
could be expensed over
remaining performance
period4
($)
337,459
%
-
1
The 2016 Restricted Shares vested in November 2017 although these remained subject to a five- and six-year trading restriction until August 2021 and August 2022
respectively.
2 No Performance Shares reached the end of the four-year performance period in the year. The performance period is due to end 30 June 2020.
3
Following shareholder and court approval of the demerger of Coles from the Group, this allocation was subsequently cancelled. Further details are provided in
section 6.4.
4 Should the executive KMP resign prior to vesting, the Restricted Shares and Performance Shares would be forfeited. Accordingly, the minimum value of the unvested
award would be nil.
8.
Independent audit of remuneration report
The remuneration report has been audited by Ernst & Young. Please see page 167 of this annual report for Ernst & Young’s report on the
remuneration report.
The directors’ report, including the remuneration report, is signed in accordance with a resolution of the directors of Wesfarmers Limited.
M A Chaney AO
Chairman
Perth
25 September 2019
R G Scott
Managing Director
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Wesfarmers 2019 Annual Report
FINANCIAL STATEMENTS
For the year ended 30 June 2019 – Wesfarmers Limited and its controlled entities
CONTENTS
Financial statements
Income statement
Statement of comprehensive income
Balance sheet
Cash flow statement
Statement of changes in equity
Notes to the financial statements
About this report
Segment information
Page 112
Page 113
Page 114
Page 115
Page 116
Page 117
Page 119
Key numbers
P. 122
Capital
P. 131
Risk
P. 135
Group structure
P. 145
Unrecognised items
P. 153
Other
P. 154
1.
Revenue and
other income
10. Capital
management
15. Financial risk
management
18. Associates
and joint
arrangements
21. Commitments and
contingencies
23. Parent
disclosures
2. Expenses
11. Dividends and
distributions
16. Hedging
19. Subsidiaries
22. Events after the
reporting period
24. Deed of Cross
Guarantee
3. Tax expense
12. Equity and
reserves
17. Impairment of
non-financial
assets
20. Discontinued
operations
4.
Cash and cash
equivalents
13. Earnings per
share
5. Receivables
14. Interest-
bearing loans
and borrowings
6.
Inventories
7.
Property, plant
and equipment
8.
Goodwill and
intangible
assets
9. Provisions
25. Auditors’
remuneration
26. Related party
transactions
27. Other
accounting
policies
28. Share-based
payments
29. Director and
executive
disclosures
30. Tax
transparency
disclosures
Wesfarmers 2019 Annual Report
111
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Financial statements
INCOME STATEMENT
For the year ended 30 June 2019
Continuing operations
Revenue
Expenses
Raw materials and inventory
Employee benefits expense
Freight and other related expenses
Occupancy-related expenses
Depreciation and amortisation
Impairment expenses
Other expenses
Total expenses
Other income
Share of net profits/(losses) of associates and joint ventures
Earnings before interest and income tax expense (EBIT)
Finance costs
Profit before income tax
Income tax expense
Profit after tax from continuing operations
Discontinued operations
Profit after tax for Coles
Profit after tax for Bengalla
Profit after tax for KTAS
Profit after tax for Quadrant Energy
Loss after tax for BUKI
Profit after tax for Curragh Coal Mine
Profit/(loss) after tax from discontinued operations
Profit attributable to members of the parent
Earnings per share attributable to ordinary equity holders of the parent from continuing
operations
Basic earnings per share
Diluted earnings per share
Earnings per share attributable to ordinary equity holders of the parent
Basic earnings per share
Diluted earnings per share
Consolidated
2019
$m
RESTATED
2018
$m
Note
1
2
2
2
2
2
1
18
2
3
20
20
20
20
13
27,920
26,763
(17,240)
(4,525)
(381)
(1,533)
(537)
-
(1,198)
(25,414)
239
229
468
2,974
(175)
2,799
(859)
1,940
2,483
710
253
124
-
-
3,570
5,510
cents
171.5
171.4
487.2
486.7
(16,344)
(4,290)
(326)
(1,474)
(521)
(373)
(1,264)
(24,592)
99
74
173
2,344
(210)
2,134
(725)
1,409
1,037
119
25
14
(1,657)
250
(212)
1,197
cents
124.6
124.4
105.8
105.6
112
Wesfarmers 2019 Annual Report
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 June 2019
Profit attributable to members of the parent
Other comprehensive income
Items that may be reclassified to profit or loss:
Foreign currency translation reserve
Exchange differences on translation of foreign operations
Exchange differences recognised in the income statement on disposal of foreign operations
Cash flow hedge reserve
Unrealised gains on cash flow hedges
Realised losses transferred to net profit
Realised (gains)/losses transferred to non-financial assets
Transfer of hedges to Coles on demerger
Share of associates and joint ventures reserves
Tax effect
Items that will not be reclassified to profit or loss:
Retained earnings
Remeasurement loss on defined benefit plan
Tax effect
Other comprehensive (loss)/income for the year, net of tax
Total comprehensive income/(loss) for the year, net of tax, attributable to members of the
parent arising from:
Continuing operations
Discontinued operations
Note
12
12
3
12
3
Consolidated
2019
$m
5,510
RESTATED
2018
$m
1,197
14
-
151
2
(204)
(22)
(2)
24
(1)
-
(38)
(7)
(2)
96
29
114
-
(7)
(72)
(1)
-
150
1,903
3,569
5,472
1,568
(221)
1,347
Wesfarmers 2019 Annual Report
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Financial statements
BALANCE SHEET
As at 30 June 2019
Assets
Current assets
Cash and cash equivalents
Receivables - trade and other
Inventories
Derivatives
Other
Total current assets
Non-current assets
Investment in associates and joint ventures
Deferred tax assets
Property
Plant and equipment
Goodwill
Intangible assets
Derivatives
Other
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Interest-bearing loans and borrowings
Income tax payable
Provisions
Derivatives
Other
Total current liabilities
Non-current liabilities
Interest-bearing loans and borrowings
Provisions
Derivatives
Other
Total non-current liabilities
Total liabilities
Net assets
Equity
Equity attributable to equity holders of the parent
Issued capital
Reserved shares
(Accumulated losses)/retained earnings
Reserves
Total equity
114
Wesfarmers 2019 Annual Report
Consolidated
2019
Note
$m
4
5
6
16
18
3
7
7
8
8
16
14
9
16
14
9
16
12
12
12
12
795
1,027
4,246
101
181
6,350
3,393
194
819
3,059
3,090
986
393
49
11,983
18,333
3,620
356
222
851
7
160
5,216
2,673
381
1
91
3,146
8,362
9,971
15,809
(81)
(208)
(5,549)
9,971
2018
$m
683
1,657
6,011
126
229
8,706
748
692
1,920
6,488
13,491
4,369
391
128
28,227
36,933
6,541
1,159
299
1,726
16
284
10,025
2,965
1,033
-
156
4,154
14,179
22,754
22,277
(43)
176
344
22,754
CASH FLOW STATEMENT
For the year ended 30 June 2019
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Dividends and distributions received from associates
Interest received
Borrowing costs
Income tax paid
Net cash flows from operating activities
Cash flows from investing activities
Payments for property, plant and equipment and intangibles
Proceeds from sale of property, plant and equipment and intangibles
Net proceeds from demerger and sale of businesses
Net proceeds from sale of associate
Acquisition of subsidiaries, net of cash acquired
Net redemption of loan notes
Net cash flows from/(used in) investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Equity dividends paid
Demerger transaction costs recognised directly in equity
Net cash flows used in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Consolidated
2019
Note
$m
2018
$m
48,770
(44,892)
65
27
(170)
(1,082)
2,718
(1,356)
529
858
231
(17)
-
245
2,000
(1,164)
(3,628)
(59)
(2,851)
112
683
795
4
4
4
4
75,354
(69,836)
50
15
(195)
(1,308)
4,080
(1,815)
606
534
-
-
17
(658)
688
(1,905)
(2,528)
(7)
(3,752)
(330)
1,013
683
Wesfarmers 2019 Annual Report
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Financial statements
STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2019
Attributable to equity holders of the parent
Issued
capital
Reserved
shares
Retained
earnings
Hedging
reserve
Demerger
reserve
Other
reserves
Total
equity
Note
$m
22,268
-
$m
(26)
-
$m
1,509
1,197
12
12
12
12
12
12
11
12
12
12
12
-
-
-
-
-
-
9
-
-
-
-
-
-
-
-
-
9
22,277
(17)
-
(17)
(43)
-
-
-
(1)
(1)
1,196
-
-
(2,529)
(2,529)
176
-
-
-
-
-
-
14
-
5,510
-
-
-
-
-
-
-
-
-
-
(1)
(1)
5,509
-
-
(2,264)
11,12,20
20
(6,482)
-
12
12
11
-
(5)
-
-
-
(6,468)
15,809
(33)
-
(38)
(81)
-
(3,629)
(5,893)
(208)
$m
(82)
-
-
-
160
-
160
160
-
-
-
-
78
-
-
(51)
-
(51)
(51)
-
-
-
-
-
-
-
27
$m
$m
$m
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
272
-
23,941
1,197
(7)
(2)
-
-
(9)
(9)
3
(7)
(2)
160
(1)
150
1,347
12
-
-
3
266
(17)
(2,529)
(2,534)
22,754
-
5,510
14
-
-
14
14
4
14
(51)
(1)
(38)
5,472
18
(8,124)
2,264
-
-
(14,606)
-
-
-
(5)
-
-
(5,860)
(5,860)
-
-
4
284
(33)
(3,629)
(18,255)
9,971
Consolidated
Balance at 1 July 2017
Net profit for the year
Other comprehensive income
Exchange differences on translation of
foreign operations
Exchange differences recognised in the
income statement on disposal of foreign
operations
Changes in the fair value of cash flow
hedges, net of tax
Remeasurement loss on defined benefit
plan, net of tax
Total other comprehensive income for the
year, net of tax
Total comprehensive income for the
year, net of tax
Share-based payment transactions
Acquisition of shares on-market for
Key Executive Equity Performance Plan
(KEEPP)
Equity dividends
Balance at 30 June 2018 and 1 July 2018
Net profit for the year
Other comprehensive income
Exchange differences on translation of
foreign operations
Changes in the fair value of cash flow
hedges, net of tax
Remeasurement loss on defined benefit
plan, net of tax
Total other comprehensive income for the
year, net of tax
Total comprehensive income for the year,
net of tax
Share-based payment transactions
Capital distribution and
demerger dividend
Transfer of gain on demerger
Acquisition of shares on-market for
Wesfarmers Long Term Incentive Plan
(WLTIP)
Acquisition of shares on-market for
Key Executive Equity Performance Plan
(KEEPP)
Equity dividends
Balance at 30 June 2019
116
Wesfarmers 2019 Annual Report
NOTES TO THE FINANCIAL STATEMENTS: ABOUT THIS REPORT
For the year ended 30 June 2019
About this report
Basis of consolidation
The consolidated financial statements comprise the financial
statements of the Group. A list of controlled entities (subsidiaries) at
year-end is contained in note 19.
The financial statements of subsidiaries are prepared for the
same reporting period as the parent company, using consistent
accounting policies. Adjustments are made to bring into line any
dissimilar accounting policies that may exist.
In preparing the consolidated financial statements, all intercompany
balances and transactions, income and expenses and profits and
losses resulting from intragroup transactions have been eliminated.
Subsidiaries are consolidated from the date on which control is
obtained to the date on which control is disposed. The acquisition
of subsidiaries is accounted for using the acquisition method of
accounting.
If the Group loses control over a subsidiary, it derecognises the
related assets (including goodwill), liabilities, non-controlling interest
and other components of equity, while any resultant gain or loss is
recognised in profit or loss. Any investment retained is recognised
at fair value.
Foreign currency
The functional currencies of overseas subsidiaries are listed in
note 19. As at the reporting date, the assets and liabilities of
overseas subsidiaries are translated into Australian dollars at the
rate of exchange ruling at the balance sheet date and the income
statements are translated at the average exchange rates for the
year. The exchange differences arising on the translation are taken
directly to a separate component of equity.
Transactions in foreign currencies are initially recorded in the
functional currency at the exchange rates ruling at the date of
the transaction. Monetary assets and liabilities denominated in
foreign currencies are translated at the rate of exchange ruling
at the balance sheet date. Exchange differences arising from the
application of these procedures are taken to the income statement,
with the exception of differences on foreign currency borrowings
that provide a hedge against a net investment in a foreign entity,
which are taken directly to equity until the disposal of the net
investment and are then recognised in the income statement. Tax
charges and credits attributable to exchange differences on those
borrowings are also recognised in equity.
Other accounting policies
Significant and other accounting policies that summarise the
measurement basis used and are relevant to an understanding of
the financial statements are provided throughout the notes to the
financial statements.
Wesfarmers Limited (referred to as ‘Wesfarmers’) is a for-profit
company limited by shares incorporated and domiciled in Australia
whose shares are publicly traded on the Australian Securities
Exchange. The nature of the operations and principal activities of
Wesfarmers and its subsidiaries (referred to as ‘the Group’) are
described in the segment information.
The consolidated financial report of the Group for the year ended
30 June 2019 was authorised for issue in accordance with a
resolution of the directors on 25 September 2019. The Directors
have the power to amend and reissue the financial report.
The financial report is a general purpose financial report which:
• has been prepared in accordance with the requirements of
the Corporations Act 2001, Australian Accounting Standards
and other authoritative pronouncements of the Australian
Accounting Standards Board (AASB) and International
Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB);
• has been prepared on a historical cost basis, except
for investments held by associates and certain financial
instruments which have been measured at fair value. The
carrying values of recognised assets and liabilities that are
the hedged items in fair value hedge relationships, which are
otherwise carried at amortised cost, are adjusted to record
changes in the fair values attributable to the risks that are
being hedged;
•
is presented in Australian dollars with all values rounded
to the nearest million dollars ($’000,000) unless otherwise
stated, in accordance with ASIC Corporations (Rounding in
Financial/Directors’ Reports) Instrument 2016/191;
• presents reclassified comparative information where required
for consistency with the current year’s presentation;
• adopts all new and amended Accounting Standards and
Interpretations issued by the AASB that are relevant to the
Group and effective for reporting periods beginning on or
before 1 July 2018. Refer to note 27 for further details; and
• does not early adopt Accounting Standards and
Interpretations that have been issued or amended but are not
yet effective.
Key judgements and estimates
In the process of applying the Group’s accounting policies,
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
122
124
126
127
128
129
143
145
153
Note 1
Revenue and other income
Note 3
Tax expense
Note 6
Inventories
Note 7
Property, plant and equipment
Note 8
Goodwill and intangible assets
Note 9
Provisions
Note 17
Impairment of non-financial assets
Note 18
Associates and joint arrangements
Note 21
Commitments and contingencies
Wesfarmers 2019 Annual Report
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Financial statements
NOTES TO THE FINANCIAL STATEMENTS: ABOUT THIS REPORT
For the year ended 30 June 2019
The notes to the financial statements
The notes include information which is required to understand the
financial statements and is material and relevant to the operations,
financial position and performance of the Group. Information is
considered material and relevant if, for example:
•
•
•
•
the amount in question is significant because of its size or
nature;
it is important for understanding the results of the Group;
it helps to explain the impact of significant changes in the
Group’s business – for example, acquisitions, disposals and
impairment writedowns; or
it relates to an aspect of the Group’s operations that is
important to its future performance.
The notes are organised into the following sections:
• Key numbers: provides a breakdown of individual line items
in the financial statements that the directors consider most
relevant and summarises the accounting policies, judgements
and estimates relevant to understanding these line items;
Significant items in the current reporting period
• Capital: provides information about the capital management
practices of the Group and shareholder returns for the year;
• Risk: discusses the Group’s exposure to various financial risks,
explains how these affect the Group’s financial position and
performance and what the Group does to manage these risks;
• Group structure: explains aspects of the group structure
and how changes have affected the financial position and
performance of the Group;
• Unrecognised items: provides information about items that are
not recognised in the financial statements but could potentially
have a significant impact on the Group’s financial position and
performance; and
• Other: provides information on items which require disclosure
to comply with Australian Accounting Standards and other
regulatory pronouncements. Except for the disclosure of the
impact of AASB 16 Leases, these are not considered critical
in understanding the financial performance or position of the
Group.
Completion of Coles demerger
Sale of indirect interest in Quadrant Energy
On 16 March 2018, Wesfarmers announced its intention to
demerge Coles and its subsidiaries. The demerger was completed
on 28 November 2018. Wesfarmers retained a 15 per cent
minority ownership in Coles, which is classified as an investment
in associate and accounted for using the equity method. The
remaining 85 per cent interest in Coles reflected a demerger
distribution.
The Coles business is presented as a discontinued operation. The
gain on demerger after tax is $2,264 million. Refer to note 20 for
further details.
Sale of Bengalla
On 7 August 2018, Wesfarmers announced that it had entered into
an agreement with New Hope Corporation to sell its 40 per cent
interest in Bengalla for $860 million subject to certain conditions,
including regulatory approval.
The transaction was completed on 3 December 2018 and Bengalla
is presented as a discontinued operation. The gain on disposal
after tax is $645 million. Refer to note 20 for further details.
Sale of KTAS
On 13 August 2018, Wesfarmers announced that it had entered
into an agreement with Continental A.G. to sell its KTAS business
for $350 million.
The transaction was completed on 1 November 2018 and KTAS is
presented as a discontinued operation. The gain on disposal after
tax is $244 million. Refer to note 20 for further details.
On 22 August 2018, Wesfarmers announced that it had agreed
to sell its interest in Australian Energy Consortium Pty Ltd (AEC),
which holds a 13.2 per cent interest in Quadrant Energy, to Santos
Limited for US$170 million (A$232 million).
The transaction was completed on 27 November 2018 and
Quadrant Energy has been presented as a discontinued operation.
The gain on disposal after tax is $120 million. Refer to note 20 for
further details.
Acquisition of Kidman Resources Limited
On 23 May 2019, Wesfarmers announced that it had entered into a
Scheme Implementation Deed with Kidman Resources
Limited (Kidman) under which it is proposed that Wesfarmers
will acquire 100 per cent of the outstanding shares in Kidman
for $1.90 per share by way of Scheme of Arrangement. The
transaction was completed on 23 September 2019.
Acquisition of Catch Group Holdings Limited
On 12 June 2019, Wesfarmers announced that it had entered into
an agreement to acquire Catch Group Holdings Limited for cash
consideration of $230 million. This transaction was completed on
12 August 2019. Refer to note 22 for further details.
118
Wesfarmers 2019 Annual Report
NOTES TO THE FINANCIAL STATEMENTS: SEGMENT INFORMATION
For the year ended 30 June 2019
Segment information
Industrials
The Group’s operating segments are organised and managed
separately according to the nature of the products and services
provided.
Each segment represents a strategic business unit that offers
different products and operates in different industries and markets.
The Board and executive management team (the chief operating
decision-makers) monitor the operating results of the business units
separately for the purpose of making decisions about resource
allocation and performance assessment.
The types of products and services from which each reportable
segment derives its revenues are disclosed below. Segment
performance is evaluated based on operating profit or loss (segment
result), which in certain respects, is presented differently from
operating profit or loss in the consolidated financial statements.
Interest income and expenditure are not allocated to operating
segments, as this type of activity is managed on a Group basis.
Transfer prices between business segments are set on an arm’s
length basis in a manner similar to transactions with third parties.
Segment revenue, expenses and results include transfers between
business segments. Those transfers are eliminated on consolidation
and are not considered material.
The operating segments and their respective types of products and
services are as follows:
Retail
Bunnings
• Retailer of building material and home and garden
improvement products; and
• Servicing project builders and the housing industry.
Kmart Group
Kmart
• Retailer of apparel and general merchandise, including toys,
leisure, entertainment, home and consumables.
Target
Chemicals, Energy and Fertilisers (WesCEF)
• Manufacturer and marketing of chemicals for industry, mining
and mineral processing;
• Manufacturer and marketing of broadacre and horticultural
fertilisers;
• Marketing and distributor of LPG and LNG;
• LPG and LNG extraction for domestic and export markets; and
• Manufacturer of wood-plastic composite decking and
screening products.
Industrial and Safety (WIS)
• Supplier and distributor of maintenance, repair and operating
products;
• Manufacturer and marketing of industrial gases and
equipment;
• Supplier, manufacturer and distributor of workwear clothing in
Australia and internationally;
• Specialised supplier and distributor of industrial safety
products and services; and
• Provider of risk management and compliance services.
Other
Includes:
• Food and staples retailing: 15.0 per cent interest in Coles
Group Limited;
• Forest products: non-controlling interest in Wespine Industries
Pty Ltd;
• Property: non-controlling interest in BWP Trust;
•
Investment banking: non-controlling interest in Gresham
Partners Group Limited;
• Private equity investment: non-controlling interests in Gresham
Private Equity Fund No. 2; and
• Corporate: includes treasury, head office, central support
functions and other corporate entity expenses. Corporate is
not considered an operating segment and includes activities
that are not allocated to other operating segments.
• Retailer of apparel, homewares and general merchandise,
including accessories, electricals and toys.
Seasonality
Officeworks
• Retailer and supplier of office products and solutions for
home, small-to-medium sized businesses and education.
Revenue and earnings of various businesses are affected by
seasonality and cyclicality as follows:
• For retail divisions, earnings are typically greater in the first half
of the financial year due to the impact of the Christmas holiday
shopping period; and
• For WesCEF, earnings are typically greater in the second
half of the financial year due to the impact of the Western
Australian winter season break on fertiliser sales.
Revenues by segment for FY20191
from continuing operations
Seasonality of revenues in FY2019
from continuing operations
JUL TO DEC
JAN TO JUN
Bunnings
Kmart Group
WesCEF
WIS
Officeworks
*Other: $12 million
$m
13,166
8,598
2,078
1,752
2,314
%
47.2
30.8
7.4
6.3
8.3
%
100
80
60
40
20
0
1. Revenue from contracts with customers disaggregated by segment is materially
RETAIL
WesCEF
GROUP
consistent with the disclosure above.
Wesfarmers 2019 Annual Report
119
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c
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t
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m
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s
A
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Financial statements
NOTES TO THE FINANCIAL STATEMENTS: SEGMENT INFORMATION
For the year ended 30 June 2019
CONTINUING OPERATIONS
BUNNINGS
2019
$m
2018
$m
KMART GROUP1, 2
2019
$m
2018
$m
INDUSTRIALS
WesCEF2
2019
$m
2018
$m
INDUSTRIALS
WIS
OFFICEWORKS
OTHER3
CONSOLIDATED
2019
$m
2018
$m
2019
$m
2018
$m
2018
$m
2019
$m
2018
$m
2019
$m
2018
$m
Segment revenue
13,166
12,544
8,598
8,505
2,078
1,830
1,752
1,750
2,314
2,142
(8)
27,920
26,763
16,764
43,115
1,818
(192)
1,626
-
1,683
(179)
1,504
-
733
(193)
540
-
820
(194)
626
(306)
513
(80)
433
-
458
(79)
379
-
124
(38)
86
-
159
(41)
118
-
195
(28)
167
-
181
(25)
156
-
5,118
17
5,025
17
3,755
-
3,559
-
1,563
89
1,539
92
1,752
1,698
1,531
1,452
-
-
-
-
(1,983)
(1,875)
(1,476)
(1,426)
(392)
(343)
(348)
(335)
(559)
(532)
Adjusted EBITDA7
Depreciation and amortisation
Segment result
Items not included in segment result5,6
EBIT
Finance costs
Profit before income tax expense
Income tax expense
Profit attributable to members of the parent
Other segment information
Segment assets
Investments in associates and joint ventures
Tax assets
Total assets
Segment liabilities
Tax liabilities
Interest-bearing loans and borrowings
Total liabilities
Segment net assets
Other net assets8
Net assets
3,152
(2,599)
553
3,167
(3,098)
69
2,279
(488)
1,791
2,133
(45)
2,088
Capital expenditure9
470
497
199
286
Share of net profit or loss of associates and joint
ventures included in EBIT
-
-
-
-
1,260
(768)
492
58
14
1,288
(709)
579
60
18
(3,029)
(4,124)
1,404
(1,008)
396
83
-
1,363
(631)
732
50
-
972
40
1,012
42
-
920
8
928
45
-
DISCONTINUED
OPERATIONS4,5
2019
$m
12
128
(6)
122
-
1,027
3,287
194
(353)
(222)
904
4,823
5,727
-
215
(130)
(3)
(133)
-
721
529
692
(553)
(299)
(3,034)
4,662
1,628
2
56
3,511
(537)
2,974
-
2,974
(175)
2,799
(859)
1,940
(5,111)
(222)
(3,029)
(8,362)
9,971
-
9,971
852
229
3,171
(521)
2,650
(306)
2,344
(210)
2,134
(725)
1,409
(5,064)
(299)
(4,124)
(9,487)
5,837
187
6,024
859
(272)
587
3,257
3,844
-
3,844
(274)
3,570
-
-
-
-
-
-
-
-
-
-
-
2,400
(762)
1,638
(1,186)
452
(11)
441
(653)
(212)
21,499
110
-
21,609
(4,692)
-
-
(4,692)
16,917
(187)
16,730
940
426
922
74
4
23
14,746
3,393
194
13,994
638
692
18,333
15,324
1
2
3
The Department Stores Division has been renamed Kmart Group.
The Kmart Group result excludes KTAS and the WesCEF result excludes Quadrant Energy as they are discontinued operations.
The 2019 Other result includes the gain on disposal of Wesfarmers' direct and indirect interest in Barminco and subsequent increase in the fair value of Wesfarmers' indirect interest in
Ausdrill shares totalling $61 million and share of profits from Wesfarmers' 15 per cent interest in Coles.
4 Discontinued operations relate to Bengalla, KTAS and Quadrant Energy which were disposed of during the 2019 financial year, BUKI and the Curragh Coal Mine which were disposed of
during the 2018 financial year, as well as Coles which was demerged in November 2018.
