Annual Report
2021
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,
outdoor living and building materials; general
merchandise and apparel; office and
technology products; manufacturing and
distribution of chemicals and fertilisers;
industrial and safety product distribution;
and gas processing and distribution.
Wesfarmers is one of Australia’s largest
private sector employers with approximately
114,000 team members and is owned by
more than 483,000 shareholders.
This annual report is a summary
of Wesfarmers and its subsidiary
companies’ operations, activities and
financial performance and position as at
30 June 2021. 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 2021
(previous corresponding period
30 June 2020) unless otherwise stated. All
dollar figures are expressed in Australian
dollars (AUD) unless otherwise stated.
References to AASB refer to the
Australian Accounting Standards Board
and IFRS refers to the International
Financial Reporting Standards. There
are references to IFRS and non-IFRS
financial information in this report.
Non-IFRS financial measures are
financial measures other than those
defined or specified under any relevant
accounting standard and may not
be directly comparable with other
companies’ information. Non-IFRS
financial measures are used to enhance
the comparability of information
between reporting periods. Non-IFRS
financial information should be
considered in addition to, and is not
intended to be a substitute for, IFRS
financial information and measures.
Non-IFRS financial measures are not
subject to audit or review.
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.
APPENDIX 4E
For the year ended 30 June 2021
Results for announcement to the market
2021
2020
Revenue from continuing operations
Up 10.0% to $33,941 million
$30,846 million
Profit after tax attributable to members from continuing operations
Up 46.7% to $2,380 million
$1,622 million
Net profit for the full-year attributable to members
Up 40.2% to $2,380 million
$1,697 million
Net tangible asset per ordinary share1
Operating cash flow per share
$5.14
$2.99
$4.89
$4.02
Dividends
Interim dividend
Final dividend
Total FY2021 dividend
Previous corresponding period:
Interim dividend
Final dividend
Special dividend2
Total FY2020 dividend
Amount per security
Franked amount per security
88 cents
90 cents
178 cents
75 cents
77 cents
18 cents
170 cents
88 cents
90 cents
178 cents
75 cents
77 cents
18 cents
170 cents
Record date for determining entitlements to the dividend
5:00pm (AWST) on 2 September 2021
Last date for receipt of election notice for Dividend Investment Plan
5:00pm (AWST) on 3 September 2021
Date the final dividend is payable
7 October 2021
Capital management
Amount per security
Return of capital to shareholders (proposed for payment on 2 December 2021)3
200 cents
1 The calculation of net tangible asset per ordinary share includes right-of-use assets and lease liabilities.
2 The fully-franked special dividend relates to the after-tax profit on the sale of the Group’s 10.1 per cent interest in Coles Group Limited (Coles) during FY2020.
3 The proposed return of capital is subject to shareholder approval at the Wesfarmers Annual General Meeting on 21 October 2021.
Contents
OVERVIEW
Group structure
Our primary objective
Performance highlights
Our strategic priorities
Performance overview
Chairman’s message
Managing Director’s report
Leadership Team
OPERATING
AND FINANCIAL
REVIEW
Operating and financial review
Bunnings
Kmart Group
Officeworks
Chemicals, Energy and Fertilisers
Industrial and Safety
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
Directors’ declaration
Independent auditor’s report
SHAREHOLDER
AND ASX
INFORMATION
Five-year financial history
Shareholder information
Investor information
Corporate directory
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Wesfarmers 2021 Annual Report
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(50%)(50%)(24.8%)(50%)(50%)(4.9%)(50%)(75%)OfficeworksBunningsCorporateOther activitiesKmart GroupIndustrial and SafetyChemicals, Energy and FertilisersOverviewGroup structureWesfarmers 2021 Annual Report2BACK Our primary objective To deliver a satisfactory return to shareholders.engaging fairly with our suppliers, and sourcing ethically and sustainablysupporting the communities in which we operatetaking care of the environmentacting with integrity and honesty in all of our dealingsanticipating the needs of our customers and delivering competitive goods and serviceslooking after our team members and providing a safe, fulfilling work environmentWe believe it is only possible to achieve this over the long term by: Wesfarmers 2021 Annual Report3 Overview
Performance highlights
REVENUE
NET PROFIT AFTER TAX
DIVIDENDS PER SHARE
$33.9b
10.0%
$2.4b
16.2%
From continuing operations
and excluding significant
items
SALARIES AND WAGES
GOVERNMENT TAXES
AND OTHER CHARGES
$5.3b
$1.3b
$1.78
Fully franked
PROPOSED CAPITAL
RETURN PER SHARE
$2.00
COMMUNITY
CONTRIBUTIONS
$55m
Direct and indirect
community contributions
SAFETY
8%
Reduction in total
recordable injury
frequency rate to 9.6
INDIGENOUS
TEAM MEMBERS
2,994
Increasing from 1.9% to 2.8%
of our Australian workforce
GREENHOUSE
GAS EMISSIONS
SCOPE 1 & 2
1,476ktCO2e
9%
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Wesfarmers 2021 Annual Report
BACK Our strategic priorities
DEVELOP A MARKET-
LEADING DATA AND
DIGITAL ECOSYSTEM
Leverage scale and unique
assets to develop a data and
digital ecosystem that will
provide customers with a more
seamless and personalised
digital experience across the
Wesfarmers retail businesses
INVEST IN PLATFORMS FOR
LONG-TERM GROWTH
Continue to invest in and
develop opportunities that will
enable the Group to build scale
in areas where there are strong
growth prospects
ACCELERATE THE
PACE OF CONTINUOUS
IMPROVEMENT
Maintain an agile approach
and momentum, reinforce price
leadership, adjust to changes in
customer demand and deliver
process improvements
PROGRESS TOWARDS
NET ZERO
Deliver progress towards our net
zero Scope 1 and 2 emissions
ambitions for our retailers by
2030 and industrials businesses
by 2050
FOCUS ON ETHICAL
SOURCING AND
HUMAN RIGHTS
Collaborate with global peers,
non-government organisations
and others to mitigate risks and
enhance human rights in our
supply chains
FOSTER DEVELOPMENT,
DIVERSITY AND INCLUSION
Provide safe, engaging and
inclusive environments for
team members, and continue
progress towards employment
parity for Aboriginal and
Torres Strait Islanders in our
Australian workforce
Wesfarmers 2021 Annual Report
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Overview
Performance overview
Wealth creation and value distribution
$20.9b Payments to suppliers
$ 5.3b Employees (salaries, wages and other benefits)
Wealth creation
$34.1b
Value distribution
$9.7b
$3.5b Payments for rent,
services and other external costs
$1.3b Government (taxes and other charges)
$0.1b Lenders (finance costs)
$2.1b Shareholders (dividends)
$0.9b Reinvested in the business
Group performance
Key financial data
Results from continuing operations
Revenue
Earnings before interest and tax
Earnings before interest and tax (after interest on lease liabilities)
Earnings before interest and tax (after interest on lease liabilities) (excluding significant items)1
Net profit after tax
Net profit after tax (excluding significant items)1
Basic earnings per share (excluding significant items)1
Results including discontinued operations2
Net profit after tax from discontinued operations
Net profit after tax
Net profit after tax (excluding significant items)1
Return on average shareholders' equity (R12) (excluding significant items)1
Cash flow and dividends including discontinued operations
Operating cash flows
Net capital expenditure
Free cash flows
Equity dividends paid
Operating cash flow per share
Free cash flow per share
Dividends per share
Balance sheet and gearing
Total assets
Net debt/(cash)3
Shareholders' equity
Gearing (net debt to equity)
2021
2020
$m
$m
$m
$m
$m
$m
cents
$m
$m
$m
%
$m
$m
$m
$m
cents
cents
cents
$m
$m
$m
%
33,941
3,717
3,491
3,550
2,380
2,421
214.1
-
2,380
2,421
26.1
3,383
632
2,741
2,074
299.1
242.4
178.0
26,214
227
9,715
2.3
30,846
2,744
2,507
2,942
1,622
2,083
184.2
75
1,697
2,075
22.1
4,546
568
5,188
1,734
401.9
458.7
170.0
25,425
(85)
9,344
(0.9)
1 2021 excludes pre-tax (post-tax) $59 million ($41 million) restructuring costs in Kmart Group. 2020 excludes the following significant items pre-tax (post tax): $525 million
($437 million) non-cash impairment in Kmart Group, $110 million ($83 million) restructuring costs and provisions in Kmart Group, $310 million ($298 million) non-cash
impairment in Industrial and Safety offset by a gain of $290 million ($203 million) on the sale of 10.1 per cent of the interest in Coles and a gain of $220 million ($154 million)
on the revaluation of the retained 4.9 per cent interest in Coles. 2020 includes significant items of $83 million from the finalisation of tax positions on prior year disposals in
discontinued operations.
2 Discontinued operations relate to Bunnings United Kingdom and Ireland (BUKI), Bengalla, Quadrant Energy and Coles.
3 Excludes lease liabilities.
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Wesfarmers 2021 Annual Report
BACK The Group’s businesses continued to invest in providing greater value, quality
and convenience for customers, including through strengthened data and digital
capabilities, in line with Wesfarmers’ objective of delivering superior and sustainable
long-term returns.
Divisional performance
Bunnings
Revenue
Earnings before tax
Segment assets
Segment liabilities
Capital employed R121
Return on capital employed R121
Cash capital expenditure
Kmart Group
Revenue
Earnings before tax
Segment assets
Segment liabilities
Capital employed R121
Return on capital employed R121
Cash capital expenditure
Officeworks
Revenue
Earnings before tax
Segment assets
Segment liabilities
Capital employed R121
Return on capital employed R121
Cash capital expenditure
Chemicals, Energy and Fertilisers
Revenue
Earnings before tax
Segment assets
Segment liabilities
Capital employed R121
Return on capital employed R121
Cash capital expenditure
Industrial and Safety
Revenue
Earnings before tax
Segment assets
Segment liabilities
Capital employed R121
Return on capital employed R121
Cash capital expenditure
$m
$m
$m
$m
$m
%
$m
$m
$m
$m
$m
$m
%
$m
$m
$m
$m
$m
$m
%
$m
$m
$m
$m
$m
$m
%
$m
$m
$m
$m
$m
$m
%
$m
2021
16,871
2020
14,999
2,185
8,289
5,994
2,651
82.4
445
20212
9,982
693
6,040
4,656
1,329
52.1
185
2021
3,029
212
1,892
985
949
22.3
65
2021
2,146
384
2,676
473
2,171
17.7
137
2021
1,855
70
1,712
583
1,126
6.2
62
1,826
8,163
6,062
3,146
58.0
511
20203
9,217
410
5,725
4,518
2,011
20.4
142
2020
2,787
197
1,819
1,028
976
20.2
40
2020
2,085
394
2,450
458
1,942
20.3
110
20204
1,745
39
1,585
543
1,448
2.7
59
1 Capital employed excludes right-of-use assets and lease liabilities.
2 The 2021 earnings before tax for Kmart Group excludes pre-tax restructuring costs of $59 million.
3 The 2020 earnings before tax for Kmart Group excludes pre-tax impairment of the Target brand name and other assets of $525 million and restructuring costs and provisions
of $110 million.
4 The 2020 earnings before tax for Industrial and Safety excludes pre-tax impairments of $310 million.
Wesfarmers 2021 Annual Report
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Overview
Chairman’s message
shareholders. Further details on the
performance of Wesfarmers’ business
units are contained in the Managing
Director’s report and the divisional
reports that follow.
At the close of the financial year, the
company had negative net financial
debt (i.e. a net cash balance) before
lease liabilities of $109 million1. After
considering a number of alternative
approaches to achieving a more efficient
capital structure — namely, a more
balanced ratio of debt to shareholders’
equity — the decision was taken to seek
shareholder approval at this year’s annual
general meeting for a capital return of
$2.00 per share. This decision reflects
our focus on delivering a satisfactory
return to shareholders. The directors
are confident that this will leave the
company in a sound financial position,
well-equipped to face the uncertainties
ahead and with adequate capacity to
fund new investment opportunities.
Pleasingly, the company’s strong
financial results this year have been
achieved without resort to any Australian
Government funding available as a result
of the COVID-19 pandemic; and where
prolonged lockdowns have occurred we
continued to pay all permanent and many
casual team members, even when there
was no meaningful work for them.
While Wesfarmers’ performance over a
particular year is important — and it is
fair to say that this is the principal focus
of market commentators and company
analysts — it is frankly not what drives
your Board and management team.
Rather, we are focused on the long term.
Short-term performance is invariably
affected by events outside the company’s
control and the current pandemic is a
case in point. Long-term corporate
success often requires foregoing
immediate profits in return for growth
and delayed earnings — an issue often
not appreciated outside the company.
Wesfarmers has some credentials in
this regard. Since its public listing in
1984, the company has produced a
compound shareholder return of over
19 per cent per annum. That means
that an investment of $1,000 in 1984,
with dividends reinvested, would be
worth approximately $669,000 today,
compared with the same investment in
the All Ordinaries Index, which would be
worth just $44,000. Over that time, there
have been many occasions when those
Twelve months ago, I reported that the 2020 financial
year had been one of the most challenging years of the
last half century, with the COVID-19 pandemic resulting
in widespread shutdowns of community activities
across Australia.
While recognising the uncertainties facing
our businesses at that time, little did we
realise then that the pandemic would
continue to disrupt activities for the next
year and beyond. At the time of writing
this report, 60 per cent of Australians are
subject to lockdowns in their local areas
and in some cases, the lockdowns may
well continue for some time to come.
It is gratifying that in these circumstances,
Wesfarmers was able to continue its
record of growth and increased returns
to shareholders in the 2021 financial
year. This was partly due to the type of
businesses we own and operate, but
more importantly, it resulted from the
initiatives of our management and broader
teams and our strong balance sheet.
Our management was successful
in ensuring our retail environments
remained safe for our teams and
customers. They worked with
governments to ensure that our retail
operations could continue to supply
essential products to support
communities, albeit in some cases only
through online, and click and collect
channels. These strategies helped to
retain the confidence of governments,
customers and, very importantly, our team
members. At the same time, we were
able to continue to provide financial
support to the many community
organisations that rely on us.
The Group’s net profit after tax from
continuing operations, excluding
significant items, rose 16.2 per cent over
the year and the directors determined to
pay dividends totalling 178 cents per
share, a rise of eight cents over the 2020
financial year. As has been our practice
for many years, the dividend payout was
set at a level which distributed most of
our franking credits, which are of no value
to the company but of great value to our
1
Interest-bearing liabilities less cash at bank and on deposit, net of cross-currency interest rate swaps and interest rate swap contracts. Excludes lease liabilities.
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Wesfarmers 2021 Annual Report
BACK with a shorter-term focus have criticised the company for a particular move — an acquisition or an asset disposal, a failed foray into another geography, and so on. Inevitably, mistakes have been made, but the positive moves have outweighed the negative and the focus on the long term has proved to be successful.The key to that has been an openness to innovation. When we went public in 1984, around 60 per cent of our profits came from our fertiliser operations. Today, that same excellent business accounts for just 2 per cent of earnings. The company has followed a philosophy of ‘logical incrementalism’ — expanding where there were opportunities to do so, trying new things, going forward where they worked out and retreating where they didn’t, moving into new businesses and geographies — all the time with that primary shareholder-return focus. The company has done this, always knowing the criticality to long-term success of looking after and developing our team members, anticipating the needs of customers, treating suppliers ethically and fairly, investing in the community, taking care of the environment and behaving honestly and with integrity. It is that growth philosophy that has underlain developments over recent years, including our move into the lithium industry through the takeover in 2019 of Kidman Resources and the Final Investment Decision this year to support the development of the Mt Holland lithium project. Likewise, it has informed our very large investment in the data and digital space including the acquisition of Catch, Bunnings’ expansion into new product lines with the acquisition of Adelaide Tools and proposed acquisition of Beaumont Tiles, the rationalisation of the Kmart and Target businesses and the disposal of our coal businesses. Innovation requires investment and, as our Federal Treasurer has quite rightly stressed, the future prosperity of Australia relies on companies like ours making significant investments. In Wesfarmers’ case, we continue to make large capital investments in our different businesses. Over the last year, gross capital expenditure, in the traditional sense, amounted to nearly $900 million and we expect it to surpass that in the 2022 financial year. But ‘the traditional sense’ — and the official statistics — understate what is actually happening with regard to investment in our company and in the corporate world generally. This is because of changes in our operating environment — with COVID-19 and with the transition from a physical to digital world, and in the way expenditures are measured; namely in the accounting standards.During the pandemic, companies like ours have been faced with some difficult choices, including whether to stand down team members during lockdowns if there was no meaningful work or to keep paying them. We were in the fortunate position of having the financial capacity to do the latter. I must say, we did not find this a difficult decision nor was it influenced by the effect it might have on our annual profit result. We did it because we saw this not as an expense but as an investment; an investment in our people, in maintaining our skills base and in engendering loyalty amongst our team members, all of which would pay dividends in the long term — just like a traditional investment. This has been borne out, as the challenges associated with the pandemic have continued. Having said that, I would stress how important it will be for governments to make every effort to avoid lockdowns as vaccination rates reach higher levels. Apart from the immediate costs borne by businesses, widespread lockdowns threaten to have very detrimental effects on the economy in the longer term through the collapse of individual businesses, loss of jobs and substantial increases in government debt.The transition from a physical world to a digital one provides an even clearer illustration of how muddied the waters have become with regard to what constitutes investment. Here, what would traditionally have been classified as capital expenditures are now often classified as operating costs, and are expensed in the income account accordingly. These include some software-as-a-service arrangements as well as components of investments in the development and operation of data analytics and e-commerce platforms across our businesses. In the 2022 financial year we will continue our investment in developing a data and digital ecosystem, with around $100 million to be accounted for as an operating expense rather than the investment that it really is.On the other hand, new accounting rules require companies to bring to account in the balance sheet the present value of operating leases as if they were capital expenditures. While not recorded as such by us, this reflects the fact that Wesfarmers is the initiator of capital expenditures by others through its underwriting of their investments. The bottom line of all of this for you, our shareholders, is whether your company is focusing on the long term, whether it is investing enough to ensure that profits and dividends have a good chance of growing in an increasingly competitive and changing world. Your Board believes that we are.I take this opportunity on behalf of my fellow directors to thank our outgoing director, Wayne Osborn, for the great contribution he has made to the company over his 11 years on the Board. Wayne joined us after retiring as Managing Director of Alcoa Australia. His broad experience in senior management and board roles showed: through his wise counsel on human resources, management and technical matters, his chairing of the Board’s Remuneration Committee, and his always firm but supportive manner. Wayne has been a pleasure for all of us to work with and he will be greatly missed.We welcome three new faces to the Board in 2021 — Anil Sabharwal with his extensive experience in the technology, data and digital world, Alison Watkins who brings significant management and consumer experience and Alan Cransberg whose wide technical and management expertise in the resources sector will be invaluable, including as we proceed with the development of our lithium assets. In closing I pay tribute to the outstanding Wesfarmers management team, led so capably by our Managing Director, Rob Scott. In what has again been a hugely challenging year, they have given their all to the achievement of the company’s success. We think that with Wesfarmers’ strong asset base, financial position and its dedicated team members, the future looks bright.MICHAEL CHANEY AOChairman Wesfarmers 2021 Annual Report9OVERVIEW01OPERATING AND FINANCIAL REVIEW02GOVERNANCE03DIRECTORS’ REPORT04FINANCIAL STATEMENTS05SIGNED REPORTS06SHAREHOLDER AND ASX INFORMATION07 Overview
Managing Director’s
report
The 2021 financial year presented many challenges
to our way of life and our ways of working, as we
responded to the evolving COVID-19 pandemic.
The scale and diversity of our businesses
mean that we are deeply engaged in
communities around Australia,
New Zealand and internationally. Our
teams experience the same challenges
and concerns as the broader public, while
continuing to support their customers and
each other in their day-to-day roles.
Our Group’s strong financial result this
year is testament to our dedicated teams
who have found new and safe ways to
meet our customers’ needs and support
the community, despite a difficult and
volatile trading environment.
improvement in the total recordable injury
frequency rate during the year.
The extended lockdown in Victoria in
2020 was one of the most difficult
times for those affected and their loved
ones. We were pleased to extend
additional support to our team through
commitments to pay all permanent and
many casual team members when there
was no meaningful work available, and
to offer counselling to our team and
their families through our Employee
Assistance Program. Importantly, we
did this without accessing JobKeeper.
I am incredibly proud of the resilience,
ingenuity and empathy that was on
display across our businesses throughout
the year.
In 2021, we have supported vaccination
efforts in the community, and have
committed to provide all permanent team
members with paid vaccination leave.
For more than a year now, our
commitment to providing a COVID-safe
environment for customers and team
members has enabled our businesses to
meet the changing needs of customers
and retain the trust of the public. Our
strong focus on workplace safety was
evident through an eight per cent
The last year also reinforced the
importance of regular and meaningful
employment to mental health, self-esteem
and financial security. We were pleased
to create over 6,000 net new jobs as we
invested in our businesses for the future
and to meet increased demand and
activity through the year.
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Wesfarmers 2021 Annual Report
A highlight during the year was the
progress made to improve operating
performance, build deeper trust with the
community and establish platforms for
growth. Our prospects have improved
through meaningful outcomes in ethical
sourcing, workplace safety, diversity and
wellbeing. I encourage you to review our
progress in these areas, set out in this
annual report.
In the 2021 financial year, our
retail divisions all made significant
commitments to achieving net zero
Scope 1 and 2 emissions by 2030 and
to source 100 per cent of their electricity
needs from renewable sources by
2025. Our industrial businesses, where
pathways to full decarbonisation are
more challenging, have the aspiration to
achieve net zero emissions by 2050, and
are adopting market-leading approaches
to the management and disclosure of
their emissions intensity. Our disciplined
focus on reducing emissions is reflected
in a nine per cent reduction in reported
Scope 1 and 2 emissions for the year.
We are making further progress in our
teams’ diversity with the proportion of
Aboriginal and Torres Strait Islander
team members increasing from 1.9
to 2.8 per cent over the year. We also
increased the representation of women
in senior executive positions from 30
to 35 per cent.
OUR PERFORMANCE
The Group’s continuing businesses
generated net profit after tax (NPAT)
growth of 16.2 per cent to $2.4 billion,
excluding significant items.
A highlight of the year was the strong,
and in most cases improved, performance
in earnings across every division.
Bunnings achieved strong sales and
earnings growth, as people spent more
time undertaking projects at home. The
business evolved its instore and digital
offer, which provided alternative ways for
customers to shop through lockdowns
and this also attracted new customers.
Good progress was made executing
Bunnings’ strategic agenda, including
through the expansion of capabilities
in the commercial area and a deeper
engagement with trades.
Kmart Group’s revenue increased
8.3 per cent over the year, and earnings
improved 69.0 per cent, excluding
significant items, reflecting strong
customer demand as well as improved
foot traffic. Issues with stock availability
were addressed in the first half and
improved availability enabled the division
to meet strong customer demand.
Pleasingly, Kmart recorded solid
sales and earnings growth, reflecting
a consistently strong performance.
Technology is playing an increasingly
important role, improving the customer
proposition and delivering efficiencies.