5
6
7
The 2019 segment result excludes the $2,319 million pre-tax gain on demerger of Coles, the $679 million pre-tax gain on disposal of Bengalla, the $267 million pre-tax gain on disposal
of KTAS, the $138 million (US$98 million) pre-tax gain on disposal of Quadrant Energy and $146 million provision for Coles supply chain automation.
The 2018 segment result from continuing operations excludes Target's pre-tax impairment of $306 million. The 2018 segment result from discontinued operations excludes BUKI's
pre-tax writedown 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 gain on disposal of the Curragh Coal Mine. Refer to note 17 for further information on the Target impairment and BUKI writedown.
Adjusted EBITDA represents earnings before interest, tax, depreciation, amortisation and other items not included in the segment results outlined in footnotes 5 and 6.
8 Other net assets relate predominantly to intercompany financing arrangements and segment tax balances.
9 Capital expenditure includes accruals to represent costs incurred during the year. The amount excluding movements in accruals from continuing and discontinued operations is
$1,356 million (2018: $1,815 million).
120
Wesfarmers 2019 Annual Report
BUNNINGS
KMART GROUP1, 2
2019
$m
2018
$m
2019
$m
2018
$m
2019
$m
2018
$m
INDUSTRIALS
WesCEF2
CONTINUING OPERATIONS
Segment revenue
Adjusted EBITDA7
Depreciation and amortisation
Segment result
Items not included in segment result5,6
EBIT
Finance costs
Profit before income tax expense
Income tax expense
Profit attributable to members of the parent
Other segment information
Segment assets
Investments in associates and joint ventures
Interest-bearing loans and borrowings
Tax assets
Total assets
Segment liabilities
Tax liabilities
Total liabilities
Segment net assets
Other net assets8
Net assets
Capital expenditure9
13,166
12,544
8,598
8,505
2,078
1,830
1,752
1,750
2,314
2,142
1,818
(192)
1,626
-
1,683
(179)
1,504
-
733
(193)
540
-
820
(194)
626
(306)
513
(80)
433
-
458
(79)
379
-
124
(38)
86
-
159
(41)
118
-
195
(28)
167
-
181
(25)
156
-
2019
$m
2018
$m
2019
$m
2018
$m
5,118
17
5,025
17
3,755
3,559
-
-
1,563
89
1,539
92
1,752
-
1,698
-
1,531
-
1,452
-
(1,983)
(1,875)
(1,476)
(1,426)
(392)
(343)
(348)
(335)
(559)
(532)
Share of net profit or loss of associates and joint
ventures included in EBIT
-
-
-
-
3,152
(2,599)
553
3,167
(3,098)
69
2,279
(488)
1,791
2,133
(45)
2,088
470
497
199
286
1,260
(768)
492
58
14
1,288
(709)
579
60
18
1,404
(1,008)
396
83
-
1,363
(631)
732
50
-
972
40
1,012
42
-
920
8
928
45
-
Capital expenditure by segment for FY2019
from continuing operations
NOTES TO THE FINANCIAL STATEMENTS: SEGMENT INFORMATION
For the year ended 30 June 2019
INDUSTRIALS
WIS
OFFICEWORKS
OTHER3
CONSOLIDATED
DISCONTINUED
OPERATIONS4,5
2019
$m
12
128
(6)
122
-
1,027
3,287
194
(353)
(222)
(3,029)
904
4,823
5,727
-
215
2018
$m
2019
$m
2018
$m
2019
$m
2018
$m
(8)
27,920
26,763
16,764
43,115
(130)
(3)
(133)
-
721
529
692
(553)
(299)
(4,124)
(3,034)
4,662
1,628
2
56
3,511
(537)
2,974
-
2,974
(175)
2,799
(859)
1,940
14,746
3,393
194
18,333
(5,111)
(222)
(3,029)
(8,362)
9,971
-
9,971
852
229
3,171
(521)
2,650
(306)
2,344
(210)
2,134
(725)
1,409
13,994
638
692
15,324
(5,064)
(299)
(4,124)
(9,487)
5,837
187
6,024
859
(272)
587
3,257
3,844
-
3,844
(274)
3,570
-
-
-
-
-
-
-
-
-
-
-
2,400
(762)
1,638
(1,186)
452
(11)
441
(653)
(212)
21,499
110
-
21,609
(4,692)
-
-
(4,692)
16,917
(187)
16,730
940
426
922
74
4
23
Geographical information
The table below provides information on the geographical location
of revenue and non-current assets (other than financial instruments,
deferred tax assets and pension assets). Revenue from external
customers is allocated to a geography based on the location of the
operation in which it was derived. Non-current assets are allocated
based on the location of the operation to which they relate. Revenue
relating to discontinued operations has been excluded.
Revenue1
2019
$m
2018
$m
Non-current
assets
2019
$m
2018
$m
25,786
2,066
41
27
27,920
24,789
1,912
42
20
26,763
11,082
257
4
10
11,353
26,856
203
4
6
27,069
Australia
New Zealand
United Kingdom
Other foreign countries
1 Revenue from contracts with customers disaggregated by geographic location is
materially consistent with the disclosure above.
Wesfarmers 2019 Annual Report
121
Bunnings
Kmart Group
WesCEF
WIS
Officeworks
$m
470
199
58
83
42
%
55.2
23.4
6.8
9.7
4.9
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Financial statements
NOTES TO THE FINANCIAL STATEMENTS: KEY NUMBERS
For the year ended 30 June 2019
1. Revenue and other income
from continuing operations
Revenue from contracts with customers1
Interest revenue
Other
Revenue
Gains on disposal of property, plant and
equipment and other assets
Other
Other income
Consolidated
2019
$m
2018
$m
27,818
26
76
27,920
26,720
8
35
26,763
124
115
239
25
74
99
1
The Group initially applied AASB 15 Revenue from Contracts with Customers
using the modified retrospective approach at the date of initial application, being
1 July 2018. Refer to note 27 for further details. Under this method, comparative
information has not been restated.
Recognition and measurement
Revenue from contracts with customers
Revenue from contracts with customers is recognised when
control of the goods or services is transferred to the customer at an
amount that reflects the consideration to which the Group expects
to be entitled in exchange for those goods or services.
The Group generates a significant proportion of its revenue from
the sale of the following finished goods:
• Merchandise direct to customers through the Group’s retail
operations. Control of goods typically passes at the point of
sale in store (refer to Bunnings, Kmart Group and Officeworks
in the Segment Note).
• Sales to commercial customers under contracts, of products:
i.
for which the Group has distribution rights, principally
related to industrial maintenance and industrial safety (refer
to WIS in the Segment Note); and
ii. produced or purchased by the Group including fertilisers,
chemicals, speciality gases, LPG and LNG (refer to
WesCEF in the Segment Note).
The Group's contracts with customers for the sale of goods
generally include one performance obligation. Revenue for the
sale of goods is recognised at the point in time when control of the
asset is transferred to the customer, typically at either the point of
sale or at the time of delivery of the goods to the customer. Cash
payment is generally received at the point of sale. Revenue from
lay-by transactions is recognised on the date when the customer
completes payment and takes possession of the merchandise. Any
cash received in advance of the completion of the performance
obligation is recognised on the balance sheet as a contract liability.
Where satisfaction of a performance obligation is completed over
time, revenue is recognised in line with the progress towards
complete satisfaction of the performance obligation. This is
typically in respect for services rendered and largely reflects
revenue of $52 million for FY2019 for the WIS division.
A right of return is not a separate performance obligation and
the Group recognises revenue net of estimated returns. A refund
liability and a corresponding asset in inventory representing the
right to recover the returned products from the customer is also
recognised.
The accounting policies in relation to revenue from contracts with
customers have been applied from 1 July 2018. For the accounting
policy applied for the period prior to 1 July 2018 refer to note 27.
122
Wesfarmers 2019 Annual Report
Other revenue
Interest revenue
Revenue is recognised as the interest accrues on the related
financial asset. Interest is determined using the effective interest
rate method, which applies the interest rate that exactly discounts
estimated future cash receipts over the expected life of the financial
instrument.
Dividends
Revenue from dividends, other than those arising from associates,
is recognised when the Group’s right to receive the payment is
established.
Operating lease rental revenue
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
over the term of the lease.
Key estimate: gift cards
Revenue from the sale of gift cards is recognised when
the card is redeemed and the customer purchases goods
by using the card, or when the gift card is no longer
expected to be redeemed (breakage). At 30 June 2019,
$83 million of revenue is deferred in relation to gift cards
(2018: $224 million). Gift card liabilities are contract liabilities
as payment has been received for a performance obligation
to be completed at a future point in time.
The key assumption in measuring the contract liability for
gift cards and vouchers is the expected breakage, which
is reviewed annually based on historical information. Any
reassessment of expected breakage in a particular year
impacts on the revenue recognised from expiry of gift
cards and vouchers (either increasing or decreasing). Any
reasonably possible change in the estimate is unlikely to
have a material impact.
Key judgement: flybuys
The Group is a participant in the flybuys loyalty program
whereby eligible customers are granted loyalty points based
on the dollars they spend. Following the demerger of Coles
and the loss of control of Loyalty Pacific Pty Ltd, the Group
has concluded that they are an agent in this arrangement
as the nature of the loyalty program is that flybuys is
responsible for supplying the awards to the customer and
as such the Group’s role is to only arrange for flybuys to
provide the goods or services.
The Group records the revenue associated with the loyalty
program upon satisfaction of the performance obligation,
being the issue of loyalty points to the customer at the point
of sale. Costs associated with the program are recognised in
raw materials and inventory expenses.
Total revenue
from continuing operations
$27,920m
$m
30,000
25,000
20,000
15,000
10,000
5,000
0
FY15
FY16
FY17
FY18
FY19
4.3%
$m
27,920
26,763
25,083
24,419
22,577
FY19
FY18
FY17
FY16
FY15
NOTES TO THE FINANCIAL STATEMENTS: KEY NUMBERS
For the year ended 30 June 2019
2. Expenses
from continuing operations
Remuneration, bonuses and on-costs
Superannuation expense
Share-based payments expense
Employee benefits expense
Minimum lease payments
Contingent rental payments
Other
Occupancy-related expenses
Depreciation
Amortisation of intangibles
Amortisation other
Depreciation and amortisation
Impairment of plant, equipment and other
assets
Impairment of freehold property
Impairment of goodwill
Impairment expenses
Repairs and maintenance
Utilities and office expenses
Insurance expenses
Other
Other expenses
Interest expense
Discount rate adjustment
Amortisation of debt establishment costs
Other finance related costs
Finance costs
Recognition and measurement
Consolidated
2019
$m
2018
$m
Occupancy-related expenses
Operating leases
4,140
303
82
4,525
1,176
76
281
1,533
424
47
66
537
-
-
-
-
219
440
113
426
1,198
153
7
3
12
175
3,918
288
84
4,290
1,095
83
296
1,474
416
42
63
521
303
23
47
373
172
426
169
497
1,264
181
11
5
13
210
Operating lease payments are recognised as an expense in the
income statement on a straight-line basis over the lease term.
Operating lease incentives are recognised as a liability when
received and released to the income statement on a straight-line
basis over the lease term.
Fixed rate increases to lease payments, excluding contingent or
index based rental increases, are recognised on a straight-line
basis over the lease term.
An asset or liability is recognised for the difference between the
amount paid and the lease expense recognised in earnings on a
straight-line basis.
Contingent rental payments
Contingent rental payments are made as a result of either
turnover-based rentals or movements in relevant indices. Such
payments are recognised in the income statement as they are
incurred.
Occupancy-related expenses by segment
from continuing operations
$m
1,800
1,500
1,200
900
600
300
0
Bunnings
Kmart Group
WesCEF
WIS
Officeworks
FY19
FY18
Depreciation and amortisation
Refer to notes 7 and 8 for details on depreciation and amortisation.
Employee benefits expense
The Group’s accounting policy for liabilities associated with
employee benefits is set out in note 9. The policy relating to
share-based payments is set out in note 28.
Impairment
Impairment expenses are recognised to the extent that the carrying
amounts of assets exceed their recoverable amounts. Refer to
notes 5 and 17 for further details on impairment.
The majority of employees in Australia and New Zealand are party
to a defined contribution superannuation scheme and receive
fixed contributions from Group companies and the Group’s
legal or constructive obligation is limited to these contributions.
Contributions to defined contribution funds are recognised as
an expense as they become payable. Prepaid contributions
are recognised as an asset to the extent that a cash refund
or a reduction in the future payment is available. The Group
also operates a defined benefit superannuation scheme, the
membership of which is now closed.
Employee benefits expense by segment
from continuing operations
$m
5,000
4,000
3,000
2,000
1,000
0
Bunnings
Kmart Group
WesCEF
WIS
Officeworks
Finance costs
Finance costs are recognised as an expense when they are
incurred, except for interest charges attributable to major projects
with substantial development and construction phases.
Provisions and other payables are discounted to their present
value when the effect of the time value of money is significant.
The impact of the unwinding of these discounts and any changes
to the discounting is shown as a discount rate adjustment in
finance costs.
Capitalisation of borrowing costs
To determine the amount of borrowing costs to be capitalised as
part of the costs of major construction projects, the Group uses
the weighted average interest rate (excluding non-interest costs)
applicable to its outstanding borrowings during the year. For 2019,
had there been major long-term construction projects, the weighted
average interest rate applicable would have been 4.66 per cent
(2018: 3.79 per cent).
FY19
FY18
Wesfarmers 2019 Annual Report
123
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Financial statements
NOTES TO THE FINANCIAL STATEMENTS: KEY NUMBERS
For the year ended 30 June 2019
3. Tax expense
Recognition and measurement
Consolidated
2019
$m
2018
$m
Current taxes
Current tax assets and liabilities are measured at the amount
expected to be recovered from or paid to taxation authorities at
the tax rates and tax laws enacted or substantively enacted by the
balance sheet date.
The major components of tax expense are:
Income statement (continuing operations)
Current income tax expense
Current year (paid or payable)
Adjustment for prior years
Deferred income tax expense
Temporary differences
Income tax reported in the income
statement
Statement of changes in equity
Net (loss)/gain on revaluing cash flow
hedges
Income tax (benefit)/expense reported
in equity
Tax reconciliation (continuing operations)
Profit before tax
Income tax rate at the statutory rate of 30%
Adjustments relating to prior years
Non-deductible items
Share of results of associates and joint
ventures
Other
Income tax on profit before tax
Deferred income tax in the balance
sheet relates to the following:
Provisions
Employee benefits
Accruals and other payables
Interest-bearing loans and borrowings
Derivatives
Inventories
Property, plant and equipment
Other individually insignificant balances
Deferred tax assets
Accelerated depreciation for tax
purposes
Derivatives
Accrued income and other
Intangible assets
Other individually insignificant balances
Deferred tax liabilities
Net deferred tax asset
Deferred income tax in the income
statement relates to the following:
Provisions
Depreciation, amortisation and
impairment
Other individually insignificant balances
Deferred tax expense
810
10
752
(8)
39
(19)
859
725
(24)
(24)
2,799
840
10
12
(14)
11
859
113
211
66
151
2
49
138
65
795
123
148
260
8
62
601
194
2
(13)
50
39
72
72
2,134
640
(8)
99
(4)
(2)
725
250
427
130
103
5
90
273
87
1,365
212
155
159
106
41
673
692
(5)
(20)
6
(19)
Refer to note 30 for tax transparency disclosures.
124
Wesfarmers 2019 Annual Report
Deferred taxes
Deferred income tax is provided using the full liability balance
sheet method. Deferred income tax assets are recognised for
all deductible temporary differences, carried forward unused tax
assets and unused tax losses, to the extent it is probable that
taxable profit will be available to utilise them.
The carrying amount of deferred income tax assets is reviewed at
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to utilise
them.
Deferred income tax assets and liabilities are measured at the
tax rates that are expected to apply to the year when the asset is
realised or the liability is settled, based on tax rates and tax laws
that have been enacted or substantively enacted at the balance
sheet date.
Deferred income tax is provided on temporary differences at
balance sheet date between accounting carrying amounts and the
tax bases of assets and liabilities, other than for the following:
• Where they arise from the initial recognition of an asset or
liability in a transaction that is not a business combination and
at the time of the transaction, affects neither the accounting
profit nor taxable profit or loss.
• Where taxable temporary differences relate to investments in
subsidiaries, associates and interests in joint ventures:
1. Deferred tax liabilities are not recognised if the timing of the
reversal of the temporary differences can be controlled and
it is probable that the temporary differences will not reverse
in the foreseeable future.
2. Deferred tax assets are not recognised if it is not
probable that the temporary differences will reverse in the
foreseeable future and taxable profit will not be available to
utilise the temporary differences.
Deferred tax liabilities are also not recognised on recognition of
goodwill.
Income taxes relating to items recognised directly in equity are
recognised in equity and not in the income statement.
Offsetting deferred tax balances
Deferred tax assets and deferred tax liabilities are offset only if a
legally enforceable right exists to set off current tax assets against
current tax liabilities and the deferred tax assets and liabilities relate
to the same taxable entity and the same taxation authority.
Key estimate: unrecognised deferred tax assets
Capital losses: The Group has unrecognised benefits
relating to carried forward capital losses, which can only
be offset against eligible capital gains. The Group has
determined that at this stage future eligible capital gains to
utilise the tax assets are not currently sufficiently probable.
The unrecognised deferred tax assets of $39 million
(2018: $119 million) relate wholly to capital losses in Australia.
Key judgement: unrecognised deferred tax liability
A deferred tax liability has not been recognised on indefinite
life intangibles for which the carrying value has been
assessed as recoverable through sale, consistent with the
Group’s practice and strategy to maximise shareholder
returns.
NOTES TO THE FINANCIAL STATEMENTS: KEY NUMBERS
For the year ended 30 June 2019
4. Cash and cash equivalents
For the purpose of the cash flow
statement, cash and cash equivalents
comprise the following:
Cash on hand and in transit
Cash at bank and on deposit
Reconciliation of net profit after tax to
net cash flows from operations
Net profit
Non-cash items
Depreciation and amortisation
Impairment and writedowns of assets
(Gain)/loss on disposal/demerger of
businesses
Net gain on disposal of non-current
assets including investments and
associates
Share of net (profits)/losses of
associates and joint ventures
Dividends and distributions received
from associates
Discount adjustment in borrowing costs
Other
(Increase)/decrease in assets
Receivables - trade and other
Inventories
Prepayments
Deferred tax assets
Other assets
Increase/(decrease) in liabilities
Trade and other payables
Current tax payable
Provisions
Other liabilities
Net cash flows from operating activities
Net cash capital expenditure
Cash capital expenditure
Payment for property
Payment for plant and equipment
Payment for intangibles
Consolidated
2019
$m
2018
$m
266
529
795
492
191
683
4. Cash and cash equivalents (continued)
Recognition and measurement
Cash at bank and on deposit
Cash and short-term deposits in the balance sheet comprise cash
at bank and on hand, and short-term deposits with an original
maturity of three months or less and are classified as financial
assets held at amortised cost.
Cash at bank earns interest at floating rates based on daily bank
deposit rates. Short-term deposits are made for varying periods of
between one day and three months, depending on the immediate
cash requirements of the Group, and earn interest at the respective
deposit rates. Refer to note 15(d) for credit risk disclosures.
5,510
1,197
5. Receivables
810
23
1,283
1,216
(3,266)
254
(249)
(233)
65
7
(39)
109
(557)
(83)
130
(3)
(9)
(97)
50
22
3
(215)
(54)
(10)
61
(2)
473
(78)
129
(30)
2,718
279
8
42
52
4,080
323
975
58
1,356
411
1,171
233
1,815
Trade and other
Trade receivables
Allowance for credit losses
Other debtors
Allowance for credit losses
Movements in the allowance account for
credit losses were as follows:
Carrying value at beginning of year
Allowance for credit losses recognised
Unused amount reversed
Disposal/demerger of controlled entities
Allowance for credit losses at year-end
Consolidated
2019
$m
2018
$m
948
(47)
126
1,027
1,351
(58)
364
1,657
58
3
(2)
(12)
47
60
2
(4)
-
58
Set out below is the information about the credit risk exposure on
the Group's trade receivables and other debtors using a provision
matrix.
Estimated
total gross
carrying
amount at
default
$m
784
141
40
22
87
1,074
Expected
credit loss
rate
%
Lifetime
expected
credit loss
$m
0.3
0.8
3.8
5.0
46.9
2
1
2
1
41
47
Days past due
Current
Under one month
One to two months
Two to three months
Over three months
Total
Less: Proceeds from sale of property, plant,
equipment and intangibles
Net cash capital expenditure
529
827
606
1,209
Wesfarmers 2019 Annual Report
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Financial statements
NOTES TO THE FINANCIAL STATEMENTS: KEY NUMBERS
For the year ended 30 June 2019
5. Receivables (continued)
Recognition and measurement
6. Inventories
Consolidated
2019
$m
2018
$m
30
-
4,209
7
4,246
37
2
5,972
-
6,011
Raw materials
Work in progress
Finished goods
Right of return assets
Inventories recognised as an expense from continuing operations
for the year ended 30 June 2019 totalled $18,072 million
(2018: $17,198 million).
Recognition and measurement
Inventories are valued at the lower of cost and net realisable value.
The net realisable value of inventories is the estimated selling price
in the ordinary course of business less estimated costs to sell.
Key estimate: net realisable value
The key assumptions, which require the use of management
judgement, are the variables affecting costs recognised in
bringing the inventory to their location and condition for sale,
estimated costs to sell and the expected selling price. These
key assumptions are reviewed at least annually. The total
expense relating to inventory writedowns from continuing
operations during the year was a net reversal of $3 million
(2018: expense of $10 million). Any reasonably possible
change in the estimate is unlikely to have a material impact.
Costs incurred in bringing each product to its present location and
condition are accounted for as follows:
• Raw materials: purchase cost on a weighted average basis.
• Manufactured finished goods and work in progress: cost of
direct materials and labour and a proportion of manufacturing
overheads based on normal operating capacity, but excluding
borrowing costs.
• Retail and wholesale merchandise finished goods: purchase
cost on a weighted average basis, after deducting any
settlement discounts, supplier rebates and including logistics
expenses incurred in bringing the inventories to their present
location and condition.
Volume-related supplier rebates, and supplier promotional rebates
where they exceed spend on promotional activities, are accounted
for as a reduction in the cost of inventory and recognised in the
income statement when the inventory is sold.
Key estimate: supplier rebates
The recognition of certain supplier rebates in the income
statement requires management to estimate both the volume
of purchases that will be made during a period of time and
the related product that was sold and remains in inventory
at reporting date. Management’s estimates are based on
existing and forecast inventory turnover levels and sales.
Reasonably possible changes in these estimates are unlikely
to have a material impact.
Trade receivables and other debtors are all classified as financial
assets held at amortised cost on the basis they are held with the
objective of collecting contractual cash flows and the cash flows
relate to payments of principal and interest on the principal amount
outstanding.
Trade receivables
Trade receivables generally have terms of up to 30 days. They are
recognised initially in accordance with the Group's revenue policy
and subsequently measured at amortised cost using the effective
interest method, less an allowance for impairment.
Customers who wish to trade on credit terms are subject to
extensive credit verification procedures. Receivable balances are
monitored on an ongoing basis and the Group’s exposure to bad
debts is not significant. With respect to trade receivables that
are neither impaired nor past due, there are no indications as of
the reporting date that the debtors will not meet their payment
obligations.
Other debtors
These amounts generally arise from transactions outside the usual
operating activities of the Group. They do not contain impaired
assets and are not past due. Based on the credit history, it is
expected that these other balances will be received when due.
Impairment of trade receivables and other debtors
Collectability and impairment of trade receivables and other
debtors are assessed on an ongoing basis at a divisional level. The
Group applies a simplified approach in calculating forward-looking
expected credit losses (ECLs) for trade receivables. Therefore, the
Group does not track changes in credit risk but instead recognises
a loss allowance based on lifetime ECLs at each reporting date.
The Group has established a provision matrix that is based on
its historical credit loss experience, adjusted for forward-looking
factors specific to debtors and the economic climate.
The accounting policy in relation to impairment of trade receivables
and other debtors has been applied from 1 July 2018. For the
accounting policy applied for the period prior to 1 July 2018 refer
to note 27.
126
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NOTES TO THE FINANCIAL STATEMENTS: KEY NUMBERS
For the year ended 30 June 2019
7. Property, plant and equipment
Consolidated
Year ended 30 June 2019
Cost
Accumulated depreciation and impairment
Net carrying amount
Movement
Net carrying amount at the beginning of the year
Additions
Disposals and write-offs
Depreciation and amortisation
Transfers between classes
Other including foreign exchange movements
Net carrying amount at the end of the year
Assets under construction included above:
Year ended 30 June 2018
Cost
Accumulated depreciation and impairment
Net carrying amount
Movement
Net carrying amount at the beginning of the year
Additions
Disposals and write-offs
Depreciation and amortisation
Transfers between classes
Other including foreign exchange movements
Net carrying amount at the end of the year
Assets under construction included above:
PROPERTY
PLANT AND EQUIPMENT
Land
$m
Buildings
$m
Lease hold
improvements
$m
Plant,
vehicles and
equipment
$m
Mineral
lease and
development
$m
Total
$m
448
-
448
1,142
108
(802)
-
-
-
448
-
1,142
-
1,142
1,334
229
(419)
-
-
(2)
1,142
-
519
(148)
371
778
203
(595)
(12)
(4)
1
371
99
938
(160)
778
861
186
(230)
(20)
(19)
-
778
237
793
(351)
442
906
123
(497)
(95)
4
1
442
39
6,705
(4,088)
2,617
5,484
772
(3,037)
(607)
-
5
2,617
200
-
-
-
8,465
(4,587)
3,878
98
1
(99)
-
-
-
-
8,408
1,207
(5,030)
(714)
-
7
3,878
-
338
1,734
(828)
906
12,620
(7,136)
5,484
158
(60)
98
16,592
(8,184)
8,408
913
193
(173)
(152)
123
2
906
97
5,865
1,013
(474)
(939)
12
7
5,484
477
467
17
(246)
(19)
(116)
(5)
98
9,440
1,638
(1,542)
(1,130)
-
2
8,408
-
811
Recognition and measurement
The carrying value of property, plant and equipment is measured
as the cost of the asset, less accumulated depreciation and
impairment. The cost of the asset also includes the cost of
replacing parts that are eligible for capitalisation, and the cost of
major inspections.
Depreciation and amortisation
Items of property, plant and equipment are depreciated on a
straight-line basis over their useful lives. The estimated useful life of
buildings is between 20 and 40 years and plant and equipment is
between 3 and 40 years. Land is not depreciated.
Expenditure on mining areas of interest in which production has
commenced is amortised over the life of the mine, based on the
rate of depletion of the economically recoverable reserves.
Leasehold improvements are amortised over the period of the lease
or the anticipated useful life of the improvements, whichever is
shorter.
Derecognition
An item of property, plant and equipment is derecognised when it is
sold or otherwise disposed of, or when its use is expected to bring
no future economic benefits. Any gain or loss from derecognising
the asset (the difference between the proceeds of disposal and the
carrying amount of the asset) is included in the income statement in
the period the item is derecognised.
Impairment
Refer to note 17 for details on impairment testing.
Key estimates: property, plant and equipment
The estimations of useful lives, residual value and
amortisation methods require management judgement and
are reviewed annually. If they need to be modified, the change
is accounted for prospectively from the date of reassessment
until the end of the revised useful life (for both the current
and future years). Such revisions are generally required when
there are changes in economic circumstances impacting
specific assets or groups of assets, such as changes in store
performance or changes in the long-term commodity price
forecasts. These changes are limited to specific assets and
as such, any reasonably possible change in the estimate is
unlikely to have a material impact on the estimations of useful
lives, residual value or amortisation methods.
Wesfarmers 2019 Annual Report
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Financial statements
NOTES TO THE FINANCIAL STATEMENTS: KEY NUMBERS
For the year ended 30 June 2019
8. Goodwill and intangible assets
Consolidated
Year ended 30 June 2019
Cost
Accumulated amortisation and impairment
Net carrying amount
Movement
Net carrying amount at the beginning of the year
Additions
Disposals and write-offs
Amortisation for the year
Other including foreign exchange movements
Net carrying amount at end of year
Year ended 30 June 2018
Cost
Accumulated amortisation and impairment
Net carrying amount
Movement
Net carrying amount at the beginning of the year
Additions
Disposals and write-offs
Amortisation for the year
Impairment charge
Other including foreign exchange movements
Net carrying amount at end of year
GOODWILL
INTANGIBLE ASSETS
Goodwill
$m
Brand
$m
Contractual
and non-
contractual
relationships1
$m
Gaming
and liquor
licences
$m
Software
$m
3,313
(223)
3,090
13,491
21
(10,422)
-
-
3,090
15,647
(2,156)
13,491
14,360
2
(78)
-
(825)
32
13,491
855
(24)
831
3,654
-
(2,821)
(2)
-
831
3,918
(264)
3,654
3,812
100
-
(4)
(256)
2
3,654
44
(22)
22
38
-
(13)
(3)
-
22
57
(19)
38
41
-
-
(3)
-
-
38
313
(180)
133
519
50
(346)
(90)
-
133
1,401
(882)
519
566
121
(17)
(146)
(2)
(3)
519
-
-
-
158
-
(158)
-
-
-
158
-
158
157
1
-
-
-
-
158
Total
$m
4,525
(449)
4,076
17,860
71
(13,760)
(95)
-
4,076
21,181
(3,321)
17,860
18,936
224
(95)
(153)
(1,083)
31
17,860
1 Contractual and non-contractual relationships are intangible assets that have arisen through business combinations. They represent the value of pre-existing customer
relationships in the acquired company.
Recognition and measurement
A summary of the useful lives of intangible assets is as follows:
Goodwill
Goodwill acquired in a business combination is initially measured
at cost. Cost is measured as the cost of the business combination
minus the net fair value of the acquired and identifiable assets,
liabilities and contingent liabilities. Following initial recognition,
goodwill is measured at cost less any accumulated impairment
losses. Refer to note 17 for further details on impairment.
Intangible assets
Intangible assets acquired separately are measured on initial
recognition at cost. The cost of intangible assets acquired in a
business combination is their fair value at the date of acquisition.
Following initial recognition, intangible assets are carried at cost
less amortisation and any impairment losses. Intangible assets
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
method is reviewed at each financial year-end. Intangible assets
with indefinite lives are tested for impairment in the same way as
goodwill.
Intangible asset
Useful life
Brand1
Contractual and
non-contractual relationships
Indefinite and finite
(up to 20 years)
Finite (up to 15 years)
Software
Finite (up to seven years)
Gaming and liquor licences
Indefinite
1
Includes trade names and other intangible assets with characteristics of a
brand.
Assets with an assumed indefinite useful life are reviewed at each
reporting period to determine whether this assumption continues to
be appropriate. If not, it is changed to a finite life and accounted for
prospectively as a change in accounting estimate.
Key judgement: useful lives of intangible assets
Certain brands have been assessed as having indefinite lives
on the basis of strong brand strength, ongoing expected
profitability and continuing support. The brand incorporates
complementary assets such as store formats, networks and
product offerings.
128
Wesfarmers 2019 Annual Report
NOTES TO THE FINANCIAL STATEMENTS: KEY NUMBERS
For the year ended 30 June 2019
8. Goodwill and intangible assets (continued)
9. Provisions
Allocation of goodwill to groups of cash
generating units
Carrying amount of goodwill
Bunnings
Kmart Group
WesCEF
WIS
Officeworks
Coles
Allocation of indefinite life intangible
assets to groups of cash generating
units
Carrying amount of intangibles
Bunnings
Kmart Group
WIS
Officeworks
Coles
Consolidated
2019
$m
2018
$m
868
716
2
686
818
-
3,090
868
759
2
686
799
10,377
13,491
1
649
22
160
-
832
1
660
22
160
2,963
3,806
Impairment
Refer to note 17 for details on impairment testing.
Current
Employee benefits
Self-insured risks
Restructuring and make good
Lease provision
Off-market contracts
Other
Non-current
Employee benefits
Self-insured risks
Mine rehabilitation
Restructuring and make good
Lease provision
Off-market contracts
Other
Total provisions
Consolidated
2019
$m
2018
$m
605
127
39
-
1
79
851
84
109
-
44
138
2
4
381
1,232
1,194
241
54
2
5
230
1,726
167
344
45
26
250
12
189
1,033
2,759
Recognition and measurement
Provisions are recognised when:
•
•
the Group has a present obligation (legal or constructive) as a
result of a past event;
it is probable that resources will be expended to settle the
obligation; and
• a reliable estimate can be made of the amount of the
obligation.
Key estimate: discounting
Provisions, other than employee benefits, are determined by
discounting the expected future cash flows at a pre-tax rate
that reflects current market assessments of the time value of
money and the risks specific to the liability to the extent they
are not included in the cash flows.
Employee benefit provision balances are calculated using
discount rates derived from the high quality corporate bond
(HQCB) market in Australia provided by Milliman Australia.
Employee benefit provisions have been calculated using
discount rates of between 1.5 and 2.9 per cent
(2018: between 2.5 and 4.0 per cent).
Wesfarmers 2019 Annual Report
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Financial statements
NOTES TO THE FINANCIAL STATEMENTS: KEY NUMBERS
For the year ended 30 June 2019
9. Provisions (continued)
Employee benefits
The provision for employee benefits represents annual leave, long
service leave entitlements and incentives accrued by employees.
Wages and salaries
Liabilities for wages and salaries, including non-monetary benefits
expected to be settled within 12 months of the reporting date,
are recognised in provisions and other payables in respect of
employees’ services up to the reporting date. They are measured at
the amounts expected to be paid when the liabilities are settled.
Annual leave and long service leave
The liability for annual leave and long service leave is recognised in
the provision for employee benefits. It is measured as the present
value of expected future payments for the services provided by
employees up to the reporting date. Expected future payments are
discounted using market yields at the reporting date on HQCB with
terms to maturity and currencies that match, as closely as possible,
the estimated future cash outflows.
Key estimate: long service leave
Long service leave is measured using the projected unit credit
method. Management judgement is required in determining
the following key assumptions used in the calculation of long
service leave at balance sheet date:
•
•
•
future increases in salaries and wages;
future on-cost rates; and
future probability of employee departures and period of
service.
The total long service leave liability is $327 million
(2018: $623 million). Given the magnitude of the liability and
the nature of the key assumptions, any reasonably possible
change in one or a combination of the estimates is unlikely to
have a material impact.
Lease provision
The lease provision covers stepped lease arrangements to enable
the lease expenses to be recognised on a straight-line basis over
the lease term. The lease provision also includes future payments
for leased premises that are surplus to the Group's requirements,
net of actual and expected sub-leasing revenue. Actual lease
payments may vary from the amounts provided where alternate
uses are found for these premises, including attraction of new
tenants.
Off-market contracts
When undertaking business acquisitions, the Group often takes
on responsibility for contracts that are in place within the acquiree.
Changes in market conditions may result in the original terms of
the contract becoming unfavourable in comparison to market
conditions present at the date of acquisition.
The obligation for future above-market payments are provided
for, calculated using the discount rate determined at acquisition
date. The provision is released to earnings over the duration of the
contract.
Self-insured risks
The Group is self-insured for workers’ compensation and general
liability claims. Provisions are recognised based on claims reported,
and an estimate of claims incurred but not reported. These
provisions are determined on a discounted basis, using an actuary
valuation performed at each reporting date.
Key estimate: self-insured risks
The self-insured risk liability is based on a number of
management estimates including, but not limited to:
•
•
future inflation;
investment return;
• average claim size;
• claim development; and
• claim administration expenses.
These assumptions are reviewed periodically and any
reassessment of these assumptions will affect workers’
compensation or claims expense (either increasing or
decreasing the expense). Any reasonable change in these
assumptions will not have a significant impact on the Group.
Mine rehabilitation
Mining lease agreements impose obligations to remediate areas
where mining activity has taken place. Provisions for remediation
have been calculated assuming current technologies. As part of the
valuation methodology, the risks are incorporated in the cash flows
rather than the discount rates.
Restructuring and make good
These provisions relate principally to:
•
•
the closure of retail outlets or distribution centres;
restructuring; and
• associated redundancies.
Provisions for restructuring are recognised where steps have been
taken to implement a detailed plan, including discussions with
affected personnel.
Consolidated
Carrying amount at 1 July 2017
Arising during year
Utilised
Disposal/demerger of controlled entities
Carrying amount at 30 June 2018 and 1 July 2018
Arising during year
Utilised
Disposal/demerger of controlled entities
Carrying amount at 30 June 2019
130
Wesfarmers 2019 Annual Report
Lease
provision
$m
Off-
market
contracts
$m
Self-
insured
risks
$m
Mine
rehabilitation
$m
235
22
(5)
-
252
10
(2)
(122)
138
234
5
(33)
(189)
17
-
(6)
(8)
3
616
201
(232)
-
585
141
(136)
(354)
236
269
22
(1)
(245)
45
1
-
(46)
-
Restructuring
and make
good Other
$m
$m
Total
$m
231
40
(74)
(117)
80
182
(34)
(145)
83
339
322
(229)
(13)
419
36
(25)
(347)
83
1,924
612
(574)
(564)
1,398
370
(203)
(1,022)
543
NOTES TO THE FINANCIAL STATEMENTS: CAPITAL
For the year ended 30 June 2019
10. Capital management
The Group’s capital management objectives
The primary objective of Wesfarmers is to provide a satisfactory
return to its shareholders. The Group aims to achieve this objective
by:
•
improving returns on invested capital relative to that cost of
capital; and
• ensuring a satisfactory return is made on any new capital
invested.
Capital is defined as the combination of shareholders’ equity,
reserves and net financial debt. The Board is responsible for
monitoring and approving the capital management framework
within which management operates. The purpose of the framework
is to safeguard the Group’s ability to continue as a going concern
while optimising its debt and equity structure. Wesfarmers aims
to maintain a capital structure that is consistent with a stable
investment grade credit rating.
Consolidated
2019
$m
2018
$m
Note
Equity and reserves
Issued capital
Reserved shares
(Accumulated losses)/retained
earnings
Reserves
Net debt
Total interest-bearing debt
Less: cash and cash equivalents
Total capital employed
12
12
12
12
14
4
15,809
(81)
(208)
(5,549)
9,971
3,029
(795)
2,234
12,205
22,277
(43)
176
344
22,754
4,124
(683)
3,441
26,195
The Group manages its capital through various means, including:
• adjusting the amount of ordinary dividends paid to
shareholders;
• maintaining a dividend investment plan;
•
•
raising or returning capital; and
raising or repaying debt for working capital requirements,
capital expenditure and acquisitions.
Wesfarmers regularly monitors its capital requirements using
various benchmarks, with the main internal measures being
cash interest cover, debt cover and fixed charges cover. The
principal external measures are the Group’s credit ratings from
Standard & Poor’s and Moody’s.
Shareholder distributions
Interim dividend
Special dividend
$/share
Final dividend (FY19: proposed)
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2015
2016
2017
2018
2019
Cash interest cover
Profit before income tax
Finance costs
Depreciation and amortisation
EBITDA (A)
Net cash interest paid (B)
Cash interest cover (times) (A/B)
Adjusted EBITDA2,3 (C)
Cash interest cover (times) (C/B)
(applying adjusted EBITDA)
Debt cover
Total interest-bearing debt
Less: cash and cash equivalents
Net financial debt (D)
EBITDA (A)
Debt cover (times) (D/A)
Adjusted EBITDA2,3 (C)
Debt cover (times) (D/C)
(applying adjusted EBITDA)
Fixed charges cover
EBITDA (A)
Minimum lease payments
EBITDA plus minimum lease
payments (E)
Finance costs (net of discount
adjustment) and minimum lease
payments (F)
Fixed charges cover (times) (E/F)
Adjusted EBITDA2,3 (C)
Minimum lease payments
Adjusted EBITDA plus minimum
lease payments (G)
Fixed charges cover (times) (G/F)
(applying adjusted EBITDA)
Consolidated1
2019
$m
6,643
175
809
7,627
143
53.3
4,370
2018
$m
2,575
221
1,283
4,079
183
22.3
5,571
30.6
30.4
3,029
(795)
2,234
7,627
0.3
4,370
4,124
(683)
3,441
4,079
0.8
5,571
0.5
0.6
7,627
1,707
4,079
2,490
9,334
6,569
1,875
5.0
4,370
1,707
2,689
2.4
5,571
2,490
6,077
8,061
3.2
3.0
Group credit ratings
Standard & Poor’s
Moody’s
A–(stable)
A3(stable)
A–(stable)
A3(stable)
1
2
3
The income statement metrics include both continuing and discontinued
operations.
The FY2019 adjusted EBITDA excludes the $2,319 million pre-tax gain on
demerger of Coles, the $679 million pre-tax gain on disposal of Bengalla, the
$267 million pre-tax gain on disposal of KTAS, the $138 million (US$98 million)
pre-tax gain on disposal of Quadrant Energy and $146 million provision for
Coles supply chain automation.
The FY2018 adjusted EBITDA excludes Target’s pre-tax impairment of
$306 million and $1,186 million relating to discontinued operations which
includes BUKI’s pre-tax writedown of $861 million, store closure provision of
$70 million, $375 pre-tax loss on disposal relating to BUKI and $120 million
pre-tax gain on disposal of the Curragh Coal Mine.
Wesfarmers 2019 Annual Report
131
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i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
A
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t
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m
a
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K
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b
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s
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a
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O
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e
r
Financial statements
NOTES TO THE FINANCIAL STATEMENTS: CAPITAL
For the year ended 30 June 2019
11. Dividends and distributions
12. Equity and reserves (continued)
884
1,361
Acquisition of shares-on-
market for WLTIP
Declared and paid during the year
(fully-franked at 30 per cent)
Interim dividend for 2019: $1.00 (2018: $1.03)
Final dividend for 2018: $1.20 (2017: $1.20)
Special dividend for 2019: $1.001
Capital distribution and demerger dividend2
Proposed and unrecognised as a
liability (fully-franked at 30 per cent)
Final dividend for 2019: $0.78 (2018: $1.20)
Franking credit balance
Franking credits available for future years at
30 per cent adjusted for debits and credits
arising from the payment of income tax
payable and from recognised dividends
receivable or payable
Impact on the franking account of dividends
proposed before the financial report was
issued but not recognised as a distribution
to equity holders during the year
Consolidated
2019
$m
2018
$m
1,134
1,361
1,134
14,565
18,194
1,168
1,361
-
-
2,529
391
978
(379)
(583)
1
2
A fully-franked special dividend of 100 cents per share was paid on
10 April 2019.
The capital distribution and demerger dividend represents the fair value of the
Coles distribution to shareholders. Refer to note 20 for further details.
Wesfarmers’ dividend policy considers availability of franking
credits, current earnings and future cash flow requirements and
targeted credit metrics.
The Group operates a dividend investment plan which allows
eligible shareholders to elect to invest dividends in ordinary
shares. All holders of Wesfarmers ordinary shares with addresses
in Australia or New Zealand are eligible to participate in the plan.
The allocation price for shares is based on the average of the daily
volume weighted average price of Wesfarmers ordinary shares sold
on the Australian Securities Exchange, calculated with reference
to a period of not less than five consecutive trading days as
determined by the directors.
An issue of shares under the dividend investment plan results in an
increase in issued capital unless the Group elects to purchase the
required number of shares on-market.
12. Equity and reserves
The nature of the Group’s contributed equity
Ordinary shares are fully-paid and have no par value. They carry
one vote per share and the right to dividends. They bear no special
terms or conditions affecting income or capital entitlements of the
shareholders and are classified as equity.
Reserved shares are ordinary shares that have been repurchased
by the company and are being held for future use. They include
employee reserved shares, which are shares issued to employees
under the share loan plan. Once the share loan has been paid
in full, they are converted to ordinary shares and issued to the
employee.
Incremental costs directly attributable to the issue of new shares
are shown in equity as a deduction, net of tax, from the proceeds.
There are no shares authorised for issue that have not been issued
at reporting date.
132
Wesfarmers 2019 Annual Report
Movement in shares on
issue
Ordinary Shares Reserved Shares
$m
’000
’000
$m
At 1 July 2017
1,133,840 22,268
(2,088)
(26)
Acquisition of shares
on-market for KEEPP
Exercise of
in-substance options
Transfer from other
reserves
At 30 June 2018 and
1 July 2018
Exercise of
in-substance options
Acquisition of shares
on-market for KEEPP
KEEPP and WLTIP
vested during the year
Demerger capital
distribution1
Demerger transaction
costs, net of tax
Transfer from other
reserves
At 30 June 2019
-
-
-
-
-
9
(418)
(17)
164
-
-
-
1,133,840 22,277
(2,342)
(43)
-
-
-
-
-
-
-
-
-
(6,441)
-
(41)
119
-
(174)
(5)
(1,056)
(33)
744
-
-
-
-
-
14
-
1,133,840 15,809
-
(2,709)
-
(81)
1
The capital distribution is the allocation of the Coles demerger distribution to
share capital and has been calculated by reference to the market value of Coles'
shares and the market value of Wesfarmers' shares post demerger.
Nature and purpose of reserves
Restructure tax reserve
The restructure tax reserve is used to record the recognition of tax
losses arising from the equity restructuring of the Group under the
2001 ownership simplification plan.
These tax losses were generated on adoption by the Group of the
tax consolidation regime.
Capital reserve
The capital reserve was used to accumulate capital profits. The
reserve can be used to pay dividends or issue bonus shares.
Foreign currency translation reserve
The foreign currency translation reserve is used to record exchange
differences arising from the translation of the financial statements of
foreign subsidiaries.
Cash flow hedge reserve
The hedging reserve records the portion of the gain or loss on a
hedging instrument in a cash flow hedge that is determined to be
an effective hedge relationship.
Financial assets reserve
The financial assets reserve records fair value changes on financial
assets designated at fair value through other comprehensive
income.
Share-based payments reserve
The share-based payments reserve is used to recognise the value
of equity-settled share-based payments provided to employees,
including key management personnel, as part of their remuneration.
Refer to note 28 for further details of these plans.
Demerger reserve
The demerger reserve is used to recognise the gain on Coles
demerger and demerger dividend. Refer to note 20 for further
details.
NOTES TO THE FINANCIAL STATEMENTS: CAPITAL
For the year ended 30 June 2019
12. Equity and reserves (continued)
Retained
earnings
$m
Restructure
tax reserve
$m
Capital
reserve
$m
Foreign
currency
translation
reserve
$m
Cash
flow
hedge
reserve
$m
Financial
assets
reserve
$m
Share-
based
payments
reserve
$m
Demerger
reserve
$m
1,509
1,197
(2,529)
(1)
-
-
-
-
-
-
-
150
-
-
24
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
52
-
-
-
-
-
-
-
(7)
(2)
-
(82)
-
-
-
96
143
(7)
(72)
-
-
-
5
-
-
-
-
-
-
-
-
-
-
41
-
-
-
-
-
-
-
-
-
3
176
150
24
43
78
5
44
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4
-
-
-
-
-
-
-
14
-
-
-
57
-
-
-
129
(202)
(2)
24
-
-
-
-
27
-
-
-
-
-
-
-
-
-
-
-
5
-
(2,264)
(208)
-
-
150
-
-
24
-
-
48
(8,124)
2,264
(5,860)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Consolidated
Balance at 1 July 2017
Net profit for the year
Equity dividends
Remeasurement loss on defined
benefit plan , net of tax
Net gain on financial instruments
recognised in equity
Realised losses transferred to
balance sheet/net profit
Share of associates and joint
venture reserve
Tax effect of transfers and revaluations
Currency translation differences
Exchange differences recognised
in the income statement on
disposal of foreign operations
Share-based payment transactions
Balance at 30 June 2018 and
1 July 2018
Remeasurement loss on defined
benefit plan, net of tax
Net gain on financial instruments
recognised in equity
Realised gains transferred to
balance sheet/net profit
Share of associates and joint
ventures reserve
Tax effect of transfers and revaluations
Currency translation differences
Share-based payment transactions
Capital distribution and demerger
dividend
Transfer of gain on demerger
Balance at 30 June 2019
13. Earnings per share
Net profit for the year
Equity dividends
5,510
(3,629)
Profit attributable to ordinary equity
holders of the parent ($m)
WANOS1 used in the calculation of basic
EPS (shares, million)2
WANOS1 used in the calculation of diluted
EPS (shares, million)2
- Basic EPS (cents per share)
- Diluted EPS (cents per share)
Consolidated
2019
2018
5,510
1,197
1,131
1,131
1,132
487.2
486.7
1,133
105.8
105.6
1 Weighted average number of ordinary shares.
2
The variance in the WANOS used in the calculation of the basic EPS and the diluted
EPS is attributable to the dilutive effect of in-substance options and restricted shares.
There have been no transactions involving ordinary shares between the
reporting date and the date of completion of these financial statements,
apart from the normal conversion of employee-reserved shares (treated as
in-substance options) to unrestricted ordinary shares.
Calculation of earnings per share
Basic earnings per share
Basic earnings per share is calculated as net profit attributable to
members of the parent, adjusted to exclude any costs of servicing equity
(other than dividends), divided by the weighted average number of
ordinary shares, adjusted for any bonus element.
Diluted earnings per share
Diluted earnings per share is calculated as per basic earnings per share
with an adjustment for the weighted average number of ordinary shares
that would be issued on conversion of all dilutive potential ordinary shares.
Dilution arises as a result of the employee reserved shares issued under
the employee share plan being accounted for as in-substance options
and unvested restricted shares.
Wesfarmers 2019 Annual Report
133
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A
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i
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p
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O
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Financial statements
NOTES TO THE FINANCIAL STATEMENTS: CAPITAL
For the year ended 30 June 2019
14. Interest-bearing loans and borrowings
Current
Unsecured
Bank debt
Capital market debt
Non-current
Unsecured
Bank debt
Capital market debt
Total interest-bearing loans and borrowings
Consolidated
2018
2019
$m
$m
6
350
356
660
499
1,159
142
2,531
2,673
3,029
150
2,815
2,965
4,124
The illustration below provides details, including the principal
repayment obligations, of all loans and borrowings on issue at
30 June 2019:
Outstanding loans and borrowings
Funding activities
The Group continues its strategy of maintaining diversity of
funding sources, pre-funding upcoming maturities (if required)
and maintaining a presence in key markets. In March 2019, a
$500 million domestic bond matured, and was repaid from available
cash balances. No new bond issuance occurred during the year.
During the year, all bank facilities were renegotiated and extended
for a duration of three years.
Recognition and measurement
Capital market debt includes foreign and domestic corporate
bonds. All loans and borrowings are initially recognised at fair value,
less directly attributable transaction costs. After initial recognition,
interest-bearing loans and borrowings are subsequently measured
at amortised cost using the effective interest method. Gains and
losses are recognised in profit or loss when the liabilities are
derecognised.
The carrying values of liabilities that are the hedged items in fair
value hedge relationships, which are otherwise carried at amortised
cost, are adjusted to record changes in the fair values attributable
to the risks that are being hedged.