BACK A highlight for the year was the successful conversion of 86 Target and Target Country stores to Kmart and K hub stores. Restructuring at this scale is never easy but Kmart and Target have emerged as stronger businesses with better prospects for the future. The trading performance from converted stores has been encouraging, and the program created more than 2,700 net new jobs in Kmart Group, including redeployment of a high proportion of Target team members. Following a strong start to 2021, Catch’s gross transaction value increased 41.0 per cent for the year. Catch is undertaking a significant investment program to improve its already extensive product range, deliver even better experiences for customers and build a scalable model that supports long-term growth. Catch now offers a wide range of Target and Kmart products, and click and collect is available for Catch customers at most Kmart and Target stores.Officeworks performed strongly with earnings increasing 7.6 per cent for the year, driven by strong customer demand in stores and online. We saw continued growth for technology, office furniture and education products, as people spent more time working and learning from home.Wesfarmers Chemicals, Energy & Fertilisers (WesCEF) delivered a solid performance for the year, notwithstanding elevated ammonia input costs and weaker export demand for sodium cyanide as a result of disruption to global gold mines due to COVID-19. The diversity of WesCEF’s businesses helped to deliver a pleasing result, with strong fertiliser sales given favourable growing conditions for Western Australian farmers.The performance of Industrial and Safety has improved, with the division benefiting from the increased focus on customer service and improved digital capabilities. Progress has been made with the implementation of the new enterprise resource planning system in Blackwoods. Coregas and Workwear Group also delivered a pleasing performance in a challenging year for many of their customers.INVESTMENT AND PORTFOLIO ACTIONSIn February 2021 Wesfarmers, along with its joint venture partner Sociedad Quimica y Minera de Chile S.A. (SQM), gave approval on the Final Investment Decision for the Mt Holland lithium project. The project has now received all critical approvals and first production of lithium hydroxide is expected in the 2024 calendar year. We are pleased to have begun construction of the Mt Holland lithium project, which capitalises on WesCEF’s chemical processing expertise and Western Australia’s unique position to support the growing global demand for electric vehicle battery materials. The Mt Holland lithium project will make a crucial contribution to global efforts to reduce greenhouse gas emissions.In April 2021, Bunnings entered into an agreement to acquire Australian hard surfaces retailer, Beaumont Tiles, subject to the satisfaction of a number of conditions, including regulatory approval. The acquisition represents an opportunity to build on the success of the Beaumont Tiles business and invest in its future growth. In July 2021, Wesfarmers made a non-binding indicative offer to acquire Australian Pharmaceutical Industries (API). We see the acquisition of API as providing an attractive opportunity to enter the growing health, wellbeing and beauty sector. There is no certainty as to whether the proposed transaction will proceed.OUTLOOKThe start of the 2022 financial year has been disruptive, like last year, with Sydney in an extended lockdown, and lockdowns impacting several other capitals, as governments seek to contain the virulent Delta strain of COVID-19. It is self-evident that community vaccination rates are central to our path forward. With high rates of community vaccination come greater freedoms (including to see family and friends), an ability to make plans for the future (including to travel, which is crucial for business) and opportunities to restore wellbeing.Wesfarmers and our businesses stand ready to support governments and the communities where we operate to manage our transition through the pandemic. Importantly, governments and others will need to continue to evolve the response to the pandemic. High vaccination rates will mean that the benefits of widespread, strict lockdowns and domestic travel restrictions no longer outweigh the social and economic costs and their implications for mental health and wellbeing.In times of uncertainty, it is less helpful for us to try to predict the future, and more useful to focus on those things we can control. In this regard, we will continue to maintain a strong balance sheet to provide the flexibility to withstand a range of outcomes. We will continue to support our teams, our customers and the community as we work through current challenges. We will continue to invest for the long term, in our existing businesses and where we see new and emerging opportunities.At our recent Strategy Briefing Day, we provided details of three areas of renewed focus, consistent with our value-creating strategies, as we seek to deliver a ROB SCOTT Managing Directorsatisfactory (that is, top quartile) total shareholder return over the long term. The first is to develop a market-leading data and digital ecosystem, which will better connect our great brands with the public, deliver better value and experiences to customers and create new growth opportunities. This is a natural extension of the substantial and ongoing investments in data and digital across the Group. The second priority is to increase our investments in platforms for long-term growth. This follows the repositioning of the portfolio and recent moves that enable us to scale up in areas with good growth prospects and build successful businesses over time. Finally, we have an ambitious strategic agenda and our experience in the 2021 financial year has shown us how quickly we can drive change. Our business model, the capability of our team, and our culture has enabled us to deliver some exceptional outcomes at pace. With this in mind, we will accelerate the pace of continuous improvement across the Group. The Group’s retail businesses will maintain their focus on meeting changing customer needs and delivering even greater value, quality and convenience. Investments in digital capabilities will accelerate and are expected to improve our customer proposition, expand our addressable markets and deliver operating efficiencies. The performance of the Group’s industrial businesses remain subject to international commodity prices, foreign exchange rates and seasonal outcomes. The diversity of our operations and the opportunities to improve performance and invest in our businesses will support growth over time.Importantly, our portfolio includes diverse, cash-generative businesses with leading market positions. The Group’s strong balance sheet means we remain well-positioned to deal with a range of economic conditions.I would like to again acknowledge the efforts of our team members for their contribution during a very demanding year, and a special thanks to our leadership team of Mike Schneider, Ian Bailey, Sarah Hunter, Ian Hansen, Tim Bult, Anthony Gianotti, Jenny Bryant, Naomi Flutter, Ed Bostock, Maya vanden Driesen and Vicki Robinson. The results delivered in the last year could not have been achieved without you going above and beyond on a regular basis. We know that the future will continue to present challenges, but I am confident that Wesfarmers’ best years lie ahead. Wesfarmers 2021 Annual Report11OVERVIEW01OPERATING AND FINANCIAL REVIEW02GOVERNANCE03DIRECTORS’ REPORT04FINANCIAL STATEMENTS05SIGNED REPORTS06SHAREHOLDER AND ASX INFORMATION07 Leadership TeamOverviewMaya vanden DriesenGROUP GENERAL COUNSEL WESFARMERSMaya 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. Before joining Wesfarmers, Maya practised law at Parker & Parker and Downings Legal.Maya holds Bachelor of Jurisprudence and Bachelor of Laws degrees from The University of Western Australia (UWA) and was admitted to practise as a barrister and solicitor in 1990. Maya is a Graduate of the Australian Institute of Company Directors and 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). She is also a member of the UWA Law School’s Advisory Board, Director for the Committee for Perth and joined the Board of the Bell Shakespeare Company in May 2021.Rob Scott MANAGING DIRECTOR WESFARMERSRob 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 re-joined 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 to 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.Anthony GianottiCHIEF FINANCIAL OFFICER WESFARMERSAnthony was appointed Chief Financial Officer of Wesfarmers in November 2017. Anthony joined Wesfarmers in 2004 in Business Development and in 2005 was appointed Manager, Investor Relations and Business Projects. In 2006, he was appointed Head of Business Development and Strategy of Wesfarmers Insurance, then its Finance Director in 2009 and Managing Director in 2013. In August 2015, Anthony was appointed Finance Director of the Wesfarmers Industrials division and its Deputy Managing Director in February 2017.Anthony holds a Bachelor of Commerce degree from Curtin University and a Graduate Diploma in Applied Finance and Investments. He is a qualified Chartered Accountant and has completed the Advanced Management Program at Harvard Business School. Ed BostockMANAGING DIRECTOR BUSINESS DEVELOPMENT WESFARMERSEd joined Wesfarmers as Managing Director, Business Development in October 2017. Before joining Wesfarmers, Ed worked in the private equity industry for more than 16 years, including the last 10 years with global investment firm Kohlberg, Kravis & Roberts. Ed has managed investments across a broad range of industries including healthcare, financial services, technology and media.Ed holds a Bachelor of Science degree from the University of Melbourne and a Graduate Diploma in Applied Finance and Investment.Jenny BryantCHIEF HUMAN RESOURCES OFFICER WESFARMERSJenny was appointed Chief Human Resources Officer of Wesfarmers in October 2016 and in addition to her human resources responsibilities leads the Wesfarmers Advanced Analytics team. Jenny 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 across operations, sales and marketing and human resources.Jenny holds a Masters of Arts (MA) with honours from Cambridge University. In March 2020, Jenny was appointed as a Director of the Flybuys joint venture with Coles Group Limited.Naomi FlutterEXECUTIVE GENERAL MANAGER CORPORATE AFFAIRS WESFARMERSNaomi joined Wesfarmers as Executive General Manager, Corporate Affairs in August 2018. Prior to this, Naomi worked for Deutsche Bank for 20 years, in roles including 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 Economic History and Law from the Australian National University and a Masters of Public Policy from Harvard University’s John F Kennedy School of Government. Naomi currently serves on the Council of the Australian National University where she is the Pro Chancellor. Wesfarmers 2021 Annual Report12BACK Ian BaileyMANAGING DIRECTOR KMART GROUPIan was appointed Managing Director, Kmart in February 2016 and assumed the responsibility for leading the Kmart Group division (encompassing the Kmart, Target and Catch businesses) in 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.Michael SchneiderMANAGING DIRECTOR BUNNINGS GROUPMichael 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 this 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 New South Wales and has completed the Advanced Management Programme at INSEAD, and the Advanced Strategic Management Program at IMD. Vicki RobinsonEXECUTIVE GENERAL MANAGER COMPANY SECRETARIAT WESFARMERSVicki was appointed Executive General Manager, Company Secretariat in March 2020 and is the Company Secretary of Wesfarmers. Prior to this, Vicki was General Manager, Legal (Corporate) and has played a key role in many of Wesfarmers’ key mergers and acquisitions over the years. Vicki joined Wesfarmers in July 2003 as a Legal Counsel with the Corporate Solicitors Office. In 2007, Vicki moved to the role of General Manager for enGen, and returned to the Corporate Solicitors Office in 2009.Vicki holds Bachelor of Laws (Honours) and Bachelor of Commerce degrees from The University of Western Australia and was admitted to practise as a barrister and solicitor in 1999. She currently chairs the Advisory Board of Curtin University Law School.Sarah HunterMANAGING DIRECTOR OFFICEWORKSSarah 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 degree 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 New South Wales. She is a Fellow of the Association of Chartered Certified Accountants, a Fellow of the Financial Services Institute of Australasia, a member of the Australian Institute of Company Directors and a member of Chief Executive Women.Tim BultMANAGING DIRECTOR WESFARMERS INDUSTRIAL AND SAFETYTim was appointed Managing Director of Wesfarmers Industrial and Safety in April 2020. Having joined Wesfarmers in 1999, Tim worked in commercial and business development roles within the Wesfarmers Energy division, before his appointment as General Manager of Wesfarmers Kleenheat Gas in 2005. In 2006, he was appointed Managing Director of Wesfarmers Energy, and was Executive General Manager, Business Development from July 2009 to August 2015. Tim was appointed Director, Associate Businesses and International Development of Wesfarmers in August 2015 and in 2018 was appointed Project Director for the demerger of Coles. In 2019, he was appointed Director, Associate Businesses and Corporate Projects at Wesfarmers.Tim holds a Bachelor of Engineering (Mech, Hons) degree and a Master of Business Administration from The University of Western Australia and has completed the Advanced Management Program at Harvard Business School. Ian HansenMANAGING DIRECTOR WESFARMERS CHEMICALS, ENERGY & FERTILISERSIan has led the Wesfarmers Chemicals, Energy & Fertilisers division since July 2016. Prior to this, Ian was the Chief Operating Officer of that business. From October 2007 to July 2010 he was the Managing Director of the Chemicals and Fertilisers division.During Ian’s almost 40 years with Wesfarmers, he has held a wide range of executive, operational and commercial management roles primarily within the chemical, energy and fertiliser areas. In addition to being a director of a number of Wesfarmers joint ventures, Ian is involved in a wide range of industry bodies including the International Fertilizer Association, Chemistry Australia, the Australian Latin American Business Council and previously the Kwinana Industries Council and Australian Institute of Management.Ian holds a Bachelor of Science (double chemistry major) degree and has undertaken postgraduate business studies. He is also a graduate of the INSEAD Advanced Management Programme. Wesfarmers 2021 Annual Report13OVERVIEW01OPERATING AND FINANCIAL REVIEW02GOVERNANCE03DIRECTORS’ REPORT04FINANCIAL STATEMENTS05SIGNED REPORTS06SHAREHOLDER AND ASX INFORMATION07 Operating and financial reviewAt Wesfarmers, our primary objective is to deliver satisfactory returns to shareholders over the long term through financial discipline and quality management of a diversified portfolio of businesses. A key focus of the Group is ensuring that each of our 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 that includes the Wesfarmers Managing Director and Chief Financial Officer, and is guided by our Group-wide operating cycle and governance framework.This operating and financial review sets out the Group’s objective, strategies and values. It also provides a review of our operational performance for the 2021 financial year, as well as summarising the Group’s risks and prospects. The 2021 financial performance is also outlined for each ANTHONY GIANOTTI Chief Financial OfficerOperating and financial reviewdivision, together with a summary of its competitive environment, strategies, risks and prospects.The 2021 financial year was one of uncertainty and volatility, with COVID-19 continuing to cause changes in customer behaviour, periods of government-mandated trading restrictions and disruptions to global supply chains. The Group’s strong financial results for the year reflect the ability of our businesses to meet changing customer preferences, while managing COVID-related risks and providing a safe and trusted environment for customers, team members and our broader stakeholders.The integration of the Group’s sustainability reporting and financial reporting throughout this review reflects the significance of the Group’s sustainability strategies in driving long-term shareholder value. Our efforts in the areas of decarbonisation, waste management, ethical sourcing, workplace safety, diversity and wellbeing help build more resilient businesses for the benefit of all stakeholders. This year is the fourth year Wesfarmers is reporting under the Taskforce on Climate-related Financial Disclosures (TCFD) standards, and further TCFD information is included from page 68.The review should be read in conjunction with the financial statements, which are presented on pages 123 to 171 of this annual report.Operating and financial reviewWesfarmers 2019 Annual Report14OPERATING AND FINANCIAL REVIEWWesfarmers’ 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.On behalf of the Board, I’m very pleased to present the operating and financial review of Wesfarmers for shareholders.Above: Anthony Gianotti in the Wesfarmers corporate office with The Wesfarmers Collection of Australian Art, PerthSeen here: JUDY WATSON | Stake | 2010 | pigment, acrylic, acquarelle and chinagraph pencil | 209cm x 195cm ©Judy Watson/Copyright Agency 2018ANTHONY GIANOTTI – Chief Financial OfficerWesfarmers 2021 Annual Report14BACK 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 approximately
114,000 team members,
including more than
2,900 Indigenous team
members, and more than
483,000 shareholders.
Wesfarmers’ diverse businesses
in this year’s review cover: home
improvement, outdoor living
and building materials; general
merchandise and apparel; office and
technology products; manufacturing
and distribution of chemicals and
fertilisers; industrial and safety product
distribution; and gas processing and
distribution. 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 sets out our core values and
value-creating strategies, which are
directed at achieving the Group’s
primary objective of providing a
satisfactory return to shareholders.
THE WESFARMERS WAY
OUR OBJECTIVE
To deliver a satisfactory
return to shareholders
VALUE-CREATING STRATEGIES
Strengthen
existing
businesses
through
operating
excellence
and satisfying
customer needs
Secure growth
opportunities
through
entrepreneurial
initiative
Renew the
portfolio through
value-adding
transactions
Ensure
sustainability
through
responsible
long-term
management
CORE VALUES
Integrity
Openness
Accountability
Entrepreneurial
spirit
Wesfarmers 2021 Annual Report
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Operating and financial review
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 is calculated as earnings before tax /
rolling 12 months capital employed, where
capital employed excludes right-of-use assets
and lease liabilities.
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Wesfarmers 2021 Annual Report
BACK 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
BALANCE SHEET STRENGTH
– 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 growth.
The Group maintains a strong focus on
effective working capital management
of all of its businesses. In addition,
the Group ensures strong discipline in
relation to capital investment decisions.
– Diversity of funding sources
– Optimise funding costs
– Maintain strong credit metrics
– Risk management of maturities
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
by growing earnings and 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.
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 and partnerships
Importantly, in assessing these opportunities, the Group applies a long-term horizon to investment decisions, incorporates
a detailed assessment of sustainability considerations and risks, 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.
Wesfarmers 2021 Annual Report
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Operating and financial review
Our value-creating strategies
Consistent with the Wesfarmers Way, the Group’s primary objective to provide
a satisfactory return to shareholders is driven by four overarching strategies.
OPERATING EXCELLENCE
Strengthening existing businesses through operating excellence
and satisfying customer needs.
ENTREPRENEURIAL INITIATIVE
Securing growth opportunities
through entrepreneurial initiative.
Our achievements
– Target will continue to improve its
Our achievements
– 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
– Further investment in our digital offer
across all divisions and significant
expansion of the Group’s online presence
with $3.3 billion in online sales, including
the Catch marketplace, and more than
100 million digital interactions with
customers each month1
– Focused on production plant efficiency
and maintaining and growing customer
relationships in our industrial businesses
– Continued investment in technology
enhancements to deliver operating
efficiencies across supply chain and
fulfilment
– Further investment in initiatives to drive
improvements in the customer offer with
a focus on instore experience, range
expansion, technology enhancement
and customer personalisation
Our focus for the coming years
– Bunnings will maintain its focus on
driving long-term value creation by
strengthening the customer offer,
creating better experiences for
customers and the wider community,
expanding data and digital capabilities,
growing the store network, accelerating
trade growth and broadening commercial
markets while maintaining cost discipline
– Kmart will focus on investing for future
growth by progressing the development
of technology capabilities throughout its
operating model, improving the online
offer and personalising the customer
offer to better anticipate customer needs
and improve the customer experience
1 Represents monthly average over the last
twelve months to 30 June 2021. Includes
retail businesses only.
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Wesfarmers 2021 Annual Report
product offer and digital capabilities to
deliver affordable quality with a more
personalised experience
– Catch will continue to invest in
infrastructure and capabilities to support
its long-term ambition, while accelerating
growth through brand marketing,
range expansion, enhancements to the
Club Catch subscription program and
further leveraging assets across the
Wesfarmers Group
– Officeworks will continue to use
best practice technology to deliver an
improved customer experience and
reduce costs, invest in opportunities to
grow and expand its market position and
make working from home and flexible
working easy and engaging for the
employer and employee
– WesCEF will focus on maintaining
strong operational performance across
existing businesses, supporting Covalent
in ensuring successful execution of the
Mt Holland lithium project, and investing
in innovative technologies and products
– Industrial and Safety will continue
to work on improving business
performance through enhancing the
customer value proposition, as well
as continued investment in data,
digital and its core systems
– Establishment of the Group data platform
to enable customer data insights across
the Group
– Continued to better leverage Group data,
supported by ongoing investment in the
Advanced Analytics Centre
– Investment in the Group’s digital
capabilities including the re-platforming
of Bunnings’ website and investments
in technology to improve and strengthen
Kmart’s lowest cost position
– Continued to leverage Kmart Group’s
assets to support growth in Catch,
including through offering click and
collect for Catch products at over 430
Kmart, K hub and Target locations
– Expanded use of data analytics to
optimise chemical plant performance
– Continued format innovation across the
retail businesses, including the opening
of the new format Adelaide Tools store
in Parafield, South Australia
– Strategic investment and collaboration
with Square Peg
Our focus for the coming years
– Continue to reinforce entrepreneurial
initiative
– Leverage assets and digital expertise
across the Wesfarmers Group to
broaden multi-channel offerings
across the retail businesses
– Develop a market-leading data and
digital ecosystem that leverages a
shared data asset spanning across
the retail businesses
– Accelerate investment in the Advanced
Analytics Centre
– Invest in a multi-year digitally enabled
store operating model and supply
chain at Kmart to transform the
instore customer experience and
deliver operational efficiencies
– Align future growth opportunities with
our target of net zero for Scope 1 and
2 emissions for our retail businesses
by 2030
– Explore climate-related technologies
and opportunities across the Group
– Continue to investigate opportunities
to leverage existing infrastructure and
expand production capacity in Chemicals
and Energy businesses, including
assessment of new technologies
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RENEWING THE PORTFOLIO
OPERATING SUSTAINABLY
Renewing the portfolio through
value-adding transactions.
Ensuring sustainability through responsible long-term management.
Our achievements
Our achievements
Our focus for the coming years
– Completed the store conversion
– Maintained an appropriately strong
– Maintaining balance sheet flexibility to
and closure program in Kmart Group
to accelerate the growth of Kmart
and improve the commercial viability
of Target
– Announced the joint approval,
together with SQM, of the Final
Investment Decision for the Mt Holland
lithium project to construct a mine,
concentrator and lithium hydroxide
refinery, leveraging WesCEF’s deep
expertise in chemicals processing
– Proposal to acquire Beaumont Tiles,
subject to regulatory approval, to deliver
more choice and convenience for
Bunnings’ specialist trade customers
Our focus for the coming years
– 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
– Maintain a patient, disciplined and
broad-scanning approach to investment
opportunities
– Apply rigorous due diligence and
post-acquisition integration processes
– Maintain a strong balance sheet
to enable the Group to act
opportunistically
– Consider opportunities to divest assets
either in full or in part, where long-term
shareholder value can be created
and flexible balance sheet to support
increased investment in strategic
initiatives across the Group including the
issuance of $1.0 billion in sustainability-
linked bonds, the first of its kind in the
Australian market
– Continued to improve our safety
performance, with an eight per cent
reduction in the Group’s total recordable
injury frequency rate (TRIFR)
– Maintained a strong focus on the
development of leaders and the
broader team
– Continued to promote diversity in our
workplaces, including employing 1,100
more self-identified Indigenous team
members compared to the prior year
– Managed talent development and
succession in collaboration with our
businesses to identify and develop
succession options, focusing on critical
roles and talent
– Continued to pay team members during
prolonged COVID-related lockdowns,
even in the event there was no
meaningful work for them
– Continued to support the communities
in which we operate, with indirect
and direct contributions of more
than $55 million made in the 2021
financial year
– Delivered progress against the
Group’s Climate Change Policy, with
a nine per cent reduction in Scope 1
and 2 emissions across the Group,
and the target announced by the retail
businesses to source 100 per cent
of electricity volume from renewable
sources by 2025
– Maintained strong focus on our
divisional ethical sourcing programs
to increase supply chain transparency
and to identify, report, and remediate
instances of unethical behaviour in our
supply chains
allow the Group to withstand a range of
economic conditions while continuing
to support its operating activities and
pursuit of investment opportunities
– Continue to provide appropriate
governance structures to safeguard
future value creation
– Continue to foster a more inclusive work
environment, which reflects the diversity
in our community, including gender
identity, race, ethnicity, indigeneity,
thought, experience, religious beliefs,
education, age, disability, family
responsibilities and sexual orientation
– Seek to achieve greater gender balance
of all teams throughout the Group,
with gender balance defined as a
minimum of 40 per cent of female
and male genders
– Continue to look after the physical and
mental health, safety and development
of our people
– Continue to focus on minimising our
environmental footprint, implementing
our climate change strategy and
progressing towards meeting our net
zero emission targets and aspirations
– Contribute positively to the communities
in which we operate
– Continue to focus on ethical sourcing
and modern slavery risk in supply
chains, striving to eradicate the
exploitation of vulnerable people
– Build further awareness of the circular
economy into all businesses
– Increase focus on reconciliation
and engagement with Indigenous
people, including progress towards
employment parity
Wesfarmers 2021 Annual Report
19
Operating and financial review
Our value-creating strategies
Each strategy is underpinned by the Group’s well-established strategic planning
framework. The key attributes of this approach are maintaining a long-term focus
and acting sustainably in the creation of value and management of our 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 26.
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 aims to ensure that
the following seven key enablers are in place in our businesses, with a goal of driving operating performance to
best practice.
OUTSTANDING PEOPLE
COMMERCIAL EXCELLENCE
SOCIAL RESPONSIBILITY
Wesfarmers seeks to be an employer
of choice. Striving to attract a diverse
group of outstanding people and
utilising their individual talents is
one of the most essential elements
in achieving sustainable success.
Wesfarmers recognises that while
great assets and strategies are
important, it is people who drive
outcomes.
EMPOWERING CULTURE
Wesfarmers recognises that an
empowering culture is essential
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
value creation in their businesses.
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.
INNOVATION
Wesfarmers strives to develop a
culture that encourages innovation,
and rewards entrepreneurial initiative
and creativity.
ROBUST FINANCIAL CAPACITY
By maintaining a strong balance
sheet, the Group aims to provide a
competitive cost of, 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.
Respect for team members,
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, human rights and
community contribution.
SUSTAINABILITY
Wesfarmers seeks to operate its
businesses sustainably. This includes
a focus on using natural resources
responsibly, managing businesses
with deep carbon awareness and
reducing the Group’s impacts on
the environment.
20
Wesfarmers 2021 Annual Report
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Core values
Underpinning all of the Group’s strategies and ways of working.
Integrity
Accountability
Acting honestly and ethically in all dealings
Decision-making to divisions
Reinforcing a culture of doing what is right
Accountability for performance
Protecting and enhancing our reputation
Openness
Openness and honesty in reporting, feedback
and ideas
Entrepreneurial Spirit
Adopt an owner mindset
Accepting that people make mistakes and seeking
to learn from them
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
Wesfarmers 2021 Annual Report
21
Operating and financial review
Year in review
OVERVIEW
The Group reported a statutory net profit
after tax (NPAT) of $2,380 million for
the full-year ended 30 June 2021. NPAT
from continuing operations, excluding
significant items, increased 16.2 per cent
to $2,421 million.
The strong financial result for the 2021
financial year was a testament to the
dedication of team members and leaders
across the Group, who continued to find
new and valuable ways to meet
customers’ needs and support the
community during a period of significant
disruption.
Wesfarmers continued to prioritise
providing a safe environment for
customers and team members, and a
continued strong focus on workplace
safety supported an almost eight per cent
improvement in the Group’s TRIFR
to 9.6 for the year.
The Group extended additional support
measures to team members impacted by
COVID-19, including paid pandemic leave
and commitments to pay all permanent
and many casual team members during
prolonged lockdowns when there was no
meaningful work for them. To support
community vaccination efforts, the
Group also committed to provide paid
vaccination leave for permanent team
members.
While COVID-19 had a significant impact
on operations during the year, the
Group’s businesses maintained their
focus on building deeper customer
relationships and trust. In line with
Wesfarmers’ objective of delivering
superior and sustainable long-term
returns, the businesses continued to
invest in providing greater value, quality
and convenience for customers,
including through strengthened data
and digital capabilities.
Bunnings, Kmart Group and Officeworks
delivered strong sales and earnings
growth for the year. While customer
demand remained resilient, sales growth
in Bunnings, Officeworks and Catch
moderated from mid-March as the
businesses began to cycle elevated
demand following the onset of COVID-19
in the prior year. Pleasingly, sales growth
from mid-March remained strong on a
two-year basis across all of the Group’s
retail businesses.
The result in WesCEF reflected a
continued solid operating performance,
and the performance of all business units
in the Industrial and Safety division
improved during the year.
Investment in data and digital capabilities
accelerated during the year, and the
Group also commenced the development
of a data and digital ecosystem that will
enable a more seamless and personalised
customer experience across the retail
businesses. Digital engagement across all
businesses continued to increase and
total online sales across the Group,
including the Catch marketplace,
increased to $3.3 billion.
Further detail on divisional financial
performances is outlined in pages 26
to 58.
OPERATING CASH FLOW
The Group recorded a solid operating
cash flow result for the year despite
cycling one-off working capital benefits
in the prior year. Operating cash flows of
$3,383 million were 25.6 per cent lower
than the prior year, with strong earnings
growth offset by the normalisation in
Earnings per share
(excluding significant items)
214.1 cents
Net profit after tax
(excluding significant items)
$2,421m
FY21 2,421
Post-AASB 16
FY20 2,075
Pre-AASB 16
FY20 2,091
FY19 2,339
FY18 2,772
FY17 2,873
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21
17
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19
20
21
Free cash flow
$2,741m
Return on equity (R12)
(excluding significant items)
26.1%
FY21
26.1
Post-AASB 16
FY20
22.1
Pre-AASB 16
FY20
FY19
FY18
FY17
21.1
19.2
11.7
12.4
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20
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Wesfarmers 2021 Annual Report
REPORTED (INCLUDING SIGNIFICANT ITEMS)
• 2021 excludes post-tax $41 million of
restructuring costs in Kmart Group.
• 2020 excludes post-tax significant items
including: $520 million of non-cash impairments,
write-offs and provisions in Kmart Group,
$298 million non-cash impairment of Industrial
and Safety, $203 million gain on sale of the
10.1 per cent interest in Coles and $154 million
revaluation of the retained interest, and includes
a benefit of $83 million from the finalisation of tax
positions on prior year disposals.
• 2019 excludes post-tax significant items
including: $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 and $102 million
provision for Coles supply chain automation.
• 2018 excludes post-tax significant items
including: $300 million non-cash impairment of
Target, $1,275 million relating to discontinued
operations which includes the $953 million
(£544 million) non-cash impairment of BUKI,
$70 million (£40 million) store closure provision
in BUKI, $375 million (£210 million) loss on sale
relating to BUKI and $123 million gain on sale
of the Curragh Coal Mine.
FY21 214.1
Post-AASB 16
FY20 183.4
Pre-AASB 16
FY20 184.9
FY19 206.8
FY18 245.1
FY17 254.7
FY21 2,741
Post-AASB 16
FY20 5,188
Pre-AASB 16
FY20 4,239
FY19 2,963
FY18 3,422
FY17 4,173
BACK working capital positions across the retail
businesses following the lower inventory
and higher payables balances recorded
at the end of the 2020 financial year as
a result of elevated demand. The Group
recorded a working capital outflow of
$695 million for the year.
CAPITAL EXPENDITURE
Gross capital expenditure of $896 million
was 3.3 per cent higher than the prior
year due to increased investment in
data and digital initiatives across all
divisions, the conversion of Target stores
to Kmart stores, as well as the ongoing
development of the Mt Holland lithium
project. Proceeds from the sale of
property, plant and equipment of
$264 million were $35 million below the
prior year, driven by lower proceeds from
property sales in Bunnings. The resulting
net capital expenditure of $632 million
was $64 million, or 11.3 per cent, higher
than the prior year.
FREE CASH FLOW
Free cash flows of $2,741 million were
47.2 per cent lower than the prior year,
reflecting the lower operating cash flows
from the normalisation of working capital
positions. Free cash flows in the prior
period also included the $2.1 billion in
net proceeds from the partial sale of the
Group’s investment in Coles, partially
offset by the acquisition consideration
associated with Kidman Resources and
Catch of $1.0 billion.
BALANCE SHEET
The Group maintained significant
balance sheet flexibility and recorded
a net cash position of $109 million as
at 30 June 2021, comprising
interest-bearing liabilities, excluding
lease liabilities, net of cross-currency
swap assets and cash at bank and on
deposit. This compares to a net cash
position of $471 million as at 30 June
2020. The reduction in net cash reflects
the ongoing normalisation in working
capital positions across the retail
businesses during the second half.
DEBT MANAGEMENT
AND FINANCING
In June 2021, Wesfarmers issued
Australia’s inaugural sustainability-linked
bonds. The $1.0 billion issuance
comprised a $650 million seven-year
bond and a $350 million ten-year bond,
with interest rates that are linked to the
achievement of agreed targets in relation
to use of renewable energy in the Group’s
retail divisions and the CO2e emissions
intensity of ammonium nitrate production
in WesCEF.
In addition to the new sustainability-linked
bonds, the Group has two higher-cost
Euro bonds with maturities in October
2021 ($866 million) and August 2022
($764 million).
Other finance costs decreased
11.3 per cent to $118 million for the year,
reflecting lower average debt balances.
The Group’s strong credit ratings
remained unchanged during the year
with a rating from Moody’s Investors
Services of A3 (stable) and rating of
A- (stable) from Standard & Poor’s.
Group capital employed
Year ended 30 June1
Inventory
Receivables and prepayments
Trade and other payables
Other
Net working capital
Property, plant and equipment
Goodwill and intangibles
Mineral rights
Mine properties
Other assets
Provisions and other liabilities
Total capital employed
Net financial debt2
Net tax balances
Net right-of-use asset/(lease liability)
Total net assets
Cash capital expenditure
Year ended 30 June
Bunnings
Kmart Group
Officeworks
WesCEF
Industrial and Safety
Other
Gross capital expenditure
Sale of PP&E
Net capital expenditure
2021
$m
4,502
1,434
(4,234)
228
1,930
3,496
3,902
1
865
1,962
(1,744)
10,412
109
264
(1,070)
9,715
2021
$m
445
185
65
137
62
2
896
(264)
632
2020
$m
3,844
1,261
(4,008)
172
1,269
3,623
3,814
813
-
1,804
(1,698)
9,625
471
278
(1,030)
9,344
2020
$m
511
142
40
110
59
5
867
(299)
568
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 swaps and interest rate swap contracts. Excludes lease
liabilities.
Wesfarmers 2021 Annual Report
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Operating and financial review
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 has determined
to pay a fully-franked ordinary final
dividend of 90 cents per share, taking
the full-year ordinary dividend to
178 cents per share. The final dividend
will be paid on 7 October 2021.
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 dates.
The last date for receipt of applications
to participate in, or to cease or
vary participation in, the Plan, is
3 September 2021. 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
7 October 2021. Given the Group’s
strong credit metrics, it is intended
that any shares to be issued under the
Plan will be acquired on-market and
transferred to participants.
The directors have also recommended
a return of capital to shareholders of
200 cents per share, which will ensure
Significant balance
sheet flexibility
with net cash of
$109 million
a more efficient capital structure while
maintaining balance sheet capacity
to be able to take advantage of
value-accretive opportunities should
they arise. The recommended return
of capital is subject to shareholder
approval at the Annual General
Meeting (AGM) on 21 October 2021.
If approved, the total amount of the
distribution will be approximately
$2,268 million and will be paid on
2 December 2021. The form of the
distribution is dependent on a final
ruling by the ATO, but is likely to be
entirely capital in nature, with no
dividend component. Shareholders will
be unable to elect to participate in the
Plan in relation to the capital return.
Together, the capital return and
final dividend would bring the total
distribution to shareholders for the
year to 378 cents per share.
of COVID-19. The Wesfarmers Group
is actively managing the continued
impact and uncertainty of COVID-19
by understanding and managing the
effects it has on the key risks set out
below. Wesfarmers also recognises
pandemic risk in its own right and is
focused on the ongoing preparedness
and the continued effectiveness of the
Group’s response activities. In line with
the prior year, increased information
on climate-related risks is provided on
pages 68 to 80 of this annual report.
Strategic
– Competition
– Strategy execution
– Damage or dilution to Wesfarmers’
reputation or brands
– Digital disruption
– Changing customer expectations
– Portfolio management
RISK
Operational
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.
Since the 2020 financial year, the world
has been confronted with the impacts
– Technology, cyber security and
data-related risks, inclusive of privacy
– Business disruption, loss of major
infrastructure and physical security
– Risks inherent in distribution and sale
of products
– Conduct risk
– Human rights risks, including modern
slavery
– Climate-related risks and emissions
management
– Risks to the health, safety or
wellbeing of team members
– Environmental and sustainability risks
– Talent attraction, retention and
engagement
– Supply chain and inventory
management
Fixed financial obligations
Dividends per share
Lease liabilities1
Bank facilities & bonds
$7.1b
$2.7b
ORDINARY DIVIDENDS
SPECIAL DIVIDENDS
178cents
300
250
200
150
100
50
0
FY21
178
FY202
152
FY193 178
FY18
FY17
223
223
1 Represents total discounted lease liabilities as at 30 June 2021.
2 Excludes a fully-franked special dividend of 18 cents per share, relating to the distribution of the after-tax profit
on the sale of the Group’s 10.1 per cent interest in Coles during the period.
3 Excludes a fully-franked special dividend of 100 cents per share.
17
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Wesfarmers 2021 Annual Report
BACK and retail businesses in the growing
health, wellbeing and beauty sector.
There is no certainty as to whether the
proposed transaction will proceed.
Wesfarmers will continue to actively
consider climate change risk in the
context of key business decisions and
manage the portfolio with deep carbon
awareness. The Group will maintain its
focus on delivering progress against
its net zero emissions targets and
aspirations and will make disciplined
investments to ensure appropriate
climate change resilience in each of
its businesses.
Wesfarmers will also maintain its
focus on providing safe and inclusive
environments for team members and
customers, achieving progress towards
employment parity for Aboriginal
and Torres Strait Islanders and
working alongside global peers,
non-government organisations and
others to mitigate risks and enhance
human rights in our supply chains.
The Group will continue to develop
and enhance its portfolio, building on
its unique capabilities and platforms to
take advantage of growth opportunities
within existing businesses and to
pursue investments and transactions
that create value for shareholders over
the long term.
Regulatory
– Compliance with applicable laws,
regulations and standards
– Regulatory or legislative change
Financial
– Currency and commodity price
movements
– Liquidity and access to funding
Further information on risk
management, including policies,
responsibility and certification, can be
found on page 88 of this annual report
and in the corporate governance
section of the company’s website at
www.wesfarmers.com.au/cg
PROSPECTS
The Group’s strong balance sheet and
portfolio of cash-generative businesses
with market-leading positions are
well-positioned to withstand a range
of economic conditions and deliver
satisfactory shareholder returns
over the long term.
Wesfarmers will continue to focus on
supporting its team, customers and
the community, while maintaining
a flexible balance sheet to invest in
value-accretive opportunities across its
existing business and new opportunities
to support long-term growth.
The Group remains committed to
investment in key strategic initiatives,
notwithstanding the likelihood of
near-term disruptions to operating
conditions as a result of COVID-19.
This relates to investment in developing
a market-leading data and digital
ecosystem, building platforms for
long-term growth and accelerating
the pace of continuous improvement.
Progress has accelerated on the
development of a data and digital
ecosystem, which will provide
customers a more seamless and
personalised digital experience across
the Wesfarmers retail businesses.
A new Managing Director has been
appointed to lead these efforts from
November 2021. To support this
initiative, operating expenditure of
approximately $100 million is expected
to be incurred over the next 12 months.
The Group’s retail businesses will
maintain their focus on meeting the
changing needs of customers, including
accelerated investment in data and
digital capabilities to deliver even
greater value, quality and convenience.
Ongoing disruptions to supply chains
as well as global supply constraints for
some products and inputs are expected
to create additional costs and impact
stock availability in some categories.
The performance of the Group’s
industrial businesses will continue to
be subject to international commodity
prices, foreign exchange rates,
competitive factors and seasonal
outcomes. WesCEF will focus on
continuing its strong operational
performance, developing the
Mt Holland lithium project and
investigating capacity expansion
opportunities. Industrial and Safety
will maintain its focus on delivering
improvements in performance
and profitability.
Subsequent to the end of the financial
year, Wesfarmers made a non-binding
indicative offer to acquire Australian
Pharmaceutical Industries Limited
(API), a leading Australian distributor of
pharmaceutical goods that operates a
portfolio of complementary wholesale
Debt maturity profile ($m)1
Other finance costs ($m)
DRAWN BANK FACILITIES
CAPITAL MARKET DEBT
UNDRAWN BANK FACILITIES
TSR2: Wesfarmers and ASX 100
(last 10 years)
WESFARMERS LIMITED TSR INDEX
ASX 100 ACCUMULATION INDEX
2,000
1,500
1,000
500
0
22 23 24 25 26 27 28 29 30 31
300
250
200
150
100
50
0
500
400
300
200
100
50
17
18
19
20
21
11 12 13 14 15 16 17 18 19 20 21
1 As at 30 June 2020. Excludes $1.95 billion in additional COVID-19 related bank debt facilities maturing in FY2022.
2 Assumes 100 per cent dividend reinvestment on the ex-dividend date. Source: Bloomberg.
Wesfarmers 2021 Annual Report
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Operating and financial review | Bunnings
Bunnings
Founded in 1886 in Western Australia, Bunnings opened its first
warehouse in Sunshine, Melbourne in 1994. Bunnings is the
leading retailer of home improvement and lifestyle products
in Australia and New Zealand, and a major supplier to project
builders, commercial tradespeople and the housing industry.
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Wesfarmers 2021 Annual Report
BACK OUTLOOK
YEAR IN REVIEW
Revenue
$16,871m
2021
16,871
2020
2019
2018
2017
14,999
13,166
12,544
11,514
EBT
$2,185m
2021
2,185
2020
2019
2018
2017
1,826
1,626
1,504
1,334
Key financial indicators
Post-AASB 16
Pre-AASB 16
For the year ended 30 June
2021
2020
2020
2019
2018
2017
Revenue ($m)
16,871 14,999 14,999 13,166 12,544 11,514
Earnings before tax ($m)
2,185
1,826
1,852
1,626
1,504
1,334
Capital employed R12 ($m)
2,651
3,146
2,997
3,220
3,045
3,192
Return on capital employed R12 (%)
Cash capital expenditure ($m)
82.4
445
58.0
511
61.8
511
50.5
49.4
470
497
41.8
367
OUR PERFORMANCE
Revenue for Bunnings increased
12.5 per cent to $16,871 million. Total
store sales growth of 12.4 per cent
was achieved during the year, and
store-on-store sales also increased
11.9 per cent. Bunnings recorded
earnings of $2,185 million, an increase
of 19.7 per cent on last year.
COVID-19 continued to impact
Bunnings’ operations and the
communities it serves, with Bunnings
responding to changes in the external
environment by adjusting its operations
and working with suppliers to limit
impacts on product availability during
the year.
Bunnings’ strong sales and earnings
growth reflects the execution of its
strategic agenda and the increased
value and relevance of its offer for
consumer and commercial customers.
During the year, Bunnings refreshed
thousands of products, introduced
new showroom experiences, delivered
a new retail website in Australia and
New Zealand to improve the look, feel
and navigation for customers, and
continued to invest in enhancements
to its digital offer, including improvements
to click and collect and drive and
collect services. Bunnings also
deepened its relationships with
commercial customers through a new
trade service desk format providing a
dedicated service area that improves
the customer experience, opening
its first new Adelaide Tools store and
rolling out further enhancements to its
PowerPass app, which attracted record
engagement with over two million
transactions completed through the
app over the last twelve months.
While disciplined cost control remained a
focus throughout the year, approximately
$27 million was invested in additional
cleaning, security and protective
equipment to operate safely in the
COVID-19 environment. Return on
capital increased from 58.0 per cent
to 82.4 per cent, reflecting strong
earnings growth and disciplined capital
management, and a temporary benefit
from lower average inventory balances
due to strong customer demand.
At the end of the year, there were
278 warehouses, 70 smaller format
stores, 30 trade centres, as well as
five Adelaide Tools stores in the
Bunnings network.
Across Australia and New Zealand,
Bunnings remains focused on driving
growth through its strategic pillars of
price, range and experience. Bunnings
remains focused on evolving its home
and lifestyle offer in store and online,
deepening relationships with commercial
customers, optimising inventory and
supply chain management, delivering
an even better service experience
across every customer touchpoint
and maintaining strong cost discipline.
While the operating environment
remains uncertain, Bunnings’ trading
performance in the 2022 financial year
is expected to moderate following the
extraordinary growth recorded in the
2021 financial year, which saw
Australians and New Zealanders
required to spend more time at home
due to COVID-related restrictions.
Bunnings will continue to accelerate the
development of its digital offer, building
on its new e-commerce platform in
Australia and New Zealand, by providing
retail customers a more personalised
digital experience. This step up in digital
investment will also enable us to better
understand and serve our customers
and includes a new e-commerce
platform for trade customers that will
make it easier for customers to transact.
Our strong commitment to cost control
will continue, ensuring we can offer
customers the best value in the market
while our disciplined approach to
reducing unnecessary tasks for our
team will mean we can spend more
time serving our customers.
As always, the community remains at
the heart of who we are and what we
do, and Bunnings will continue to
support the communities where our
stores operate. I would like to thank
our team and our suppliers for their
tireless work over the past year and for
delivering for our customers every day
in a really challenging environment.
Michael Schneider
MANAGING DIRECTOR
BUNNINGS GROUP
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OUR BUSINESSBunnings is the leading retailer of home improvement and lifestyle products in Australia and New Zealand, and a major supplier to project builders, commercial tradespeople and the housing industry. Bunnings operates a network of 383 locations, including large warehouse stores, smaller format stores, trade centres as well as online.Bunnings is focused on creating value for its customers over the long term, based on four interlinked principles: a winning offer to customers; an engaged, focused and committed workforce; business behaviour that builds trust; and sustainable satisfactory returns. Bunnings employs approximately 50,000 team members across Australia and New Zealand. During the 2021 financial year, more than 10,000 new team members were recruited to service increased demand, including online demand, for a net increase of around 1,000 team members over the year. Its stores stock more than 45,000 products, which are regularly reviewed and refreshed. Bunnings also offers a wider range of products through a special-order range both online and instore, as well as through third-party trusted sellers as part of Bunnings’ online offer, Bunnings Marketplace.Bunnings is expanding its brand reach across its market through the opening of new stores, flexible formats, digital innovation and commercial relationships. The focus is on creating value for customers and delivering the best experience across every channel, be that digital, in-home, instore or on-site, while ensuring products are sourced ethically and sustainably.During the year, Bunnings continued to strengthen its ethical sourcing program with modern slavery and human rights training provided to more than 1,300 team members and 320 suppliers.PEOPLETeam members are the most important part of the Bunnings business and their safety and wellbeing remain the highest priority.In the financial year, there was a 9.7 per cent increase in the TRIFR and the number of team member injuries recorded increased by 24.6 per cent.These results are attributed to sharp changes in Bunnings’ operational model and increased demand for products. This resulted in recruitment of new team members, higher levels of activity and performing operational tasks that were different from their regular roles. This involved increased manual handling to move higher volumes of stock and facilitate customer order collections from stores, including large and bulky products, during periods of restricted trading, primarily during the Victorian and New Zealand COVID-19 lockdowns.Removing the impact of these unique COVID-19 related activities, Bunnings’ safety measurements tracked well throughout the year. To mitigate team member injuries in the future, Bunnings has implemented a number of solutions including moving high volume stock to the front of the store, team task rotation, extra breaks to provide rest and recovery from additional manual handling, reminders on safe lifting Bunnings is committed to making a positive impact, including attracting and recruiting a diverse team that reflects the communities in which it operates. Operating and financial review | BunningsSafety performanceTOTAL RECORDABLE INJURY FREQUENCY RATE11 TRIFR measures 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.11.32021 11.32020 10.32019 11.22018 11.620172 18.9Wesfarmers 2021 Annual Report28BACK techniques, security guards to assist with challenging situations, designated areas of the car park for drive and collect, and proactive counselling calls for leaders. Notwithstanding the challenges that COVID-19 presented during the year, Bunnings’ safety and wellness agenda continued to be driven around reducing risks and preventing injuries, improving wellbeing, and helping team members with injuries get back to life and work.With ongoing challenges presented due to COVID-19, increased support was provided for the Bunnings team, including an assistance program to proactively conduct check-in calls with leaders. Four online learning modules were launched to further develop leaders’ capability to support the team’s mental health, with a new mental wellbeing course piloted during the year.During the year, Bunnings became a founding member of the newly launched Corporate Mental Health Alliance Australia, established to share best practice in corporate mental health and wellbeing.COMMUNITYBunnings has a longstanding commitment to supporting the communities in which it operates.During the year, COVID-19 continued to have a significant impact on Bunnings’ ability to deliver grassroots community activities as planned. Notwithstanding this, Bunnings helped raise and contribute over $27.4 million through more than 51,000 community activities.While traditional areas of community support such as the community sausage sizzles were temporarily unavailable, Bunnings adapted quickly to find innovative ways to connect with the community. To ensure groups who had planned sausage sizzles could find other ways to fundraise, donations of $500 gift cards were made to more than 1,300 community groups, representing over $650,000 in total.In commemoration of National Police Remembrance Day, Bunnings donated over $300,000 to Police Legacy charities across Australia and New Zealand. Charities supported included the Victoria Police Blue Ribbon Foundation, the New Zealand Police Association Police Families Charitable Trust, and other Police Legacy charities in every state and territory across Australia.The Australian team supported Share the Dignity’s ‘It’s in the Bag’ campaign for the fourth consecutive year. Over two weeks, more than 127,000 bags of personal hygiene products were collected for women and girls experiencing homelessness and domestic violence.In New Zealand, Bunnings supported the ‘I Got Your Back Pack’ campaign with customers and team members invited to donate toiletries and gifts to support families in refuges as a result of domestic violence.In May and June 2021, Bunnings supported the FightMND ‘Big Freeze’ campaign for the third consecutive year, with beanies for sale in all Australian stores and trade centres. In total, Bunnings raised and contributed over $1.1 million to FightMND to support efforts to find a cure for motor neurone disease.In line with COVID-19 restrictions easing throughout the year, Bunnings brought back a number of community activities, such as the community sausage sizzles, hands-on community projects and instore workshops. Returning to local grassroots community support will continue to be a focus in the coming financial year.$27.4mCommunity contributions DIRECT INDIRECT2021 7.6 19.82020 9.4 33.52019 5.4 44.62018 5.0 41.72017 4.4 38.8Ethical sourcing audit program findings1 There were 297 suppliers covered by the audit program as at 30 June 2021.2 The supplier may be audited every two years if it had no previous findings.3 This financial year, there were 197 critical breaches across approximately 60 suppliers.Suppliers part of the audit program but not audited during the financial year2 186Suppliers audited during the financial year with no critical breaches 51Suppliers audited during the financial year with critical breaches identified3 602971866051NUMBER OF SUPPLIERS COVERED BY THE AUDIT PROGRAM1 Wesfarmers 2021 Annual Report29OVERVIEW01OPERATING AND FINANCIAL REVIEW02GOVERNANCE03DIRECTORS’ REPORT04FINANCIAL STATEMENTS05SIGNED REPORTS06SHAREHOLDER AND ASX INFORMATION07 Operating and financial review | Bunnings
ENERGY EFFICIENCY
In October 2020, Bunnings announced
plans to source 100 per cent renewable
electricity by 2025 to help achieve its
target of net zero Scope 1 and 2
emissions by 2030.
During the financial year, Bunnings
delivered continued progress against
its emission reduction targets, with
emissions reducing by 11 per cent.
The reduction is attributed to energy
efficiency initiatives and expanded
generation of renewable energy. In
addition, Bunnings purchased 30 per cent
GreenPower for most large sites in
Australia from 1 July 2020.
Bunnings continued to expand the
network of solar photovoltaic (PV)
systems. During the year, 21 sites had
solar PV systems installed with 85 sites
in total completed as at 30 June 2021.
To accelerate energy efficiency across
the store network, LED lighting is being
gradually retrofitted across the existing
network. During the year, LED upgrades
were completed at 43 warehouses and
12 smaller format stores. At the end of the
financial year, 191 warehouses, 25 smaller
format stores and five trade centres were
using LED lighting.
In February 2021, Bunnings launched
a trial store design at the new Bunnings
Melton East in Victoria. Design features
include a highly-insulated roof, insulated
walls rather than concrete panels to
improve thermal efficiency, and an
insulated wall between the warehouse
and timber yard to maintain greater levels
of energy efficiency. The store also has a
300 kilowatt solar PV system. The relative
energy performance from these initiatives
will be monitored to inform future store
designs.
The focus for the next financial year will
be to develop new pathways to reduce
reliance on traditional energy by
transitioning to renewable sources.
Bunnings introduces Indigenous Transition
to Work program
Bunnings is committed to making a positive impact, including attracting and
recruiting a diverse team that reflects the communities in which it operates.
Encouraging Indigenous people to obtain fulfilling jobs with leadership development
and career progression is a priority for Bunnings, and 2.3 per cent of team
members in Australia self-identify as an Aboriginal and/or Torres Strait Islander.
Bunnings set a target of employment parity for Indigenous people as part of
Wesfarmers’ Employment Parity Initiative, which is three per cent of its Australian
team by the end of 2022.
To help achieve this, during the financial year Bunnings began the Transition to
Work program, an initiative to help Aboriginal and Torres Strait Islander people
to transition into permanent and rewarding work at Bunnings.
The program provides three months of paid work experience for participants with
the aim to progress to ongoing employment after the three-month period, subject
to successful completion of the program. To date, 40 people have completed the
program, with 31 offered ongoing employment in Bunnings stores and distribution
centres across Australia.
In the coming year, Bunnings will continue the Transition to Work program and its
focus on recruiting more team members who will add to the diversity and success
of the business.
Aboriginal and Torres Strait
Islander employment1
1,026
2021
1,026
2020
2019
2018
2017
853
687
637
516
1 The criterion for removing casuals from the
calculation of ATSI team members differs
across divisions from 2017 to 2018.
30
Wesfarmers 2021 Annual Report
Greenhouse gas emissions
(from continuing operations)
SCOPE 1 & 21
234.5ktCO2e
Market-based
20212
110.3
2021
234.5
2020
2019
2018
2017
262.6
269.5
259.7
250.1
1 Scope 1 and 2 data includes emissions for
businesses where we have operational control under
the NGER Act, and emissions in New Zealand.
2 Emissions based on GHG Protocol Scope 2
market-based reporting standard.
Waste
RECOVERED
DISPOSED
66.9kt
2021 35.2 31.7
2020
32.8 29.0
2019
31.0 27.8
2018
25.7 34.1
2017
27.9 28.4
BACK STRATEGY
Bunnings provides its customers with the widest range of home and lifestyle products and is committed to delivering the best experience, supported by a policy of
lowest prices every day. For its commercial customers, Bunnings seeks to provide value, service and convenience and turns products and services into solutions that
help businesses grow and run better. Bunnings sets out to attract high-quality team members and to provide them with a safe and rewarding working environment.
STRATEGIES
ACHIEVEMENTS
FOCUS FOR THE COMING YEARS
More customer
value
– Strong investment in maintaining price leadership
– More products at lower prices 365 days – not just as
promotional buys
– Created more value for customers on products that matter
most to them
– Reinvest in price by simplifying processes and systems to lower costs
– Improve customer order fulfilment efficiency
– Deliver low prices by lowering the cost of goods
Better customer
experiences
– Accelerated digital offer with newly re-platformed retail website
– Delivered solutions that made it easier for the team to serve
– Better customer experiences and deeper engagement: digital, instore,
in-home and on-site
customers
– Further enhancements to PowerPass app
– Evolved and improved click and collect, and drive and
collect services
– Innovate and simplify to improve efficiency and reinvest in service
– Use data more effectively to improve the customer experience
– Make instore service even easier and more convenient for customers
– Build on range of services available instore and online
Greater brand
reach
– Opened eight new trading locations
– Opened nine replacement stores with wider ranges,
including one Adelaide Tools store
– Significantly expanded Bunnings’ digital ecosystem
– Reinvestment in store network
– Network expansion opportunities
– Targeted store reinvestment
– More personalised digital communications
Deeper
commercial
engagement
– Improved instore experience with new trade desk design,
– Continue to leverage core strengths of a total market capability: stores,
self-checkouts and Load’N’Go program
trade centres, in-field and digital
– Implemented new Customer Relationship Management
– Leverage CRM and analytics to improve service offer through greater
(CRM) solution
customer insights
– Opened new Adelaide Tools store in Parafield, South
Australia to test new concepts, layouts and products
– Evolved PowerPass app to make it easier to use
– Agreement to acquire Beaumont Tiles, subject to
regulatory approval
– Launch new solutions for trades, builders and organisations
– Grow Adelaide Tools store network across Australia and New Zealand
– Evolve PowerPass app further to provide a better experience across
commercial brands
More
merchandise
innovation
– Expanded ranges across many product categories
– Further product and project innovation with new products
– Respond to lifestyle and technology trends to improve both instore and
online offers
and more instore displays
– Use space better to accommodate new ranges, layouts and product
– Expanded online offer
– Provided more inspiration, innovation and information
to customers
adjacencies
– Invest in technology to optimise inventory and supply chain management
to improve in-stock position
RISK MITIGATION
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 are commensurate with the impact on the business from the risk occurring (likelihood and consequence).
Bunnings continues to actively manage the impact of COVID-19 by understanding the effect it has across all key risk areas as well as by managing the direct implications
identified below.
RISK
MITIGATION
COVID-19
– Continued focus on providing a COVID-safe environment for team
– Proactive management of inventory position to accommodate
members, customers and suppliers
increased volatility in demand and disruptions to global supply chains
– Active monitoring of changing consumer behaviour to ensure that
customer expectations continue to be met, including development
of alternative contactless trading formats such as drive and collect
Safety
– Continued focus on critical risks and targeted instore awareness campaigns
Talent recruitment
and retention
New and existing
competitors
– Strategies directed at creating and maintaining status as an
– Succession planning, retention and development plans
employer of choice
– Relentless focus on strategic pillars of lowest price, widest range
– Ongoing strategies to increase customer centricity and deepen
and best experience
customer engagement
Reputation
– Strong culture of ‘doing the right thing’
– Focus on ethical sourcing and product standards
– Ongoing regulatory compliance training
Supply chain
disruptions
– Structured range review processes incorporating alternative sources
– Continued development of domestic supply chain capabilities
of supply and extended lead times on orders where necessary
Data and IT
security
– Strategy built around protection, detection and responding to threats
– Market-leading technology to protect against cyber incidents
– Strong internal processes to protect and control data access
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Operating and financial review | Kmart Group
Kmart Group
Kmart Group comprises Kmart, Target and Catch, with
operations across 462 stores in Australia and New Zealand,
with more than 50,000 team members. Kmart Group is
committed to providing enjoyable and seamless shopping
experiences for customers both in stores and online.
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Wesfarmers 2021 Annual Report
BACK OUTLOOK
YEAR IN REVIEW
Revenue
$9,982m
2021
9,982
2020
2019
2018
2017
9,217
8,713
8,837
8,528
EBT
$693m
20211
693
20202
2019
20183
2017
410
550
660
543
Key financial indicators
Post-AASB 16
Pre-AASB 16
For the year ended 30 June
20211
20202
20202
2019
20183
2017
Revenue ($m)
9,982
9,217
9,217
8,713
8,837
8,528
Earnings before tax ($m)
693
410
413
550
660
543
Capital employed R12 ($m)
1,329
2,011
1,978
1,872
2,013
2,253
Return on capital employed R12 (%)
Cash capital expenditure ($m)
52.1
185
20.4
142
20.9
142
29.4
32.8
207
293
24.1
225
1 The 2021 earnings before tax for Kmart Group excludes pre-tax restructuring costs of $59 million.
2 The 2020 earnings before tax for Kmart Group excludes pre-tax impairment of the Target brand name
and other assets of $525 million and restructuring costs and provisions of $110 million, and includes
$9 million of payroll remediation costs relating to Target.