BANK DEBT
CAPITAL MARKET DEBT
CURRENT
$356m
NON-CURRENT
$2,673m
A$m
1,800
1,350
900
450
0
FY20
FY21
FY22
FY23+
The table below sets out an analysis of net borrowings and the movements in net borrowings for the periods presented:
LIABILITIES FROM
FINANCING ACTIVITIES
Borrowings
due within
1 year
$m
Borrowings
due after
1 year
$m
Assets held
to hedge
long-term
borrowings
$m
1,347
(1,367)
1,366
55
(243)
1
1,159
1,005
184
-
-
(2,000)
8
356
4,066
150
(1,366)
110
-
5
2,965
(171)
(184)
65
2
-
(4)
2,673
(488)
-
-
(110)
243
2
(353)
-
-
(60)
(2)
-
31
(384)
Total
$m
4,925
(1,217)
-
55
-
8
3,771
834
-
5
-
(2,000)
35
2,645
Net debt as at 1 July 2017
Cash flows
Transfers
Foreign exchange adjustments
Fair value changes, relating to hedged risk
Other non-cash movements
Net debt as at 30 June 2018 and 1 July 2018
Cash flows
Transfers
Foreign exchange adjustments
Fair value changes, relating to hedged risk
Debt assumed by Coles on demerger
Other non-cash movements
Net debt as at 30 June 2019
134
Wesfarmers 2019 Annual Report
NOTES TO THE FINANCIAL STATEMENTS: RISK
For the year ended 30 June 2019
The Group’s objective is to maintain a balance between continuity
of funding and flexibility through the use of bank loans, bank
accepted bills, commercial paper, corporate bonds and the
overnight money market across a range of maturities. Although the
bank debt facilities have fixed maturity dates, from time to time they
are reviewed and extended, thus deferring the repayment of the
principal. The Group aims to spread maturities to avoid excessive
refinancing in any period.
The Group endeavours to maintain funding flexibility by keeping
committed credit lines available with a variety of counterparties.
Surplus funds are generally invested in instruments that are
tradeable in highly liquid markets with highly rated counterparties.
Financing facilities available
Total facilities
Bank loans and guarantees
Facilities used at balance date
Bank loans and guarantees
Facilities unused at balance date
Bank loans and guarantees
Consolidated
2019
$m
2018
$m
3,346
3,346
2,999
2,999
346
346
811
811
3,000
3,000
2,188
2,188
Assets pledged as security
As at 30 June 2019 there were no assets pledged as security
(2018: $80 million).
Maturity of financial liabilities
The following tables analyse the Group’s financial liabilities,
including net and gross settled financial instruments, into relevant
maturity periods based on the remaining period at the reporting
date to the contractual maturity date. The amounts disclosed
in the tables are the contractual undiscounted cash flows and
will not necessarily reconcile with the amounts disclosed in the
balance sheet.
Expected future interest payments on loans and borrowings and
derivative cash flows exclude accruals recognised in trade and
other payables at the reporting date.
For foreign exchange derivatives, cross-currency interest rate
swaps and hedged commodity swaps, the amounts disclosed are
the gross contractual cash flows to be paid.
For interest rate swaps, the cash flows are the net amounts to be
paid at each quarter, excluding accruals included in trade and other
payables at the reporting date, and have been estimated using
forward interest rates applicable at the reporting date.
15. Financial risk management
The Group holds financial instruments for the following purposes:
Financing: to raise finance for the Group’s operations or, in the
case of short-term deposits, to invest surplus funds. The types
of instruments used include bank loans, bank accepted bills,
commercial paper, corporate bonds and cash and short-term
deposits.
Operational: the Group’s activities generate financial instruments,
including cash, trade receivables, trade payables and finance
advances.
Risk management: to reduce risks arising from the financial
instruments described above, including forward exchange
contracts and interest rate swaps.
It is, and has been throughout the year, the Group’s policy that no
speculative trading in financial instruments shall be undertaken.
The Group’s holding of these financial instruments exposes it
to risk. The Board reviews and agrees the Group’s policies for
managing each of these risks, which are summarised below:
•
liquidity risk (note 15(b));
• market risk, including foreign currency, interest rate and
commodity price risk (note 15(c)); and
• credit risk (note 15(d)).
These risks affect the fair value measurements applied by the
Group. This is discussed further within note 15(e).
15(a) Offsetting financial instruments
The Group presents its derivative assets and liabilities on a gross
basis. Derivative financial instruments entered into by the Group
are subject to enforceable master netting arrangements, such as
an International Swaps and Derivatives Association (ISDA) master
netting agreement. In certain circumstances, for example, when a
credit event such as a default occurs, all outstanding transactions
under an ISDA agreement are terminated, the termination value is
assessed and only a single net amount is payable in settlement of
all transactions.
The amounts set out in note 16 represent the derivative financial
assets and liabilities of the Group, that are subject to the above
arrangements, and are presented on a gross basis.
15(b) Liquidity risk
Nature of the risk
Wesfarmers is exposed to liquidity risk primarily due to its capital
management policies, which view debt as a key element of the
Group’s capital structure (see note 10). In addition, Wesfarmers
maintains a flexible financing structure to enable it to take
advantage of new investment opportunities that may arise.
To facilitate effective use of debt as part of the capital structure, the
Group continues to maintain investment grade credit ratings from
Standard & Poor’s and Moody’s.
These policies expose the Group to risk including the sufficiency
of available unused facilities and the maturity profile of existing
financial instruments.
Liquidity risk management
Liquidity risk is managed centrally by Group Treasury, by
considering over a period of time the operating cash flow forecasts
of the underlying businesses and the degree of access to debt and
equity capital markets.
Wesfarmers 2019 Annual Report
135
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O
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h
e
r
3-6
months
$m
6-12
months
$m
1-2
years
$m
2-3
years
$m
3-4
years
$m
4-5
years
$m
>5
years
$m
Total
contractual
cash flows
$m
Carrying
amount
(assets)/
liabilities
$m
Financial statements
NOTES TO THE FINANCIAL STATEMENTS: RISK
For the year ended 30 June 2019
15(b) Liquidity risk (continued)
< 3
months,
or on
demand
$m
3,343
6
8
3,357
-
(3)
(3)
4
1
39
-
10
49
(1)
(3)
(3)
11
8
238
-
-
-
350
500
1,164
1,114
18
606
54
554
46
1,210
31
1,145
(3)
(4)
-
43
43
(3)
(4)
-
-
-
-
(42)
86
(1,056)
931
(1,145)
786
44
(125)
(359)
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,123)
1,094
(29)
(31)
(970)
944
(26)
(22)
(915)
890
(490)
479
(1)
1
-
-
(25)
11
(11)
26
-
(125)
-
(359)
6,455
46
39
1
10
-
-
-
316
845
500
500
1,026
1,131
19
6,474
13
375
37
921
75
576
51
561
43
1,069
31
1,162
-
(1)
(3)
4
1
(1)
(1)
(3)
11
8
(1)
(7)
-
43
43
(2)
(13)
(41)
86
(1)
(6)
-
-
-
-
(42)
86
(1,070)
931
(1,162)
786
45
44
(139)
(376)
(1,142)
1,110
(32)
(32)
(959)
927
(32)
(26)
(959)
932
(27)
8
(448)
424
(24)
6
-
-
-
37
-
-
-
-
-
(139)
-
(376)
Consolidated
Year ended 30 June 2019
Non-derivatives
Trade and other payables
Loans and borrowings
before swaps
Expected future interest
payments on loans and
borrowings
Total non-derivatives
Derivatives
Hedge interest rate swaps
(net settled)
Hedged commodity
swaps (net settled)
Cross-currency interest
rate swaps (gross settled)
- (inflow)
- outflow
Net cross-currency
interest rate swaps
Hedge forward exchange
contracts (gross settled)
- (inflow)
- outflow
Net forward exchange
contracts
Total derivatives
Year ended 30 June 2018
Non-derivatives
Trade and other payables
Loans and borrowings
before swaps
Expected future interest
payments on loans and
borrowings
Total non-derivatives
Derivatives
Hedge interest rate swaps
(net settled)
Hedged commodity
swaps
Cross-currency interest
rate swaps (gross settled)
- (inflow)
- outflow
Net cross-currency
interest rate swaps
Hedge forward exchange
contracts (gross settled)
- (inflow)
- outflow
Net forward exchange
contracts
Total derivatives
136
Wesfarmers 2019 Annual Report
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,620
3,620
3,134
3,029
167
6,921
-
6,649
(7)
(14)
(7)
(14)
(2,249)
1,861
(377)
-
(388)
(377)
(3,499)
3,408
(91)
(500)
(88)
-
(88)
(486)
6,551
6,551
4,318
4,124
269
11,138
-
10,675
(5)
(28)
(5)
(28)
(2,321)
1,947
(348)
-
(374)
(348)
(3,508)
3,393
(115)
(522)
(120)
-
(120)
(501)
NOTES TO THE FINANCIAL STATEMENTS: RISK
For the year ended 30 June 2019
15(c) Market risk (continued)
Nature of foreign currency risk
The Group’s primary currency exposure is to US dollars and arises
from sales or purchases by a division in currencies other than the
division’s functional currency. The Group is also exposed to the
Euro through its borrowing facilities.
As a result of operations in New Zealand, the Group’s balance
sheet can also be affected by movements in the AUD/NZD
exchange rate. The Group mitigates the effect of its translational
currency exposure by borrowing in NZ dollars in New Zealand.
Exposure
The Group’s exposure to the US dollar and Euro (prior to hedging
contracts) at the reporting date were as follows:
Consolidated
2019
Financial assets
Cash and cash equivalents
Trade and other receivables
Cross-currency interest rate swap
Hedge foreign exchange derivative
assets
Commodity derivative asset
Financial liabilities
Trade and other payables
Interest-bearing loans and borrowings
2018
Financial assets
Cash and cash equivalents
Trade and other receivables
Cross-currency interest rate swap
Hedge foreign exchange derivative
assets
Commodity derivative asset
Financial liabilities
Trade and other payables
Interest-bearing loans and borrowings
USD
A$m
EUR
A$m
18
21
-
88
14
3
-
377
-
-
1,029
-
33
2,029
15
39
-
120
28
1
-
348
-
-
1,061
35
58
1,969
Foreign currency risk management
The hedging function of the Group to address foreign currency risk
is managed centrally. The Group requires all divisions to hedge
foreign exchange exposures for firm commitments relating to
sales or purchases or when highly probable forecast transactions
have been identified. Before hedging, the divisions are also
required to take into account their competitive position. The
hedging instrument must be in the same currency as the hedged
item. Divisions are not permitted to speculate on future currency
movements.
The objective of Wesfarmers’ policy on foreign exchange hedging is
to protect the Group from adverse currency fluctuations. Hedging is
implemented for the following reasons:
• protection of competitive position; and
• greater certainty of earnings due to protection from sudden
currency movements.
The Group aims to hedge approximately 30 to 100 per cent of its
non-capital expenditure-related foreign currency purchases for
which firm commitments or highly probable forecast transactions
exist, up to 24 months forward.
The Group currently hedges 100 per cent of capital
expenditure-related foreign currency purchases to match expected
payment dates and these may extend beyond 12 months. The
current hedge contracts extend out to May 2021. The Group has
also hedged 100 per cent of its Euro borrowing facilities.
The Wesfarmers Audit and Risk Committee can approve temporary
amendments to this policy, such as the hedging time horizon and
hedge levels, with such amendments reviewed on a regular basis.
The Group’s sensitivity to foreign exchange
movements
The sensitivity analysis below shows the impact that a reasonably
possible change in foreign exchange rates over a financial year
would have on profit after tax and equity, based solely on the
Group’s foreign exchange risk exposures existing at the balance
sheet date. The Group has used the observed range of actual
historical rates for the preceding five-year period, with a heavier
weighting placed on recently observed market data, in determining
reasonably possible exchange movements to be used for the
current year’s sensitivity analysis. Past movements are not
necessarily indicative of future movements.
The following exchange rates have been used in performing the
sensitivity analysis:
Actual 2019
+10%
–10%
Actual 2018
+10%
–10%
USD
0.70
0.77
0.63
0.73
0.80
0.66
EUR
0.62
0.68
0.56
0.63
0.69
0.57
The impact on profit and equity is estimated by
relating the hypothetical changes in the US dollar and Euro
exchange rate to the balance of financial instruments at
the reporting date. Foreign currency risks, as defined by
AASB 7 Financial Instruments: Disclosures, arise on account
of financial instruments being denominated in a currency that
is not the functional currency in which the financial instrument
is measured.
Differences from the translation of financial statements into the
Group’s presentation currency are not taken into consideration in
the sensitivity analysis and as such the NZ dollar has no material
impact. The results of the foreign exchange rate sensitivity analysis
are driven by three main factors, as outlined below:
•
•
the impact of applying the above foreign exchange
movements to financial instruments that are not in hedge
relationships will be recognised directly in profit;
to the extent that the foreign currency denominated derivatives
on balance sheet form part of an effective cash flow hedge
relationship, any fair value movements caused by applying the
above sensitivity movements will be deferred in equity and will
not affect profit; and
• movements in financial instruments forming part of an effective
fair value hedge relationship will be recognised in profit.
However, as a corresponding entry will be recognised for the
hedged item, there will be no net effect on profit.
At 30 June 2019, had the Australian dollar moved against the
US dollar and Euro, as illustrated in the table above, with all other
variables held constant, the Group’s profit after tax and other equity
would have been affected by the change in value of its financial
assets and financial liabilities as shown in the table on the following
page.
Wesfarmers 2019 Annual Report
137
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O
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Financial statements
NOTES TO THE FINANCIAL STATEMENTS: RISK
For the year ended 30 June 2019
15(c) Market risk (continued)
Consolidated
Year ended 30 June 2019
Financial assets
Cash and cash equivalents
Trade and other receivables
Cross-currency interest rate
swap
Hedge foreign exchange
derivative assets
Commodity derivatives
Financial liabilities
Trade and other payables
Interest-bearing loans and
borrowings
Net impact
Year ended 30 June 2018
Financial assets
Cash and cash equivalents
Trade and other receivables
Cross-currency interest rate
swap
Hedge foreign exchange
derivative assets
Commodity derivatives
Financial liabilities
USD
exposure
A$m
18
21
-
88
14
1,029
-
15
39
-
120
28
Trade and other payables
1,061
Interest-bearing loans and
borrowings
Net impact
35
AUD/USD +10% AUD/USD –10%
Impact
Impact
on
on
equity
profit
A$m
A$m
Impact
on
profit
A$m
Impact
on
equity
A$m
(1)
(1)
-
(59)
-
72
-
11
(1)
(3)
-
(51)
-
74
2
21
-
-
-
(157)
(4)
1
1
-
72
-
-
-
-
192
5
-
(72)
-
-
(161)
-
-
-
(145)
(5)
-
-
(150)
-
2
1
3
-
62
-
(74)
(2)
(10)
-
197
-
-
-
178
6
-
-
184
EUR
exposure
A$m
3
-
377
-
-
33
2,029
1
-
348
-
-
58
1,969
AUD/EUR +10% AUD/EUR –10%
Impact
Impact
on
on
equity
profit
A$m
A$m
Impact
on
profit
A$m
Impact
on
equity
A$m
-
-
-
-
-
2
-
2
-
-
-
-
-
4
-
4
-
-
(140)
-
-
-
184
44
-
-
(137)
(2)
-
-
179
40
-
-
-
-
-
(2)
-
(2)
-
-
-
-
-
(4)
-
(4)
-
-
171
1
-
-
(225)
(53)
-
-
167
3
-
-
(219)
(49)
Nature of interest rate risk
The Group’s exposure to the risk of changes in market interest
rates relates primarily to the Group’s debt obligations that have
floating interest rates.
Interest rate risk management
The policy of the Group is to limit its exposure to adverse
fluctuations in interest rates, which could erode the Group’s
profitability and adversely affect shareholder value. The policy
requires that an interest rate risk management (IRRM) plan be
developed based on cash flow forecasts. A committee comprising
senior management meets periodically to review the IRRM plan and
make interest rate hedging recommendations, which are provided
to the Group’s Chief Financial Officer for approval. The Group’s
interest rate hedging profile is regularly reported to the Wesfarmers
Board and senior executives.
To manage the interest rate exposure, the Group generally enters
into interest rate swaps, in which the Group agrees to exchange,
at specified intervals, the difference between fixed and variable
rate interest amounts calculated by reference to an agreed-upon
notional principal amount. These swaps are designated to hedge
interest costs associated with underlying debt obligations.
At 30 June 2019, after taking into account the effect of interest rate
swaps, economic hedging relationships and early repayment of
a portion of core debt facilities, approximately 25 per cent of the
Group’s core borrowings are exposed to movements in variable
rates (2018: approximately 35 per cent).
From a Group perspective, any internal contracts are eliminated
as part of the consolidation process, leaving only the external
contracts in the name of Wesfarmers Limited.
Although Wesfarmers has issued Euro bonds, cross-currency
swaps are in place that remove any exposure to Euro interest rates.
These cross-currency swaps ensure that the effective interest rate
to Wesfarmers is referenced to Australian interest rates.
Exposure
As at the reporting date, the Group had financial assets and
liabilities with exposure to interest rate risk as shown in the table on
the following page. Interest on financial instruments, classified as
floating rate, is repriced at intervals of less than one year. Interest
on financial instruments, classified as fixed rate, is fixed until
maturity of the instrument. The classification between fixed and
floating interest takes into account applicable hedge instruments.
Other financial instruments of the Group are non-interest-bearing
and are therefore not subject to interest rate risk and have not been
disclosed.
138
Wesfarmers 2019 Annual Report
NOTES TO THE FINANCIAL STATEMENTS: RISK
For the year ended 30 June 2019
15(c) Market risk (continued)
Financial assets
Fixed rate
Finance advances and loans
Floating rate
Cash assets
Total weighted average effective interest rate on financial assets at
balance date
Financial liabilities
Fixed rate
Capital market debt
Weighted average effective interest rate on fixed rate liabilities
Floating rate
Unsecured bank loans
Capital market debt
Weighted average effective interest rate on floating rate liabilities
Total weighted average effective interest rate on financial liabilities:
at balance date
during the year
during the year, including bank and liquidity charges
The Group’s sensitivity to interest rate movements
The following sensitivity analysis shows the impact that a
reasonably possible change in interest rates would have on Group
profit after tax and equity. The impact is determined by assessing
the effect that such a reasonably possible change in interest rates
would have had on the interest income/(expense) and the impact
on financial instrument fair values. This sensitivity is based on
reasonably possible changes over a financial year, determined
using observed historical interest rate movements for the preceding
five-year period, with a heavier weighting given to more recent
market data.
The results of the sensitivity analysis are driven by three main
factors, as outlined below:
•
•
for unhedged floating rate financial instruments, any increase
or decrease in interest rates will impact profit;
to the extent that derivatives form part of an effective cash
flow hedge relationship, there will be no impact on profit and
any increase/(decrease) in the fair value of the underlying
derivative instruments will be deferred in equity; and
• movements in the fair value of derivatives in an effective fair
value hedge relationship will be recognised directly in profit.
However, as a corresponding entry will be recognised for the
hedged item, there will be no net impact on profit.
The following sensitivity analysis is based on the Australian variable
interest rate risk exposures in existence at balance sheet date.
If interest rates had moved by +/-50bps (basis point/s)
(2018: +/-100bps) and with all other variables held constant, profit
after tax and equity would be affected as follows:
2019
Weighted
average
interest rate
%
2018
Weighted
average
interest rate
%
Balance
$m
Balance
$m
3
529
2,374
148
507
-
71
3.94
191
2,810
810
504
1.23
1.22
5.29
5.29
3.40
2.47
2.68
4.72
4.66
5.10
0.91
1.73
5.53
5.53
2.44
2.93
2.63
4.61
3.79
4.18
Consolidated
2019
Australian variable interest rate +50bps
Australian variable interest rate –50bps
2018
Australian variable interest rate +100bps
Australian variable interest rate –100bps
Impact on
profit
A$m
Impact on
equity
A$m
-
-
(7)
7
16
(16)
42
(44)
Commodity price risk
The Group’s exposure to commodity price risk is purely operational
and arises from the purchase of inventory with commodity price as
a significant input, such as natural gas and Brent oil.
•
•
the Group has entered into a Brent oil future contract to hedge
the variability in cash flows arising from movements in the
natural gas price applicable to forecast natural gas purchases
over three years, ending in December 2020.
the Group does not enter into any financial instruments that
vary with movements in other commodity prices. Excluding the
foreign exchange risk component, which is managed as part of
the Group’s overall foreign exchange risk management policies
and procedures referred to previously, these exposures are not
hedged.
No commodity price sensitivity analysis is provided, as:
• a reasonable change in the Brent oil futures would not have
had a material impact to the Group this financial year; and
•
the Group’s other commodity ‘own use contracts’ are outside
the scope of AASB 9 Financial Instruments.
Wesfarmers 2019 Annual Report
139
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Financial statements
NOTES TO THE FINANCIAL STATEMENTS: RISK
For the year ended 30 June 2019
15(d) Credit risk
Nature of the risk
Credit risk is the risk that a contracting entity will not complete its
obligation under a financial instrument or customer contract that
will result in a financial loss to the Group. The Group is exposed
to credit risk from its operating activities (primarily from customer
receivables) and from its financing activities, including deposits
with financial institutions, foreign exchange transactions and other
financial instruments.
Credit risk management: receivables
Customer credit risk is managed by each division subject
to established policies, procedures and controls relating to
customer credit risk management. The Group trades primarily
with recognised, creditworthy third parties. Customers who
wish to trade on credit terms are subject to credit verification
procedures, including an assessment of their independent credit
rating, financial position, past experience and industry reputation.
Credit risk management practices also includes reviews of trade
receivables aging by days past due, the timely follow-up of past
due amounts and the use of credit securities such as credit
insurance, retention of title and letters of credit.
From 1 July 2018, the Group applied the simplified approach
in measuring expected credit losses, whereby an allowance for
impairment is considered across all trade receivables, regardless
of whether a credit event has occurred, based on the expected
losses over the lifetime of the receivable. An impairment analysis
is performed at each reporting date using a provision matrix to
measure expected credit loss as disclosed in note 5. The expected
credit loss rates are primarily based on days past due.
The Group’s exposure to bad debts is not significant and default
rates have historically been very low. Trade receivables are written
off when there is no reasonable expectation of recovery, which
may be indicated by the debtor failing to engage in a payment plan
or the debtor failing to make timely contractual payments.
Exposure
The carrying amount of current receivables represents the
maximum credit exposure and is shown, by division as a
percentage of the Group, below:
Bunnings
Kmart Group
WesCEF
WIS
Officeworks
Corporate
Coles
Resources
2019
%
30.1
3.8
26.5
32.4
4.3
2.9
-
-
100.0
2018
%
20.0
2.7
15.2
20.8
2.7
2.0
34.7
1.9
100.0
Credit risk management: financial instruments and
cash deposits
Credit risk from balances with banks and financial institutions is
managed by Group Treasury in accordance with Board-approved
policy. Investments of surplus funds are made only with
approved counterparties or counterparties rated AA or higher by
Standard & Poor’s. Surplus funds are invested within credit limits
assigned to each counterparty, unless appropriate approval is
provided.
The carrying amount of financial assets represents the maximum
credit exposure. There is also exposure to credit risk when the
Group provides a guarantee to another party. Details of contingent
liabilities are disclosed in note 21. There are no significant
concentrations of credit risk within the Group.
140
Wesfarmers 2019 Annual Report
15(e) Fair values
The carrying amounts and estimated fair values of all the Group’s
financial instruments recognised in the financial statements are
materially the same, with the exception of the following:
Consolidated
Capital market debt: carrying
amount
Capital market debt: fair value
2019
$m
2018
$m
2,881
2,974
3,314
3,437
The methods and assumptions used to estimate the fair value of
financial instruments are as follows:
Cash
The carrying amount is fair value due to the asset’s liquid nature.
Receivables/payables
Due to the short-term nature of these financial rights and
obligations, carrying amounts are estimated to represent fair values.
Other financial assets/liabilities
The fair values of corporate bonds (capital market debt) held at
fair value have been calculated by discounting the expected future
cash flows at prevailing interest rates using market observable
inputs. The fair values of loan notes and other financial assets have
been calculated using market interest rates.
Derivatives
The Group enters into derivative financial instruments with various
counterparties, principally financial institutions with investment
grade credit ratings. Foreign exchange forward contracts, interest
rate swap contracts, cross-currency interest rate swaps and
commodity future contracts are all valued using forward pricing
techniques. This includes the use of market observable inputs,
such as foreign exchange spot and forward rates, yield curves of
the respective currencies, interest rate curves and forward rate
curves of the underlying commodity. Accordingly, these derivatives
are classified as Level 2 in the fair value measurement hierarchy.
Valuation of financial instruments
For all fair value measurements and disclosures, the Group uses
the following to categorise the method used:
• Level 1: the fair value is calculated using quoted prices in
active markets.
• Level 2: the fair value is estimated using inputs other than
quoted prices included in Level 1 that are observable for the
asset or liability, either directly (as prices) or indirectly (derived
from prices).
• Level 3: the fair value is estimated using inputs for the asset or
liability that are not based on observable market data.
All of the Group’s financial instruments were valued using market
observable inputs (Level 2) with the exception of shares in unlisted
companies at fair value (Level 3) that were valued at $1 million
(2018: less than $2 million).
For financial instruments that are carried at fair value on a recurring
basis, the Group determines whether transfers have occurred
between levels in the hierarchy by reassessing categorisation
(based on the lowest level input that is significant to the fair value
measurement as a whole) at the end of each reporting period.
There were no transfers between Level 1 and Level 2 during the
year. There were no material Level 3 fair value movements during
the year.
NOTES TO THE FINANCIAL STATEMENTS: RISK
For the year ended 30 June 2019
16. Hedging
Types of hedging instruments
The Group is exposed to risk from movements in foreign
exchange, interest rates and commodity prices. As part of the
risk management strategy set out in note 15, the Group holds the
following types of derivative instruments:
Forward exchange contracts: contracts denominated in US dollar
to hedge highly probable sale and purchase transactions (cash flow
hedges).
Interest rate swaps: to optimise the Group’s exposure to fixed
and floating interest rates arising from borrowings. These hedges
incorporate cash flow hedges, which fix future interest payments,
and fair value hedges, which reduce the Group’s exposure to
changes in the value of its assets and liabilities arising from interest
rate movements.
Cross-currency interest rate swaps: to either reduce the Group’s
exposure to exchange rate variability in its interest repayments
of foreign currency denominated debt (cash flow hedges) or to
hedge against movements in the fair value of those liabilities due
to exchange and interest rate movements (fair value hedges). The
borrowing margin on Wesfarmers’ cross-currency interest rate
swaps has been treated as a ‘cost of hedging’ and deferred into
equity. These costs are then amortised to the profit and loss as a
finance cost over the remaining life of the borrowing.