3 The 2018 earnings before tax for Kmart Group excludes the pre-tax non-cash impairment of $306 million
for Target.
OUR PERFORMANCE
Kmart Group’s revenue increased
8.3 per cent to $9,982 million for the year.
Excluding significant items, earnings of
$693 million were 69 per cent above the
prior year. Significant items incurred
during the year relate to Target’s store
closure and conversion program and
include $59 million of pre-tax Target store
closure and conversion costs that could
not be provided for in the prior year. The
earnings result was underpinned by
strong growth in Kmart and Target,
partially offset by ongoing investment
in Catch.
Kmart and Target revenue increased by
$603 million or 6.8 per cent for the year,
while earnings before significant items
increased 80.7 per cent to $739 million.
Both businesses experienced solid
sales growth in home, active and kids
categories, which was partially offset by
lower demand for some apparel products.
During the year, Kmart and Target
successfully completed the planned
changes to the Kmart and Target store
networks, with 31 large format Target
stores converted to Kmart stores and 55
Target Country stores converted to the
K hub small format. In addition, there
were 10 large format Target store closures
along with 48 Target Country closures.
Kmart’s total sales increased
12.0 per cent for the year, with
comparable sales increasing 7.8 per cent,
driven by a continued focus on lowest
price positioning and an enhanced
product range. Target’s total sales
decreased 3.7 per cent for the year
despite the store closure and conversion
program, a strong result with comparable
sales increasing 13.3 per cent, driven by
increased demand for full-price items and
improvements in the product range.
Following strong growth, online sales
penetration for Kmart and Target
increased to 7.8 per cent and
15.1 per cent respectively.
Kmart and Target earnings growth for
the year was driven by higher sales, lower
clearance costs, and an improvement in
the cost of doing business as a result of
planned network changes. This was
partially offset by higher operational
costs associated with online fulfilment
and ongoing investment in technology
in Kmart. Kmart continued to invest in
key strategic initiatives to enhance its
customer offer and the development of
data and digital assets and capabilities.
Catch’s gross transaction value increased
41.0 per cent on the prior year to
$973 million, driven by strong growth in
both the retail and marketplace offerings.
Following significant growth in the first
half, Catch’s performance moderated in
the second half as the business cycled
the significant shift to online channels
that occurred in the prior corresponding
period. Since acquisition, Catch has
invested in marketing and capabilities,
expanded its range, and implemented a
number of customer-driven initiatives to
leverage the Wesfarmers Group assets.
The trading environment is expected to
remain uncertain and volatile during the
2022 financial year. Kmart Group will
remain focused on being there for
customers, keeping customers and team
members safe and ensuring the
continued focus on building for the future.
Kmart will remain focused on delivering
growth through leveraging its scale and
product development capabilities. This
will be supported by the delivery of
strategic initiatives including the
migration of all online transactions to the
new Kmart website, building a flexible
and resilient supply chain and completing
the rollout of RFID infrastructure to
Australian stores.
Following the substantive completion of
the restructuring of Target and changes
to its store network, the business will
focus on establishing a simplified
operating model in a competitive and
dynamic market. Target will continue to
improve the product offer in destination
categories while accelerating online
growth. Target is expected to be a
smaller but profitable business following
the annualisation of the store closure
and conversion program.
Catch will continue to invest significantly
in driving gross transaction value growth
and building a scalable operating model
and infrastructure. Customer acquisition
will be underpinned by acceleration of
the Club Catch subscription program
as well as continued investment in the
customer value proposition. Catch will
continue to invest in its fulfilment
network to improve delivery speed to
customers. The business will continue
to broaden its product offering and
brand proposition, and leverage the
Wesfarmers Group assets.
Ian Bailey
MANAGING DIRECTOR
KMART GROUP
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Operating and financial review | Kmart Group
Kmart
OUR BUSINESS
Kmart was established in 1969, with
the opening of its first store in Burwood,
Victoria. Kmart is a leading product
development company and trusted brand
that operates 323 stores throughout
Australia and New Zealand, offering
customers a wide range of everyday
products at the lowest prices.
Kmart employs around 37,000 team
members, who are focused on the Kmart
vision of making everyday living brighter
for Australian and New Zealand families.
Kmart executes this vision by being a
great place to shop that is simple to run
and providing customers with better
products at even lower prices.
Target
OUR BUSINESS
Target began as a drapery store in
1926 in Geelong, Victoria, and has since
grown to become a destination for
apparel and soft home products. Target
operates 139 stores across Australia,
with a vision to inspire families to live
better by making it easy to afford quality
and style. Target employs more than
12,000 team members – all focused on
delivering affordable quality products.
Catch
OUR BUSINESS
Catch is an e-commerce marketplace
which commenced operations in 2006
and was acquired by Wesfarmers in
August 2019, bringing highly
complementary skills in digital retail and
fulfilment to both Wesfarmers and the
Kmart Group. Catch’s vision is to be the
trusted place where Australians start
their shopping journey.
Catch operates an online business
model offering branded products on a
first-party basis and a third-party online
marketplace. Its online operations are
supported by a leading technology
platform and data capabilities, and one
fulfilment centre located in Victoria.
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Wesfarmers 2021 Annual Report
BACK HUMAN RIGHTS AND
ETHICAL SOURCING
Kmart Group acknowledges its
responsibility to respect human rights
and promote environmental sustainability
within its supply chain. Stakeholders
rightfully expect that the retail products
sold across the Kmart Group retail
network are not produced in a way that
compromises the rights of workers or
adversely impacts the environment of
sourcing countries.
The complexity and depth of supply chains
remains a key challenge for Kmart Group
in its ethical sourcing and wider
sustainability efforts. The Kmart Group
Ethical Sourcing Program includes a
detailed compliance framework designed
to support suppliers to meet our ethical
sourcing standards. Factory disclosures
and third-party factory audits are central to
the program. Where critical, major and
other non-conformances are identified,
corrective actions are implemented and
improvements are monitored through
follow-up audit.
During the 2021 financial year, Kmart
and Target continued their efforts to
strengthen the Kmart Group Ethical
Sourcing Program with a focus on
improving modern slavery risk mitigation
controls and improving transparency
beyond finished goods manufacturers,
further down the supply chain into
processing facilities, component
manufacturers and suppliers of raw
materials. This year, Kmart Group
undertook supply chain mapping to
identify Tier 2 and 3 facilities used by
Kmart Group Asia Tier 1 Suppliers,
which confirmed 544 Tier 2 and 3
facilities involved in the process of yarn
(spinner), weaving, knitting, dyeing,
printing, finishing or washing.
Processes were also put in place at Catch
to ensure suppliers of Catch own-brand
products are integrated into the wider
Kmart Group Ethical Sourcing Program.
The impact of COVID-19 continued to
create challenges for suppliers this
financial year, with flow on impacts for the
Kmart Group Ethical Sourcing Program. In
response to the second wave of COVID-19
in India, Bangladesh and Indonesia, the
Kmart Group Ethical Sourcing team
provided support to suppliers in those
countries, via training webinars and
sharing best practices, to assist in their
efforts to comply with government
COVID-safe workplace safety guidelines
and to pay worker wages fully and on time.
HEALTH, SAFETY
AND WELLBEING
Kmart Group is committed to improving
the health, safety and wellbeing of team
members and providing a safe shopping
experience for its customers.
Kmart finished the 2021 financial year
with a 21.8 per cent reduction in its
TRIFR to 10.6. Target achieved an eighth
consecutive year of improved safety
performance with a 50.4 per cent TRIFR
reduction to 6.1, while Catch achieved a
TRIFR of 1.9. Kmart Group recorded a
combined TRIFR of 9.2.
Kmart Group implemented a
comprehensive COVID-19 risk control
strategy in response to the COVID-19
public health emergency that has enabled
all Kmart Group sites to provide a safe
working and shopping environment,
and comply with evolving government
restrictions.
DIVERSITY AND INCLUSION
Kmart Group recognises a diverse and
inclusive place to work and shop will
enable its businesses to build strong
connections with team members and
customers, while promoting innovation
and better business decisions.
Gender balance
At Kmart, gender balance in leadership
falls within the 40:40:20 range
(40 per cent women, 40 per cent men
and 20 per cent either gender or gender
diverse). Women represent 44 per cent
of all leadership roles, an increase of four
per cent from last year. At the end of the
2021 financial year, women represented
46 per cent of store leadership roles and
48 per cent of corporate leadership roles.
Target falls within the 40:40:20 range
with 54 per cent women in leadership,
Safety performance
Aboriginal and Torres Strait
Islander employment1
TOTAL RECORDABLE
INJURY FREQUENCY RATE1
9.2
2021
2020
20192
20182
9.2
12.8
19.4
19.1
1,512
2021
1,512
2020
2019
2018
2017
708
674
714
584
1 TRIFR measures the number of lost time and
medical treatment injuries per million hours
worked.
2 Does not include Catch injuries and hours.
1 The criterion for removing casuals from the
calculation of ATSI team members differs
across divisions from 2017 to 2018.
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Operating and financial review | Kmart Group
an increase of three per cent from last
year. By year end, women represented
54 per cent of store leadership roles and
54 per cent of corporate leadership roles.
In the 2021 financial year, Catch
experienced an increase from
16 per cent to 26 per cent of women
in leadership roles.
Indigenous employment
In the 2021 financial year, Kmart Group
continued its participation within the
Employment Parity Initiative and
appointed an Indigenous Reporting
Officer, who now forms part of the
Indigenous Employment Team.
By the end of the 2021 financial year,
there were 1,215 Indigenous people
engaged in active employment at Kmart,
representing 3.5 per cent of Kmart’s
Australian workforce, an increase
from 530 team members at the end
of last year.
At Target, there were 297 Indigenous
people engaged in active employment,
representing 2.4 per cent of its workforce,
an increase from 178 team members in
the previous year.
COMMUNITY
Kmart Group continued to work with
local communities and charity partners to
meet a diverse range of needs of young
people, families and team members.
Kmart Group recognises the importance
of its connection with communities and
supported organisations helping
communities to thrive, recover and
rebuild from both floods and bushfires.
Kmart contributed $6.7 million, Target
$386,000 and Catch $245,000 to
charities and community groups during
the year.
This was a significant achievement in
a year in which Kmart Group customer
support of charity partners was disrupted
by customers not being able to access
traditional fundraising tools in stores, such
as collecting spare change, throughout
prolonged COVID-19 lockdowns when
shopping was predominantly online.
ENVIRONMENT
As a large retailer of products that
consume natural resources in many steps
of the production process, Kmart Group
has a responsibility to use natural
resources responsibly and source
materials in a way that minimises
environmental impact.
Major achievements this year included:
− 26.5 per cent year-on-year reduction
in electricity use per square-metre of
Kmart Group stores’ gross footprint.
− Developing a Scope 3 playbook, which
sets the direction through to 2030 to
manage greenhouse gas emissions in
Kmart Group supply chains.
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Wesfarmers 2021 Annual Report
Community contributions
DIRECT
INDIRECT
$7.4m
20211 1.2
6.2
20201
2019
20182
1.9
1.4
1.5
6.5
6.0
8.4
20172
2.2 10.5
1 Includes Catch contributions.
2 Includes discontinued operations.
Greenhouse gas emissions
(from continuing operations)
SCOPE 1 & 21
292.6ktCO2e
Market-based
20212
262.5
2021
292.6
2020
2019
2018
2017
303.7
318.6
330.8
360.2
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 emissions in New Zealand and Asia.
2 Emissions based on GHG Protocol Scope 2
market-based reporting standard.
BACK − Waste diversion from stores
and distribution centres across
Kmart Group decreased from
81 per cent last financial year to
79 per cent this financial year during
a period challenged by volatile
markets for recycled materials,
COVID-19 and some sites being
impacted by changes to the Target
property portfolio. The impact of
one-off construction and demolition
waste at Target store closures and
Target Country conversions to Kmart
or K hub stores has resulted in the
waste diversion rate at these sites
dropping to 42 per cent. By contrast,
all other stores achieved a slight
increase in their waste diversion
to 79 per cent.
− Kmart and Target reached
significant milestones in meeting
their 100 per cent sustainably
sourced cotton commitments. From
1 July 2020 onwards, all of the
cotton sourced for Kmart own-brand
clothing, bedding and towels, has been
ordered as Better Cotton, organic or
recycled. Target is on track to sourcing
100 per cent of the cotton for its
own-brand clothing, bedding and
towels as Better Cotton, organic
or recycled to meet its cotton
commitment from the 2022
financial year.
− Registered approximately 76 per cent
of the wet processing facilities (e.g.
mills, laundries) used by strategic
suppliers onto the Zero Discharge
of Hazardous Chemicals Gateway
platform.
− The appointment of a Sustainable
Packaging Manager in Shanghai who
leads the engagement of suppliers
in the delivery of Kmart Group’s
Sustainable Packaging Principles
and Standards.
− The completion of 2,000 Packaging
Recyclability Evaluation Portal
assessments.
Waste
RECOVERED
DISPOSED
83.1kt
2021 65.5 17.6
2020
61.3 14.8
2019
58.6 16.0
2018
70.9 24.0
2017
63.6 25.3
Kmart launches new range of dolls
with disabilities
In the 2021 financial year, Kmart continued its journey to create products that
have a broader social impact within the community by celebrating the things
that make people different.
In September 2020, Kmart launched an assortment of new fashion dolls, which
included people living with hearing, vision and mobility disabilities. Kmart
launched the dolls with disabilities as part of a broader fashion range to assist
with normalising disability and minimising stigma associated with disability. In
December 2020, Kmart also launched a range of dolls with Down syndrome.
The new range of dolls with disabilities make up part of the growing diversity
which is represented within Kmart’s products, including same-sex parent family
sets and dolls of diverse ethnicities and backgrounds.
To support the creation of Kmart’s dolls with disabilities, Kmart connected with
multiple community advocacy organisations to better understand how to
meaningfully represent people living with a disability and ensure that the
products Kmart created were a true representation of people with disability.
Kmart believes that by creating doll ranges with disability it is providing children
with an opportunity to find products that they can truly relate to, while assisting
other children to learn more about people that might be different to themselves.
Ethical sourcing audit
program findings
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902
987
NUMBER OF SUPPLIERS
COVERED BY THE AUDIT
PROGRAM1
Suppliers part of the audit program but
not audited during the financial year2
Suppliers audited during the financial
year with no critical breaches
Suppliers audited during the financial
year with critical breaches identified3
51
902
34
1 There were 987 suppliers covered by the
audit program as at 30 June 2021.
2 The supplier may be audited every two
years if it had no previous findings.
3 This financial year, there were 48 critical
breaches across 34 suppliers.
Wesfarmers 2021 Annual Report
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Operating and financial review | Kmart Group
KMART - STRATEGY
Kmart provides families with everyday products at the lowest prices and 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 even lower prices. The business is focused on continuously improving the customer offer
while developing a digitally-enabled operating model to provide customers with a shopping experience that is seamless between channels. Kmart will continue
to leverage its market-leading size and scale to offer more everyday products, maintain its price leadership position and pursue its sustainability commitments.
STRATEGIES
ACHIEVEMENTS
FOCUS FOR THE COMING YEARS
A great place
to shop that is
simple to run
– Continued to leverage the store network to support online
– Providing a satisfying and streamlined customer shopping
growth
experience across all channels
– Converted 86 Target and Target Country stores to Kmart
– Increase the level of personalisation of the customer offer and
stores, including the new K hub small format stores
better anticipate customer needs
– Successfully completed the trial of instore RFID technology
– Build a digitally-enabled supply chain to enable faster product
to enable real-time inventory tracking in three stores
development, greater demand sensing and flexibility
– Delivery of instore RFID technology across store network
Better
products at
even lower
prices
– Continued market leadership in perception of lowest price
– Increased proportion of products sourced through strategic
relationships with factories
– Implementation of productivity and cost-improvement initiatives
– Launch of Kmart Online Exclusives
– 100 per cent of cotton now sourced as Better Cotton, organic
or recycled for own-brand clothing, bedding and towels
– Leading the lowest price in a highly competitive market
– Maintaining strong brand perception for on-trend everyday items
– Elevating product desirability in the apparel category
– Profitable growth through increased volumes and improved
product offering
– Utilising product development capabilities to opportunistically
enter new product categories, reduce lead times and reduce
wastage
– Leveraging data insights to drive better decisions
– Continue to leverage scale and expertise to meet sustainability
commitments and ambitions
TARGET - STRATEGY
Target’s vision is to inspire families to live better by making it easy to afford quality and style. Target has accelerated its strategy to be a destination for apparel
and soft home, with ‘affordable quality’ the key differentiator, supported by strong digital capabilities to make the end-to-end customer journey easy and
personalised. Target is also focused on embedding and stabilising a simplified operating model following the recent business restructure.
STRATEGIES
ACHIEVEMENTS
FOCUS FOR THE COMING YEARS
Simplify the
operating
model and
stabilise
performance
following the
restructure
Destination
for apparel
and soft
home, with
‘affordable
quality’ the key
differentiator
Accelerate
digital
capability and
online growth
– Commercial model reset complete with significant reduction
– Stabilise performance and achieve consistent and sustainable
in cost base achieved
profitability
– Single large format network of 139 stores and rationalised
supply chain network
– Further simplification of end-to-end operating model and
business processes, supported by technology investment
– Target’s lease liability reduced by approximately one-third
– Continue to improve operational efficiency
– Established clear customer value proposition
– Identified womenswear as category of primary importance,
supported by strong offers in mens, kids and home
– Reset of range architecture across key product lines
– Continued focus on fabric mix and sustainability
– Continue to improve product quality, style and range
architecture while progressively reweighting towards apparel
and soft home
– Relentless focus on execution and customer experience
to increase customer transactions
– Continue to provide customers with products that are
sustainably and ethically sourced
– Improved availability in store ranges and expansion
– Accelerate online growth through new customer acquisition,
of exclusive ranges
– Commenced build of customer data asset
– Launched on Catch marketplace as a third-party seller
– Continued to improve the website and app customer
experience through improved search, navigation, product
display content and customer communications
and improved app and website experience
– Enhance online fulfilment and leverage distribution centre
capacity, including automation
– Leverage and enhance data and digital capabilities to improve
the customer experience and deliver personalised experiences
KMART AND TARGET RISK MITIGATION
Kmart and Target’s risks include foreign exchange rate fluctuations, new market entrants and the expansion of existing competitors, and ensuring that products
are sustainably and ethically sourced. There is also risk in maintaining the stabilisation of Target’s performance in an uncertain and competitive market. Kmart
and Target are actively managing the impact of COVID-19 by understanding the effect it has across all key risk areas as well as by managing the direct
implications identified below.
RISK
MITIGATION
COVID-19
– Continued focus on providing a COVID-safe environment for team members, customers and suppliers
– Increased use of digital technologies to reduce supply chain length and increase flexibility
– Increased stock weights in some product categories to accommodate volatility in customer demand and global supply chain disruptions
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BACK KMART AND TARGET RISK MITIGATION CONT.
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 improve consistency of product quality
– Analysis of business performance to identify future opportunity and
clarify business proposition and purpose
– Online proposition advancement to enhance customer experience,
– Continuing to innovate the store format to improve the customer
support instore traffic and leverage the store network
experience through new layouts and leveraging technology
Exchange
rate volatility
– Hedging and product and pricing frameworks will be used to effectively manage foreign exchange movements
Sustainability,
ethical sourcing,
and human
rights
– Ongoing improvements to environmental compliance across all factories
– Committed to upholding Ethical Sourcing Code standards, which include protecting and respecting human rights
– Further expansion of the sustainable development program focused on making a positive difference for people and the planet
– The development of a circular economy strategy
Data and IT
security
– Threat intelligence partnerships in place to monitor evolving cyber threats
– Dedicated team responsible for operational management and oversight of cyber security
– Regular oversight provided to executive management to govern cyber security
CATCH - STRATEGY
Catch’s vision is to be the trusted destination where Australians start their shopping journey. The business leverages its unique Australian brand identity to engage
its customers with an emphasis on range, value and the shopping experience. Catch will continue to invest in accelerating the improvement of its customer value
proposition. Catch will continue to broaden the range of categories and brands available in both its retail and marketplace offerings, and leverage assets across
the Wesfarmers Group.
STRATEGIES
ACHIEVEMENTS
FOCUS FOR THE COMING YEARS
Invest in
technology
platform and
fulfilment
capability
– Continued focus on providing a market-leading, trusted and secure
– Maintain customer-centric focus with an emphasis on providing an
online shopping experience
engaging and rewarding shopping experience
– Increased fulfilment centre automation to enhance capacity
– Accelerated investment in marketing the Catch website, mobile apps
and productivity, including through the deployment of autonomous
mobile robots
– Improved Catch’s fulfilment capabilities to meet evolving customer
preferences, by offering click and collect at over 430 Kmart, K hub
and Target stores
– Increased proportion of sales via the Catch app
and customer loyalty programs
– Continued development of Catch’s data capabilities to provide better
customer insights
– Continued enhancement of customer fulfilment capabilities, including
through a new 30,000 sqm NSW fulfilment centre
Expand
product range
– Broadened range of categories and market-leading brands
– Continued expansion of product offer, including expansion of Anko
available for both the retail and marketplace offerings
product selection
– Introduced Anko products to the retail range
– Onboarded Target as a marketplace seller
– Leveraging data insights to drive merchandising and marketing
activities
– Grew Club Catch subscriber base
– Introduced free shipping for Club Catch members
Accelerate
growth in
Club Catch
subscription
program
– Enhance Club Catch value proposition through more exclusive offers
and special discounts
– Increased brand marketing to improve awareness
– Maintain growth discipline through focus on customer lifetime value
versus customer acquisition cost
CATCH - RISK MITIGATION
Catch’s key risks include new market entrants and the expansion of existing competitors and scaling at a sustainable pace to meet growing demand. The sector in
which Catch operates is becoming more competitive as traditional bricks and mortar retailers increase e-commerce investment and existing online competitors invest
in growth. Catch is actively managing the impact of COVID-19 by understanding the effect it has across all key risk areas as well as by managing the direct implications
identified below.
RISK
MITIGATION
COVID-19
– Continued focus on providing a COVID-safe environment for team members
– Increased capacity to accommodate significant growth in demand
Competitor
activity
– Monitoring of competitor activity and consumer trends
– Expanding retail and marketplace offerings by utilising Catch’s
extensive domestic and international supply chains
– Accelerating advertising investment leveraging Catch’s extensive
– Continuing to innovate Catch’s technology platform to enhance
customer engagement and promote repeat purchasing behaviour
– Continuing to maintain high standards of product quality and safety
– Leveraging Wesfarmers’ retail assets to provide a differentiated
in-house digital marketing expertise
customer experience
Scaling the
Catch team
Data and IT
security
– Investing in the development of Catch’s people capability to deliver on its strategic objectives while maintaining high standards of customer care
and service
– Recruiting top-tier talent across a range of functions including product sourcing, marketing and technology
– Threat intelligence partnerships in place to monitor evolving cyber threats
– Dedicated team responsible for operational management and oversight of cyber security
– Regular oversight provided to executive management to govern cyber security
Wesfarmers 2021 Annual Report
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Operating and financial review | Officeworks
Officeworks
Officeworks is committed to helping make bigger things happen for
its customers, team members, 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, a team that helps
businesses start, run and grow, and Geeks2U.
40
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Wesfarmers 2020 Annual Report
Wesfarmers 2021 Annual Report
BACK OUTLOOK
YEAR IN REVIEW
Revenue
$3,029m
2021
3,029
2020
2019
2018
2017
2,787
2,314
2,142
1,964
EBT
$212m
2021
212
2020
2019
2018
2017
197
167
156
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Key financial indicators
Post-AASB 16
Pre-AASB 16
For the year ended 30 June
2021
2020
2020
2019
2018
2017
Revenue ($m)
3,029
2,787
2,787
2,314
2,142
1,964
Earnings before tax ($m)
Capital employed R12 ($m)
Return on capital employed R12 (%)
Cash capital expenditure ($m)
212
949
22.3
65
197
976
190
969
20.2
19.6
40
40
167
980
17.0
42
156
939
16.6
45
144
980
14.7
36
OUR PERFORMANCE
Officeworks delivered revenue of
$3,029 million for the year, an increase of
8.7 per cent on the prior year. Earnings
increased 7.6 per cent to $212 million.
The safety, health and wellbeing of team
members and customers remains a
priority for Officeworks, and a focus
on best practice COVID-19 safety
measures was maintained during the
year. Officeworks’ focus on manual
handling improvement supported a
reduction in TRIFR to 6.1.
Revenue growth was underpinned by
the continued evolution of Officeworks’
product offering, as well as strong
demand for products to support
Australians working and learning from
home. Awareness of the Geeks2U offer
also continued to grow, with improved
instore execution and new services
resonating strongly with customers.
Earnings growth was supported by
strong sales growth, partially offset by
margin pressure from continued
investment in price, changes in sales
mix and higher supply chain costs.
The solid earnings result combined
with disciplined capital management
supported an increase in return on
capital to 22.3 per cent.
During the year, Officeworks continued
to invest in providing an easy and
engaging customer experience across
every channel through a new Print and
Create website, improved click and
collect and delivery capabilities, trial of
the Classroom Essentials service for
schools, launch of the Geeks2U
subscription offer and enhancements to
the Officeworks mobile app and website.
Officeworks continued to leverage its
data and digital capabilities to improve
the customer experience and enhance
operating efficiency. Development and
rollout of the data and analytics platform
progressed during the year, providing
more timely, personalised and engaging
communication to customers. Online
sales penetration, including click and
collect, increased to 35.2 per cent for
the year.
During the year, Officeworks upgraded
68 stores and opened new stores in
Queensland, South Australia and
Western Australia. At 30 June 2021,
there were 167 stores operating
across Australia.
Officeworks will continue to build on the
positive progress achieved over the past
year, during which we improved team
member safety, updated store layouts,
and expanded and evolved our product
and services offer.
We will continue to play a pivotal role
in providing essential products and
important services to Australians as they
adjust and adapt to new ways of working,
learning, connecting and creating.
Officeworks remains focused on
executing its strategy and investing in
initiatives that will deliver satisfactory
returns for shareholders over the
long term.
The near-term outlook remains uncertain,
with changing customer shopping
patterns and any future COVID-19
measures expected to impact trading
conditions. Ongoing global supply
shortages of some products as well
as international shipping disruptions
will impact stock availability in some
categories. Officeworks remains focused
on managing stock availability, and
improving processes across supply
chain and stores to ensure customers’
needs are fulfilled.
Despite this uncertain environment,
Officeworks is focused on building on
the momentum of 2021 and remaining
adaptable to changes.
There are many opportunities, as well
as challenges, in front of us as we
accelerate our strategy in the year
ahead. Our team is passionate about
helping our customers and our
communities to make bigger things
happen in the 2022 financial year
and beyond.
Sarah Hunter
MANAGING DIRECTOR
OFFICEWORKS
Wesfarmers 2021 Annual Report
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Officeworks is focused on the safety, health, wellbeing, and career progression of more than 8,500 team members. Operating and financial review | OfficeworksOUR BUSINESSSince opening in 1994, Officeworks has grown to a network of 167 stores across Australia, a website and digital app as well as operating the Geeks2U business, generating over $3 billion in annual sales. Officeworks is passionate about helping customers make bigger things happen at home, at school and at work. As part of the Wesfarmers Group, Officeworks is focused on continuing to deliver satisfactory returns to shareholders over the long term. Officeworks is Australia’s leading retailer of stationery, technology, furniture, art supplies, and learning and development resources as well as an array of services like Print and Create and technical support through Geeks2U. Its customers include small- and medium-sized businesses, students, schools, households and those working from home. With more than 40,000 products available on the website, business specialists and a national call centre, Officeworks is committed to providing great service to customers and making the experience easy and engaging, irrespective of how they choose to shop. Officeworks is focused on the safety, health, wellbeing, and career progression of more than 8,500 team members. Pleasingly, Aboriginal and Torres Strait Islander employment in Officeworks exceeded employment parity of three per cent of our Australian workforce.Officeworks is committed to ensuring the long-term sustainability of the business through building and maintaining meaningful connections with the communities in which it operates, fundraising for national partners and local community groups, reducing its impact on the environment, and sourcing products and services responsibly.HEALTH, SAFETY AND WELLBEINGThe safety, health and wellbeing of team members and customers is Officeworks’ number one priority. Officeworks’ goal is to ensure that everyone arrives home after working, shopping or visiting the business free from any kind of harm or injury.Officeworks recognises that the health and safety of its team is not just about physical wellbeing, but also about supporting them to achieve positive mental health and wellbeing outcomes. In doing so, Officeworks is enabling team members to bring their best selves to work every day. During the 2021 financial year, Officeworks continued to see improvement in its safety performance, with TRIFR reducing to 6.1. In real terms, this means during the past 12 months, 57 team members have lost one or more shifts due to an injury at work. While one injury is one too many, a TRIFR of 6.1 represents a 22.8 per cent reduction when compared to the previous financial year.Beyond physical safety, Officeworks is giving its team access to tools and programs that support their mental health. Officeworks’ mental health and wellbeing program, Your Best Life, is a holistic program that provides team members with tools, resources and investment to improve wellbeing, supporting team members to live their best life. Officeworks is committed to creating an environment where team members are comfortable talking about mental health Safety performanceTOTAL RECORDABLE INJURY FREQUENCY RATE11 TRIFR measures the number of lost time and medical treatment injuries per million hours worked.6.12021 6.12020 7.92019 8.52018 10.22017 11.9Wesfarmers 2021 Annual Report42BACK and reducing stigma, which included promoting conversations and sharing stories around mental health, and by recognising events such as RUOK? Day.Officeworks’ focus in the coming year continues to be empowering its team to live their best life through investment in mental health and wellbeing programs and embedding a safety mindset into everything they do.ENVIRONMENTOfficeworks is committed to doing its part to lead positive change by taking a more holistic approach to reduce carbon emissions and waste generation across the entire supply chain, influencing those activities both within Officeworks’ direct and indirect control.Officeworks has reinforced its commitment to taking meaningful climate action, which includes using 100 per cent renewable energy by 2025 as part of the roadmap to achieving net zero Scope 1 and 2 emissions by 2030, planting two million trees as part of the Restoring Australia initiative and reducing supply chain emissions caused by the raw materials and products sold at Officeworks. Officeworks’ circular economy commitments include becoming a zero-waste business by designing out waste and maximising recycling, ensuring the packaging from all products it sells is reusable or recyclable, and helping customers dispose responsibly of products at the end of their life cycle. Since establishing the Bring it Back program in 2015, Officeworks has helped customers divert over 5,600 tonnes of unwanted products from landfill for recycling, with a goal to repair, repurpose or recycle at least 17,000 tonnes of unwanted products by 2025. Key achievements during the year include reducing operational emissions by 7.2 per cent, and recycling 91 per cent of all operational waste, while reducing waste sent to landfill by 32 per cent.COMMUNITIESOfficeworks is committed to supporting the local communities where it operates and doing what it can to help build strong connections that help others overcome challenging circumstances and thrive.To help achieve this goal, this year, Officeworks established a local community engagement team, with dedicated team members across the country working to support their teams to better connect with and support their local communities.During the Round Up to Make a Difference campaign in June 2020, Officeworks saw its customers and team members work together to raise more than $1 million to support 17 organisations across Australia working to improve health and education outcomes. These much-needed funds enabled the organisations to continue to achieve positive outcomes, such as Backpacks 4 Vic Kids providing 650 children with a Me Bag that contained essentials like soap, toothbrushes and two sets of clothes.Officeworks is a leader in providing educational products and has a clear growth strategy in the education sector. Therefore, promoting strong educational outcomes for all Australians, no matter what their circumstances, is one of Officeworks’ strategic priorities.Through sponsorships and community support for the Wall of Hands and Back to School appeal held during the 2021 financial year, a total of 7,525 Australian students will be supported through sponsorships and educational resources through a $3.2 million financial contribution. Officeworks team members and customers have shown passion and generosity throughout the year, greatly contributing to the goal to support 30,000 students across Australia who need it most by 2025.$6.4mCommunity contributions DIRECT INDIRECT2021 2.1 4.32020 2.4 3.12019 2.6 1.52018 2.4 1.32017 1.7 0.86.4kt RECOVERED DISPOSEDWaste2021 5.8 0.62020 5.1 0.82019 5.2 1.12018 4.4 1.42017 4.5 2.5Greenhouse gas emissions(from continuing operations)SCOPE 1 & 2140.1ktCO2eMarket-based20212 34.42021 40.12020 43.22019 45.82018 49.12017 51.21 Scope 1 and 2 data includes emissions from continuing operations for businesses where we have operational control under the NGER Act.2 Emissions based on GHG Protocol Scope 2 market-based reporting standard. Wesfarmers 2021 Annual Report43OVERVIEW01OPERATING AND FINANCIAL REVIEW02GOVERNANCE03DIRECTORS’ REPORT04FINANCIAL STATEMENTS05SIGNED REPORTS06SHAREHOLDER AND ASX INFORMATION07 Operating and financial review | Officeworks
ETHICAL SOURCING
Officeworks believes all workers have
the right to a safe and healthy work
environment, and that taking care of
employees is better for people, and the
businesses they work for.
Officeworks has a well-established ethical
sourcing program that all suppliers of
goods and services are required to
comply with. This program is designed to
protect and uphold workers’ rights and
reassure Officeworks’ customers those
products are sourced ethically. This year,
Officeworks audited 423 factories and
worked with suppliers to resolve 33
critical breaches.
This year, Officeworks reviewed results
from worker voice surveys arranged to
enable employee voices to be better
heard and more often. This involved
949 workers at six factories completing
surveys to share their concerns.
Through this process, Officeworks
identified issues such as deficient internal
grievance channels, poor relationships
with supervisors, workers not
understanding their pay and workers
wanting to work less or more hours.
Using this information, Officeworks was
able to work with the management teams
so they could take appropriate action to
embed positive change. In many cases,
this involved additional training or
investing in new machinery to reduce
excessive working hours.
Following the initial surveys, and the
initiatives implemented, Officeworks
conducted follow-up surveys and was
pleased to see an improvement in worker
satisfaction of 18 per cent. Through this
program, Officeworks has enabled
positive change for the 1,876 workers
that work at the six factories involved in
these surveys throughout the 2021
financial year.
Providing a wider range of greener choices
Officeworks is working to source and design more products which are both
sustainable and cost-effective, while maintaining the quality and functionality that
Officeworks customers expect.
In November 2020, Officeworks launched the Greener Choices range of products
online, introducing enhanced website navigation to make it easier for customers to
find sustainable products. The program now includes almost 2,000 products
across eleven greener choice categories, including:
− Plastic-free – products using plant-based materials or organic materials only,
including paper-based packaging filler and plastic-free glitter.
− Bamboo – a fast-growing renewable resource, used in products such as
desk accessories and a growing range of technology accessories.
− Natural ingredients – products formulated with ingredients that will not be
harmful to humans or animals, such as natural cleaning supplies.
− Supporting communities – products designed by a local partner with a focus
on giving back to the community, including our range of Cultural Choice
Indigenous office supplies, in which proceeds contribute to programs to
prevent Aboriginal youth suicide.
− Recycled content – products created using recycled materials, such as copy
paper, notebooks and pens.
− Zero waste – products to help reduce household or business waste, such as
reusable drink bottles and recycling bins.
Officeworks is committed to ensuring any environmental claims are appropriately
substantiated. This year, it continued its partnership with Good Environmental
Choice Australia to have them conduct an independent third-party assessment
of environmental claims on selected products.
Ethical sourcing audit
program findings
12
297
NUMBER OF SUPPLIERS
COVERED BY THE AUDIT
PROGRAM1
48
237
Suppliers part of the audit program but
not audited during the financial year2
Suppliers audited during the financial
year with no critical breaches
Suppliers audited during the financial
year with critical breaches identified3
48
237
1 There were 297 suppliers covered by the
audit program as at 30 June 2021.
2 The supplier may be audited every two
years if it had no previous findings.
3 This financial year, there were 33 critical
12
breaches across approximately 12 suppliers.
44
Wesfarmers 2021 Annual Report
Aboriginal and Torres Strait
Islander employment1
328
2021
2020
2019
2018
2017
328
190
198
198
161
1 The criterion for removing casuals from the
calculation of ATSI team members differs
across divisions from 2017 to 2018.
BACK STRATEGY
Officeworks is committed to helping make bigger things happen for its customers, team members, the community, and
stakeholders to continue to deliver a satisfactory return to shareholders over the long term. Officeworks will continue to drive
growth and productivity by executing its strategy centred around five key areas.
STRATEGIES
ACHIEVEMENTS
FOCUS FOR THE COMING YEARS
Our team
We are skilled,
committed and
healthy
Customer
experience
We make
things easy
and engaging
Growing our
business
We are ambitious
in driving growth
Operational
excellence
We strive to do
things better
Connecting
with our
communities
We are a part of
where we live
– Improved safety performance, with a TRIFR of 6.1
– Investment in the physical and mental wellbeing of the team
– Participation rate of Aboriginal and Torres Strait Islander team
– Continue to invest in team member safety, health and wellbeing
– Strengthen position as an employer of choice
– Continue to invest in our diversity and belonging programs
members at 3.8 per cent
– Enhanced online shopping experience through improvements
– Continue investment instore and online to improve the
to website and mobile app
every-channel customer experience
– Invested in data and digital capabilities to provide more timely,
personalised and engaging communications to customers
– Create more personalised and relevant customer experiences
and offers
– Improved customer delivery options
– Invest in better knowing and understanding our customers
– Expanded ranges, for example art, education, technology and
– Continued investment in expanding and improving the store
cleaning and hygiene
– Launched new Print and Create website
– Introduced Geeks2U subscription and remote service capability
– Trial of Classroom Essentials offer for schools
network and enhance digital channels
– Continue to improve the range to meet changing customer
needs
– Further growth in the education and business-to-business
segments
– Extend offer to support the work-from-home segment
– Continued improvement in stock loss delivered through improved
processes
– Increased capacity and productivity in customer fulfilment centres
– Investment in new fill process in stores
– Transition to new customer fulfilment centre in Victoria
– Continued investment in modernising supply chain
– Rollout Print and Create self-service offer in stores
– Recycled 91 per cent of all operational waste
– Reduced Scope 1 and 2 emissions by 7.2 per cent and installed
– Continue to invest in renewable energy
– Work with our suppliers to address modern slavery in our
PV solar on 8 stores
supply chains
– Continued to support disadvantaged Australian students
– Deepen connections in the communities where we live and
work through local and national programs
RISK MITIGATION
Officeworks recognises that taking appropriate business risks is a critical aspect of generating acceptable business returns.
We encourage our team to understand risk as it relates to their role, and in doing so we maximise their ability to identify and
seize opportunities.
Officeworks continues to actively manage the impact of COVID-19 by understanding the effect it has across all key risk areas
as well as by managing the direct implications identified below.
RISK
MITIGATION
COVID-19
– Continued focus on providing a COVID-safe environment for team members, customers and suppliers
– Initiatives for team members to support their financial and mental wellbeing
– Enhanced communication with customers
– Proactive management of inventory to anticipate volatility in demand
Supply chain
disruptions
Changing
customer
behaviours
– Established project to modernise supply chain facilities
– Regular reviews of range to ensure it meets the evolving preferences of Officeworks’ customers
– Continued investment in data analytics capability to better understand customer needs, identify emerging trends and monitor the
competitive landscape
– Ongoing investment in the every-channel business model to deliver easy and engaging experiences for customers
Data and
systems security
– Dedicated internal capability focused on IT systems and data security
– Cyber risk controls embedded and regularly tested
– Security awareness training program to keep all team members educated and informed
Ethical sourcing
and sustainability
– Five-year sustainability strategy (People and Planet Positive Plan 2025) to identify and mitigate sustainability risks and opportunities
– Responsible sourcing policies supported by investment in detailed compliance programs
Wesfarmers 2021 Annual Report
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Operating and financial review | Chemicals, Energy and Fertilisers
Chemicals, Energy and Fertilisers
WesCEF manages a portfolio of leading, sustainable businesses
that operate in domestic, national and international markets.
Our businesses are recognised as safe, reliable and innovative
industry leaders driven by over 1,300 diverse and talented team
members who are committed to meeting customer needs.
46
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Wesfarmers 2021 Annual Report
BACK OUTLOOK
YEAR IN REVIEW
Revenue
$2,146m
2021
2,146
2020
2019
2018
2017
2,085
2,078
1,830
1,639
EBT
$384m
2021
2020
2019
2018
20171
384
394
438
390
395
Key financial indicators
Post-AASB 16
Pre-AASB 16
For the year ended 30 June
2021
2020
2020
2019
2018
20171
Revenue ($m)
2,146
2,085
2,085
2,078
1,830
1,639
Earnings before tax ($m)
384
394
393
438
390
395
Capital employed R12 ($m)
2,171
1,942
1,941
1,358
1,407
1,443
Return on capital employed R12 (%)
Cash capital expenditure ($m)
17.7
137
20.3
110
20.2
32.6
27.7
27.4
110
58
60
44
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.
OUR PERFORMANCE
Revenue of $2,146 million was up
2.9 per cent on the prior year. Chemicals
revenue was broadly in line with the
prior year. Energy revenue decreased
4.2 per cent due to lower wholesale
electricity sales volumes. Fertilisers
revenue increased 13.0 per cent due to
favourable growing conditions resulting
in increased sales volumes as well as
stronger international pricing.
Earnings of $384 million decreased
2.5 per cent for the year. Excluding
one-off insurance proceeds of $18 million
in the prior year, earnings increased by
2.1 per cent as a result of higher fertiliser
sales volumes, increased domestic LPG
sales volumes and a higher Saudi
Contract Price (CP), the international
benchmark indicator for LPG. These
factors were partially offset by an increase
in the cost of ammonia imports and
lower volumes of ammonium nitrate
(AN) spot sales to the Western Australian
mining sector. The result also includes
WesCEF’s 50 per cent investment
in Covalent Lithium.
Chemicals delivered a solid result, with
continued strong plant availability and
production volumes. Ammonia earnings
were impacted by an increase in the
global ammonia price, which was
unfavourable in the fourth quarter due
to timing differences between increased
import costs and the cost pass-through
mechanism in customer contracts. The
AN business recorded lower volumes
of spot sales to the Western Australian
mining sector, as expected, and
experienced higher logistics and precious
metal catalyst costs. Earnings in the
Sodium Cyanide business were marginally
down due to ongoing COVID-19
disruptions impacting demand from
international gold mining customers.
Lower earnings in Chemicals were
partially offset by strong results in
Energy and Fertilisers. Energy business
earnings grew on the prior year following
increased domestic LPG sales as a result
of the closure of BP’s Kwinana Refinery
in February 2021 and a higher Saudi
CP, which offset the impact of lower
wholesale electricity volumes. The
natural gas retailing business continued
to grow its residential customer base in
Western Australia, resulting in higher
residential volumes.
Fertilisers earnings increased significantly
on the prior year, driven by higher sales
volumes following favourable growing
conditions. Recent investment in
storage infrastructure allowed the
business to meet increased market
demand. The business has also
continued to invest in data and digital
capabilities to enhance and expand
its service offering to customers.
Market conditions in WesCEF’s key
customer segments in the Chemicals
business remain strong with favourable
commodity prices and strong demand in the
iron ore and gold mining sectors in particular.
The Chemicals business is likely to benefit
from a higher global ammonia price as the
increasing index price is passed through in
customer contracts. Manufacturing volumes
of ammonia will be impacted by the plant’s
five-yearly maintenance shutdown in the
2022 financial year, with production and
demand for ammonium nitrate from the WA
mining sector expected to remain robust.
Earnings in the Sodium Cyanide business
may be impacted by reduced demand from
international gold mine customers due to
COVID-19 and modest feedstock cost
pressures. The Chemicals businesses will
continue evaluating opportunities to expand
production capacity.
The Energy business is expected to be
adversely impacted by higher Western
Australian contracted domestic gas pricing,
partially offset by the annualised increase in
domestic LPG sales volumes following the
closure of BP’s Kwinana Refinery.
A favourable 2021 growing season is
expected to support positive grower
sentiment, but Fertilisers earnings remain
contingent upon seasonal outcomes in
Western Australia and the impact of
increasing competitive pressures.
Wesfarmers, together with joint venture
partner SQM, announced joint approval of the
Final Investment Decision of the Mt Holland
lithium project in February 2021. Covalent
Lithium is continuing project development and
commencing construction of the Mt Holland
lithium mine, concentrator and Kwinana
refinery following the receipt of critical
regulatory approvals in July 2021. First
production from the refinery is expected in
the second half of calendar year 2024.
WesCEF will continue to work on
opportunities to better utilise or expand its
existing operations through targeted
investments and the use of data and
analytics.
Ian Hansen
MANAGING DIRECTOR,
WESFARMERS CHEMICALS,
ENERGY & FERTILISERS
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OUR BUSINESSWesCEF operates nine businesses in Australia across the chemicals, energy and fertiliser sectors with a shared services model that supports the production and distribution assets across the portfolio. Chemicals includes: −CSBP, which manufactures and supplies ammonia, AN and industrial chemicals primarily to the Western Australian resources and industrial sectors. −Australian Gold Reagents (AGR), CSBP’s 75 per cent owned joint venture with Coogee Chemicals, which manufactures and supplies sodium cyanide to the Western Australian and international gold mining sectors. −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. −Australian Vinyls, which supplies PVC resin and specialty chemicals to the Australian industrial sector. −ModWood, which manufactures wood-plastic composite decking and screening products. Energy includes: −Kleenheat, which extracts LPG from natural gas and distributes bulk and bottled LPG to the residential and commercial markets in Western Australia and the Northern Territory, and is a retailer of natural gas to residential and commercial markets, and electricity to businesses in Western Australia. −EVOL LNG, which distributes bulk LNG primarily to the remote power generation market in Western Australia. Fertilisers manufactures, imports and distributes nitrogen, phosphate and potassium-based fertilisers for the Western Australian agricultural sector through CSBP. It also provides technical support for growers through a network of employees and accredited partners in regional Western Australia. Covalent Lithium, Wesfarmers’ 50 per cent joint venture with SQM, received a successful Final Investment Decision in February 2021 to proceed with the Mt Holland lithium project. Construction of the mine, concentrator and refinery has commenced following the receipt of all critical approvals, with first production expected in the second half of calendar year 2024. EMPLOYEE WELLBEING AND OPERATING SAFELYMental health and employee wellbeing remain critically important for WesCEF.The existing health and safety support services were expanded to develop a new online resource hub offering information, courses, and tips about staying connected with others when working remotely.Keeping team members physically safe at all times remains a priority for WesCEF, with a particular focus on situations or events that have the potential to cause serious harm. These are known as high potential (HiPo) hazards and incidents.The HiPo risk management program is continually reviewed and enhancements during the 2021 financial year included embedding the use of critical checklists into the assessment process undertaken before a task commences.Keeping team members physically safe at all times remains a priority for WesCEF.Operating and financial review | Chemicals, Energy and FertilisersSafety performanceTOTAL RECORDABLE INJURY FREQUENCY RATE11 TRIFR measures the number of lost time and medical treatment injuries per million hours worked.3.02021 3.02020 3.32019 4.22018 5.42017 2.2Wesfarmers 2021 Annual Report48BACK WesCEF continued to focus on hazard reporting throughout the year, and pleasingly achieved a 40 per cent increase, or 1,507 separate reports, compared to the previous year. Identifying and implementing additional controls to address these hazards leads to an overall reduction in risk and ultimately a safer workplace. SUPPORTING COMMUNITIESWesCEF continues to support the local communities in which it operates. The focus in the 2021 financial year was on environment and youth education. The inaugural CSBP Coastal Connections Challenge was initiated in March 2021, which was a youth-led event focused on solutions to real environmental issues affecting the coastal environment that culminated in June. Kleenheat partnered with Scitech to support local primary school teachers to develop their understanding of the science, technology, engineering, mathematics (STEM) curriculum and produce practical STEM lesson plans. Kleenheat and CSBP Fertilisers supported Kalbarri residents and nearby communities in Western Australia that were devastated by Cyclone Seroja in April, with the donation of gas cylinders to evacuation centre residents, as well as organising team member volunteers to help rebuild fences on farms.CSBP Fertilisers continued its long-running community grants and group sponsorships in regional Western Australia awarding more than $194,000 in the 2021 financial year and sponsored an innovative study guide to attract and inspire a new generation into the Agriculture industry. The Visible Farmer Study Guide is based on 15 episodes of the award-winning Visible Farmer film project.ENVIRONMENTAL STEWARDSHIPProtecting the natural environment remains one of WesCEF’s priorities and ensures the future sustainability of its operations.A continuing focus area in the 2021 financial year was legacy waste contamination investigations and remediation activities, including at CSBP sites in Albany, Bunbury, Esperance, Geraldton and Kwinana. An integrity strategy was developed for the inspection and repair of bund, sump and drain assets to reduce the risk of future groundwater contamination.These investigations and strategies are important in mitigating future risks.WesCEF developed its Climate Change Policy this year, as part of its aspiration to achieve net zero Scope 1 and 2 emissions by 2050. WesCEF is committed to investment in research and technology, renewable energy opportunities and ongoing energy efficiency improvements. The value of partnerships with research institutions and industry is acknowledged, and WesCEF is a founding member of the Australian Energy Transition Initiative.Continued investment occurs at CSBP Kwinana to optimise the abatement effectiveness of existing catalysts in its nitric acid plants. This technology reduces nitrous oxide emissions (which have a global warming potential 265 times higher than carbon dioxide) by up to 85 per cent.DEVELOPMENT, DIVERSITY AND INCLUSIONBuilding the diversity of WesCEF’s workforce, in particular gender balance and Indigenous team member representation, contributes to the inclusiveness of the business’ culture and success.Compared to last financial year, gender balance overall has increased through the continuation of initiatives such as gender balanced shortlisting during recruitment, a focus on developing an inclusive culture including the implementation of a working from home policy and on achieving $0.5mCommunity contributions DIRECT INDIRECT2021 0.5 0.02020 0.6 0.02019 0.4 0.02018 0.4 0.02017 0.4 0.012.7kt RECOVERED DISPOSEDWaste1 Increase in recovered waste was due to one-off excavation and concrete disposal projects undertaken at CSBP Kwinana.2021 9.1 3.620201 17.9 2.12019 8.2 2.82018 8.0 4.42017 4.6 2.0Aboriginal and Torres Strait Islander employment11 The criterion for removing casuals from the calculation of ATSI team members differs across divisions from 2017 to 2018.432021 432020 332019 282018 272017 29 Wesfarmers 2021 Annual Report49OVERVIEW01OPERATING AND FINANCIAL REVIEW02GOVERNANCE03DIRECTORS’ REPORT04FINANCIAL STATEMENTS05SIGNED REPORTS06SHAREHOLDER AND ASX INFORMATION07 Operating and financial review | Chemicals, Energy and Fertilisers
gender balance in development roles
such as vacation students, cadets,
graduates and apprentices.
This year, 16 new Aboriginal team
members commenced employment
with WesCEF, bringing the total ATSI
representation to 43 team members
or 3.2 per cent of the workforce.
WesCEF was proud to hold its first
Aboriginal Employee Network event
across its businesses, providing the
opportunity for Aboriginal team members
to get to know each other, develop
friendships, and support each other.
WesCEF also developed an Aboriginal
Expressions of Interest candidate pool,
which managers can draw upon when a
job opportunity arises. As of June 2021,
there were 58 candidates.
Focus areas for next year include
developing new partnerships with
Indigenous organisations and the
development of an employee cultural
awareness video.
HUMAN RIGHTS AND
ETHICAL SOURCING
WesCEF is committed to taking actions
in line with the primary objectives of the
Australian Modern Slavery Act 2018,
to minimise the risk of modern slavery
occurring in the division’s businesses
and its supply chains.
WesCEF’s focus on ethical sourcing
and human rights in the 2021 financial
year has led to further insight and the
development of a clear operating
framework. WesCEF takes a risk-based
approach to this by reviewing its
suppliers and the type of goods and
services purchased.
This year, WesCEF established an
ongoing relationship with a reputable
external ethical sourcing and modern
slavery consultancy. This has involved
the review and update of WesCEF’s
Self-Assessment Questionnaire (SAQ)
and the creation of desktop and physical
audit templates to better assess ethical
sourcing and modern slavery risks.
The revised SAQ was sent to 20 key
suppliers to facilitate the first tier of the
audit program. All their completed SAQs
were reviewed by the consultant utilising
standard methodology to evaluate the
risk, with a full evaluation of findings and
recommendations for improvements,
including next steps, through the SAQ
review letter.
The initial results of the first tier of the
audit program highlighted gaps in key
suppliers’ understanding of the Modern
Slavery legislation and WesCEF’s audit
requirements. Addressing this will be
a focus area for next year, to drive
improvement, increase transparency,
and ultimately eradicate modern slavery.
50
Wesfarmers 2021 Annual Report
Reducing WesCEF’s carbon footprint
WesCEF has always been an early adopter of emissions reduction technology.
The installation of catalysts in its nitric acid plants from 2011 has resulted in a
significant reduction in emissions. In the 2021 financial year, 742,000 tonnes
of greenhouse gas emissions were avoided using this technology.
As the largest emitter of carbon dioxide in the Wesfarmers Group, WesCEF
currently emits approximately 880,000 tonnes a year of Scope 1 and 2
emissions, primarily from its Chemicals businesses. WesCEF aspires to net
zero Scope 1 and 2 emissions by 2050, which it aims to achieve through
investment in research and technology, energy and transport efficiency, and
process optimisation.
To ensure climate change is coordinated and managed across WesCEF, a
Climate Change Policy was introduced this year, along with the formation of a
dedicated Climate Opportunities team to lead the development of a roadmap
to achieve emissions reduction.
At present, no known cost-effective technologies exist for WesCEF to attain
net zero emissions while maintaining Wesfarmers’ objective of providing a
satisfactory return to shareholders. However, WesCEF also recognises there is
considerable investment and innovation with respect to climate change and it
expects rapid technology development in the coming years. As a result, the
roadmap will be a living document that will evolve as technology develops.
A range of climate change initiatives are also either underway or being
investigated, including:
− Becoming a founding member of the Australian Energy Transition Initiative,
which involves other industrial giants as well as banks, superannuation
companies and not-for-profit organisations, aiming to develop pathways and
actions that can accelerate emissions reductions across whole supply chains.