Brent oil future contract: to reduce the Group’s exposure to price
variability in its forecast purchase of natural gas.
Notional
$m
2019
Weighted
Average
Asset
$m
Liability
$m
Notional
$m
2018
Weighted
Average
Asset
$m
Liability
$m
Foreign exchange contracts
Cash flow hedge - sales (AUD)
US$30
Cash flow hedge - sales (GBP)
-
Cash flow hedge - purchases
(AUD)
Cash flow hedge - purchases
(GBP)
Cash flow hedge - purchases
(NZD)
Interest rate swap contracts
Fair value hedge
Cross-currency interest rate swaps
Cash flow hedge
Brent oil contracts
Cash flow hedge
Total derivative asset/(liability)
Asset: 0.70
Liability: 0.71
-
Asset: 0.74
Liability: 0.70
Asset: 1.32
Liability: Nil
Asset: 0.69
Liability: 0.66
-
-
-
-
US$96
US$39
93
(7) US$2,254
-
US$41
(1)
US$137
Asset: nil
Liability: 0.75
Asset: nil
Liability: 1.34
Asset: 0.77
Liability: 0.72
Asset: 1.40
Liability: nil
Asset: 0.71
Liability: nil
US$2,274
US$6
US$149
-
3
7
377
14
494
-
-
-
(8)
A$300 BBSW +0.82%
floating
€1,250
5.32% fixed
0.696m
barrels
AU$69.50 per
barrel
A$300 BBSW +0.82%
floating
€1,250
5.32% fixed
348
0.877m
barrels
AU$64.88 per
barrel
36
517
(8)
(16)
-
-
117
3
8
5
(2)
(1)
(5)
-
-
-
-
Recognition and measurement
Recognition
Derivative financial instruments are initially recognised at fair
value on the date on which a derivative contract is entered into
and are subsequently remeasured to fair value per note 15(e). The
method of recognising any remeasurement gain or loss depends
on the nature of the item being hedged. For hedging instruments,
any hedge ineffectiveness is recognised directly in the income
statement in the period in which it is incurred. This was immaterial
in the current year.
For the purposes of hedge accounting, hedges are classified as:
•
fair value hedges when they hedge the exposure to changes
in the fair value of a recognised asset, liability or firm
commitment that could affect profit or loss; or
• cash flow hedges when they hedge a particular risk associated
with the cash flows of recognised assets and liabilities and
highly probable forecast transactions. A hedge of the foreign
currency risk of a firm commitment is accounted for as a cash
flow hedge.
Hedge accounting
At the start of a hedge relationship, the Group formally designates
and documents the hedge relationship, including the risk
management strategy for undertaking the hedge. This includes
identification of the hedging instrument, the hedged item or
transaction, the nature of the risk being hedged and how the
entity will assess the hedging instrument’s effectiveness. Hedge
accounting is only applied where there is an economic relationship
between the hedged item and the hedging instrument and the
hedge ratio of the hedging relationship is the same as that resulting
from actual quantities of the hedged item and hedging instrument
used.
Wesfarmers will discontinue hedge accounting prospectively only
when the hedging relationship, or part of the hedging relationship
no longer qualifies for hedge accounting, which includes where
there has been a change to the risk management objective and
strategy for undertaking the hedge and instances when the hedging
instrument expires or is sold, terminated or exercised. For these
purposes, the replacement or rollover of a hedging instrument into
another hedging instrument is not an expiration or termination if
such a replacement or rollover is consistent with our documented
risk management objective.
Wesfarmers 2019 Annual Report
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Financial statements
NOTES TO THE FINANCIAL STATEMENTS: RISK
For the year ended 30 June 2019
16. Hedging (continued)
Hedges that meet the criteria for hedge accounting are classified and accounted for as follows:
Fair value hedges
The Group uses fair value hedges to mitigate the risk of changes in the fair value of foreign currency borrowings from foreign currency
and interest rate fluctuations over the hedging period. Where these fair value hedges qualify for hedge accounting, gains or losses from
remeasuring the fair value of the hedging instrument are recognised within finance costs in the income statement, together with gains or
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 (2018: $1 million).
The maturity profile of the fair value hedges is shown in note 15(b).
If the hedged item is a firm commitment (and therefore not recognised), the subsequent cumulative change in the fair value of the hedged
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
hedging instrument are also recognised in profit or loss.
The accumulated amount of fair value adjustments which are included in the carrying amount of interest bearing loans and borrowings in
the balance sheet is as follows:
Face value at inception
Change arising from revaluation to spot rates at 30 June
Balance of unamortised discount/premium
Amortised cost
Accumulated amount of fair value hedge adjustment attributable to
hedged risk
Carrying amount
2019
2018
Foreign
bonds
$m
Domestic
bonds
$m
Foreign
bonds
$m
Domestic
bonds
$m
1,630
399
2,029
(5)
2,024
-
2,024
850
-
850
(1)
849
8
857
1,630
338
1,968
(7)
1,961
-
1,961
1,350
-
1,350
(2)
1,348
5
1,353
There was no material ineffectiveness relating to financial instruments in designated fair value hedge relationships during the year
(2018: nil).
Cash flow hedges
The Group uses cash flow hedges to mitigate the risk of variability of future cash flows attributable to foreign currency fluctuations over
the hedging period associated with our foreign currency borrowings and ongoing business activities, predominantly where we have
highly probable purchase or settlement commitments in foreign currencies. The Group also uses cash flow hedges to hedge variability in
cash flows due to interest rate or natural gas price movements associated with some of our domestic borrowings or forecast natural gas
purchases respectively.
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
ineffective portion is recognised in profit or loss. The maturity profile of these hedges is shown in note 15(b), with the recognition of the
gain or loss expected to be consistent with this profile.
2019
Trade
$m
Foreign
bonds
$m
Foreign
debt
$m
Commodity
hedge
$m
Trade
$m
2018
Foreign
debt
$m
Foreign
bonds
$m
Commodity
hedge
$m
Change in the fair value of the
hedged item
(32)
28
-
(14)
294
108
1
28
Amounts recognised in equity are transferred to the income statement when the hedged transaction affects profit or loss, such as when
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
liability, the amounts taken to equity are transferred to the initial carrying amount of the non-financial asset or liability.
If the forecast transaction is no longer expected to occur, amounts previously recognised in equity are transferred to the income
statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a
hedge is revoked, amounts previously recognised in equity remain in equity until the forecast transaction occurs.
142
Wesfarmers 2019 Annual Report
NOTES TO THE FINANCIAL STATEMENTS: RISK
For the year ended 30 June 2019
Recognised impairment
There was no material impairment of non-financial assets
recognised during the 2019 financial year.
Previously recognised impairment
During the 2018 financial year, the carrying values of both the
Target and BUKI CGU's exceeded their respective recoverable
amounts and a pre-tax impairment of $1,167 million ($1,253 million
post-tax) was recognised in ‘impairment expenses’ for Target and
as part of discontinued operations for BUKI.
The decrease in the recoverable amount of the Target CGU
largely reflected the difficult trading conditions in an increasingly
competitive market and a moderated outlook for the business.
The impairment was recognised in respect of Target’s goodwill
($47 million), brand name ($238 million) and other fixed assets
($21 million).
The decrease in the recoverable amount of the BUKI CGU was
the result of a continued deterioration in the financial performance
of the 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 as part of the discontinued operations, a $92 million
write-off of its deferred tax asset and $66 million writedown of
stock.
Reversal of impairment
Where there is an indication that previously recognised impairment
losses may no longer exist or have decreased, the asset is tested.
If there has been a change to the estimates used to determine
the asset’s recoverable amount since the last impairment loss
was recognised, the carrying value of the asset is increased to
its recoverable amount. That increased amount cannot exceed
the carrying value that would have been determined, net of
depreciation, had no impairment loss been recognised for the
asset in prior years. Such reversal is recognised in profit or loss
and the depreciation charge is adjusted in future periods to
allocate the asset’s revised carrying value, less any residual value,
on a systematic basis over its remaining useful life. Impairments
recognised against goodwill are not reversed.
There were no material reversals of impairment during the
2019 financial year.
17. Impairment of non-financial assets
Testing for impairment
The Group tests property, plant and equipment, intangibles and
goodwill for impairment:
• at least annually for indefinite life intangibles and goodwill; and
• where there is an indication that the asset may be impaired
(which is assessed at least each reporting date); or
• where there is an indication that previously recognised
impairment (on assets other than goodwill) may have changed.
If the asset does not generate independent cash inflows and its
value in use cannot be estimated to be close to its fair value, the
asset is tested for impairment as part of the cash generating unit
(CGU) to which it belongs.
Assets are impaired if their carrying value exceeds their recoverable
amount. The recoverable amount of an asset or CGU is determined
as the higher of its fair value less costs of disposal (FVLCOD) and
value in use (VIU).
Impairment calculations
In assessing VIU, the estimated future cash flows are discounted
to their present value using a discount rate that reflects current
market assessments of the time value of money and the risks
specific to the asset or CGU. In determining FVLCOD, a discounted
cash flow model is used based on a methodology consistent with
that applied by the Group in determining the value of potential
acquisition targets, maximising the use of market observed inputs.
These calculations, classified as Level 3 on the fair value hierarchy,
are compared to valuation multiples, or other fair value indicators
where available, to ensure reasonableness.
Inputs to impairment calculations
For VIU calculations, cash flow projections are based on
Wesfarmers’ corporate plans and business forecasts prepared by
management and approved by the Board. The corporate plans
are developed annually with a five-year outlook and, for these
calculations, are adjusted to exclude the costs and benefits of
expansion capital and on the understanding that actual outcomes
may differ from the assumptions used.
In determining FVLCOD, the valuation model incorporates the cash
flows projected over the balance of the current corporate plan
period. These projections are discounted using a risk-adjusted
discount rate commensurate with a typical market participant’s
assessment of the risk associated with the projected cash flows.
For both the VIU and FVLCOD models, cash flows beyond the
five-year corporate plan period are extrapolated using estimated
growth rates, which are based on Group estimates, taking into
consideration historical performance as well as expected long-term
operating conditions. Growth rates do not exceed the consensus
forecasts of the long-term average growth rate for the industry in
which the CGU operates.
Discount rates used in both calculations are based on the weighted
average cost of capital determined by prevailing or benchmarked
market inputs, risk adjusted where necessary. Other assumptions
are determined with reference to external sources of information
and use consistent, conservative estimates for variables such as
terminal cash flow multiples. Increases in discount rates or changes
in other key assumptions, such as operating conditions or financial
performance, may cause the recoverable amounts to fall below
carrying values.
Wesfarmers 2019 Annual Report
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NOTES TO THE FINANCIAL STATEMENTS: RISK
For the year ended 30 June 2019
17. Impairment of non-financial assets (continued)
Key assumptions: Industrial and Safety CGU
The key assumptions used for assessing the recoverable amount of the Industrial and Safety CGU is set out below. The
recoverable value has been determined using the VIU methodology.
EBIT growth over the forecast period is supported by a transformation program, which is currently underway, to invest in a new
enterprise wide resource planning system and data and digital systems to realise productivity improvements, improve customer
experience, enhance supply chain efficiency, build merchandising capability and sales force effectiveness designed to increase
market share.
The post-tax discount rates incorporate a risk-adjustment relative to the risks associated with the net post-tax cash flows being
achieved, while the growth rates beyond FY2023 are based on market estimates of the long-term average industry growth rate.
The reduction in the post-tax discount rate in 2019 reflects the tempered growth in post-tax cash flows over the corporate plan
period relative to 2018.
Discount rate (post-tax)
Growth rate beyond corporate plan
Headroom as a percentage of the CGU’s net carrying value
Terminal value as a percentage of the CGU’s recoverable value
Industrial and Safety
2018
2019
9.0%
3.0%
4.4%
83.8%
10.4%
3.0%
20.5%
86.1%
As the Industrial and Safety CGU's recoverable amount is marginally above its carrying value, any adverse movements in key
assumptions may lead to an impairment. The forecast improvement in the CGU's financial performance is expected to occur in
the medium term given the lead time in application of the transformation program.
The recoverable value of Industrial and Safety is sensitive to changes in its discount rate and its forecast long-term EBIT that
drives terminal value. A 25 basis point increase in discount rate or a five per cent reduction in its forecast long-term EBIT
eliminates the headroom in the recoverable value.
Kmart Group CGU
Kmart and Target have historically been considered separate CGUs for the purposes of impairment testing. The operations of
Kmart and Target have become increasingly interrelated since the formation of the Kmart Group (formerly Department Stores)
in 2016, including the establishment of the Kmart Group leadership team, management restructures and store optimisation
strategies. As a result of the increased interrelations of operations and resulting cash inflows, Kmart Group is now one CGU for
the purposes of allocating goodwill, and testing for impairment. The combination of the Kmart and Target CGUs had no impact on
the impairment testing outcomes of the Group.
Other CGUs
Based on current economic conditions and CGU performances, no reasonably possible change in a key assumption used in
the determination of the recoverable value of CGUs other than Industrial and Safety would result in a material impairment to the
Group.
144
Wesfarmers 2019 Annual Report
NOTES TO THE FINANCIAL STATEMENTS: GROUP STRUCTURE
For the year ended 30 June 2019
18. Associates and joint arrangements
Investment in associates
Interest in joint ventures
Consolidated
2019
$m
2018
$m
3,359
34
3,393
731
17
748
The Group has a 15 per cent interest in Coles Group Limited. Coles
is a listed entity on the Australian Stock Exchange. The Group's
interest in Coles is accounted for using the equity method in the
consolidated financial statements. The fair value of the Group's
interest, determined by reference to the closing share price on
28 June 2019, was $2,671 million. The following table illustrates
the summarised financial information of the Group's investment in
Coles:
Movement in investment in associates
Net carrying amount at the beginning of
the year
Share of net profit from operations of
associates
Dividends
Value of retained interest in Coles at date
of demerger
Associates disposed of during the year
Net carrying amount at the end of the year
From continuing operations
Total comprehensive income from
associates and joint ventures
Share of net profits from associates
Other comprehensive (loss)/income of
associates
Share of profits from joint ventures
Other comprehensive income of joint ventures
Total comprehensive income for the year
731
686
231
(68)
2,571
(106)
3,359
227
(1)
2
-
228
96
(51)
-
-
731
69
1
5
1
76
Recognition and measurement
Investment in associates
The Group’s investments in its associates, being entities in which the
Group has significant influence and are neither subsidiaries nor jointly
controlled assets, are accounted for using the equity method. Under
this method, the investment in associate is carried in the balance
sheet at cost plus any post-acquisition changes in the Group’s share
of the net assets of the associate.
Goodwill relating to associates is included in the carrying amount
of the investment and is not amortised. After application of the
equity method, the Group determines whether it is necessary to
recognise any additional impairment loss with respect to the Group’s
investment. The income statement reflects the Group’s share of the
results of operations of the associate.
Where there has been a change recognised directly in the equity of
the associate, the Group recognises its share of any changes and
discloses this in the statement of comprehensive income.
Where the reporting dates of the associates and the Group vary,
management accounts of the associate for the period to the Group’s
balance date are used for equity accounting. The accounting policies
of associates are consistent with those used by the Group for like
transactions and events in similar circumstances.
Investment properties owned by associates are initially measured at
cost, including transaction costs. Subsequent to initial recognition,
investment properties are stated at fair value, which reflects market
conditions at the balance sheet date. Gains or losses arising from
changes in the fair values of investment properties are recognised in
profit or loss of the associate, in the year in which they arise. This is
consistent with the Group’s policy.
Investment in associates
Summarised balance sheet
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Group's share of Coles' net assets
Goodwill
Carrying amount
Summarised income statement
following demerger
Revenue
Expenses
Profit before tax
Income tax expense
Profit for the period
Group's share of profit for the year
2019
$m
3,406
10,683
4,290
2,129
7,670
1,150
1,549
2,699
22,011
(20,921)
1,090
(234)
856
128
The Group has a 24.8 per cent interest in BWP Trust. The Group's
interest in BWP Trust is accounted for using the equity method in
the consolidated financial statements. The fair value of the Group's
interest, by reference to the closing share price of BWP Trust on
28 June 2019, was $586 million. The following table illustrates the
summarised financial information of the Group's investment in BWP
Trust.
Summarised balance sheet
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Group's share of BWP Trust's net assets
Summarised income statement
Revenue
Expenses
Unrealised gains in fair value
Profit attributable to the unit holders of
BWP Trust
Group's share of profit for the period
2019
$m
2018
$m
50
2,265
92
416
1,807
448
156
(40)
53
169
42
88
2,213
277
259
1,765
438
154
(40)
69
183
45
Coles Group Limited
BWP Trust
Other
$m
2,699
448
212
Interests in joint arrangements
The Group recognises its share of the assets, liabilities, expenses
and income from the use and output of its joint operations. The
Group’s investments in its joint ventures is accounted for using the
equity method.
Wesfarmers 2019 Annual Report
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NOTES TO THE FINANCIAL STATEMENTS: GROUP STRUCTURE
For the year ended 30 June 2019
18. Associates and joint arrangements (continued)
Key judgement: control and significant influence
The Group has a number of management agreements with associates and joint arrangements it considers when determining
whether it has control, joint control or significant influence. The Group assesses whether it has the power to direct the relevant
activities of the investee by considering the rights it holds to appoint or remove key management and the decision-making rights
and scope of powers specified in the contract.
Where the Group has the unilateral power to direct the relevant activities of an investee, the Group then assesses whether the
power it holds is for its own benefit (acting as principal) or for the benefit of others (acting as agent). This determination is based
on a number of factors including an assessment of the magnitude and variability of the Group’s exposure to variable returns
associated with its involvement with the investee. In an agency capacity, the Group is considered to be acting on behalf of other
parties and therefore does not control the investee when it exercises its decision-making powers.
Specifically in relation to Coles, the Group has determined it has significant influence due to its voting power, representation
on the Coles board, its influence on the dividend policy and the existence of an ongoing relationship formalised through a
relationship deed.
Interests in associates and joint arrangements
Associate
Principal activity
Reporting date
Country of incorporation
Australian Energy Consortium Pty Ltd1,2
Oil and gas
Bengalla Coal Sales Company Pty Limited2 Sales agent
Bengalla Mining Company Pty Limited2
BWP Trust
Coles Group Limited3
Gresham Partners Group Limited
Gresham Private Equity Funds
Queensland Nitrates Management Pty Ltd Chemical manufacture
Chemical manufacture
Queensland Nitrates Pty Ltd
Pine sawmillers
Wespine Industries Pty Ltd
Management company
Property investment
Food and staples retailing
Investment banking
Private equity fund
31 December
31 December
31 December
30 June
30 June
30 September
30 June
30 June
30 June
30 June
Joint operations
Bengalla2
ISPT4
Sodium Cyanide
Joint ventures
BPI NO 1 Pty Ltd
Loyalty Pacific Pty Ltd5
31 December
Coal mining
30 June
Property ownership
Sodium cyanide manufacture 30 June
Property management
Loyalty programs
30 June
30 June
1
Australian Energy Consortium Pty Ltd (AEC) held a 50.0 per cent interest in Quadrant Energy.
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Ownership
2019
%
2018
%
-
-
-
24.8
15.0
50.0
(b)
50.0
50.0
50.0
-
-
75.0
(c)
50.0
27.4
40.0
40.0
24.8
(a)
50.0
(b)
50.0
50.0
50.0
40.0
25.0
75.0
(c)
(a)
2 Wesfarmers disposed of its interest in Bengalla and its indirect interest in Quadrant Energy during the year. Refer to note 20 for further details.
3
A wholly-owned subsidiary, Wesfarmers' Retail Holdings Pty Ltd has a 15.0 per cent interest in Coles. Refer to note 20 for further details.
ISPT was disposed of as part of the Coles demerger.
A wholly-owned subsidiary, Wesfarmers Loyalty Management Pty Ltd, has a 50.0 per cent interest in Loyalty Pacific Pty Ltd (flybuys).
4
5
(a) As at 30 June 2018, Coles Group Limited and Loyalty Pacific Pty Ltd were wholly-owned subsidiaries.
(b) Gresham Private Equity Funds: While the Group’s interest in the unitholders’ 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 its relevant activities. Such control requires a unitholders’ resolution of 75.0 per cent of votes
pursuant to the Funds’ trust deeds.
(c) 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.
146
Wesfarmers 2019 Annual Report
NOTES TO THE FINANCIAL STATEMENTS: GROUP STRUCTURE
For the year ended 30 June 2019
19. Subsidiaries
The consolidated financial statements include the financial statements of Wesfarmers Limited and the subsidiaries listed in the following
table. Refer to page 150 for the respective legend.
Entity
A.C.N. 003 921 873 Pty Limited
A.C.N. 004 191 646 Pty Ltd
A.C.N. 007 870 484 Pty Ltd
A.C.N. 008 648 799 Pty Ltd
A.C.N. 008 734 567 Pty Ltd
A.C.N. 061 462 593 Pty Ltd (formerly
Mycar Automotive Pty Ltd)
A.C.N. 082 931 486 Pty Ltd
A.C.N. 092 194 904 Pty Ltd
A.C.N. 112 719 918 Pty Ltd
AEC Environmental Pty Ltd
ANKO Global Holdings Pty Ltd
(formerly KAS Global Holdings Pty Ltd)
ANKO Retail Incorporated
Australian Gold Reagents Pty Ltd
Australian Graphics Pty Ltd
Australian International Insurance
Limited
Australian Underwriting Holdings
Limited
Australian Underwriting Services Pty
Ltd
Australian Vinyls Corporation Pty Ltd
AVC Holdings Pty Ltd
AVC Trading Pty Ltd
BBC Hardware Limited
BBC Hardware Properties (NSW) Pty
Ltd
BBC Hardware Properties (Vic) Pty Ltd
Blacksmith Jacks Pty Ltd
Blackwoods 4PL Pty Ltd
Blackwoods Training Pty Ltd
Blackwoods Xpress Pty Ltd
BPI Management Pty Ltd
BUKI (Australia) Pty Ltd
Bullivants International Pty Ltd
Bullivants Pty Limited
Bunnings (NZ) Limited
Bunnings Group Limited
Bunnings Joondalup Pty Ltd
Bunnings Limited
Bunnings Management Services Pty
Ltd
Bunnings Manufacturing Pty Ltd
Bunnings Properties Pty Ltd
Bunnings Pulp Mill Pty Ltd
BWP Management Limited
C S Holdings Pty Limited
~
~
+
z
+
+
+
+
+
+
+
+
n
+
# n
* +
* +
~
<
+
2019
%
2018
%
Entity
2019
%
2018
%
100
100
100
-
100
100
-
100
100
100
100
100
75
100
100
100
100
100
100
100
100
100
100
100
100
100
75
100
Campbells Hardware & Timber Pty
Limited
CGNZ Finance Limited
Chemical Holdings Kwinana Pty Ltd
CMNZ Investments Pty Ltd
ConsortiumCo Pty Ltd
Coo-ee Investments Pty Limited
Coregas NZ Limited
Coregas Pty Ltd
CSBP Ammonia Terminal Pty Ltd
CSBP Limited
CTE Pty Ltd
Cuming Smith and Company Limited
Dairy Properties Pty Ltd
n
+
n
+
+
+
Ditchburn Property Investments (UK)
Ltd
~ p
Dowd Corporation Pty Ltd
Eastfarmers Pty Ltd
ECC Pty Ltd
ENV.Australia Pty Ltd
Environmental and Licensing
Professionals Pty Ltd
FIF Investments Pty Limited
Fosseys (Australia) Pty Ltd
Geeks2U Holdings Pty Limited
Geeks2U International Pty Limited
Geeks2U IP Pty Limited
Geeks2U NZ Limited
Geeks2U Pty Limited
Geeks2U UK Limited
GPML Pty Ltd
Greencap Holdings Limited
Greencap Pty Ltd
HouseWorks Co Pty Ltd
Howard Smith Limited
Hunter Property Investments
Incorporatewear Limited
Incorporatewear, Unipessoal LDA
(formerly Richardson & Richardson,
Unipessoal LDA)
J Blackwood & Son Pty Ltd
James Patrick & Co Pty Ltd (in
liquidation)
+
@
@
@
n @
@
p @
+
~ s
# p
< v
+
KAS Direct Sourcing Private Limited
# l
KAS Global Trading Pty Limited
KAS International Sourcing
Bangladesh Pvt Ltd
t
x
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
-
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
-
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
-
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
-
-
-
-
-
-
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Wesfarmers 2019 Annual Report
147
F
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
A
b
o
u
t
t
h
i
s
r
e
p
o
r
t
S
e
g
m
e
n
t
i
n
f
o
r
m
a
t
i
o
n
K
e
y
n
u
m
b
e
r
s
C
a
p
i
t
a
l
i
R
s
k
G
r
o
u
p
s
t
r
u
c
t
u
r
e
i
t
e
m
s
U
n
r
e
c
o
g
n
i
s
e
d
O
t
h
e
r
Financial statements
NOTES TO THE FINANCIAL STATEMENTS: GROUP STRUCTURE
For the year ended 30 June 2019
19. Subsidiaries (continued)
Entity
2019
%
2018
%
Entity
2019
%
2018
%
KAS International Trading (Shanghai)
Company Limited
KAS Pty Limited
KAS Services India Private Limited
Kleenheat Pty Ltd
Kmart Australia Limited
u
t
l
+
Kmart Group Asia Pty Ltd (formerly
Coles Group Asia Pty Ltd)
Kmart Holdings Pty Ltd
* +
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Kmart NZ Holdings Limited (formerly
Coles Group New Zealand Holdings
Limited)
Kwinana Nitrogen Company
Proprietary Limited
Lawvale Pty Ltd
Liftco Pty Limited
Loggia Pty Ltd
Loyalty Pacific Pty Ltd
Manacol Pty Limited
Masters Hardware Limited
Masters Home Improvement Limited
MC2 Pacific Pty Ltd
Meredith Distribution (NSW) Pty Ltd
Meredith Distribution Pty Ltd
Millars (WA) Pty Ltd
Modwood Technologies Pty Ltd
Neat N’ Trim Uniforms Pty Ltd
NZ Finance Holdings Pty Limited
Officeworks Businessdirect Pty Ltd
Officeworks Holdings Pty Ltd
Officeworks Ltd
Officeworks NZ Limited
Officeworks Property Pty Ltd
Pailou Pty Ltd
Patrick Operations Pty Ltd
Petersen Bros Pty Ltd
Premier Power Sales Pty Ltd
Protector Alsafe Pty Ltd
Protex Healthcare (Aus) Pty Ltd
PT Blackwoods Indonesia
R & N Palmer Pty Ltd
Rapid Evacuation Training Services
Pty Ltd
Relationship Services Pty Limited
Retail Australia Consortium Pty Ltd
Retail Investments Pty Ltd
SBS Rural IAMA Pty Limited
Scones Jam n Cream Pty Ltd
Sellers (SA) Pty Ltd
Share Nominees Limited
n
100
100
+
+
+
~ n
~ n
n
* +
+
n
+
m
100
100
100
100
(a)
100
-
-
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
148
Wesfarmers 2019 Annual Report
Sotico Pty Ltd
Target Australia Pty Ltd
Target Australia Sourcing (Shanghai)
Co Ltd
Target Australia Sourcing Limited
Target Holdings Pty Ltd
The Builders Warehouse Group Pty
Limited
The Franked Income Fund
The Westralian Farmers Limited
The Workwear Group HK Limited
The Workwear Group Holding Pty Ltd
The Workwear Group Pty Ltd
Trimevac Pty Ltd
Tyre and Auto Pty Ltd
Tyremaster (Wholesale) Pty Ltd
Ucone Pty Ltd
Validus Group Pty Ltd
Valley Investments Pty Ltd
Viking Direct Pty Limited
W4K.World 4 Kids Pty Ltd
Wesfarmers Agribusiness Limited
Wesfarmers Bengalla Limited
Wesfarmers Bengalla Management
Pty Ltd
Wesfarmers Bunnings Limited
Wesfarmers Chemical US Holdings
Corp
Wesfarmers Chemicals, Energy &
Fertilisers Limited
Wesfarmers Coal Resources Pty Ltd
+
# u
# t
* +
+
# t
+
+
~
+
+
+
+
+
z
+
+
Wesfarmers Department Stores
Holdings Pty Ltd
* +
Wesfarmers Emerging Ventures Pty Ltd
+
+
+
Wesfarmers Energy (Gas Sales)
Limited
Wesfarmers Energy (Industrial Gas)
Pty Ltd
Wesfarmers Fertilizers Pty Ltd
Wesfarmers Gas Limited
Wesfarmers Holdings Pty Ltd
Wesfarmers Industrial & Safety
Holdings NZ Limited
Wesfarmers Industrial & Safety NZ
Limited
Wesfarmers Industrial and Safety Pty
Ltd
Wesfarmers Insurance Investments
Pty Ltd
Wesfarmers International Holdings Pty
Ltd (formerly Coles Group International
Pty Ltd)
Wesfarmers Investments Pty Ltd
100
100
100
100
100
100
100
100
100
100
100
100
-
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
# n
100
100
n
+
+
100
100
100
100
100
100
100
100
100
100
NOTES TO THE FINANCIAL STATEMENTS: GROUP STRUCTURE
For the year ended 30 June 2019
19. Subsidiaries (continued)
Entity
Wesfarmers Kleenheat Gas Pty Ltd
Wesfarmers Lithium Pty Ltd
Wesfarmers LNG Pty Ltd
Wesfarmers Loyalty Management Pty
Ltd
Wesfarmers LPG Pty Ltd
Wesfarmers New Energy Holdings Pty
Ltd
Wesfarmers Oil & Gas Pty Ltd
Wesfarmers Online Retail Holdings
Pty Ltd
Wesfarmers Private Equity Pty Ltd
Wesfarmers Provident Fund Pty Ltd
Wesfarmers Railroad Holdings Pty Ltd
Wesfarmers Resources Limited
Wesfarmers Retail Holdings Pty Ltd
Wesfarmers Retail Pty Ltd
Wesfarmers Risk Management
(Singapore) Pte Ltd
+
@
+
+
+
@
@
~
+
+
+
z
Wesfarmers Risk Management Limited # t
Wesfarmers Securities Management
Pty Ltd
Wesfarmers Sugar Company Pty Ltd
Wesfarmers Superannuation Pty Ltd
Wesfarmers Transport Limited
Weskem Pty Ltd
Westralian Farmers Superphosphates
Limited
WEV Capital Investments Pty Ltd
WFCL Investments Pty Ltd
WIS International Pty Ltd
WIS Solutions Pty Ltd
WIS Supply Chain Management
(Shanghai) Co Ltd
WPP Holdings Pty Ltd
WWG Middle East Apparel Trading
LLC
XCC (Retail) Pty Ltd
Yakka Pty Limited
~
+
+
u
q
2019
%
2018
%
Control of the following entities was lost on the demerger of Coles
Group Limited:
100
100
100
100
100
100
100
100
100
100
-
100
100
100
100
100
100
-
100
100
100
100
100
100
100
100
100
100
49
100
100
100
-
100
100
100
-
100
-
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
49
100
100
Entity
Andearp Pty Ltd
Australian Liquor Group Ltd
Bi-Lo Pty Limited
Brian Pty Ltd
Charlie Carter (Norwest) Pty Ltd
Chef Fresh Pty Ltd
CMFL Services Ltd
CMPQ (CML) Pty Ltd
Coles Ansett Travel Pty Ltd
Coles Financial Services Pty Ltd
Coles FS Holding Company Pty Ltd
(formerly Wesfarmers Finance Holding
Company Pty Ltd)
Coles Group Deposit Services Pty Ltd
Coles Group Finance (USA) Pty Ltd
Coles Group Finance Limited
Coles Group Limited
Coles Group Properties Holdings Ltd
Coles Group Property Developments
Ltd
Coles Group Superannuation Fund
Pty Ltd
Coles Group Supply Chain Pty Ltd
Coles Group Treasury Pty Ltd (formerly
Coles Group Payments Pty Ltd)
Coles Melbourne Ltd
Coles Online Pty Ltd
Coles Properties WA Ltd
Coles Property Management Pty Ltd
Coles Retail Services Pty Ltd
Coles Supermarkets Australia Pty Ltd
Coles WFS Pty Ltd (formerly
Wesfarmers Finance Pty Ltd)
CSA Retail (Finance) Pty Ltd
e.colesgroup Pty Ltd
e.tailing (Coles Group) Pty Ltd
Eureka Operations Pty Ltd
FBP Awards Fund Pty Ltd
Fitzgibbons Hotel Pty Ltd
Fitzinn Pty Ltd
GBPL Pty Ltd
Grocery Holdings Pty Ltd
Hotel Wickham Investments Pty Ltd
Katies Fashions (Aust) Pty Limited
LHG Pty Ltd
LHG2 Pty Ltd
LHG3 Pty Ltd
Liquorland (Australia) Pty Ltd
2019
%
2018
%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(a)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
100
100
100
100
100
100
100
100
97.5
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Wesfarmers 2019 Annual Report
149
F
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
A
b
o
u
t
t
h
i
s
r
e
p
o
r
t
S
e
g
m
e
n
t
i
n
f
o
r
m
a
t
i
o
n
K
e
y
n
u
m
b
e
r
s
C
a
p
i
t
a
l
i
R
s
k
G
r
o
u
p
s
t
r
u
c
t
u
r
e
i
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e
m
s
U
n
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e
c
o
g
n
i
s
e
d
O
t
h
e
r
Financial statements
NOTES TO THE FINANCIAL STATEMENTS: GROUP STRUCTURE
For the year ended 30 June 2019
19. Subsidiaries (continued)
Entity
Liquorland (Qld) Pty Ltd
Newmart Pty Ltd
now.com.au Pty Ltd
Procurement Online Pty Ltd
Retail Ready Operations Australia Pty
Ltd
Richmond Plaza Shopping Centre Pty
Ltd
The Grape Management Pty Ltd
Tickoth Pty Ltd
Tooronga Holdings Pty Ltd
Tyremaster Pty Ltd
Waratah Cove Pty Ltd
WFPL Funding Co Pty Ltd
WFPL No 2 Pty Ltd
WFPL Security SPV Pty Ltd
WFPL SPV Pty Ltd
2019
%
2018
%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
As at 30 June 2019, Coles Group Limited and
Loyalty Pacific Pty Ltd (flybuys) are an associate
and joint venture, respectively. Refer to note 18 for
further details.
Entity acquired/incorporated during the year.
Entity dissolved/deregistered during the year.
Audited by firms of Ernst & Young International.
Audited by other firms of accountants.
An ASIC-approved Deed of Cross Guarantee has
been entered into by Wesfarmers Limited and these
entities.
Entities added to the Closed Group by way of an
Assumption Deed during the period. Refer to note
24 for further details.
All subsidiaries are incorporated in Australia unless
identified with one of the following symbols:
Bangladesh
Bermuda
Cayman Islands
China
Hong Kong
India
Indonesia
New Zealand
Portugal
Singapore
United Arab Emirates
United Kingdom
United States of America
(a)
@
~
#
<
+
*
x
t
s
u
t
l
m
n
v
z
q
p
z
All entities utilise the functional currency of the country
of incorporation with the exception of Wesfarmers
Risk Management Limited and Target Australia
Sourcing (Shanghai) Co Ltd, which utilise the Australian
dollar and KAS International Trading (Shanghai)
Company Limited, PT Blackwoods Indonesia and
Wesfarmers Oil & Gas Pty Ltd, which utilise the US dollar.
150
Wesfarmers 2019 Annual Report
NOTES TO THE FINANCIAL STATEMENTS: GROUP STRUCTURE
For the year ended 30 June 2019
20. Discontinued operations
The businesses demerged or disposed of during the year,
being Coles, Bengalla, KTAS and Quadrant Energy, were not
considered discontinued operations or classified as held-for-sale
as at 30 June 2018 and therefore the comparative consolidated
income statement, the statement of comprehensive income and
certain applicable notes have been restated to show discontinued
operations separately from continuing operations. Where
applicable, the amounts disclosed below have been updated from
those reported at 31 December 2018 as a result of the finalisation
of costs and other items.
Demerger of Coles
On 16 March 2018, Wesfarmers announced its intention to
demerge Coles and its subsidiaries. The demerger was completed
on 28 November 2018. Coles was previously treated as a separate
reportable segment. Wesfarmers has retained a 15 per cent
minority ownership in Coles, which is classified as an investment
in associate and accounted for using the equity method. The
remaining 85 per cent interest in Coles reflects a demerger
distribution.
The fair value of Coles at the date of settlement, being
$17,136 million, was calculated using the volume weighted average
price (VWAP) of Coles' shares as traded on the ASX over the first
five trading days after the demerger date ($12.8459) multiplied by
the number of Coles' shares on initial listing (1,333,929,696 ordinary
shares). The 15 per cent investment retained by Wesfarmers was
initially valued at $2,571 million applying the same methodology.
The demerger distribution is accounted for as a reduction in equity,
split between share capital of $6,441 million and demerger reserve
of $8,124 million. The amount treated as a reduction in share
capital has been calculated by reference to the market value of
Coles' shares and the market value of Wesfarmers' shares post
demerger. The difference between the fair value of the distribution
and the capital reduction amount is the demerger dividend.
Coles
Results of discontinued operation
Revenue
Expenses
Profit before tax1
Income tax expense
Gain on demerger after income tax
Profit after tax from discontinued
operation
Assets and liabilities of controlled entities at
date of demerger
Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Property, plant and equipment
Intangibles and goodwill
Other assets
Total assets demerged
Liabilities
Trade payables
Interest bearing loans and borrowings
Other liabilities
Total liabilities demerged
Net assets demerged
Cash flows of discontinued operation
Net cash from operating activities
Net cash used in investing activities
Net cash from/(used in) financing activities
Net cash flows for the year
Allocation of deemed fair value of Coles at
demerger
Capital distribution
Demerger dividend
Fair value of Wesfarmers' retained
investment in Coles
Fair value at date of distribution
Gain on demerger
Fair value of Coles demerger
Carrying amount of net assets
Transaction costs2
Net profit on demerger before income tax
Income tax expense3
Gain on demerger after income tax
Earnings per share - discontinued operation
Basic earnings per share
Diluted earnings per share
Consolidated
2019
$m
2018
$m
16,453
(16,121)
332
(113)
2,264
39,388
(37,888)
1,500
(463)
-
2,483
1,037
322
829
2,313
4,387
13,700
629
22,180
3,633
2,000
1,803
7,436
14,744
690
(450)
2,000
2,240
1,814
(503)
-
1,311
6,441
8,124
2,571
17,136
17,136
(14,744)
(73)
2,319
(55)
2,264
cents
219.5
219.3
cents
91.7
91.5
1
2
Includes $146 million pre-tax ($102 million post-tax) provision for supply chain
automation.
Excludes $59 million pre-tax ($41 million post-tax) of transaction costs
recognised directly in equity.
3 Represents tax benefit on transaction costs and deferred tax liability on
investment in associate.
Wesfarmers 2019 Annual Report
151
F
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
A
b
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u
t
t
h
i
s
r
e
p
o
r
t
S
e
g
m
e
n
t
i
n
f
o
r
m
a
t
i
o
n
K
e
y
n
u
m
b
e
r
s
C
a
p
i
t
a
l
i
R
s
k
G
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p
s
t
r
u
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e
i
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e
m
s
U
n
r
e
c
o
g
n
i
s
e
d
O
t
h
e
r
Financial statements
NOTES TO THE FINANCIAL STATEMENTS: GROUP STRUCTURE
For the year ended 30 June 2019
20. Discontinued operations (continued)
Sale of indirect interest in Quadrant Energy
Sale of KTAS
On 22 August 2018, Wesfarmers announced that it had agreed
to sell its interest in AEC, which holds a 13.2 per cent interest
in Quadrant Energy, to Santos Limited for US$170 million
(A$232 million). The transaction was completed on
27 November 2018 with Wesfarmers recognising a pre-tax gain on
sale of $138 million (post-tax $120 million). Wesfarmers' share of
profits from its indirect interest in Quadrant Energy recognised for
the period was $4 million (2018: $23 million).
Sale of Bengalla
KTAS
On 7 August 2018, Wesfarmers announced that it had entered into
an agreement with New Hope Corporation to sell its 40 per cent
interest in Bengalla for $860 million subject to certain conditions
including regulatory approval. The transaction was completed
on 3 December 2018. Bengalla was previously reported in the
Resources segment.
On 13 August 2018, Wesfarmers announced that it had entered into
an agreement with Continental A.G. to sell its KTAS business for
$350 million. The transaction was completed on 1 November 2018.
Consolidated
2019
$m
2018
$m
197
(104)
93
(28)
645
401
(230)
171
(52)
-
710
119
Results of discontinued operation
Revenue
Expenses
Profit before tax
Income tax expense
Gain on disposal after income tax
Profit after tax from discontinued
operation
Assets and liabilities of controlled entities at
date of disposal
Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Property, plant and equipment
Goodwill and intangibles
Other assets
Total assets disposed
Liabilities
Trade payables
Other liabilities
Total liabilities disposed
Net assets disposed
Cash flows of discontinued operation
Net cash (used in)/ from operating activities
Net cash used in investing activities
Net cash from financing activities
Net cash flows for the year
Gain on disposal
Total consideration received
Carrying amount of net assets disposed
Transaction costs and other items
Gain on disposal before income tax
Income tax expense
Gain on disposal after income tax
158
(14)
-
144
Consolidated
2019
$m
2018
$m
115
(103)
12
(3)
244
333
(299)
34
(9)
-
253
25
1
15
10
35
60
13
134
33
16
49
85
(8)
(2)
-
(10)
350
(85)
2
267
(23)
244
28
(7)
-
21
Earnings per share - discontinued operation
Basic earnings per share
Diluted earnings per share
cents
22.3
22.3
cents
2.2
2.2
Bengalla
Results of discontinued operation
Revenue
Expenses
Profit before tax
Income tax expense
Gain on disposal after income tax
Profit after tax from discontinued
operations
Assets and liabilities of controlled entities at
date of disposal
Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Property, plant and equipment
Other assets
Total assets disposed
Liabilities
Trade payables
Other liabilities
Total liabilities disposed
Net assets disposed
Cash flows of discontinued operation
Net cash from operating activities
Net cash used in investing activities
Net cash from financing activities
Net cash flows for the year
Gain on disposal
Total consideration received
Carrying amount of net assets disposed
Transaction costs and other items
Gain on disposal before income tax
Income tax expense
Gain on disposal after income tax
5
19
14
216
13
267
18
77
95
172
61
(14)
-
47
860
(172)
(9)
679
(34)
645
Earnings per share - discontinued operation
Basic earnings per share
Diluted earnings per share
cents
62.8
62.7
cents
10.6
10.6
152
Wesfarmers 2019 Annual Report
NOTES TO THE FINANCIAL STATEMENTS: UNRECOGNISED ITEMS
For the year ended 30 June 2019
21. Commitments and contingencies
Operating lease commitments
Group as lessee (i)
Within one year
Greater than one year but not more than
five years
More than five years
Group as lessor (ii)
Within one year
Greater than one year but not more than
five years
More than five years
Capital commitments (iii)
Within one year
Commitments arising from agreements to
invest in Gresham Private Equity Funds
Other expenditure commitments (iv)
Within one year
Greater than one year but not more than
five years
More than five years
Contingencies (v)
Trading guarantees
2019
$m
2018
$m
1,209
2,323
3,869
3,463
8,541
7,618
8,432
18,373
25
61
32
118
14
27
4
45
278
349
2
280
2
351
112
108
181
161
454
245
187
540
196
678
i. The Group has entered into commercial leases on office, retail and distribution
properties, motor vehicles and office equipment. The lease terms and implicit
interest rates vary significantly. For the lease of buildings, the lease terms
range from one year to 40 years and have various renewal or purchase
options, escalation clauses, termination rights and residual liability clauses.
Operating lease commitments refer to future undiscounted minimum rentals
payable under non-cancellable operating leases not included within this
financial report. Operating lease payments are recognised as an expense in
the income statement on a straight-line basis over the lease term. Operating
lease incentives are recognised as a liability when received and released to
earnings on a straight-line basis over the lease term. Fixed rate increases to
lease payments, excluding contingent or index-based rental increases, such
as Consumer Price Index, turnover rental and other similar increases, are
recognised on a straight-line basis over the lease term.
ii. Contracted non-cancellable future minimum lease payments expected to
be received in relation to non-cancellable sub-leases are not included in this
financial report.
iii. Commitments arising from contracts for capital expenditure contracted for at
balance date are not included in this financial report.
iv. Contracted other expenditure commitments are not included in this financial
report.
v. Contingent liabilities at balance date are not included in this financial report.
Key judgements: leases
The Group classifies leases between finance and operating
depending on whether the Group holds substantially all
of the risks and rewards incidental to ownership or not. In
making this assessment, the Group primarily considers the
asset ownership at the end of the lease term, any purchase
options, the lease term in relation to the asset’s life, the
present value of future lease payments in relation to the
asset’s fair value and the nature of the asset.
The reported lease commitments of the Group excludes rent
that was considered contingent at lease inception. The effect
of this exclusion on the reported lease commitments is not
material.
Group operating lease commitments as lessee ($m)
Within
one year
One to five
years
Greater than
five years
2019
2018
0
2,000
4,000
6,000
8,000
10,000
Guarantees
The Group has issued a number of bank guarantees to third parties
for various operational and legal purposes. It is not expected that
these guarantees will be called on.
In FY2018, the Group entered into warranties and a guarantee
on disposal of BUKI, the fair value of which were provided for
at 30 June 2018. The maximum exposure thereunder is not
considered material to the Group.
Other
Certain companies within the Group are party to various legal
actions that have arisen in the normal course of business. It is
expected that any liabilities arising from such legal action would not
have a material effect on the Group’s financial performance.
22. Events after the reporting period
Dividends
A fully-franked final ordinary dividend of 78 cents per share
resulting in a dividend of $884 million was declared for a payment
date of 9 October 2019. The dividend has not been provided for in
the 30 June 2019 full-year financial statements.
Acquisition of Kidman Resources Limited
On 23 May 2019, Wesfarmers announced that it had entered
into a Scheme Implementation Deed with Kidman Resources
Limited (Kidman) under which it is proposed that Wesfarmers
will acquire 100 per cent of the outstanding shares in Kidman for
$1.90 per share by way of Scheme of Arrangement. The transaction
was completed on 23 September 2019.
Acquisition of Catch Group Holdings Limited
On 12 June 2019, Wesfarmers announced that it had entered into
an agreement to acquire Catch Group Holdings Limited (Catch) for
cash consideration of $230 million. The transaction was completed
on 12 August 2019.
Due to the timing of the completion of the acquisition and the
restriction on access to the books and records of Catch until after
completion, the accounting for the business combination has
not yet been determined. Further information in relation to this
acquisition is unable to be provided due to the limited time between
completion and the release of this report.
Wesfarmers 2019 Annual Report
153
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Financial statements
NOTES TO THE FINANCIAL STATEMENTS: OTHER
For the year ended 30 June 2019
24. Deed of Cross Guarantee
The subsidiaries identified with a ‘+’ in note 19 are parties to a deed
of cross guarantee under which each company guarantees the
debts of the others. By entering into the Deed, the wholly-owned
entities have been relieved from the requirement to prepare a
financial report and directors’ report under ASIC Corporations
(Wholly-owned companies) Instrument 2016/785.
These subsidiaries and Wesfarmers Limited together referred to
as the ‘Closed Group’, either originally entered into the Deed on
27 June 2008, or have subsequently joined the Deed by way of an
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 up
of any of the entities in the Closed Group.
Entities which joined the Group by way of an Assumption Deed
throughout the period are identified with a ' * ' in note 19.
Tyre and Auto Pty Ltd left the Closed Group by way of disposal
during the period.
The consolidated income statement and retained earnings of the
entities that are members of the Closed Group is as follows:
23. Parent disclosures
Assets
Current assets
Non-current assets
Total assets
Liabilities
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Equity
Equity attributable to equity holders of the
parent
Issued capital
Employee reserved shares
Retained earnings
Dividends reserve
Restructure tax reserve
Hedging reserve
Share-based payments reserve
Demerger reserve
Total equity
Parent
2019
$m
2018
$m
10,659
6,088
16,747
6,687
22,780
29,467
974
2,640
3,614
13,133
1,945
3,362
5,307
24,160
15,724
2
723
292
150
(41)
47
(3,764)
13,133
22,231
1
100
1,653
150
(19)
44
-
24,160
Profit attributable to members of the parent
7,251
2,103
Total comprehensive income for the year, net
of tax, attributable to members of the parent
7,229
2,102
Contingencies
Contingent liabilities at balance date, not
included in this financial report, were as
follows:
Trading guarantees
Wesfarmers is party to various legal actions that have arisen in the
normal course of business. It is expected that any liabilities arising
from such legal action would not have a material adverse effect on
the Group’s financial report.
Dividends reserve
The dividends reserve was created by the parent entity for
the purposes of segregating profits from which dividends to
shareholders can be paid.
Guarantees
Wesfarmers Limited and certain Australian controlled entities are
parties to a Deed of Cross Guarantee (the Deed) as disclosed in
note 24.
Parent entity financial information
The financial information for the parent entity has been prepared on
the same basis as the consolidated financial statements, except as
set out below.
Investments in subsidiaries, associates and joint
venture entities
Investments in subsidiaries, associates and joint venture entities
are accounted for at cost in the financial statements of the parent.
Dividends received from associates are recognised in the parent
entity’s profit or loss when its right to receive the dividend is
established.
154
Wesfarmers 2019 Annual Report
Consolidated income statement and
retained earnings
Profit from continuing operations before
income tax
Profit from discontinued operations before
income tax
Income tax expense
Net profit for the year
Retained earnings at beginning of year
Remeasurement gain on defined benefit
plan, net of tax
Adjustment for companies transferred out
of the Closed Group
Transfer of gain on demerger
Total available for appropriation
Dividends provided for or paid
Retained earnings at end of year
196
593
Consolidated statement of
comprehensive income
Deed
2019
$m
Deed
2018
$m
2,981
1,424
5,270
(833)
7,418
172
384
(1,197)
611
3,790
(1)
(1)
(101)
(4,164)
3,324
(3,628)
(304)
Deed
2019
$m
(1,698)
-
2,702
(2,529)
173
Deed
2018
$m
7,418
611
(2)
-
151
96
Profit for the year
Other comprehensive income
Items that may be reclassified to profit or loss:
Foreign currency translation reserve
Exchange differences on translation of
foreign operations
Cash flow hedge reserve
Unrealised gains on cash flow hedges
Realised (gains)/losses transferred to
non-financial assets/net profit
Transfer of hedges to Coles on demerger
Share of associates and joint venture reserves
Tax effect
(201)
(22)
(2)
25
143
-
(7)
(74)
Items that will not be reclassified to profit or loss:
Retained earnings
Remeasurement loss on defined benefit plan
Other comprehensive (loss)/income for the
year, net of tax
Total comprehensive income/(loss) for
the year, net of tax
Continuing operations
Discontinued operations
(1)
(1)
(52)
157
2,202
5,164
7,366
848
(80)
768
NOTES TO THE FINANCIAL STATEMENTS: OTHER
For the year ended 30 June 2019
24. Deed of Cross Guarantee (continued)
The consolidated balance sheet of the entities that are members of
the Closed Group is as follows:
25. Auditors' remuneration
Consolidated balance sheet
Assets
Current assets
Cash and cash equivalents
Receivables - Trade and other
Inventories
Derivatives
Other
Total current assets
Non-current assets
Receivables
Investment in controlled entities
Investment in associates and joint ventures
Deferred tax assets
Property
Plant and equipment
Goodwill
Intangible assets
Derivatives
Other
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Interest-bearing loans and borrowings
Income tax payable
Provisions
Derivatives
Other
Total current liabilities
Non-current liabilities
Payables
Interest-bearing loans and borrowings
Provisions
Derivatives
Other
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserved shares
Retained earnings
Reserves
Total equity
Deed
2019
$m
Deed
2018
$m
621
842
3,870
101
146
5,580
134
3,570
2,899
310
705
2,914
3,023
949
393
7
14,904
20,484
3,222
350
205
814
7
140
4,738
1,041
2,523
370
1
89
4,024
8,762
11,722
15,809
(81)
(304)
(3,702)
11,722
2,720
897
3,575
127
174
7,493
484
16,450
290
370
494
3,051
3,302
966
391
1
25,799
33,292
3,027
993
390
1,007
16
178
5,611
1,088
2,965
631
-
90
4,774
10,385
22,907
22,275
(42)
173
501
22,907
Fees of the auditors of the company for:
Audit services
Audit and review of financial reports
Ernst & Young (Australia)
Ernst & Young (overseas network firms)
Assurance related services
Ernst & Young (Australian and overseas
network firms)
Non-assurance related services
Ernst & Young (Australian and overseas
network firms):
- tax compliance
- other
Total paid to auditors
Consolidated
2019
$’000
2018
$’000
4,280
311
5,761
812
2,826
7,417
942
7,515
1,067
102
1,169
8,586
683
343
1,026
8,541
During the year, Ernst & Young provided services to the Group in
relation to the Coles demerger. Excluding these engagements,
the total assurance related and non-assurance related fees would
represent 25.7 per cent (2018: 23.0 per cent) of the total fees paid
or payable to Ernst & Young and related practices for the year
ended 30 June 2019.