− Sponsoring CSIRO research into carbon capture and utilisation options.
− Continuing to improve the abatement catalysts in our nitric acid plants which
convert greenhouse gases into passive, inactive gases that are safe for the
environment to limit nitrous oxide emissions.
To further understand its complete carbon footprint, WesCEF is expanding its
analysis and reporting around Scope 3 emissions.
Greenhouse gas emissions
(from continuing operations)
SCOPE 1 & 21
1 Scope 1 and 2 data includes emissions from
continuing operations for businesses where we
have operational control under the NGER Act,
and other known non-reportable Australian-
based emissions over which we have control.
2 Emissions based on GHG Protocol Scope 2
market-based reporting standard.
3 Restated for a correction to NGER submission.
880.5ktCO2e
Market-based
20212
2021
20203
2019
2018
2017
873.9
880.5
983.3
897.3
769.8
798.2
BACK STRATEGY
WesCEF’s vision is to grow a portfolio of leading, sustainable businesses. WesCEF has a high-quality portfolio of assets and seeks to grow these
assets through incremental investment and innovation to meet the needs of its customers. WesCEF also focuses on investment in adjacent
opportunities where it can add value through utilising its infrastructure, manufacturing and processing expertise and the capabilities of its people.
STRATEGIES
ACHIEVEMENTS
FOCUS FOR THE COMING YEARS
Safe person,
safe process,
safe place
Investing for
growth
Deliver
progress
against net zero
Scope 1 and 2
emissions 2050
aspiration
– Continued multi-year trend of reduction in TRIFR
– Major maintenance shutdown of LPG and LNG plants
– Complete major maintenance program of chemicals plants with no safety
incidents occurring
successfully delivered with no safety incidents occurring
– Ongoing commitment to improve safety performance, maintenance planning
– HiPo risk management program enhanced
and corrosion control across assets
– Final Investment Decision in February 2021 to proceed with the
– Develop the Mt Holland lithium project and consider expansion opportunities
Mt Holland lithium project
for the project
– Successful rollout of new AN emulsion offering
– Commenced feasibility studies for potential expansion of
ammonia, AN and sodium cyanide production capacity
– Successful execution of long-term natural gas offtake
agreement with domestic gas explorer to enable potential
production expansion
– Consider opportunities to leverage existing infrastructure and expand
capacity across chemicals and energy plants
– Continue to investigate investment opportunities in existing or adjacent
markets
– Utilised data and analytics to increase plant availability
– Continue to investigate technologies and opportunities to build a roadmap
and efficiency
to achieve net zero Scope 1 and 2 emissions 2050 aspiration
– Creation of a new Climate Opportunities team to investigate
– Collaborate and invest in relationships with key research institutions
climate change technologies
– Continued use of abatement catalysts in chemicals
manufacturing processes to reduce emissions
and industry participants to gain insights on climate-related technology
opportunities
– Explore a range of climate change related opportunities
– Continue progress in reducing emissions intensity and meeting
commitments made as part of the recent sustainability-linked financing
projects
Enhance our
reputation
– Improved payment terms for small business suppliers
– Ethical sourcing framework extended to include all suppliers,
with a risk-based approach
– Ongoing focus on regulatory compliance
– Continued investment in cyber security
– Continued investment in sustainable water sources and wastewater
– Provided assistance to communities impacted by Cyclone
management
Seroja in the WA Mid West region
– Continue to deliver on local community investment strategies with a focus
– Ongoing community partnerships and grants that focus on
on STEM education and environmental responsibility
Indigenous, youth and environmental initiatives
Maintain
world-class
performance
– Continued strong plant availability following investment in data
– Continued focus on operational excellence, including through improving
and analytics in prior years
legacy systems
– Strong operational performance and customer service resulting
– Maintain market-leading customer service and investigate expanding service
in increased customer demand
offerings
– Implemented a business-wide system to enable data-informed
prioritisation of strategic portfolio objectives
RISK MITIGATION
The business units manage risk as an intrinsic part of their daily operations and are committed to conducting activities in a way that generates
sustainable growth while enhancing the reputation of WesCEF. Risks deemed unacceptable are transferred (through contractual arrangements or
insurance), mitigated or avoided.
WesCEF continues to actively manage the impact of COVID-19 by understanding the effect it has across all key risk areas as well as by managing
the direct implications identified below.
RISK
MITIGATION
COVID-19
– Continued focus on providing a safe environment for team members
– Active monitoring of impact on international supply chains
Serious injury,
safety or
environmental
incident
Sustained
intense
competition
Sustainability
and meeting
community
expectations
– Continue to invest in improving safety culture and performance for the safe operation of facilities and distribution of products in a way that minimises
any adverse effect on team members, contractors, local communities or the environment
– Focus on consistently satisfying the needs of customers and continued investment in initiatives that further improve customer experience
– Effective allocation of resources to optimise existing operations and capitalise on growth opportunities
– Investigating technologies and opportunities to provide a roadmap to achieve aspiration of net zero Scope 1 and 2 emissions by 2050
– Minimise the risk of modern slavery occurring in our businesses or supply chains through a risk-based ethical sourcing framework
– Grow workplace diversity with focus on improving gender balance and growing the number of Indigenous team members to reflect the communities
in which we operate
– Positive contributions to the communities in which we operate
Data and IT
security
– Continue to focus on enhancing cyber and information security risk controls
– Continue to invest in systems and processes to ensure responsible use of data and security of information
Wesfarmers 2021 Annual Report
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Operating and financial review | Industrial and Safety
Industrial and Safety
Industrial and Safety is a leading supplier of industrial, safety and
workwear products, and services to a wide range of customers,
including Australia and New Zealand’s largest corporate and
government entities, through four main businesses: Blackwoods,
Workwear Group, Coregas and Greencap.
52
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Wesfarmers 2021 Annual Report
BACK OUTLOOK
YEAR IN REVIEW
Revenue
$1,855m
2021
1,855
2020
2019
2018
2017
1,745
1,752
1,750
1,776
EBT
$70m
2021
20201
2019
2018
2017
70
39
86
118
115
Key financial indicators
Post-AASB 16
Pre-AASB 16
For the year ended 30 June
2021
20201
20201
2019
2018
2017
Revenue ($m)
1,855
1,745
1,745
1,752
1,750
1,776
Earnings before tax ($m)
70
39
40
86
118
115
Capital employed R12 ($m)
1,126
1,448
1,447
1,475
1,409
1,363
Return on capital employed R12 (%)
Cash capital expenditure ($m)
6.2
62
2.7
59
2.8
59
5.8
83
8.4
50
8.4
34
1 The 2020 earnings before tax for Industrial and Safety excludes pre-tax impairments of $310 million,
and includes $15 million of payroll remediation costs.
OUR PERFORMANCE
Industrial and Safety revenue of
$1,855 million was 6.3 per cent above
the prior year. Excluding significant
items and payroll remediation costs,
earnings of $70 million were
29.6 per cent above the prior year,
underpinned by earnings growth across
all businesses. The Industrial and Safety
businesses continued the reliable supply
of critical products to customers during
the year despite global supply chain
disruptions due to COVID-19.
Blackwoods’ revenue increased on the
prior year, underpinned by growth from
strategic customers, and in Western
Australia and New Zealand, as well as
strong demand for critical products in
the first quarter, including respiratory,
cleaning and hygiene products. This
was partially offset by weakness in the
coal mining and oil and gas sectors,
and the cycling of elevated demand for
critical products in the prior year from
mid-March due to COVID-19. Earnings
growth in Blackwoods was supported
by higher sales and increased operating
efficiencies through scale across the
cost base. The business continued to
invest in customer service and digital
capabilities including the enterprise
resource planning (ERP) system.
Workwear Group’s revenue and
earnings increased on the prior year,
primarily driven by strong growth
across the industrial workwear brands,
KingGee and Hard Yakka, partially
offset by the sale of its UK business,
Incorporatewear, and the impact of
COVID-19 on the uniforms business
where some customer segments
including airlines, retail and hospitality
were adversely impacted. The business
continued to invest in strengthening
brand desirability, simplifying its
operating model and improving
operational efficiency.
Coregas’ earnings increased on the
prior year due to higher demand from
industrial customers, particularly in the
Trade’N’Go and specialty gas offers,
and from healthcare customers,
reflecting investment in these product
offerings in recent years. The business
also benefited from its involvement in
the Hydrogen Energy Supply Chain
project, a world-first pilot project to ship
liquefied hydrogen to Japan. Earnings
were partially offset by higher material
and delivery costs.
Greencap’s earnings increased on
the prior year due to the improved
performance of the consulting services
business and growth in the Online
Solutions business, partially offset by
higher investment in digital capability.
Safety and injury management remains
a core focus and, pleasingly, the total
recordable injury frequency rate
declined to 4.3 for the year.
Market conditions are expected to
remain uncertain in the 2022 financial
year and the Industrial and Safety
businesses will continue to manage
COVID-19 related global supply chain
disruptions while maintaining their focus
on delivering continued improvements in
performance and profitability.
Blackwoods’ demand outlook is
dependent on economic conditions,
business confidence, commodity prices
and investment in the resources,
manufacturing and construction sectors.
Blackwoods will continue to focus on
improvements to its customer value
proposition and core operational
capabilities, including data and digital, as
well as completion of the implementation
of the ERP system.
Workwear Group remains focused on
driving growth in its industrial brands and
uniforms business, improving operational
excellence, and strengthening its digital
offering.
Customer demand in Coregas is
expected to remain stable with continued
strength in healthcare and industrial
segments offset by ongoing competitive
pressures. The business will continue
to focus on growth opportunities in
healthcare, hydrogen-related projects
and other specialty gas adjacencies.
Tim Bult
MANAGING DIRECTOR,
WESFARMERS INDUSTRIAL
AND SAFETY
Wesfarmers 2021 Annual Report
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OUR BUSINESSThe Industrial and Safety portfolio of businesses services customers across diverse industries such as construction, mining, manufacturing, retail, food and beverage, utilities, transport, facilities maintenance, health and government. The businesses also service a wide range of customer groups including large corporate enterprises, government organisations and small- to medium-sized businesses.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, workplace safety and personal protective equipment, workwear, electrical and industrial supplies. It services a wide variety of customers of different sizes across Australia and New Zealand through an extensive supply chain, branch network and online platforms. 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 its NNT brand, as well as specialised garments to defence and emergency services customers in Australia and New Zealand. The UK operations, trading under the Incorporatewear brand, were sold during the year.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. Greencap is a risk management services business which has a market-leading contractor management digital platform called Cm3.HEALTH, SAFETY AND WELLBEINGIndustrial and Safety recognises its team members are central to the success of the division with each business maintaining a relentless focus on providing safe workplaces. This includes measuring safety performance and driving initiatives to mitigate fatal risk, prevent injuries, and ensure team members’ physical and psychological wellbeing.Throughout the year, the division prioritised team member health, safety and wellbeing during the pandemic by developing and implementing comprehensive protocols to reduce transmission risk and keep team members and customers safe. Industrial and Safety business units prioritised team member psychological wellbeing and this will remain high on the agenda. Blackwoods launched its Health and Happiness community for team members to share helpful resources with each other, such as building mental resilience, guided meditation sessions, and nutrition and physical health ideas. Coregas established its Work from Home initiative, which offers flexible working arrangements and support for its team members, while ensuring the team remains connected. Greencap facilitated an internal psychological health and wellbeing workshop with 82 per cent participation and commenced training mental health first aiders. Workwear Group developed a risk matrix to assess psychological risk associated with roles and piloted a psychosocial survey with New Zealand office-based team members. A diverse workplace enables better business decisions and allows each business to better serve its customers. Operating and financial review | Industrial and SafetySafety performance1 TRIFR measures the number of lost time and medical treatment injuries per million hours worked.TOTAL RECORDABLE INJURY FREQUENCY RATE14.32021 4.32020 4.82019 6.92018 6.62017 8.1Wesfarmers 2021 Annual Report54BACK Aboriginal and Torres Strait Islander employment11 The criterion for removing casuals from the calculation of ATSI team members differs across divisions from 2017 to 2018.832021 832020 722019 772018 692017 50The division’s TRIFR is 4.3, a 10.4 per cent decrease from the previous year.DIVERSITY AND INCLUSIONThe Industrial and Safety division strives to create inclusive work environments, with particular attention to gender balance, the engagement and employment of Indigenous Australians, and the principles of Te Tiriti O Waitangi in New Zealand. This includes achieving effective gender balance and promoting inclusion of Indigenous peoples as suppliers and team members. A diverse workplace enables better business decisions and allows each business to better serve its customers. Gender balance within the division is tracking within target, with 44 per cent female team members. Indigenous team members account for 2.7 per cent of the division’s Australian workforce and Indigenous supplier spend totalled over $3.5 million for the year — an almost $2.0 million increase from the previous year.During the year, Blackwoods Australia, Coregas and Workwear Group hosted an intern from CareerTrackers, a national non-profit organisation with the goal of creating pathways and support systems for Indigenous tertiary students. Blackwoods has long been a supporter and partner of the organisation and was awarded the prestigious CareerTrackers Corporate Plus Award. The award is presented to an employment partner who strives to create best practice in the implementation of the CareerTrackers program, and who goes above and beyond in embedding the program in their business.ETHICAL SOURCING AND MODERN SLAVERYThe Industrial and Safety division is committed to establishing strong and respectful relationships with suppliers and ensuring confidence in its product offering by focusing on the ethical sourcing practices for direct suppliers, own-brand and customer-branded product manufacturers. This includes sourcing products in a responsible manner while working with suppliers to improve their social and environmental practices.Each business manages its own risk-based ethical sourcing strategy and rolled out training throughout the year to support its team members and suppliers with better managing and identifying ethical sourcing risks.Blackwoods became a signatory to the United Nations Global Compact Network Australia and active participants in the Modern Slavery Community of Practice sessions.Greencap conducted a modern slavery supplier risk assessment for service provision and supply of consumables, equipment and goods not for resale, using its recently launched Cm3 Modern Slavery module.Workwear Group achieved an ‘ALL’ rating from the Baptist World Aid 2020 COVID Fashion Report, which recognises the immediate actions and initiatives implemented by organisations to support their supply chains during the COVID-19 pandemic.NZ Safety Blackwoods has joined the Collaborative Advantage and is also one of many New Zealand companies to sign the first Open Letter to the New Zealand Government requesting an inquiry into a Modern Slavery Act for New Zealand.PRODUCT SAFETYThe Industrial and Safety division is committed to providing customers with safe products by continuing to improve standards, controls and processes in high-risk product safety areas, especially own-brand products. The business units continually work closely with suppliers to ensure product testing, quality and compliance due diligence is well embedded. A proactive approach is taken towards training and education of suppliers and risk 1 There were 430 suppliers covered by the audit program as at 30 June 2021.2 The supplier may be audited every two years if it had no previous findings.3 This financial year, there were 108 critical breaches across approximately 32 suppliers.Suppliers part of the audit program but not audited during the financial year2 253Suppliers audited during the financial year with no critical breaches 145Suppliers audited during the financial year with critical breaches identified3 32Ethical sourcing audit program findings25314532430NUMBER OF SUPPLIERS COVERED BY THE AUDIT PROGRAM1 Wesfarmers 2021 Annual Report55OVERVIEW01OPERATING AND FINANCIAL REVIEW02GOVERNANCE03DIRECTORS’ REPORT04FINANCIAL STATEMENTS05SIGNED REPORTS06SHAREHOLDER AND ASX INFORMATION07 Operating and financial review | Industrial and Safety
management. Investigations on product
safety and quality matters are completed
in collaboration with suppliers to ensure
product quality is reliable, and the
businesses partner with suppliers to
ensure improvement initiatives are
continually being implemented.
Coregas, NZ Safety Blackwoods and
Workwear Group once again maintained
zero own-brand recalls, supported by
critical paths within the sourcing and new
product development workflow for factory
and product compliance. Blackwoods has
identified improvement initiatives which
have been incorporated into factory
quality inspection and testing regimes
to further strengthen assurance and
quality of goods.
WASTE AND PACKAGING
Industrial and Safety strives to reduce
waste to landfill where possible and
during the year, improvements were
made to waste measurement which
resulted in more accurate reporting.
This year, 586 tonnes of waste were
diverted from landfill.
Blackwoods and Workwear Group are
members of the Australian Packaging
Covenant (APCO) and have established
2025 national packaging targets.
Blackwoods is establishing targeted
workgroups tasked with achieving
packaging targets and delivering on
improved waste-streams management.
Workwear Group’s main packaging
initiative has been setting up a working
group to identify packaging reduction
opportunities and reviewing remaining
packaging to determine recycled
content or recyclability.
Workwear Group is exploring
the magnitude of garment waste at
end-of-life, reviewing previous activity
to address the problem and determine
a future process.
Blackwoods opens doors for humanitarian
entrants seeking professional careers
Building on the long and successful partnership with CareerTrackers and the
engagement of Indigenous university interns and graduates, Blackwoods took the
first steps in developing a sustainable and valuable pipeline of diverse talent through
the CareerSeekers program.
CareerSeekers is a not-for-profit sister organisation to CareerTrackers, assisting
humanitarian entrants to Australia into professional careers. The program provides
in-depth preparation and support to refugees and people seeking asylum who are
currently studying at university and seeking a pathway to graduate employment, as
well as those who have professional experience in their country of origin and are
wanting to restart their careers in Australia.
During the 2021 financial year, Blackwoods was privileged to access the diverse
talent available through CareerSeekers. Blackwoods hosted Grece, a recently
arrived refugee from Syria who is now studying Marketing full-time at university.
Grece acquired practical and relevant paid work experience at Blackwoods before
returning to her studies. Blackwoods also employed two alumni of the university
student stream of the CareerSeekers program, Yaser and Shakila. Both were
successful in a competitive recruitment process, showing how effective the
preparation and support provided by CareerSeekers can be.
Lynn Anderson, Program Director of CareerSeekers stated, “Blackwoods’ mission
is to help more people build a better Australia and our mission is to help new
Australians who have arrived through our humanitarian program to settle better,
faster. It’s a great alignment of values.”
Creating a diverse, effective and respectful workplace and team is crucial
for Blackwoods’ continued success. By supporting committed and dedicated
CareerSeeker university students, graduates and mid-career professionals,
Blackwoods is enhancing and contributing to the future of its business and
the community as a whole.
Community contributions
Waste
DIRECT
INDIRECT
RECOVERED
DISPOSED
$1.1m
2021
0.9
0.2
2020
2019
2018
2017
1.0
1.2
0.6
0.0
0.0
0.0
0.1
0.0
1.5kt
20211 0.6
0.9
Includes the Australian operations of Blackwoods,
Workwear Group and Coregas.
1 Due to improved methodology the prior year
numbers are not comparable. 2021 now includes
a significant portion of actual weight versus
industry-standard estimates used in prior years.
56
Wesfarmers 2021 Annual Report
Greenhouse gas emissions
(from continuing operations)
SCOPE 1 & 21
27.4ktCO2e
Market-based
20212
2021
2020
2019
2018
2017
27.4
27.4
27.1
25.9
26.0
29.2
1 Scope 1 and 2 data includes emissions from
continuing operations for businesses where we
have operational control under the NGER Act,
and emissions in New Zealand.
2 Emissions based on GHG Protocol Scope 2
market-based reporting standard.
BACK STRATEGY
Industrial and Safety continues to focus on performance improvement activities to enhance growth initiatives including investment
in digital capabilities. Across Blackwoods, Workwear Group and Greencap, this includes focusing on data, ERP systems,
e-commerce, product and service capabilities and cost improvement initiatives aimed at deepening customer relationships while
improving operating efficiencies. Coregas is focused on expanding in key sectors including mining and healthcare, enhancing its
product offer and renewable opportunities.
STRATEGIES
ACHIEVEMENTS
FOCUS FOR THE COMING YEARS
Implementation
of a market-
leading offer in
the Australian
and New Zealand
industrial
distribution
market
Digital
transformation of
Workwear Group
and targeting
growth from
uniforms and
industrial brands
– Localised customer facing teams, delivering improved customer
– Continued deepening of customer relationships and building
experience
– Integrated end-to-end supply program with major customer
– Improved operating efficiency while maintaining supply and
service levels
– Strengthened technical specialist capability
– Implementation of the new ERP system for operations in Victoria
and Tasmania, and nationally across the finance function
sales force effectiveness
– Product range enhancement
– Leveraging scale from operations
– Expansion of technical capabilities and service solutions
– Completing the implementation of the ERP system and
streamlining operating processes through data and digital
initiatives
– Strong growth from industrial brands due to product innovation
– Investment in digital transformation including online
and brand desirability
– Execution of cost improvement initiatives and simplification of
the uniforms business model, including the divestment of UK
operations (Incorporatewear)
– Increased supply chain visibility through adoption of data and
analytics tools
re-platforming and advancing enterprise applications
and data use
– Targeted uniform growth and new business opportunities
– Accelerating growth from industrial brands
– Enhancing service levels through inventory optimisation and
further supply chain visibility
Grow Coregas
market share
– Continued revenue growth, including medical gas offer,
Blackwoods and Bunnings distribution channels
– Geographic expansion within Australia and New Zealand
– Increasing activity in hydrogen projects, including the Hydrogen
Energy Supply Chain (HESC) project
– Further expanding product offers such as specialty gases
– Key customer growth
– Continue to explore renewable opportunities and leverage
expertise in hydrogen
Expand
the online
capabilities of
Greencap
– Strong growth in online sales
– Continued investment in Cm3 to improve the offer, including the
release of the ethical sourcing module
– Position Cm3 as the leading contractor management platform
in Australia and New Zealand
RISK MITIGATION
As a supplier of industrial, safety and workwear 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.
Industrial and Safety continues to actively manage the impact of COVID-19 by understanding the effect it has across all key
risk areas as well as by managing the direct implications identified below.
RISK
MITIGATION
COVID-19
– Continued focus on providing a COVID-safe environment for team members, customers and suppliers
– Implementation of strategies to mitigate supply chain disruption, such as supplier engagement and sourcing visibility, enhanced
customer engagement and exploration of alternative sourcing options
Subdued growth
and margin
pressure
– Building sales force effectiveness in Blackwoods and focus on product range enhancement
– Target new growth opportunities, strengthen brand positioning and enhance service level excellence in Workwear Group
– Continue to develop new distribution channels for Coregas, expand large customer segments by leveraging Blackwoods’ relationships
and diversify product offering, including online
– Grow Greencap’s digital offer
Growth of new
and existing
competitors,
including digital
market entrants
Safety or
environmental
incident
– Build data and digital capabilities to deepen customer relationships and improve operating efficiencies
– Continue to optimise range, price and supply chains
– Continue to focus on quality control 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
– Regular review of appropriate emergency response and crisis management plans, including in the event of environmental incidents
Data and IT
security
– Developing cyber-resilient workforce through increased training
– Continue to focus on enhancing security monitoring systems
Wesfarmers 2021 Annual Report
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Operating and financial review | Other activities
Other activities
Wesfarmers is an investor in Flybuys, the BWP Trust, Gresham Partners
and Wespine Industries, and retains a minority interest in Coles.
FLYBUYS
GRESHAM PARTNERS
COLES
Wesfarmers owns a 50 per cent
shareholding in leading loyalty and data
company Flybuys, with Coles 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, stand-alone business.
As at 30 June 2021, there were 6.4 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
Partners is a leading independent financial
services business with activities in
corporate advisory, funds management,
property, and capital solutions.
For more information on Gresham
Partners, please visit
www.gresham.com.au
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.
The Group holds a minority interest in
Coles through a wholly-owned subsidiary,
Wesfarmers Retail Holdings Pty Ltd.
For more information on Coles’
performance during the year, please
visit www.colesgroup.com.au
BWP TRUST
WESPINE INDUSTRIES
Wesfarmers’ investment in the BWP
Trust (the Trust) contributed earnings
of $65 million, an increase of $13 million
on last year.
The Trust was established in 1998 with a
focus on large format retailing properties
and, in particular, properties 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 2021.
The Trust’s portfolio as at 30 June 2021
consisted of a total of 74 properties. For
more information on the Trust, please visit
www.bwptrust.com.au
The 50 per cent-owned Wespine
Industries (Wespine) operates a plantation
softwood sawmill in Dardanup, Western
Australia. Wespine manufactures
structural timber used in the construction
industry along with landscaping,
packaging and other timber products.
Wespine experienced the full range of
trading conditions over the year. New
home building is the primary driver of
structural timber demand and the year
commenced with WA housing approvals
near record lows but finished very
strongly. Wespine recorded timber sales
of $111 million, leaving finished goods
inventory near zero and production
constrained by log supply.
Safety continues to be a focus for
management with initiatives relating
to both risk identification and reduction
including cultural change. Recordable
injuries declined significantly during
the period.
For more information on Wespine,
please visit www.wespine.com.au
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Wesfarmers 2021 Annual Report
BACK Group sustainability
performance
SAFETY
8% reduction
9.6 total recordable injury frequency rate (TRIFR)
ETHICAL SOURCING
2,066
Suppliers participating in mandatory audit programs
DIVERSITY AND INCLUSION
2,994
Team members who self-identify as Aboriginal and/or
Torres Strait Islander in Australia
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Wesfarmers has a long
track record of reporting
on our sustainability
performance. We believe
sustainability is about
understanding and
responsibly managing
the ways in which we
impact the communities
and environments in
which we operate.
We recognise that we can only achieve
our objective of providing a satisfactory
return to shareholders over the long term
if we take a holistic approach to looking
after the interests of our stakeholders
— including our team members, our
customers, our suppliers — acting
honestly and ethically in everything we
do, looking after the environment and
contributing to the communities where
we work and operate.
This section of the annual report provides
summarised information about our 10
most material sustainability issues, with
our climate-related financial disclosures
in the following section. Our report is
prepared in accordance with the Global
Reporting Initiative. If you would like
more information, including our Modern
Slavery Statement, additional case
studies and data on our sustainability
performance, visit our website
www.wesfarmers.com.au/
sustainability
Wesfarmers 2021 Annual Report
59
Operating and financial review | Group sustainability performance
Our approach to sustainability is guided by our 10 material sustainability issues, which underpin our ability
to create economic, safe and sustainable outcomes for customers, team members, the community, other
stakeholders and our shareholders. Through our annual materiality assessment, we engage with internal
and external stakeholders to inform our identification of sustainability risks and opportunities.
MATERIAL
SUSTAINABILITY ISSUE
HOW WE DELIVER VALUE
VALUE CREATED
Anticipating the needs of our customers and delivering competitive goods and services
Product quality
and safety
We are committed to
providing our customers
with safe products
All products sold must be safe and
comply with the product safety laws of the
countries where they are sold. All divisions
regularly share lessons learned through
the quarterly Wesfarmers Product Safety
Forums.
By ensuring all products comply with mandatory and
other relevant standards before they are offered for sale,
Wesfarmers instils confidence among its customers,
positioning its brands as safe, trustworthy and reliable,
and its stores as great places to shop.
Data and cyber
security
We are committed to
protecting our customers
privacy
Wesfarmers is committed to complying
with the laws governing privacy and data
security. Wesfarmers’ Code of Conduct
and policies apply to all team members
across the Group and outline guiding
principles on privacy, confidentiality, record
keeping and the use of, and access to,
the Group’s data assets and information
systems. Wesfarmers has established
quarterly reporting on cyber security
matters to divisional and Group Audit
and Risk Committees and the Group
Data and Digital Steering Committee.
Wesfarmers is committed to acting as a responsible
custodian of the data it holds, protecting the privacy of our
team members, customers, suppliers and stakeholders,
and keeping data secure. Wesfarmers has strengthened
cyber threat detection and response capabilities and further
developed data protection processes including a Group risk
management solution for IT vendors, requiring minimum
standards of cyber security from its suppliers and other
business partners.
Looking after our team members and providing a safe, fulfilling work environment
Safety and wellbeing
We maintain a relentless
focus on providing safe
workplaces
Every team member is entitled to work in a
safe environment.
People development,
diversity and
inclusion
We strive to create
an inclusive work
environment
Wesfarmers’ competitive advantage is
its people. Wesfarmers is committed
to providing opportunities to team
members to enhance their performance
and experiences at work and to advance
their careers. Wesfarmers does this by
providing an inclusive workplace where
everyone feels respected and safe, based
on division-specific diversity and inclusion
strategies, and by providing job-specific
and career development training programs.
Acting with integrity and honesty in all of our dealings
This year, Wesfarmers maintained a relentless focus on the
safety of all team members, customers and suppliers, and
implemented strategies to support the government and
community efforts to limit the spread of COVID-19. Group
TRIFR reduced eight per cent to 9.6 for the year and
workers’ compensation claims reduced seven per cent.
Employee engagement also improved, with survey scores
across all divisions increasing.
Wesfarmers employs approximately 114,000 team
members across the Group, with 2.8 per cent Aboriginal
and Torres Strait Islander representation in Australia.
During the year, approximately $37 million procurement
spend was paid to Aboriginal and Torres Strait Islander
suppliers.
Governance,
corporate conduct
and ethics
Wesfarmers maintains
robust corporate
governance policies in
all its businesses
Wesfarmers is committed to being
transparent with all its stakeholders
about its sustainability risks and
opportunities and welcomes feedback at
www.wesfarmers.com.au/sustainability
The 2021 Corporate Governance Statement, which covers key
aspects of Wesfarmers’ governance framework and practices,
is in the corporate governance section of the company website
www.wesfarmers.com.au/cg
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Wesfarmers 2021 Annual Report
BACK MATERIAL
SUSTAINABILITY ISSUE
HOW WE DELIVER VALUE
VALUE CREATED
Engaging fairly with our suppliers, and sourcing ethically and sustainably
Ethical sourcing and
human rights
We strive to source
products in a responsible
manner
Ethical sourcing has been a key area of
focus and has highlighted the importance
of investing in strong, sustainable supply
chains. Wesfarmers’ supply chains are
complex, with multiple tiers of suppliers
in various countries involved in the
production of many products. Human rights
commitments are supported by the Code of
Conduct and several Group and divisional
policies in addition to collaborating with
industry-wide initiatives.
Social compliance audits can encourage positive behaviour
among suppliers to safeguard human rights, but Wesfarmers
recognises a multifaceted approach is required to tackle this
complex issue. Almost 2,100 suppliers are in the divisions’
audit program with 386 critical breaches identified in the 2021
financial year. To complement audit programs, Wesfarmers
fosters long-term direct supplier relationships. The retail
divisions support additional tools for factory workers to voice
concerns without fear of retribution and with full confidentiality
through whistleblower and complaints lines that operate
outside their employer’s processes and systems.
Supporting the communities in which we operate
Economic and
community
contribution
We make a positive
contribution to
communities
As one of Australia’s largest private
sector employers, Wesfarmers’ economic
contribution is significant, creating jobs in
Australia and overseas, and generating
a tangible financial contribution to the
communities in which Wesfarmers operates.
Taking care of the environment
Climate change
resilience
We strive to reduce
the emissions and
emissions intensity of our
businesses and improve
their resilience to climate
change
Wesfarmers manages its businesses
with deep carbon awareness and takes
responsibility for improving the energy
efficiency of its operations, transitioning
to renewable energy, investing in new
technologies and working with its suppliers
and customers to help them do the same.
As the economy progresses towards
net zero, this will also present significant
opportunities for Wesfarmers’ businesses.
Managing waste is a significant issue for
Wesfarmers and reducing operational
and packaging waste will continue to
be a major focus. Wesfarmers divisions
are striving to divert waste from landfill,
reduce environmental impact from product
packaging and use water more efficiently.
Wesfarmers collaborates with industry
associations and other organisations to
improve its waste reduction.
Waste, packaging
and plastic
We strive to reduce
our waste and improve
packaging
Circular economy
We embrace a circular
economy strategy
In the 2021 financial year, Wesfarmers created $34.1 billion
in wealth. Wesfarmers paid $20.9 billion to suppliers,
$5.3 billion in salaries, wages and other benefits to team
members, $3.5 billion for rent, services and other external
costs, $1.3 billion in taxes and other government charges,
and $2.2 billion to lenders and shareholders. $0.9 billion was
reinvested in the businesses and approximately net 6,000 jobs
were created. Wesfarmers also contributed over $55 million in
direct and indirect community contributions.
The divisions have either adopted absolute or intensity
emissions targets and aspirations. The Wesfarmers Group
Managing Director and divisional managing directors’
performance goals include an assessment of performance
against the Climate Change Policy and divisional emissions
targets and aspirations as part of variable remuneration
incentives, where relevant. Wesfarmers has achieved a
nine per cent year-on-year reduction in CO2e emissions.
This year, Wesfarmers decreased its waste by almost
three per cent to approximately 171 thousand tonnes.
Wesfarmers also recorded a two per cent decrease in waste
disposed to landfill, and a more than five per cent reduction
in water use.
Wesfarmers recognises that there are
limited natural resources in our world.
We can play an important role in using
recycled or recyclable raw, natural or virgin
materials and minimising waste. Over
the last two years, many of Wesfarmers’
businesses have worked to develop their
circular economy strategies with an aim of
reducing the use of raw (natural) material
inputs, reducing energy use by making
products and materials more efficiently and
preventing waste through reuse, recycling
or repurposing where possible.
Multiple divisions have embedded circular economy principles
into their business models by specifying recycled content to be
used in products sourced in their supply chains and packaging.
– Kmart Group continued to source and incorporate more
recycled materials into selected active, outerwear, denim,
swimwear, footwear, bedding ranges and packaging,
and identified new opportunities to connect suppliers
with long-term recycling partners.
– Officeworks collected e-waste, including batteries, cables,
chargers, hard drives, computers, monitors, printers
and stationery from customers through instore recycling
collection points.
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Operating and financial review | Group sustainability performance
People development, diversity and inclusion
We provide opportunities for our
team members to enhance their
job performance and develop
their careers. We strive to create
a diverse workforce and inclusive
work environment, with particular
attention on the inclusion of
Aboriginal and Torres Strait
Islander people, and focus on
achieving gender balance.
Wesfarmers is committed to providing
an inclusive workplace where everyone
feels respected and safe. We believe
that through diverse teams and
inclusive workplaces we can foster
the best talent, harness creativity and
problem-solving, and gain insight into
our diverse customers, stakeholders and
communities. This drives our performance
and helps to enable future growth.
We believe attracting a diverse group
of outstanding people and utilising their
individual talents provides the greatest
competitive advantage. Wesfarmers
recognises that while great assets and
strategies are critical, it is people who
drive outcomes. This is why we are
committed to providing opportunities
to enhance our team members’
performance and experiences at
work, and to advancing their careers.
TRAINING AND DEVELOPMENT
Wesfarmers’ businesses have primary
responsibility for training and development
of their team members. This includes
job-specific and career development
training to full-time, part-time and casual
team members. Training programs include
developing team members’ technical
skills, product knowledge, customer
service, teamwork and leadership
capabilities. Data and digital skill building
has been an important theme for
development over recent years as
business models evolve. Our businesses
continued to invest in technology to
enable working from home and remote
training and development. The businesses
also increased emphasis on training
leaders to provide wellbeing and
mental health support.
Wesfarmers partners with each business
for the development of its executive
leaders and connects all general
managers to Wesfarmers’ primary
objective, values, leadership model,
strategic focus areas and to other
leaders across the Group.
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Wesfarmers 2021 Annual Report
DIVERSITY AND INCLUSION
Our customers and stakeholders are
diverse, and to gain the best insights into
their needs and expectations, diverse and
inclusive teams are required. A diversity
of perspectives and backgrounds also
strengthens creativity in teams. Creating
an environment that attracts, retains and
develops team members with a wide
range of strengths and experiences that
ensures that Wesfarmers is well-equipped
for future growth.
GENDER BALANCE
At Wesfarmers, we believe that gender
balanced businesses, which cater to
the different strengths, preferences and
needs of different team members and
customers enable us to deliver on our
primary objective of providing satisfactory
returns to shareholders. We strive for
gender balance on any team, which
means there is a minimum of
40 per cent females and 40 per cent
males with the remaining 20 per cent
being of any gender. The Wesfarmers
Board will maintain a composition of
no less than 30 per cent females.
There is room to strengthen gender
balance in senior executive positions,
with men holding 65 per cent of senior
executive roles. There is also room to
improve the balance among management
and professional roles where women
continue to hold 37 per cent of positions
and men hold 63 per cent.
Female representation
across the Group
TOTAL WORKFORCE
2021
2020
57%
57%
WESFARMERS LIMITED
NON-EXECUTIVE
DIRECTORS
38%
50%
WESFARMERS
LEADERSHIP TEAM
42%
42%
SENIOR EXECUTIVE
POSITIONS
35%
30%
ALL MANAGEMENT
AND PROFESSIONAL
POSITIONS
37%
36%
BACK
ADVANCING RECONCILIATION
IN AUSTRALIA
At Wesfarmers, we are dedicated to
advancing reconciliation in Australia
and enabling Aboriginal and Torres
Strait Islander people, and all people,
to feel welcome in our businesses as
team members, customers, suppliers
and visitors.
We are in a unique position to provide
sustainable employment opportunities
at scale to Aboriginal and Torres Strait
Islander people. Through a renewed
focus on recruitment and retention of
Indigenous people this year, we have
increased the number of Indigenous
team members from 1,858 people
at 30 June 2020 to 2,994 as at
30 June 2021, increasing from
1.9 per cent to 2.8 per cent of our
Australian workforce. We are on track
to meet our target of employment
parity of three per cent of our
Australian workforce well before
December 2022.
We recognise by increasing the
diversity of our supplier base, we
can make a real difference to the
economic empowerment of
Aboriginal and Torres Strait Islander
businesses and communities. We
know when Indigenous businesses
are successful, they are more likely to
employ Indigenous people, with the
value flowing back to Aboriginal and
Torres Strait Islander communities.
During the year, we paid almost
$37 million to Indigenous suppliers.
Aboriginal and Torres Strait
Islander employment1
2,994
2021
2,994
2020
2019
2018
2017
1,858
1,6662
1,647
1,342
1 Excludes Coles.
2 Restated to account for casual team
members who have worked in the last
30 days (previously 90 days).
Product quality and safety
We are committed to providing customers with safe, quality products.
Proactively managing the safety and
quality of the products we sell is central
to our primary objective of providing a
satisfactory return to shareholders as
it builds strong relationships with
customers, positioning our retail
businesses as trusted and committed
to customer safety.
All the products we supply must be safe
and comply with the product safety laws
of the countries where we sell them.
We take compliance with the product
safety requirements of the relevant
Australian and New Zealand consumer
laws seriously. For own-brand products
this includes ensuring that:
− the products we supply comply with
the product safety standards and
relevant Australian and New Zealand
consumer law requirements
− we have appropriate policies that
describe when and how we recall
goods and compensate customers
for loss caused by goods with a
safety defect
− we promptly withdraw and recall
products that may cause injury to
any person
− we report product safety incidents
as required
− we proactively manage any potential
product safety issues and take a
leadership role in the retail industry.
Wesfarmers divisions regularly share
lessons learned through the Wesfarmers
Product Safety Forum, which is held
quarterly with more than 20 members
from across the Group. During the year,
Wesfarmers’ retail divisions conducted
extensive work to improve their product
safety frameworks and risk assessment
processes based on AS ISO 10377:2013
Consumer product safety – Guidelines
for suppliers.
Our divisions are proud to show
leadership in the industry with their
representatives closely collaborating
with several industry organisations and
associations to encourage best practice
and remain informed about regulatory
updates and emerging issues. Our retail
divisions support the product safety
community by actively participating in
Standards Australia committee work.
During the year, we engaged an
independent business and human
rights advisory business to undertake
an analysis of salient human rights
impacts for the Group. Ensuring product
safety for our customers was identified
as one of the six salient human rights
impacts for the Wesfarmers Group. Over
the coming year, each division will refine
their processes to ensure continuous
improvement in managing this issue.
Wesfarmers 2021 Annual Report
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Operating and financial review | Group sustainability performance
Ethical sourcing and human rights
Ethical sourcing has been a key
area of focus for the Wesfarmers
Group for almost a decade.
Our businesses directly source products
from nearly 28,000 suppliers in more than
40 countries. Some of the major locations
we source from include Australia,
Bangladesh, China, India and Indonesia.
We do not own the factories where
products are made, but engage third-party
suppliers to manufacture the majority of
these products. Our supply chains are
complex with multiple tiers of suppliers,
sometimes across various countries,
involved in the production of many diverse
products. Our aim is to ensure human
rights are understood, respected and
upheld across our supply chain.
The Wesfarmers Ethical Sourcing and
Modern Slavery Policy sets the minimum
standards expected of the Group’s
divisions in managing the risk of modern
slavery in their supply chains. Consistent
with the principles in the Wesfarmers
Code of Conduct, we are committed to
complying with the laws and regulations
of the countries in which our businesses
operate and making positive economic,
social and environmental contributions,
consistent with the principles of honesty,
integrity, fairness and respect. The
Group’s policies prohibit any activities
involving modern slavery and commit to
safe and healthy working conditions,
including the right to freedom of
association and collective bargaining.
Each year, as part of their ethical sourcing
programs, the divisions undertake
supplier and factory audits and report
critical findings. Where a division identifies
an audit finding, it seeks to work in
partnership with the supplier to remediate
non-conformance, improving conditions
for workers. Remediation can also include
an investment in training or collaboration
with industry-based initiatives.
Wesfarmers is supportive of the
establishment of a Modern Slavery Act in
New Zealand. In March 2021, Bunnings,
NZ Safety Blackwoods and Workwear
Group signed a joint letter alongside over
80 New Zealand companies encouraging
the New Zealand Government to instigate
an inquiry into a New Zealand Modern
Slavery Act.
Where possible, the Group’s divisions are
mapping beyond their tier one suppliers
for high-risk products. Wesfarmers
recognises that mapping suppliers
beyond tier one is a complex and
ongoing process; it will take time for
the balance of the Group to complete a
tier two and tier three mapping exercise
for high-risk products. Increased
64
Wesfarmers 2021 Annual Report
transparency among tier two and other
suppliers is, however, an important
mitigant to modern slavery risks.
The Group maintains an ongoing focus
on training and capacity building of all
relevant team members, including the
Wesfarmers Board, senior management
and other relevant team members.
The Group’s divisional buying and
sourcing teams are kept up to date on
ethical sourcing and human rights
commitments and how actions may
impact workers’ rights through training,
collaboration, information sharing and
capacity building. Cross-functional teams
Ethical sourcing audit
program findings
in the Group’s businesses regularly
collaborate through human rights forums
to share lessons learned and improve
their knowledge.
This year, more than 2,800 hours of
training was delivered to relevant team
members on ethical sourcing risks and
mitigation strategies through responsible
buying practices.
Our 2021 Modern Slavery Statement
is available on our website:
www.wesfarmers.com.au/sustainability/
our-principles/ethical-sourcing-and-
human-rights/2021-modern-slavery-
statement-for-wesfarmers
138
591
591
2,066
1,337
1,337
NUMBER OF SUPPLIERS COVERED
BY THE AUDIT PROGRAM1
Suppliers part of the audit program,
not audited during the financial year2
591
Suppliers audited during the financial
year with no critical breaches
1,337
1 There were 2,066 suppliers covered by the audit
program as at 30 June 2021.
2 The supplier may be audited every two years if it
had no previous findings.
Suppliers audited during the financial
year with critical breaches identified3
3 This financial year, there were 386 critical
138
breaches across approximately 138 suppliers.
BACK Circular economy
We recognise that in a world with limited natural resources, we
can play an important role in extending the supply of resources
over the long term.
Over the last two years, our businesses
have worked to develop circular
economy strategies with an aim of
reducing the use of raw (or virgin or
natural) material inputs and energy, by
making products and using materials
more efficiently (including through
greater use of recycled or recyclable
materials) and by preventing waste
through reusing or repurposing where
possible. The circular economy requires
collaboration across the supply chain,
government and industry to achieve
systematic change.
While the transition to a circular
economy is not something that can be
achieved overnight, our divisions are
making progress in the way they reuse
waste across various stages of the
product life cycle:
− Kmart is making changes by
sourcing and incorporating more
recycled materials into selected
active, outerwear, denim, swimwear,
footwear and bedding ranges. This
helps to reduce reliance on raw
material (or virgin fibres) and creates
demand for recycled materials that
would otherwise go to landfill.
− Kmart Group is also working to find
ways to reuse waste generated in
the production of garments through
its participation in the Circular
Fashion Partnership, a cross-sector
project led by the Global Fashion
Agenda, with Reverse Resources,
Bangladesh Garment Manufacturers
and Exporters Association and
P4G, to develop long-term scalable
solutions for capturing and reusing
post-production textile waste.
− Officeworks’ circular economy
commitments include becoming a
zero-waste business by designing
out waste and maximising recycling,
ensuring the packaging from all
products it sells is reusable or
recyclable and helping customers
dispose responsibly of products at
the end of their lifecycle.
− Bunnings began its journey to
capture packaging and product
data to understand the flow of
material and where it can have
the greatest impact. Examples
include the elimination of expanded
polystyrene from packaging of
Kaboodle kitchen cabinets and
doors, and the expansion of
recycling guidance through the
Australasian Recycling Label.
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Health, safety
and wellbeing
We maintain a relentless focus
on safety and ensuring every
team member is able to work in
a physically and psychologically
safe environment.
Our focus goes beyond just safe
workplaces; our objective for our team
is to be at peak performance and thriving,
with a focus on having healthy and
engaged teams across all businesses.
Good progress has been made with
mental health support and initiatives
including the involvement of experts to
advise on best practice and to support
our program.
With the evolving COVID-19 restrictions,
all our businesses implemented measures
to protect the health and safety of team
members and customers. Our retail
businesses adapted store operations
so they could continue to trade and meet
customer and team member needs in
a COVID-safe manner.
Over the coming year, our focus will be
on more nuanced analysis and increased
granularity of reporting of actual incidents
to inform targeted safety interventions,
along with a greater emphasis on safety
lead indicators to anticipate and therefore
prevent injuries.
To monitor safety performance, we use
TRIFR which shows injuries per million
hours worked by team members and
long-term contractors.
This year, TRIFR decreased by almost
eight per cent from 10.4 to 9.6. Workers’
compensation claims decreased from
1,632 to 1,514.
Safety performance
TOTAL RECORDABLE
INJURY FREQUENCY RATE1
9.6
2021
2020
2019
2018
2017
9.6
10.4
13.5
24.12
28.72
1 TRIFR is the number of lost time and medical
treatment injuries per million hours worked.
2 Includes discontinued operations, including Coles.
Wesfarmers 2021 Annual Report
65
Operating and financial review | Group sustainability performance
Economic and community contribution
At Wesfarmers, we believe a
strong business environment
is underpinned by an equally
strong, cohesive and inclusive
community. Our team members
are the driving force behind
our approach to community
engagement.
Our focus is largely on supporting
organisations that deliver strong, positive
social outcomes where our teams
live and work. This ensures that value
is created in ways that best address
the needs of our customers and their
communities.
During the year, the Group generated
more than $34.1 billion in economic
activity through $20.9 billion paid to
suppliers; approximately $3.5 billion
paid in rent, services and external costs;
and $1.3 billion paid in taxes and other
government charges. Additionally, our
workforce of almost 114,000 team
members received $5.3 billion in salaries,
wages and benefits during the year.
This year, the Group contributed over
$55 million to community organisations
in Australia, New Zealand and other
regions where we operate. That
included almost $25 million in direct
social investment to community
organisations, as well as more than
$30 million in indirect contributions
from customers and team members,
facilitated by the Group.
At a corporate level, Wesfarmers
supports community organisations and
initiatives within the pillars of medical
research and wellbeing, education and
the arts. Across each of these areas,
we endeavour to include support for
organisations that are Indigenous led,
or that have significant Indigenous
programs. Wesfarmers corporate
contributed more than $12 million
to around 50 community partners.
WESFARMERS ARTS
Wesfarmers has been a leading
supporter of the arts for more than
four decades. Our partnerships with a
diverse range of premier arts and cultural
organisations in Western Australia and
nationally reflect our belief in the vital
contribution that the arts make to vibrant
communities in which creativity, social
cohesion and innovation thrive.
This year, we continued to stand by our
arts partners during COVID-19, providing
significant, targeted support to help keep
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Wesfarmers 2021 Annual Report
artists employed when performances
were suspended and galleries were
closed. In addition to our ongoing regular
support for a wide range of premier
arts organisations, more than $825,000
additional funding was provided over
the 2020 and 2021 financial years for
those of our arts partners most acutely
impacted by COVID-19.
The year also saw Wesfarmers
support the building of the new
Western Australian Museum Boola
Bardip, donating $5 million over
10 years. Opened to the public on
21 November 2020, it is the largest
contemporary museum building
project in the Southern Hemisphere in
recent history and one million Western
Australians and visitors to the state are
expected to visit it each year.
In 2020, the onset of COVID-19
necessitated a halt to preparations for
the Wesfarmers and National Gallery
of Australia Indigenous exhibition Ever
Present: First People’s Art of Australia.
While the international touring schedule
has been impacted by an extended
delay, the opportunity has arisen to
launch the exhibition in Australia ahead
of the international tour.
Community contributions
DIRECT
INDIRECT
$55.3m
2021 24.8 30.5
2020
25.0 43.1
2019
19.9 52.2
20181 86.6 60.9
20171 72.9 59.3
1 Includes discontinued operations,
including Coles.
BACK Data and
cyber security
We are committed to being
responsible custodians of the
data we hold by protecting
the privacy of team members,
customers, suppliers and
stakeholders, and keeping
data secure.
Wesfarmers recognises that the
external environment and expectations
of key stakeholders in relation to the
collection, use and security of data
continues to evolve quickly.
As a result, the Group continues to
make ongoing investments in data
privacy compliance and protection
and cyber security resilience. These
investments support Wesfarmers’
commitment to be a responsible
custodian of the data it holds, to
comply with the laws governing data
privacy and cyber security, and to
act ethically with honesty, integrity,
fairness and accountability.
During the year, Wesfarmers
continued enhancing its data
privacy and cyber security teams
and processes. This included the
appointment of a Group Chief
Information Security Officer, who
is supported by additional security,
data governance and data assurance
specialists. Wesfarmers has invested
in and improved proactive cyber
security controls across the Group,
including secure development training,
cyber threat intelligence scanning,
data breach monitoring, network
segmentation and access controls,
third-party data governance and
assurance processes. Additionally,
where customer cardholder data is
managed or handled, the businesses
continue to demonstrate Payment
Card Industry Data Security
Standard assurance.
In the coming year, the Group will
continue developing the cyber security
and privacy information management
systems for the Wesfarmers Advanced
Analytics Centre and its platform, as
well as the Group’s data governance
frameworks and data classification
and protection processes.
Wesfarmers expects to continue to
increase capabilities and maturity
across the Group in the areas of data
privacy, ethics and governance, and
cyber security, including assessment
processes and training.
Waste, packaging and plastic
Managing waste is a significant issue for Wesfarmers and reducing
operational and packaging waste will continue to be a major focus.
WASTE
Waste is a key area of focus for all our
divisions. Where possible, our businesses
strive to divert waste from landfill,
recognising this has significant
reputational and financial costs.
This year, we decreased our waste by
almost three per cent to approximately
171,000 tonnes. We decreased
waste disposed to landfill by almost
two per cent to approximately
54,000 tonnes.
Bunnings diverted more than 52 per cent,
Kmart Group diverted almost 79 per cent
and Officeworks diverted more than
91 per cent of their operational waste
from landfill. The results have been
achieved through initiatives such as
changing the terms of current waste and
recycling contracts, increasing diversion
rates, monitoring waste and recycling
performance, increasing reusable
packaging and reducing non-recyclable
materials in supply chain. This has
resulted in an overall improved recycling
performance for the Wesfarmers Group,
with significant cost savings expected
in the future.
During the year, Bunnings, Kmart Group
and Officeworks worked with social
enterprises, businesses and not-for-profit
organisations to provide recycling
programs for products including batteries,
paint and electrical items such as power
tools and e-waste. Since establishing the
Bring it Back program in 2015,
Officeworks has helped its customers
divert over 5,600 tonnes of unwanted
products from landfill for recycling.
PACKAGING AND PLASTIC
In 2018, the federal and state
governments set targets to reduce
environmental impacts from product
packaging. To be achieved by 2025,
the targets include ensuring all
packaging is 100 per cent recyclable
or reusable, increasing the amount
of recycled content used and phasing
out single-use plastics.
All our divisions have plans in place to
meet the 2025 packaging targets and
while good progress has been made,
it remains a significant area of focus.
Bunnings, Kmart Group, Officeworks,
Blackwoods and Workwear Group are
all APCO signatories, and report in line
with its targets annually.
Waste
RECOVERED
DISPOSED
170.7kt
2021 116.2 54.5
2020 120.5 55.5
2019 107.4 58.2
20181 351.3 153.6
20171 373.5 160.1
1 Includes discontinued operations,
including Coles.
Wesfarmers 2021 Annual Report
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Operating and financial review | Climate-related financial disclosures
Climate-related
financial disclosures
Across the world, action is being taken to reduce the amount of
carbon emitted into the earth’s atmosphere in order to mitigate rising
temperatures. We believe that business has an important role to play
in this transition. At Wesfarmers, we are acting through ambitious
targets within our own operations and by working in partnership
with global peers, non-government organisations and others.
Our climate-related disclosures and strategy have evolved significantly
in the last four years and the Taskforce on Climate Related Financial
Disclosure (TCFD) is an effective tool to assess and report on climate
strategy, risk and opportunity across the Group.
2021 HIGHLIGHTS
Reduced greenhouse gas emissions across the Group
9%
reduction in Scope 1 and 2 emissions
Retail renewable electricity targets
Retail businesses commit to 100% renewable electricity by 2025
$1.0 billion sustainability-linked bonds
Wesfarmers issued Australia’s first sustainability-linked bonds
with interest rates linked to renewable energy and emissions
performance targets
$950 million for Mt Holland lithium project
With our partner SQM, the project expects to produce lithium
hydroxide for the growing electric vehicle industry by the end
of 2024
Chemicals, Energy and Fertilisers
Waste heat recovery systems at the chemical production facilities
were optimised resulting in more than 75 per cent of electricity
usage from self-generation
Bunnings
32%
reduction in emissions from actions including
energy efficiency, solar generation and renewable
energy procurement under market-based reporting
68
Wesfarmers 2021 Annual Report
GHG EMISSIONS AND ENERGY USE
This year, Wesfarmers emitted a total
of 1,476 thousand tonnes of carbon
dioxide equivalent (CO2e) in Scope 1
and 2 emissions. This represents a nine
per cent reduction on the prior year.