26. Related party transactions
Associates
Operating lease rent paid
Operating lease rent received
Financial advisory fees paid
Management fees received
Other related party transactions
Amounts receivable from associates
Amounts owing to associates
Joint arrangements
Operating lease rent paid
Payments for loyalty program
Receipts from loyalty program redemption
Other related party transactions
Amounts receivable from joint ventures
Amounts owing to joint ventures
Consolidated
2019
$’000
2018
$’000
147,094
15,411
14,569
13,457
32,730
23,625
5,845
26,226
16,337
26,022
1,274
6,013
164,964
141,660
-
5,597
12,817
1,021
13,957
39
38,705
-
-
1,881
6,293
66
Rent for retail stores and warehouses has been paid by the Group
to an associated entity, BWP Trust, and to the BPI No. 1 Pty Ltd
and ISPT joint arrangements. Rent has been received from an
associate for the sublease of rental space.
Management fees have been received from an associated entity,
BWP Trust, on normal commercial terms and conditions for staff
and other services provided to associates.
Amounts have been paid to and received from Loyalty Pacific
Pty Ltd for the operation of the flybuys loyalty program.
Wesfarmers 2019 Annual Report
155
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U
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O
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Financial statements
NOTES TO THE FINANCIAL STATEMENTS: OTHER
For the year ended 30 June 2019
26. Related party transactions (continued)
Partly-owned subsidiaries of an associate of the Group, Gresham
Partners Group Limited, have provided office accommodation and
advisory services to Wesfarmers and were paid fees of $14,568,706
in 2019 (2018: $5,596,377), including $8,876,162 for services
provided in relation to the Coles demerger.
J P Graham, who was a director of Wesfarmers until he retired on
23 July 2018, has a majority shareholding interest in a company
which jointly owns Gresham Partners Group Limited on an equal
basis with a wholly-owned subsidiary of Wesfarmers. For the period
in 2019 in which Mr Graham was a director of Wesfarmers, fees of
$138,974 (2018: $5,596,377) were paid to Gresham Partners Group
Limited for the provision of office accommodation and advisory
services.
Other related party transactions include sales and purchases to
associates and joint arrangements on normal commercial terms
and conditions.
27. Other accounting policies
(a) New and amended accounting standards and
interpretations adopted from 1 July 2018
All new and amended Australian Accounting Standards and
Interpretations mandatory as at 1 July 2018 to the Group have been
adopted and include:
AASB 15 Revenue from Contracts with Customers
AASB 15 Revenue from Contracts with Customers (AASB 15)
establishes new principles for reporting information to users
of financial statements about the nature, timing, amount and
uncertainty of revenue and cash flows arising from an entity’s
contracts with customers. The core principle of AASB 15 is that an
entity recognises revenue when control of the goods or services
is transferred to the customer for an amount that reflects the
consideration to which the entity expects to be entitled in exchange
for those goods or services.
The Group has adopted AASB 15 from 1 July 2018 using the
modified retrospective approach, which has resulted in changes
in accounting policies. The accounting policies applicable from
1 July 2018 are set out in note 1. The Group applied AASB 15
to only those contracts that were not completed contracts as at
the date of initial application. No material adjustment to opening
retained earnings was recognised as the amendments to the
Group’s accounting policies did not result in any significant
changes to the timing or amount of revenue previously recognised.
As the modified retrospective approach has been adopted,
comparative information continues to be accounted for under
AASB 118 Revenue (AASB 118) and has not been restated. The
accounting policies applied prior to 1 July 2018 are outlined below:
Revenue
Revenue is measured at the fair value of the consideration received
or receivable. Revenue is recognised if it meets the criteria outlined
below.
Sale of goods
The Group generates a significant proportion of its revenue from
the sale of the following finished goods:
• Merchandise direct to customers through the Group’s retail
operations;
• Sales to other businesses of products for which the Group has
distribution rights, principally related to industrial maintenance
and industrial safety;
• Fertilisers and specialty gases;
• Coal, both nationally and internationally; and
• LPG and LNG.
156
Wesfarmers 2019 Annual Report
27. Other accounting policies (continued)
Revenue is recognised when the significant risks and rewards of
ownership of the goods have passed to the buyer and it can be
measured reliably. Risks and rewards are considered passed to the
buyer at the time of delivery of the goods to the customer.
Revenue from lay-by transactions is recognised on the date when
the customer completes payment and takes possession of the
merchandise.
Rendering of services
With respect to services rendered, revenue is recognised
depending on the stage of completion of those services.
AASB 9 Financial Instruments
The Group had previously early adopted the hedge accounting
and classification and measurement phases of AASB 9 Financial
Instruments (December 2010) (AASB 9). The Group has adopted
the impairment phase of AASB 9 (2014) from 1 July 2018. There
were no retrospective adjustments to comparative information as a
result of adopting the standard.
AASB 9 replaces the incurred loss approach under AASB 139
Financial Instruments: Recognition and Measurement, whereby
impairment was recognised when there was objective evidence that
the Group was not able to collect the debt, with a forward-looking
ECL approach. Under the ECL approach, an allowance for
impairment is considered across all trade receivables, regardless of
whether a credit event has occurred, based on the expected losses
over the lifetime of the receivable.
The adoption of the impairment phase of AASB 9 has resulted in
a change in accounting policy. The accounting policies applicable
from 1 July 2018 are set out in note 5. For trade receivables and
other debtors, the Group has adopted a matrix method that is
based on historical default rates, adjusted for forward looking
factors. Given the ageing profile of trade receivables and the
historical customer default rates, the adoption of AASB 9 has
not had a material impact on the Group. The accounting policies
applied prior to 1 July 2018 are outlined below:
Impairment of trade receivables
Collectability and impairment are assessed on an ongoing basis at
a divisional level. Impairment is recognised in the income statement
when there is objective evidence that the Group will not be able
to collect the debts. Financial difficulties of the debtor, probability
that the debtor will enter bankruptcy or financial reorganisation
and default or delinquency in payments are considered objective
evidence of impairment. The amount of the impairment loss is
the receivable carrying amount compared to the present value of
estimated future cash flows, discounted at the original effective
interest rate. Cash flows relating to short-term receivables are
not discounted if the effect of discounting is immaterial. Debts
that are known to be uncollectable are written off when identified.
If an impairment allowance has been recognised for a debt that
then becomes uncollectable, the debt is written off against the
allowance account. If an amount is subsequently recovered, it is
credited against profit or loss.
Other new and amended accounting standards and
interpretations
The following standards and interpretations have also been
adopted as at 1 July 2019 and have not had a material impact to
the Group:
• AASB 2016-5 Amendments to Australian Accounting
Standards Classification and Measurement of Share-based
Payment Transactions;
• AASB Interpretation 22 Foreign Currency Transactions and
Advance Consideration; and
• AASB 2017-1 Amendments to Australian Accounting
Standards – Transfers of Investments Property, Annual
Improvements 2014-2016 Cycle and Other Amendments.
NOTES TO THE FINANCIAL STATEMENTS: OTHER
For the year ended 30 June 2019
27. Other accounting policies (continued)
(b) New and amended standards and
interpretations issued but not yet effective
The following standards, amendments to standards and
interpretations are relevant to current operations. They are available
for early adoption but have not been applied by the Group in this
financial report.
AASB 16 Leases
AASB 16 Leases (AASB 16) introduces a single lessee accounting
model and requires a lessee to recognise assets and liabilities
for all leases with a term of more than 12 months, unless the
underlying asset is of low value. Wesfarmers, as a lessee, will be
required to recognise a right-of-use asset representing its right to
use the underlying leased asset and a lease liability representing its
obligations to make lease payments. Wesfarmers will be required to
separately recognise the interest expense on the lease liability and
the depreciation expense on the right-of-use asset.
Wesfarmers will also be required to remeasure the lease liability
upon the occurrence of certain events (e.g. a change in the lease
term, a change in future lease payments resulting from a change in
an index or rate used to determine those payments). Wesfarmers
will recognise the amount of the remeasurement of the lease liability
as an adjustment to the right-of-use asset.
Had AASB 16 been adopted from 1 July 2018, and had the Group's
lease portfolio and associated key assumptions at that date and
throughout the year been the same as those existing at 1 July 2019,
the estimated impact on profit from continuing operations for
the year ended 30 June 2019 would have been an increase in
depreciation expense of approximately $1.0 billion, an increase
in finance costs of approximately $0.2 billion and a decrease in
operating lease expenses of approximately $1.2 billion.
A key assumption in determining these estimates is the lease term.
Wesfarmers considers an option to extend a lease to be reasonably
certain when the extension date is within twelve months and no
decision has been made to terminate, when a decision has been
made to exercise the option or when there is a clear economic
incentive for extension, such as:
•
•
favourable contractual terms and conditions in the option
period compared to market rates;
leasehold improvements have recently been undertaken and
are likely to have significant residual value at the end of the
current lease period;
• significant termination costs exist; or
•
the underlying asset is important to the Group’s operations.
After lease commencement, the lease term is reassessed upon the
occurrence of a significant event or change in circumstance.
Lessor accounting under AASB 16 is substantially unchanged from
the accounting under AASB 117 Leases (AASB 117). The Group,
as a lessor, will not be materially impacted by the adoption of
AASB 16.
Other key assumptions and estimates include discount
rates (the rates applied on the estimate above were between
1.6 and 3.1 per cent) and the determination of the stand-alone
prices of the lease and non-lease components.
These estimates are based on our current interpretation of the
new standard. We understand that certain aspects of the standard
remain subject to global debate. In respect to the methodology
for determining and applying discount rates, there is potentially
divergence in practice across companies and a consensus view is
yet to be achieved. To the extent that the Group applied a discount
rate range 100 basis points higher, the lease liability and
right-of-use asset would reduce by approximately $0.3 billion at
transition.
As accounting positions are clarified and confirmed, the final
transition adjustments may differ from these estimates.
The following is a reconciliation of the Group's operating lease
commitments under AASB 117 to the lease liability that will be
recognised at 1 July 2019 on transition to AASB 16. Refer to
note 21 for further details.
Reconciliation of operating lease commitments
to lease liability under AASB 16
Operating lease commitments at 30 June 2019
Less: short-term leases
Less: non-lease components
Add: impact of reasonably certain lease extensions
Add: other
Less: impact of discounting
Lease liabilities recognised at 1 July 2019
$b
8.5
(0.1)
(0.6)
0.4
0.1
(0.8)
7.5
Transition impact assessment
Wesfarmers will be applying AASB 16 from 1 July 2019, using the
modified retrospective transition method whereby there is an option
on a lease-by-lease basis to calculate the right-of-use asset as
either:
•
its carrying amount as if AASB 16 had been applied since the
lease commencement date, but discounted using the lessee’s
incremental borrowing rate at the date of initial application; or
• an amount equal to the lease liability, adjusted by the amount
of any prepaid or accrued lease payments relating to that
lease recognised in the balance sheet immediately before the
date of initial application.
Under this method, there is no requirement to restate comparatives.
When applying the modified retrospective approach to leases
previously classified as operating leases under AASB 117, the
Group can elect, on a lease-by-lease basis, whether to apply a
number of practical expedients on transition. Wesfarmers expects
to apply a number of the practical expedients including:
•
the application of a single discount rate to a portfolio of leases
with reasonably similar characteristics;
• utilising previous assessments of onerous leases; and
•
the use of hindsight in determining the lease term.
Wesfarmers will not elect to apply the practical expedient to
combine lease and non-lease components for its property leases.
As such, the calculated lease liability will exclude an estimate of the
gross lease payments allocated to non-lease components.
Wesfarmers has performed an impact assessment of the adoption
of AASB 16 as at 1 July 2019. In summary, the estimated impact of
the adoption of AASB 16 on the balance sheet as at 1 July 2019,
includes an increase in assets (right-of-use asset) of approximately
$6.7 billion and an increase in liabilities (lease liability) of
approximately $7.5 billion. The net impact of initially applying
AASB 16 will be recognised as an adjustment to equity.
Wesfarmers 2019 Annual Report
157
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Financial statements
NOTES TO THE FINANCIAL STATEMENTS: OTHER
For the year ended 30 June 2019
27. Other accounting policies (continued)
(b) New and amended standards and interpretations issued but not yet effective (continued)
The effects of the following Standards are not expected to be material:
Reference
Description
AASB Interpretation 23 – Uncertainty
over Income Tax Treatments
The application of this Interpretation is effective from 1 January 2019 and will be adopted by
the Group on 1 July 2019. This Interpretation clarifies the application of the recognition and
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 losses or tax credits and tax rates and how an entity considers changes in facts and
circumstances.
AASB 2018-1 Amendments to
Australian Accounting Standards –
Annual Improvements 2015-2017
Cycle
The application of this Standard is effective from 1 January 2019 and will be adopted by the
Group on 1 July 2019. This Standard makes the following amendments:
–
AASB 3 Business Combinations - clarifies the requirement to remeasure a previously held
interest in a joint operation when an entity obtains control of a business;
– AASB 11 Joint Arrangements - clarifies that there is no requirement to remeasure a previously
held interest in a joint operation when an entity obtains joint control of a business;
– AASB 112 Income Taxes - clarifies the requirement for income tax consequences of dividend
payments to be accounted for in accordance with the nature of past profits from which the
dividends were derived; and
– AASB 123 Borrowing Costs - clarifies the treatment of borrowings originally obtained to
develop a qualifying asset.
AASB 2018-7 Amendments to
AASB 101 Presentation of Financial
Statements and AASB 108 Accounting
policies, changes in accounting
estimates and errors
The application of this Standard is effective from 1 January 2020 and will be adopted by the
Group on 1 July 2020. This Standard makes amendments to the definition of 'material' to
reference the effect of obscuring information to be similar to omitting or misstating information
and states that an entity assesses materiality in the context of the financial statements as a
whole. Additionally, the meaning of 'primary users of general purpose financial statements' has
been defined as 'existing and potential investors, lenders and other creditors' that must rely on
general purpose financial statements for much of the financial information they need.
AASB 2019-1 Amendments to
Australian Accounting Standards
– References to the Conceptual
Framework
AASB 2018-6 Amendments to
Australian Accounting Standards –
Definition of a Business
The application of this Standard is effective from 1 January 2020 and will be adopted by the
Group on 1 July 2020. The Standard makes amendments to a number of Australian Accounting
Standards, Interpretations and other pronouncements to reflect the issuance of the Conceptual
Framework for Financial Reporting (Conceptual Framework). The application of the Conceptual
Framework includes for-profit private sector entities that have public accountability. The
Standard prohibits entities to continue using the Framework for the Preparation of Financial
Statements and the Definition of the Reporting Entity in determining whether they are a
reporting entity that needs to prepare general purpose financial statements.
The application of this Standard is effective from 1 January 2020 and will be adopted by the
Group on 1 July 2020. This Standard amends AASB 3 Business Combinations definition of a
business. To be considered a business, an acquisition would have to include an input and a
substantive process that together significantly contributes to the ability to create outputs. The
new guidance provides a framework to evaluate when an input and a substantive process are
present.
AASB 2014-10 Amendments to
Australian Accounting Standards
– Sale or Contribution of Assets
between an Investor and its Associate
or Joint Venture
The application of this amendment is effective from 1 January 2022 and will be adopted by the
Group on 1 July 2022. The amendments require:
– a full gain or loss to be recognised when a transaction involves a business (whether it is
housed in a subsidiary or not); and
– partial gain or loss to be recognised when a transaction involves assets that do not
constitute a business, even if these assets are housed in a subsidiary.
AASB 2017-5 further defers the effective date of the amendments made in AASB 2014-10 to
periods beginning on or after 1 January 2022.
(c) Tax consolidation
Wesfarmers and its 100 per cent-owned Australian resident subsidiaries have formed a tax consolidated group with effect from
1 July 2002. Wesfarmers is the head entity of the tax consolidated group. Members of the group have entered into a tax sharing
agreement in order to allocate income tax expense to the wholly-owned subsidiaries on a stand-alone basis. The tax sharing arrangement
provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. The
possibility of such a default is considered remote at the date of this report.
Members of the tax consolidated group have entered into a tax funding agreement. The group has applied the group allocation approach
in determining the appropriate amount of current taxes to allocate to members of the tax consolidated group. The tax funding agreement
provides for each member of the tax consolidated group to pay a tax equivalent amount to or from the parent in accordance with their
notional current tax liability or current tax asset. Such amounts are reflected in amounts receivable from or payable to the parent company
in their accounts and are settled as soon as practicable after lodgement of the consolidated return and payment of the tax liability.
158
Wesfarmers 2019 Annual Report
NOTES TO THE FINANCIAL STATEMENTS: OTHER
For the year ended 30 June 2019
28. Share-based payments
The Group provides benefits to employees (including the executive
director) of the Group through share-based incentives. Employees
are paid for their services or incentivised for their performance
in part through shares or rights over shares. The expense arising
from these transactions is shown in note 2. The total number of
ordinary Wesfarmers shares acquired on market during the financial
year to satisfy employee incentive schemes was 3,572,448
(2018: 3,364,037) at an average price of $32.27 (2018: $42.77)
per share.
Recognition and measurement
Share-based payments can either be equity-settled or cash-settled.
If the employee is provided a choice of settlement options then the
scheme is considered to be cash-settled.
Equity-settled transactions
The cost of equity-settled transactions with employees is measured
using their fair value at the date at which they are granted. In
determining the fair value, only performance conditions linked to
the price of the shares of Wesfarmers Limited (market conditions)
are taken into account.
The cost of equity-settled transactions is recognised, together with
a corresponding increase in equity, over the period in which any
performance conditions (excluding market conditions) are met,
ending on the date on which the employees become fully entitled
to the award (vesting date). The cumulative expense recognised for
equity-settled transactions at each reporting date until vesting date
reflects the extent to which the vesting period has expired and the
proportion of the awards that are expected to ultimately vest. No
expense is recognised for awards that do not ultimately vest due to
a non-market performance condition not being met. The expense
is recognised in full if the awards do not vest (or are not exercised)
due to a market performance condition not being met.
Where the terms of an equity-settled award are modified, as a
minimum, an expense is recognised as if the terms had not been
modified. In addition, an expense is recognised for any increase
in the value of the transaction as a result of the modification, as
measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as if it
had vested on the date of cancellation, and any expense not yet
recognised for the award is recognised immediately. However, if a
new award is substituted for the cancelled award, and designated
as a replacement award on the date that it is granted, the cancelled
and new award are treated as if they were a modification of the
original award, as described above.
Cash-settled transactions
The ultimate expense recognised in relation to cash-settled
transactions will be equal to the actual cash paid to the employees,
which will be the fair value at settlement date. The expected
cash 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.
Additional information on award schemes
Wesfarmers Employee Share Plan (WESP)
The last issue under the WESP was made in December 2004.
Under the plan, employees were invited to apply for ordinary shares
in the company, funded by an interest-free loan from the Group.
The employees’ obligation for repayment of the loans is limited to
the dividends declared and capital returns by the company and,
in the event the employee ceases employment, the market price
achieved on the sale of the shares.
The plan is accounted for as an in-substance equity-settled award,
with the contractual life of each option equivalent to the estimated
loan life and no maximum term.
Wesfarmers Long Term Incentive Plan (WLTIP)
Long-term incentive
Under the WLTIP, eligible executives were invited to receive
performance rights in the company, subject to testing at the
end of the applicable four-year performance period. Prior to the
demerger of Coles, the last issue under these terms was made
in November 2016. WLTIP performance rights did not carry a right
to participate in the demerger and participants did not receive
Coles shares in respect of them. Additional performance rights
were granted to eligible executives in December 2018, following
the demerger of Coles from the Group, to preserve the overall value
of the award and ensure they were not unfairly disadvantaged by
the demerger. Further details on the WLTIP and additional grant of
performance rights are provided in the remuneration report.
Annual incentive
In August 2018, eligible executives received a restricted (mandatory
deferred) share award under the WLTIP. If an executive resigns or
is terminated for cause within one year of the share allocation, the
Board may decide to cancel that share allocation. The fair value of
the award at grant date is expensed over the forfeiture period.
Key Executive Equity Performance Plan (KEEPP)
KEEPP was introduced in September 2016, and was the only
variable remuneration plan the current executive KMP were invited
to participate in during the 2019 financial year.
Under the 2018 KEEPP, eligible executives were invited to receive
performance shares and restricted shares in the company.
Performance shares - 2018 KEEPP
For the Group Managing Director (Group MD) and the Group
Chief Financial Officer (Group CFO), the performance hurdles are
Wesfarmers’ TSR relative to the TSR of the ASX 100 (60 per cent
weighting), portfolio management and investment outcomes
(20 per cent weighting) and strategic measures (20 per cent
weighting). For the divisional managing directors, the performance
hurdles are cumulative EBIT and ROC performance against the
divisional corporate plan (80 per cent weighting) and Wesfarmers’
TSR relative to the TSR of the ASX 100 (20 per cent weighting).
Equity-settled awards outstanding
Weighted average share price in 2019 was $39.16 (2018: $42.93). The following table includes shares subject to trading restrictions.
Outstanding at the beginning of the year
Granted during the year
Exercised during the year
Lapsed during the year
Other adjustments
Outstanding at the end of the year
Exercisable at the end of the year
WESP
(options)
226,863
-
(21,064)
-
-
205,799
1,053,106
WLTIP
(shares)
(rights)
KEEPP
(shares)
WESAP
(shares)
295,326
27,682
(123,916)
-
-
199,092
548,440
915,821
96,284
-
(343,425)
-
668,680
-
674,886
1,500,504
-
(674,886)
-
1,500,504
-
7,704,334
2,878,716
(2,652,277)
(369,953)
(96,074)
7,464,746
4,430,030
Wesfarmers 2019 Annual Report
159
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Financial statements
NOTES TO THE FINANCIAL STATEMENTS: OTHER
For the year ended 30 June 2019
28. Share-based payments (continued)
29. Director and executive disclosures
Key Executive Equity Performance Plan (KEEPP)
(continued)
Performance shares - 2018 KEEPP (continued)
The fair value of the performance shares with a TSR hurdle is
determined using an option pricing model with the following inputs:
Compensation of key management personnel
The remuneration disclosures are provided in sections one to eight
of the remuneration report on pages 85 to 110 of this annual report
designated as audited and forming part of the directors’ report.
Grant date
Grant date share price ($)
Volatility (%)
Risk-free rate (%)
Fair value ($)
Group CFO
and Divisional
MDs
6 Dec 2018
31.73
17.34
2.03
20.02
Group MD
15 Nov 2018
32.62
17.19
2.26
20.78
Short-term benefits
Long-term benefits
Post-employment benefits
Termination benefits
Share-based payments
Consolidated
2019
$’000
2018
$’000
14,037
150
280
-
10,987
25,454
19,334
199
283
1,919
11,808
33,543
Restricted shares - 2018 KEEPP
Eligible executives also received a restricted shares award under
the KEEPP. If an executive resigns or is terminated for cause within
a year, the Board may decide to cancel that share allocation. The
fair value of the award at grant date is expensed over the one-year
forfeiture period. The grant date share price is the fair value of both
the restricted share and the performance share with EBIT and ROC
hurdles.
Further details of the KEEPP and of the terms of the grants during
the year are provided in the remuneration report.
Wesfarmers Employee Share Acquisition Plan
(WESAP)
The WESAP was introduced in October 2009. Under the plan, all
eligible employees are invited to acquire fully-paid ordinary shares
in the company. The shares are either acquired under a salary
sacrifice arrangement or are granted as an award, subject to the
Group achieving a net profit after tax performance hurdle. Eligibility
for an award of shares is dependent upon an in-service period with
a participating division and being a permanent employee.
The plan qualifies as a non-discriminatory employee share
scheme complying with the requirements of Division 83A of the
Income Tax Assessment Act 1997 (as amended) for Australian
resident employees. The average fair value of the equity
instruments granted was: $39.91 (2018 average: $42.89) and was
determined with reference to the share price on the date of grant.
Wesfarmers Employee Share Acquisition Plan
(WESAP) - Executives
In November 2016, WESAP was introduced to eligible executives.
Under this offer, eligible executives are invited to receive an award
of Wesfarmers’ fully-paid ordinary shares subject to a three-year
restriction.
If an executive resigns or is terminated for cause within three years,
the Board may decide whether to cancel the share allocation or
cash payment. The average fair value of the equity instruments
granted was: $32.46 (2018 average: $43.06) and was determined
with reference to the share price on the date of grant.
Other transactions with key management personnel
From time to time, directors of Wesfarmers or its controlled entities,
or their director-related entities, may purchase goods or services
from the Group. These purchases are on the same terms and
conditions as those entered into by other Group employees or
customers and are trivial or domestic in nature.
30. Tax transparency disclosures
In February 2016, the Board of Taxation provided its final report to
the Australian Government on a voluntary tax transparency code.
The report contained recommendations for additional disclosure
of tax information by companies split between Part A and Part B
disclosures. The Part B disclosures are publishable in a separate
Taxes Paid report. The Part A disclosures are:
• a reconciliation of accounting profit to tax expense and to
income tax paid or income tax payable;
•
•
the identification of material temporary and non-temporary
differences; and
the effective company tax rates for Australian and global
operations.
A reconciliation of Wesfarmers’ accounting profit to its tax expense
and material temporary and non-temporary differences are
disclosed in note 3. A reconciliation of accounting profit to income
tax paid or payable and the effective company tax rates for the
Group’s Australian and global operations are tabled below.
Tax paid or payable reconciliation
Accounting profit
Income tax at the statutory tax rate of 30%
Non-deductible items
Temporary differences: deferred tax
Associates and other
Current year tax paid or payable
Effective tax rate
Effective tax rate for Australian
operations
Effective tax rate for Australian operations
(excluding Target impairment1)
Effective tax rate for global operations
Effective tax rate for global operations
(excluding Target impairment1)
Consolidated
2019
$m
2018
$m
2,799
840
12
(39)
(3)
810
2,134
640
99
19
(6)
752
30.2%
34.4%
30.2%
30.7%
29.7%
34.0%
30.7%
29.7%
160
Wesfarmers 2019 Annual Report
1
The $306 million impairment of Target’s goodwill and non-current assets
recognised during FY2018 was a non-deductible item.
DIRECTORS' DECLARATION
Wesfarmers Limited and its controlled entities
In accordance with a resolution of the directors of Wesfarmers Limited, we state that:
1.
In the opinion of the directors:
1.1
the financial statements, notes and the additional disclosures included in the directors’ report designated as audited,
of the consolidated entity for the full-year ended 30 June 2019 are in accordance with the Corporations Act 2001, including:
(a)
(b)
giving a true and fair view of the consolidated entity’s financial position as at 30 June 2019 and of its performance
for the year ended on that date; and
complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the
Corporations Regulations 2001; and
1.2
the financial statements and notes comply with International Financial Reporting Standards as disclosed in the notes
to the financial statements on page 117 of the 2019 Annual Report; and
1.3
there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.
2.
3.
This declaration has been made after receiving the declaration required to be made to the directors in accordance with section 295A
of the Corporations Act 2001 for the financial year ended 30 June 2019.
In the opinion of the directors, as at the date of this declaration, there are reasonable grounds to believe that the members of the
Closed Group comprising the company and the controlled entities marked ‘+’ as identified in note 19 will be able to meet any
obligations or liabilities to which they are or may become subject to by virtue of the Deed of Cross Guarantee referred to in note 24.
On behalf of the Board:
M A Chaney AO
Chairman
Perth
25 September 2019
R G Scott
Managing Director
Wesfarmers 2019 Annual Report
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Signed reports
INDEPENDENT AUDITOR'S REPORT
To the Members of Wesfarmers Limited
Ernst & Young
11 Mounts Bay Road
Perth WA 6000, Australia
GPO Box M939 Perth WA 6843
Tel: +61 8 9429 2222
Fax: +61 8 9429 2436
ey.com/au
Independent auditor's report to the Members of Wesfarmers Limited
Independent auditor's report to the Members of Wesfarmers Limited
Report on the audit of the financial report
Report on the audit of the financial report
Opinion
We have audited the financial report of Wesfarmers Limited (the Company) and its subsidiaries (collectively the Group), which comprises
Opinion
the consolidated balance sheet as at 30 June 2019, the consolidated income statement, the consolidated statement of comprehensive
income, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended, notes to the
financial statements and the directors' declaration.
We have audited the financial report of Wesfarmers Limited (the Company) and its subsidiaries
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including:
(collectively the Group), which comprises the consolidated balance sheet as at 30 June 2019, the
consolidated income statement, the consolidated statement of comprehensive income, the consolidated
a)
statement of changes in equity and the consolidated cash flow statement for the year then ended, notes
to the financial statements and the directors' declaration.
b) complying with Australian Accounting Standards and the Corporations Regulations 2001.
giving a true and fair view of the consolidated financial position of the Group as at 30 June 2019 and of its consolidated financial
performance for the year ended on that date; and
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act
Basis for opinion
2001, including:
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further
described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in
accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting
a)
Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit
of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.
giving a true and fair view of the consolidated financial position of the Group as at 30 June 2019
and of its consolidated financial performance for the year ended on that date; and
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
b)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Key audit matters
Basis for opinion
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of
the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
the matter is provided in that context.
Report section of our report. We are independent of the Group in accordance with the auditor
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our
independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting
report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our
Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the
assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures
performed to address the matters below, provide the basis for our audit opinion on the accompanying financial report.
Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other
ethical responsibilities in accordance with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our
audit of the financial report of the current year. These matters were addressed in the context of our audit
of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate
opinion on these matters. For each matter below, our description of how our audit addressed the matter
is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
A member firm of Ernst & Young Global Limited
Financial Report section of our report, including in relation to these matters. Accordingly, our audit
Liability limited by a scheme approved under Professional Standards Legislation
included the performance of procedures designed to respond to our assessment of the risks of material
misstatement of the financial report. The results of our audit procedures, including the procedures
162
performed to address the matters below, provide the basis for our audit opinion on the accompanying
financial report.
Wesfarmers 2019 Annual Report
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Draft
INDEPENDENT AUDITOR'S REPORT
To the Members of Wesfarmers Limited
1. Accounting for the demerger of Coles
Why significant
How our audit addressed the key audit matter
Coles Group Limited (“Coles”) was demerged from the Group on
28 November 2018, with the Group retaining a 15% interest.
As disclosed in Note 20 Discontinued operations to the financial
statements, Wesfarmers has recognised a $2,264 million post-tax
gain on the demerger distribution.
We determined this to be a key audit matter due to the financial
impact of the transaction on the Group and the judgement required
when determining whether the Group maintains significant
influence over Coles.
As disclosed in Note 18 Associates and joint arrangements to
the financial statements, the Group has assessed that it asserts
significant influence over Coles. Accordingly, the Group has
accounted for the retained ownership interest as an investment
in an associate, resulting in an equity accounted carrying value at
30 June 2019 of $2,699 million.
Our audit procedures included the following:
• We obtained and read the key documents associated with the
demerger to identify the terms relevant to the calculation of the
gain on demerger and the Group’s assessment that significant
influence existed at 30 June 2019
• We evaluated the key inputs to the post-tax gain on demerger
calculation, being the distribution value, the fair value of the
retained investment at demerger date, the carrying value of the
Coles net assets at demerger date, and the transaction costs
incurred
• We assessed whether the Group accurately determined the
value of assets and liabilities derecognised as at the demerger
date and whether the operating result to the point of demerger
was correctly recorded
• Our tax specialists considered the tax impacts of the demerger,
including consideration of external advice and private tax
rulings obtained by the Group
• We assessed the calculation of the equity-accounted carrying
value of the Coles investment at 30 June 2019, including
agreeing the share of Coles’ profit and reserves recognised
during the post-demerger period to Coles’ audited financial
statements
• We assessed the carrying value of the Coles investment at
30 June 2019 for impairment with reference to the market value
of the Group’s interest in Coles and the Group’s accounting
policies relating to impairment of associates
• We assessed the financial report disclosures in accordance with
the requirements of Australian Accounting Standards.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Wesfarmers 2019 Annual Report
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INDEPENDENT AUDITOR'S REPORT
To the Members of Wesfarmers Limited
2.
Impairment of non-current assets
Why significant
How our audit addressed the key audit matter
The determination of the recoverable amounts of property, plant
and equipment (“PPE”), goodwill and other intangible assets
required significant judgement by the Group.
As required by Australian Accounting Standards, the Group
assesses at the end of each reporting period whether there are
any triggers indicating that an asset may be impaired. Goodwill
and indefinite life intangibles are assessed for impairment at least
annually.
Impairment assessments are typically complex and judgemental,
as they include the modelling of a range of assumptions and
estimates that will be impacted by future performance and market
conditions.
During the financial year, there were no material impairment
charges or reversals of previously recognised impairment, as
disclosed in Note 17 Impairment of non-financial assets.
Key assumptions, judgements and estimates applied in the
Group’s impairment assessment for the Industrial and Safety cash
generating unit (“CGU”) are set out in Note 17.
Our audit procedures included an evaluation of the assumptions
and methodologies utilised in the assessments, with emphasis
on those relating to the determination of CGUs, forecast cash
flows, growth rates, discount rates, comparative industry valuation
multiples and other market evidence.
We involved our valuation specialists to evaluate the
appropriateness of key inputs, where relevant to the impairment
tests, including:
• Discount rates
• Terminal growth rates
• Market evidence of industry earnings valuation multiples
• Long-term inflation and growth rate assumptions
• Forecast exchange rate assumptions.
We also considered the adequacy of the financial report disclosures
regarding the impairment testing approach, key assumptions and
sensitivity analysis.
3. Supplier rebates
Why significant
How our audit addressed the key audit matter
Rebates are received by the Group from suppliers associated with
its retail operations.
Our audit procedures in respect of supplier rebates included the
following:
We determined this to be a key audit matter due to the value of
supplier rebates recognised during the year and the judgement
required in relation to a number of factors, including:
• We gained an understanding of the nature of each material
type of supplier rebate including assessing the significant
agreements in place
• The commercial terms of each individual rebate
• We assessed the effectiveness of relevant controls in place
• The appropriate timing of recognition
• Consideration of the nature of the rebate and whether the
amount should be applied against the carrying value of
inventory or recognised in the income statement
• The accurate recognition and measurement of rebates in
accordance with Australian Accounting Standards and the
Group’s related processes and controls.
Disclosures relating to the measurement and recognition of supplier
rebates can be found in Note 6 Inventories.
relating to the recognition and measurement of rebate amounts
• We performed comparisons of the various rebate arrangements
against the prior year and budget, including analysis of aging
profiles and where material variances were identified, obtained
supporting evidence
• We selected a sample of supplier rebates and tested whether
documentation existed supporting the recognition and
measurement of the rebates in the 30 June 2019 financial
statements
• We inspected a sample of material new contracts entered into
before and after the balance date and assessed whether the
treatment adopted by the Group was appropriate
• We inquired of legal counsel as to the existence of other rebate
contracts or contracts with unusual terms and conditions
• We inquired of business representatives including product
category merchandisers, supply chain managers and
procurement staff as to the existence of any non-standard
agreements or side arrangements.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
164
Wesfarmers 2019 Annual Report
INDEPENDENT AUDITOR'S REPORT
To the Members of Wesfarmers Limited
4. AASB 16 Leases
Why significant
How our audit addressed the key audit matter
The new accounting standard AASB 16 Leases (“AASB 16”) is
effective for the Group from 1 July 2019.
The adoption of the new standard is expected to have a significant
impact on the Group’s financial position and performance, as
disclosed in Note 27 Other accounting policies to the financial
statements.
The Group’s determination of the impact of adopting AASB 16
involved a number of key judgements and estimates, which are
described in Note 27. In particular:
• The application of available practical expedients
• The estimation of lease terms for contracts where extension
options exist
• The incremental borrowing rates applied
• The estimation of standalone prices for non-lease components.
Our audit procedures included the following:
• We assessed the Group’s process for determining the expected
impact of the standard
• We evaluated the Group’s calculations and judgements
supporting the AASB 16 disclosures and assessed whether
Wesfarmers’ accounting principles comply with the new
accounting standard including practical expedients applied
• We tested a sample of lease contracts to assess whether
the associated right-of-use asset and lease liability had been
calculated materially in accordance with contract terms
and the requirements of the accounting standard, including
the identification of fixed and variable components of lease
consideration
• We assessed the completeness of the Group’s material
identified lease arrangements
• We held discussions with representatives from divisional
property management teams to understand the basis for
estimated lease terms and non-lease component rates
• We agreed data used in estimating the standalone prices
of non-lease components to an external benchmark report
released by an independent party
• We involved our capital and debt advisory specialists and
actuarial specialists to evaluate the appropriateness of the
Group’s methodology and calculations used to determine the
incremental borrowing rates applied to discount future lease
payments to present value
• We considered the adequacy of the financial report disclosures.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Wesfarmers 2019 Annual Report
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Signed reports
INDEPENDENT AUDITOR'S REPORT
To the Members of Wesfarmers Limited
Information other than the financial report and auditor’s report thereon
The directors are responsible for the other information. The other information comprises the information included in the Group’s Annual
Report for the year ended 30 June 2019, but does not include the financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance
conclusion thereon with the exception of the Remuneration Report and our related assurance opinion.
In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be
materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to
report that fact. We have nothing to report in this regard.
Responsibilities of the directors for the financial report
The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with
Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to
enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or
error.
In preparing the financial report, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing,
as applicable, matters relating to going concern and using the going concern basis of accounting unless the directors either intend to
liquidate the Group or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional
scepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit
procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures
made by the directors.
• Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability
to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions
are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the
Group to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial
report represents the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to
express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We
remain solely responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and
to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where
applicable, related safeguards.
From the matters communicated to the directors, we determine those matters that were of most significance in the audit of the financial
report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not
be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
166
Wesfarmers 2019 Annual Report
INDEPENDENT AUDITOR'S REPORT
To the Members of Wesfarmers Limited
Report on the audit of the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in the directors' report for the year ended 30 June 2019.
In our opinion, the Remuneration Report of Wesfarmers Limited for the year ended 30 June 2019 complies with section 300A of the
Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with
section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit
conducted in accordance with Australian Auditing Standards.
Ernst & Young
D S Lewsen
Partner
Perth
25 September 2019
J K Newton
Partner
Perth
25 September 2019
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Wesfarmers 2019 Annual Report
167
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Shareholder and ASX information
SHAREHOLDER INFORMATION
Substantial shareholders
As at the date of this report, the following shareholders are substantial shareholders for the purposes of Part 6C.1 of the
Corporations Act 2001:
• BlackRock Group (BlackRock Inc. and subsidiaries) holding 6.04 per cent; and
• The Vanguard Group, Inc. holding 5.00 per cent.
Voting rights
Wesfarmers fully-paid ordinary shares carry voting rights of one vote per share.
Distribution of members and their holdings
Size of holdings
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Number of shareholdings
375,596
89,409
9,994
5,079
164
There were 12,866 shareholders that held less than a marketable parcel of Wesfarmers ordinary shares.
There were 1.05 per cent of shareholders with registered addresses outside Australia.
Twenty largest shareholders
The 20 largest shareholders of ordinary shares on the company’s register as at 25 September 2019 were:
Name
Number of shares
% of issued capital
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Pty Limited
Citicorp Nominees Pty Limited
National Nominees Limited
BNP Paribas Nominees Pty Ltd (Agency Lending DRP A/C)
HSBC Custody Nominees (Australia) Limited (Nt-Comnwlth Super Corp A/C)
BNP Paribas Noms Pty Ltd (DRP)
Australian Foundation Investment Company Limited
Citicorp Nominees Pty Limited (Colonial First State Inv A/C)
CPU Share Plans Pty Limited (WESAP DFE Control A/C)
Argo Investments Limited
HSBC Custody Nominees (Australia) Limited - GSCO ECA
CPU Share Plans Pty Limited (WES Exu Control A/C)
AMP Life Limited
Milton Corporation Limited
HSBC Custody Nominees (Australia) Limited
Netwealth Investments Limited (Wrap Services A/C)
Australian Executor Trustees Limited (IPS Super A/C)
Goldman Sachs Australia + Nominee Holdings Pty Ltd (WES Ltd Div Inv Plan A/C)
Navigator Australia Ltd (MLC Investment Sett A/C)
259,230,418
165,763,879
65,763,144
29,691,368
21,340,303
9,079,512
8,767,571
6,847,500
6,120,067
5,530,493
5,040,027
3,348,075
3,246,423
3,101,425
2,877,375
2,368,203
2,291,311
2,102,264
1,862,369
1,604,089
The percentage holding of the 20 largest shareholders of Wesfarmers ordinary shares was 53.44.
22.86
14.62
5.80
2.62
1.88
0.80
0.77
0.60
0.54
0.49
0.44
0.30
0.29
0.27
0.25
0.21
0.20
0.19
0.16
0.14
168
Wesfarmers 2019 Annual Report
INVESTOR INFORMATION
Managing your shareholding
Change of name or consolidation of holdings
The company’s share registry is managed by Computershare
Investor Services Pty Limited (Computershare).
The Investor Centre website is the fastest, easiest and most
convenient way to view and manage your shareholding. Investor
Centre enables a shareholder to:
• view the company share price;
• change your banking details;
• change your address (for non-CHESS sponsored holdings);
• update your dividend instructions;
• update your Tax File Number (TFN), Australian Business
Number (ABN) or exemption;
• select your email and communication preferences;
• view your transaction and dividend history; and
• generate a holding balance letter.
Visit www.wesdirect.com.au and click on ‘Create Login’ for
portfolio membership or click on ‘Access a Single Holding’ for
holding information.
When communicating with Computershare or accessing your
holding online you will need your Securityholder Reference Number
(SRN) or Holder Identification Number (HIN) as shown on your
Issuer Sponsored/CHESS statements.
You can also contact Computershare by:
Post GPO Box 2975 Melbourne, Victoria 3001 Australia
Telephone Australia 1300 558 062
Telephone International (+61 3) 9415 4631
Website www.investorcentre.com/contact
Tax File Numbers
While it is not compulsory to provide a TFN, if shareholders
have not provided a TFN and Wesfarmers pays an unfranked or
partly-franked dividend, the company will be required to deduct tax
from the unfranked portion of the dividend at the top marginal rate
plus the Medicare Levy. Shareholders can go online to update their
TFN by visiting www.wesdirect.com.au
Name changes or consolidation of multiple holdings into one single
holding must be made in writing by using the required forms, which
can be downloaded from www.wesdirect.com.au and clicking on
‘Need a Printable Form?’.
Uncertificated Share Register: The Wesfarmers share register is
uncertificated. Two forms of uncertificated holdings are available to
shareholders:
•
Issuer sponsored holdings – these holdings are sponsored
by Wesfarmers and there is no need for shareholders to be
sponsored by a stockbroker; and
• Broker sponsored holdings – shareholders may arrange to
be sponsored by a stockbroker who will require a signed
sponsorship agreement.
Holding statements are issued to shareholders within five business
days after the end of any month in which transactions occur that
alter the balance of their holding. Shareholders can also access
details of their shareholdings and dividends paid on their holdings
by visiting www.wesdirect.com.au
Information on Wesfarmers
Wesfarmers website
Up-to-date information on the company can be obtained from the
company’s website www.wesfarmers.com.au
Securities Exchange listing
Wesfarmers shares are listed on the Australian Securities Exchange
under the code WES.
Share prices can be accessed from major Australian newspapers,
on the Wesfarmers website or at www.asx.com.au
Dividend investment plan
The company’s dividend investment plan was reinstated with effect
from 27 February 2007. Details of the plan can be obtained from
the share registry or the Wesfarmers website.
Privacy
A copy of the Wesfarmers Privacy Policy is available on the
Wesfarmers website.
Wesfarmers Corporate Affairs department
Further information and publications about the company’s
operations are available from the Corporate Affairs department on
(08) 9327 4428 (within Australia) or (+61 8) 9327 4428 (International)
or from the Wesfarmers website.
Wesfarmers 2019 Annual Report
169
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Shareholder and ASX information
FIVE-YEAR FINANCIAL HISTORY
All figures in $m unless shown otherwise1
20192
20183
2017
20164
2015
Summarised income statement
Sales revenue
Other operating revenue
Operating revenue
Operating profit before depreciation and amortisation, finance costs
and income tax
Depreciation and amortisation
EBIT
Finance costs
Income tax expense
Profit after tax from discontinued operations
Operating profit after income tax attributable to members of
Wesfarmers Limited
Capital and dividends
Ordinary shares on issue (number) 000's as at 30 June
Paid up ordinary capital as at 30 June
Fully-franked dividend per ordinary share declared (cents)
Special dividend
Capital management: capital return and fully-franked dividend
components
Financial performance
Earnings per share (weighted average) (cents)
Earnings per share growth
Return on average ordinary shareholders' equity (R12) (excluding
significant items4)
Fixed charges cover (R12, times) (excluding significant items5)
Interest cover (cash basis) (R12, times) (excluding significant items5)
Financial position as at 30 June
Total assets
Total liabilities
Net assets
Net tangible asset backing per ordinary share
Net debt to equity
Total liabilities/total assets
44,485
199
44,684
7,627
(809)
6,818
(175)
(1,133)
3,570
69,595
283
69,878
4,079
(1,283)
2,796
(221)
(1,378)
(1,407)
68,099
345
68,444
5,668
(1,266)
4,402
(264)
(1,265)
-
65,643
338
65,981
2,642
(1,296)
1,346
(308)
(631)
-
62,129
318
62,447
4,978
(1,219)
3,759
(315)
(1,004)
-
5,510
1,197
2,873
407
2,440
1,133,840
15,809
178
100
1,133,840
22,277
223
-
1,133,840
22,268
223
-
1,126,131
21,937
186
-
1,123,753
21,844
200
-
-
-
-
-
100
487.2
360.5%
105.8
254.7
(58.5)% 603.6%
36.2
(83.2)%
216.1
(7.9)%
19.2%
3.2
30.6
18,333
8,362
9,971
$5.21
25.1%
45.6%
11.7%
3.0
30.4
36,933
14,179
22,754
$4.33
17.3%
38.4%
12.4%
3.1
25.0
40,115
16,174
23,941
$4.44
20.1%
40.3%
9.6%
2.7
16.8
40,783
17,834
22,949
$3.45
31.0%
43.7%
9.8%
3.0
20.5
40,402
15,621
24,781
$4.85
25.1%
38.7%
Stock market capitalisation as at 30 June
41,000
55,966
45,490
45,158
43,860
1
2
3
4
5
All figures are presented as last reported, including discontinued operations.
The summarised income statement for 2019 includes significant items relating to the following pre-tax (post-tax) items: $2,319 million ($2,264 million) gain on demerger
of Coles, the $679 million ($645 million) gain on disposal of Bengalla, the $267 million ($244 million) gain on disposal of KTAS, the $138 million ($120 million) gain on
disposal of Quadrant Energy and $146 million ($102 million) provision for Coles supply chain automation.
The summarised income statement for 2018 includes significant items relating to the following pre-tax (post-tax) items: $306 million ($300 million) non-cash impairment
of Target, BUKI's writedown and store closure provision of $931 million ($1,023 million), $375 million ($375 million) loss on disposal relating to BUKI, partially offset by
$120 million ($123 million) gain of the Curragh Coal Mine.
The summarised income statement for 2016 includes significant items relation to the following pre-tax (post-tax) items: $1,266 million ($1,249 million) non-cash
impairment of Target; $850 million ($595 million) non-cash impairment of Curragh; and $145 million ($102 million) of restructuring costs and provisions to reset Target.
The 2016-2019 ratios exclude the significant items outlined in footnotes 2-4 above.
170
Wesfarmers 2019 Annual Report
CORPORATE DIRECTORY
Wesfarmers Limited ABN 28 008 984 049
Registered office
Level 14, Brookfield Place Tower 2
123 St Georges Terrace
Perth, Western Australia 6000
Telephone (+61 8) 9327 4211
Facsimile (+61 8) 9327 4216
Website www.wesfarmers.com.au
Email info@wesfarmers.com.au
Executive director
Rob Scott
Group Managing Director and Chief Executive Officer
Non-executive directors
Michael Chaney AO
Chairman
The Right Honourable Sir Bill English KNZM
Tony Howarth AO
Wayne Osborn
Mike Roche
Diane Smith-Gander AO
Vanessa Wallace
Sharon Warburton
Jennifer Westacott AO
Chief Financial Officer
Anthony Gianotti
Company Secretary
Linda Kenyon (to 30 June 2019)
Aleksandra Spaseska (from 1 July 2019)
Share registry
Computershare Investor Services Pty Limited
Yarra Falls, 452 Johnston Street
Abbotsford, Victoria 3067
Telephone Australia 1300 558 062
Telephone International (+61 3) 9415 4631
Facsimile Australia (03) 9473 2500
Facsimile International (+61 3) 9473 2500
Website www.investorcentre.com/wes
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Financial calendar+
Record date for final dividend
Final dividend paid
Annual general meeting
Half-year end
Half-year profit announcement
Record date for interim dividend
Interim dividend payable
Year-end
+ Timing of events is subject to change.
2 September 2019
9 October 2019
14 November 2019
31 December 2019
February 2020
February 2020
April 2020
30 June 2020
Annual general meeting
The 38th Annual General Meeting of Wesfarmers Limited will be
held at the Perth Convention and Exhibition Centre, Mounts Bay
Road, Perth, Western Australia on Thursday 14 November 2019
at 1:00pm (Perth time).
Website
To view the 2019 annual report, shareholder and company
information, news announcements, background information
on Wesfarmers’ businesses and historical information, visit the
Wesfarmers website at www.wesfarmers.com.au
Wesfarmers 2019 Annual Report
171
WESFARMERS
COMPANIES
BUNNINGS
KMART GROUP
INDUSTRIALS
OFFICEWORKS
OTHER
INTERESTS
172
15%
50%
24.8%
50%
50%
Wesfarmers 2019 Annual Report FSC logos
Each of these logos
is
attached to this PDF file as well as being available on the “G” drive in the FSC folder.
100%
Mix
Recycled
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accordance with the global Greenhouse Protocol and ISO 14040 framework. Monza Recycled contains 55% recycled fibre (25% post-consumer
and 30% pre-consumer) and is FSC® Mix Certified, which ensures that all virgin pulp is derived from responsible sources. It is manufactured by an
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Mixed Sources Chain of Custody (CoC) certified.
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