Bunnings, Officeworks and Kmart
Group reduced their emissions through
the continued rollout of solar and energy
efficiency projects.
This year, total energy use across the
Group decreased by three per cent
compared to the prior corresponding
period, with 20 petajoules of energy
consumed.
Further details on the divisional
performance can be found in the
divisional pages in this annual report.
MARKET-BASED REPORTING
This year, Wesfarmers will also report
under the global Greenhouse Gas
Protocol Scope 2 Market-Based
Emissions Standard (market-based
reporting).
Importantly, this standard allows us
to accurately capture and disclose
increased use of renewable power which
is a key strategy to support the Group’s
decarbonisation goals. It also captures
increased behind-the-meter generation
and voluntary renewable energy
purchases through various contractual
arrangements.
The market-based reporting standard
aligns to the reporting requirements
under proposed Corporate Emissions
Reductions Transparency reporting.
Greenhouse gas emissions
(from continuing operations)
SCOPE 1 & 21
1,475.6ktCO2e
Market-based
20212 1,308.9
2021 1,475.6
20203
1,620.5
2019
2018
2017
1,557.7
1,435.9
1,489.7
1 Scope 1 and 2 data includes emissions for
businesses where we have operational control
under the NGER Act and emissions in
New Zealand.
2 Emissions based on GHG Protocol Scope 2
market-based reporting standard.
3 Data restated after NGER submission correction.
This year, Officeworks was proud to
commit to sourcing 100 per cent of
its electricity from renewable sources
by 2025. This commitment has been
embraced by Officeworks team members.
Pictured here are team members from the
Traralgon, Victoria store.
BACK Our emissions profile
WESFARMERS SCOPE 1, 2 AND 3 EMISSIONS
Our Scope 1 emissions predominantly
come from the manufacture of ammonia,
ammonium nitrate, sodium cyanide, LNG
and LPG at our WesCEF businesses,
the manufacturing and transportation
of industrial and medical gases by our
Coregas business, as well as the use
of natural gas and transportation fuels,
such as diesel and petrol, in our retail
businesses.
Our Scope 2 emissions come from
electricity use, predominantly in our
retail businesses.
Our Scope 3 emissions derive largely
from the production, transportation, use
and disposal of our products and the
waste generated across our operations.
We continue to focus on understanding
and managing our Scope 3 emissions.
SCOPE 1
Commercial &
urban heating &
cooling network
Refrigerant
usage
Chemical
production
& industrial
processes
Controlled
professional
transport
SCOPE 3
More detailed Scope 1, Scope 2 and
Scope 3 emissions data is available on
our website at www.wesfarmers.com.
au/sustainability
SCOPE 2
Electricity
network
1
Purchased
goods, services
& consumables
2
Capital
goods
3
Fuel & energy-related
activities
4
Upstream
transportation
& distribution
Waste
5
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
Franchises
14
15
Investments
& JVs
Wesfarmers divisional Scope 1 and 2 greenhouse gas emissions1
SCOPE 1
SCOPE 2
SCOPE 2 UNDER
MARKET-BASED
EMISSIONS REPORTING
983
927
881
829
874
829
ktCO2e
1,000
900
800
300
200
100
0
263
13
235
13
250
222
110
13
97
FY20
FY21
BUNNINGS
FY21
304
13
293
15
291
278
263
15
248
43
0
43
40
0
40
34
0
34
56
52
45
27
12
15
27
12
15
27
12
15
FY20
FY21
KMART GROUP
FY21
FY20
FY21
OFFICEWORKS
FY21
FY20
FY21
FY21
WESCEF
FY20
FY21
FY21
WIS
1 Scope 1 and 2 data includes emissions for businesses where we have operational control under the NGER Act, and emissions in New Zealand.
Wesfarmers 2021 Annual Report
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110ktCO2e2021 MARKET-BASED EMISSIONS2021 EMISSIONS235ktCO2e –Install LED lighting across the remaining store network over the next four years –Install additional solar PV systems across the store network over the next four years –Introduce networked Building Energy Management Systems (BEMS) to monitor energy use and investigate anomalies –Upgrade the store construction brief to include additional insulation, more efficient cooling systems and remove skylights to reduce heat gain and loss –Procure remaining electricity requirements from renewable sources to achieve our target of 100% renewable electricity by 2025 –Continue to access battery usage opportunitiesACTIONS TO ACHIEVE –Upgrade LED lighting across the remaining store network over the next four years –Install solar PV systems on stores where the roof is accessible, over the next four years –Optimise networked BEMS to monitor energy use, reduce heating, ventilation and air-conditioning usage and investigate anomalies –Procure remaining electricity requirements from renewable sources to achieve our target of 100% renewable electricity by 2025ACTIONS TO ACHIEVEOperating and financial review | Climate-related financial disclosuresBUNNINGSTargets and aspirationsKMART GROUP263ktCO2e2021 MARKET-BASED EMISSIONS2021 EMISSIONS293ktCO2e2025 TARGET100%renewable electricityWesfarmers reports transparently against our targets and aspirations, consistent with the Group’s desire to support the global goal of reducing greenhouse gas emissions, and the Paris Agreement.With the different emissions profiles of our diverse businesses, targets and aspirations have been set for each division or business, as appropriate.In the 2021 financial year, all divisions made steady improvements against their targets. These included energy efficiency projects, behind-the-meter generation, renewable energy procurement, chemical production improvements and investing in abatement catalyst technology. Net zero2030 TARGETNet zero2030 TARGET2025 TARGET100%renewable electricityOur journey from here –Achieve divisional short-term emissions targets and long-term net zero targets and aspirations –Investigate technologies and opportunities to accelerate progress against targets and aspirations –Increase our ambitions as necessary –Develop a better understanding of our Scope 3 emissions and consider strategic responses –Developed and adopted a Group Climate Change Policy –Adopted divisional emissions targets and aspirations –Progressed the measurement of some Scope 3 emissions –Modified performance goals and remuneration of the Wesfarmers Managing Director and the divisional managing directors to include an assessment of their performance against the Climate Change Policy and divisional emissions targets and aspirationsOur journey so farWesfarmers 2021 Annual Report70BACK 2025 TARGET2025 TARGETEmissions per unit below mean of peers –Install LED lighting in remaining store areas including receiving docks and carparks over the next three years –Install solar PV systems on 80 stores over the next three years –Leverage networked BEMS through integrated software to optimise energy usage and respond more efficiently to anomalies –Procure remaining electricity requirements from renewable sources to achieve our target of 100% renewable electricity by 2025ACTIONS TO ACHIEVE –Investigate renewable energy opportunities and ongoing energy efficiency improvements –Continued investment to optimise the abatement effectiveness of existing catalyst in the nitric acid plants. This technology reduces nitrous oxide emissions by up to 85% –Explore a portfolio of options across emissions abatement and sequestration of Scope 1 emissions, and develop a transition roadmap to support net zero aspiration –Partner with the Commonwealth Scientific and Industrial Research Organisation (CSIRO) and the Australian Energy Transition Initiative to collaborate on the CO2 roadmap and commoditisation researchACTIONS TO ACHIEVEOFFICEWORKSWesCEFINDUSTRIAL AND SAFETY –Review the branch and distribution centre (DC) network to identify new sites suitable for LED lighting, replacement of early generation LED and solar PV installation over the next four years –Introduce networked BEMS to monitor energy use and investigate anomalies –Procure additional energy requirements from renewable sources –Explore projects across clean hydrogen, solar, distribution efficiency and minimising fugitive emissions at CoregasACTIONS TO ACHIEVE2025 TARGET100%renewable electricity34ktCO2e2021 MARKET-BASED EMISSIONS2021 EMISSIONS40ktCO2e874ktCO2e2021 MARKET-BASED EMISSIONS2021 EMISSIONS881ktCO2e2021 MARKET-BASED EMISSIONSex-CoregasCoregas11ktCO2e16ktCO2e13ktCO2eex-CoregasEmissions per unit below mean of peersCoregas2021 EMISSIONSex-CoregasCoregas11ktCO2e16ktCO2eNet zero2050 ASPIRATIONNet zero2050 ASPIRATIONNet zero2030 TARGET Wesfarmers 2021 Annual Report71OVERVIEW01OPERATING AND FINANCIAL REVIEW02GOVERNANCE03DIRECTORS’ REPORT04FINANCIAL STATEMENTS05SIGNED REPORTS06SHAREHOLDER AND ASX INFORMATION07 Operating and financial review | Climate-related financial disclosuresThe Wesfarmers Board has responsibility for managing the Group’s response to climate change. Climate change risk management is a permanent item on the Wesfarmers Operating Framework and is discussed by the Board and its Audit and Risk Committee. The Board approves the Group’s climate change strategy including the Group Climate Change Policy, targets, strategic climate change-related decisions and climate-related disclosures. The Board also receives regular reporting and oversees climate change risk management. A consolidated Group Risk Report is provided to the Audit and Risk Committee and the Board for review and approval. The Corporate Plan is subject to a similar process and includes emissions forecasts. The Remuneration Committee makes recommendations to the Board regarding executive performance goals linked to performance against the Climate Change Policy and achievement of divisional emissions reduction targets and aspirations.The Wesfarmers Leadership Team reviews emerging risks and opportunities, leads stakeholder engagement and facilitates the sharing of best practice throughout the Group. Each divisional board and divisional management team is responsible 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 and risk and compliance committees also oversee climate change-related risks relevant to the division.In the 2021 financial year, climate change risk management and opportunity assessments were further embedded into the annual Corporate Plan processes. Since 2014, Wesfarmers has considered an internal shadow carbon price as part of capital allocation decisions for projects likely to result in direct carbon emissions. This carbon price is described on our sustainability website at www.wesfarmers.com.au/sustainability EMISSIONS TARGETS Our individual divisional emissions targets and aspirations reflect attributes of the relevant division including the businesses’ emissions profile, expected future growth, recent emissions reductions and opportunities to reduce emissions. Absolute targets are intended to reduce emissions. Intensity targets are intended to reduce emissions per unit of production while not limiting business growth.Potential for baseline changes The Group Climate Change Policy provides flexibility to accommodate significant changes to the scale of an existing business. Changes to a baseline must be approved by the Wesfarmers Board.Mergers and acquisitions The Group Climate Change 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 Climate Change Policy and establish an appropriate emissions target or aspiration.GovernanceWESFARMERS GROUP –A Group Climate Change Policy sets minimum standards expected of our divisions –Quarterly Carbon and Energy Forums are held across the Group to share best practice –A shadow carbon price is built into Wesfarmers’ Capital Expenditure Policy –Risk tools are used to undertake scenario analysisWesfarmers Board, Audit and Risk Committee and Remuneration Committee –Receives regular reporting –Provides governance over climate change risks –Sets risk appetite –Sets performance goals and remunerationWESFARMERS DIVISIONSDivisional boards and audit, risk and compliance committees –Receive regular reporting of emissions and energy use –Provide governance over climate change risks and support the prioritisation of opportunitiesSenior management and the corporate office –Manage carbon and energy teams –Set the climate change policy and strategies for the year ahead –Facilitate training –Report to their divisional boards, the Wesfarmers Board and Audit and Risk CommitteeCarbon and energy teams –Implement Climate Change Policy –Have robust processes for recording emissions data –Implement carbon reduction projects –Meet regularly to share best practice through Wesfarmers’ Carbon and Energy ForumOur journey from here –Continue to implement and refine our Group Climate Change Policy –Embed divisional reporting against our Group Climate Change Policy –Developed our Group Climate Change Policy –All emissions reported regularly internally to better understand trends in our performance –Integrated climate change with the Group risk and strategy processesOur journey so farWesfarmers 2021 Annual Report72BACK SCENARIO ANALYSIS Scenario analysis is at the centre of our climate change strategy, risk management approach, opportunity identification and emission reduction work. We continue to review the latest scientific insight and implications for the scenarios, our climate change strategy and our risks and opportunities. This year we continued the Group-wide scenario analysis undertaken in recent years. Each division reviewed their detailed risk and opportunity assessments and tested them under three climate scenarios to ensure they continue to reflect their key focus areas. The results are summarised on pages 77 to 80.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 (one to five years), medium term (five 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 National Resource Management Regions Report. 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.IMPACTS ON ORGANISATIONAL STRATEGY Wesfarmers recognises climate change risk as a material risk in our risk profile and we include it in our risk appetite statement. This year we have looked at climate change risks and how they interconnect with other risks to our business including through supply chains and to human rights. This analysis shows that our management of climate change risks to our business is highly dependent on strategic decisions and influenced by other risk areas. For example, supply chain and sourcing management, customer expectations and the potential impacts on communities are impacted by our strategic approach to risk mitigation and climate risk assessments.We expect that climate change will affect all areas of our business and organisational strategies to an extent. In the short term, potential impacts to our business will largely be influenced by stakeholder views and requirements, existing climate conditions and disruption from natural disasters. These short-term changes are unlikely to influence our overall organisational strategies, however they help us understand emerging trends and enhance our existing approach.The International Labour Organization (ILO) has estimated that action to meet the Paris Agreement will create 24 million jobs in clean energy generation, electric vehicles and energy efficiency. This will likely result in major structural adjustment including job losses which may be focused on certain industries and communities.Those communities most impacted will need support to ensure the transition is fair and equitable — a just transition. There is potential for our businesses to work with other stakeholders to support those directly impacted by low carbon policies.Strategy −Strong, very fast reduction in emissions driven by government policy, with a focus on minimising climate change −The energy system rapidly transforms 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 reuse and recycle more1.5oC −A market-led transition, enabled by a policy environment which drives rapid reductions in emissions −A decentralised energy system 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 −No coordinated global action on emissions reduction −Business does not change significantly to address climate change −Fossil fuels deliver approximately 50 per cent of the global energy mix −Acute (extreme) and chronic (long term) physical impacts of climate change are felt, with significant cumulative impact on the economy −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 conflict4oC2oCOur journey from here –In-depth climate change scenario analysis based on updated scenarios and the latest available scientific information from the Intergovernmental Panel on Climate Change (IPCC) Sixth Assessment Report –Further analysis of the impact of climate change on our supply chains and product mix –Portfolio analysis and strategic analysis –Analysed the impact of climate change under different scenarios –Identified risks, opportunities and strategic responses for our divisionsOur journey so far Wesfarmers 2021 Annual Report73OVERVIEW01OPERATING AND FINANCIAL REVIEW02GOVERNANCE03DIRECTORS’ REPORT04FINANCIAL STATEMENTS05SIGNED REPORTS06SHAREHOLDER AND ASX INFORMATION07 Operating and financial review | Climate-related financial disclosuresRisks and opportunitiesMajor sourcing countriesWesfarmers sources products from a variety of regions across Australia, New Zealand and Asia. Major sourcing regions vary by business, and also by product within each of our businesses. In relation to countries representing at least two per cent of the Group’s total product sourcing by purchases, Cambodia, China, Indonesia, Japan, Malaysia, Sri Lanka, and Vietnam represent the highest cumulative climate hazards driven by increased storm frequency and severity, sea-level rise, heatwaves and extreme variability in precipitation and weather patterns.Each country has unique climate impacts including decreased health outcomes, food and water shortages, infrastructure damage and reduced economic activity. Extreme weather in these countries may: –Reduce the availability and quality of raw materials such as cotton, linen, rubber, metals and plastics –Impact availability and price of chemicals used to produce synthetic textiles –Reduce the availability of timber and pulp –Increase the incidence of crop damage from pestsCOUNTRYKEY PRODUCTS SOURCEDAustraliaHorticulture products, garden care, paint, chemicals, paperBangladeshApparelCambodiaGeneral merchandise, apparelChinaElectronics, general merchandise, apparel, footwear, paper, furnitureIndiaApparel, garden care, general merchandise, landscaping materials, hand toolsIndonesiaApparel, timber, hand tools, plasticsJapanPower tools, writing and messaging, printers and consumables, panels, networking, cutting toolsMalaysiaElectronics, plastics, personal protective equipmentNew ZealandHorticulture products, timber and boards, general merchandisePakistanApparel, soft homewaresSri LankaSafety productsVietnamGeneral merchandise, electronicsFINANCIAL RISKSClimate change may have both a negative and positive impact on our financial performance. Negative impacts will be minimised through focus on active risk management, implementation of mitigation strategies and by realising opportunities.Business critical analysis helps inform our strategies and ensure they are targeted, effective and timely. We are planning for various possible climate scenarios and integrating relevant assumptions into our corporate planning process. In the medium to long term, the extent of financial impacts depends on how well we respond to the various threats and the effectiveness of strategies to capitalise on opportunities. For example, if we identify an increased risk of supply or the cost of a particular product, we will investigate availability of alternative cost-effective products. For investment decisions, we consider potential changes to regulation to inform future expectations for the business and the appropriate weighted average cost of capital.PHYSICAL CLIMATE CHANGE RISKSDuring the year, we undertook macro-level assessment of physical climate change risks across Australia, major sourcing countries, ports and shipping routes. We identified top inherent physical climate change risks in our major sourcing countries and the impact this may have on key products sourced. The map on the following page highlights priority areas requiring further assessment. It is not exhaustive of our entire supply chain and all climate change risks, nor is it intended to be used as a climate model to depict physical impacts. During the 2022 financial year, we will build on this work, using the latest scientific information available to understand climate hazards and impacts for our most critical raw materials and products.The macro-level assessment undertaken this year shows hazards with the largest increase due to climate change across the supply chain associated with sea-level rise, storm frequency and severity, ocean changes, heatwaves, and areas of water stress caused by changes in precipitation and extreme variability in weather patterns. These climate hazards will have varying impacts and on the map we have included the most material hazards of the 11 identified below.Ports with highest climate riskOther ports with climate riskKey shipping routeKeyStormsSea-levelHeatwavesFloodsPrecipitationOcean changeWarmingFreshwater deficitDeforestationDroughtFiresClimate hazards *Most resilientMost impactedHeat stress – extreme weather risk* Climate hazards as identified by IPCC Climate Change 2014: Impacts, Adaptation, and Vulnerability Report, Journal: Nature Climate Change - Locational climate hazards, University of Hawaii Department of Geography, MoraLab: Applications Prototype LabWesfarmers 2021 Annual Report74BACK Ports
All ports have a high level of potential climate hazards
with the ports of Xiamen, Shekou, Yantian, Taichung,
Chattogram, Port Klang and Pipavav representing
the highest cumulative climate hazards driven by
increased severity and frequency of storms, sea-level
rise, heat waves and extreme variability in weather
and precipitation patterns. These climate hazards
bring an increased risk of damage to ports and may
cause delays to loading and departure.
Key shipping routes
Our major sourcing countries are in Asia
which makes transport routes relatively
short. Resource scarcity due to physical
impacts of climate change could require
Wesfarmers to source from further away,
increasing our exposure to shipping and
potential costs associated with emissions.
Shipping routes that include the Solomon
Sea, Philippine Sea, South China Sea,
Malacca Strait and to a slightly lesser
extent the Andaman Sea represent the
highest level of cumulative hazards, driven
by increased storm severity and
frequency, sea-level rises and extreme
variability in weather patterns. An
increased risk of typhoon frequency and
severity may result in damage to ships
and lost products, longer shipping routes
and delays to avoid such hazards.
Australia and New Zealand
Wesfarmers’ domestic supply chains and store networks are geographically diverse.
Perth, Sydney and Adelaide represent some Australian locations with the highest level
of cumulative climate hazards largely driven by increased storm frequency and severity,
sea-level rises, ocean acidification, increasing temperatures and increased incidence
of fire.
Extreme weather including flooding, rising temperatures and associated water
scarcity may:
– Damage agricultural-based inputs, reduce growing yields and impact growing
regions of our suppliers and customers
– Damage infrastructure and stock
– Impact transport logistics
– Require changes to our store operations
– Require changes to the way we make products and how customers use them
Wesfarmers 2021 Annual Report
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Operating and financial review | Climate-related financial disclosures
Bunnings, Kmart Group and Officeworks commit
to 100 per cent renewable electricity by 2025
Reducing emissions in a growing business with an expanding store network is a
challenge which Bunnings, Kmart Group and Officeworks are facing into, with a range
of initiatives aimed at reducing energy consumption and transitioning to more renewable
electricity. The installation of LED lighting and solar photovoltaic (PV) systems has
seen substantial reductions in energy use across their businesses, with the systems
generating between 30 and 35 per cent of a store’s energy needs.
Bunnings continued to expand the network of PV systems with 85 sites completed
at 30 June 2021, and 15 more per year planned to 2025. The total installed capacity
of these systems is over 22 megawatts, equivalent to powering 4,500 households.
Bunnings purchased 30 per cent GreenPower for most large sites in Australia from
1 July 2020. In February 2021, it launched a trial energy efficient store design at its
Melton East warehouse in Victoria and the performance of the design features will
be monitored to inform future store designs.
Since 2015, Kmart Group has successfully reduced its emissions by 36 per cent per
square metre of floor space, and since 2018 Officeworks has achieved a 24 per cent
reduction in emissions per square metre of floor space. This has been achieved
through installing more energy efficient LED lighting and networked BEMS which
monitor and regulate energy usage. This year, Officeworks installed seven PV
systems with 12 more per year planned to 2025.
Image courtesy of HESC Project Partners.
Coregas focuses on hydrogen pilot
The transition to a hydrogen economy is underway, and Australia is well-positioned to
play a significant role thanks to its renewable resources and proximity to energy-hungry
economies.
Coregas is involved in Australia’s largest hydrogen project — the Hydrogen Energy
Supply Chain gasification plant in the Latrobe Valley, Victoria — which will see Coregas
aiming to load the world’s first liquid hydrogen ship in Victoria for transport to Japan.
It aims to demonstrate the liquid hydrogen supply chain from production to shipment.
If successful, it could lead to the establishment of one of the largest hydrogen hubs in
the world.
Coregas has also focused on developing domestic hydrogen mobility solutions.
With support from the Port Kembla Community Investment Fund, Coregas aims to
commission the first Australian hydrogen refuelling station for trucks. The station will
have daily capacity for 10 hydrogen-powered trucks — also known as fuel cell electric
vehicles. The first two hydrogen-powered prime movers will operate in the Coregas fleet
from early 2022. Their emissions profile is around half that of diesel prime movers. There
are more than 100,000 heavy trucks in Australia, so transitioning heavy transport will
reduce carbon emissions and also noise, and particle pollution.
CSBP uses waste heat
to reduce emissions
CSBP has been using a traditional yet
modern ‘unsung technology hero’ in
its bid to reduce its greenhouse gas
emissions. Capturing waste heat from its
chemical processes to generate electricity
has been part of CSBP’s everyday
efforts since its Kwinana site was first
established in 1968.
Waste heat recovery systems are an
integral part of the design of several
of CSBP’s chemical plants in Kwinana,
generating more than 75 per cent of the
138-hectare site’s electricity requirements.
CSBP is one of the only industrial sites
along the Kwinana Industrial Strip that
generates the majority of its electricity
requirements.
CSBP’s waste heat recovery systems
capture heat, which is a by-product
from its nitric acid, sodium cyanide and
ammonia plants, and uses it to heat
water, creating steam that drives a turbine
to generate electricity. If the heat was
not utilised, it would dissipate into the
atmosphere.
This is an effective way for the business
to limit its greenhouse gas emissions,
generate clean power, increase efficiency
and save energy – allowing CSBP to
benefit from circular economy strategies
which align with its sustainability goals.
CSBP General Manager Ammonia/
Ammonium Nitrate, Ryan Hair, said
delivering environmental benefits are
part of the team’s responsibilities.
“We are proud of the fact that our reliance
on the state power grid is very small.
In the past, we have been substantially
self-sufficient. The best generation
year was 2020 when we generated
144GWh – that’s enough electricity
to power 27,700 homes,” said Ryan.
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Wesfarmers 2021 Annual Report
BACK Risks and opportunities
The physical and transitional risks of climate change need to be considered in the context of the diversity of Wesfarmers’
businesses including in industry, operations, products, supply chain, customers, geography and scale.
While climate change presents risks, there are also opportunities for the Group and its 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. In assessing these opportunities, Wesfarmers considers environmental
stewardship essential to evaluate investment decisions over the long term.
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.
TIMEFRAME - SHORT TERM (FROM 1-5 YEARS)
SCENARIO
1.5°C 2°C 4°C
RISKS
A Extreme weather in localised areas may disrupt our
supply chain, damage infrastructure or stores, damage
stock and impact heavily on our team members.
AC For some of our industrial businesses, increasing
ambient temperatures decreases the productivity
of certain chemical processes.
PL
M
Carbon-intensive inputs and products may become
more scarce or more expensive if these inputs and
sectors cannot transition or offset their emissions.
It may be difficult on leased premises to access
renewable energy or install renewable generation.
Supply and cost of some raw materials and inputs such
as cotton, linen, rubber, metals and plastics may be
impacted or more expensive.
PL
R
AC
PL
M
AC Global and domestic supply chains
may be disrupted.
RE
R
RE
R
ES
R
ES
R
RE
PS
M
R
MITIGATION AND OPPORTUNITIES
Improved analysis of new store locations to avoid flood
plains or ensure the store is built above prior flood levels.
We may also hold additional stock to manage this risk.
We provide support programs for team members
impacted by bushfires and other extreme weather
events to assist in recovery and rebuilding efforts.
Continue to explore alternate technologies to cool
chemical manufacturing processes while also trying
to control costs and the emissions intensity of the
these processes.
Transport providers, which represent a large proportion
of the carbon intensity of our products, are investing
in alternate technologies.
Concurrently many international suppliers are
receiving government support to transition to greener
or renewable sources which will also reduce the
embodied carbon in our products.
Introduction of policies that require new stores, with
accessible rooftops, to have solar generation. For the
current store network, we work with smaller landlords
to install renewable generation. For larger landlords,
the transition is already occurring. An increasing focus
on renewable procurement options provides additional
flexibility for store networks.
Assess strategies to move away from virgin inputs and
into circular economy and recycable alternatives.
Diversify supplier base and geographic footprint to
assist in prompt repositioning of supply chains as well as
holding additional stock in-country and in domestic DCs
to buffer delays from disruption. Prioritising long-term
supplier relationships to facilitate fast solutions to critical
equipment delays.
Physical risk
Acute AC Acute and Chronic
Transition risk
PL Policy & Legal M Markets R Reputation L Liability
= most relevant
Opportunities
RE Resource Efficiency ES Energy Source PS Products and Services M Markets R Resilience
Wesfarmers 2021 Annual Report
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Operating and financial review | Climate-related financial disclosures
TIMEFRAME - SHORT TERM (FROM 1-5 YEARS)
SCENARIO
1.5°C 2°C 4°C
RISKS
PL
R
M
The introduction of Carbon Border Adjustment
Mechanisms by the EU, UK, USA, Canada, China
and Japan on imports from countries that are not
appropriately pricing carbon will have a detrimental
impact on carbon intensive exports.
PL Prices may increase as a result of input cost
pressures (including carbon pricing), leading
to a decrease in consumer demand.
Increasing environmental regulation may impact
our customers’ projects.
LNG and LPG fuels could be affected by carbon
pricing compared to liquid fuel solutions.
M
PS
PS
M
MITIGATION AND OPPORTUNITIES
Engage with the Federal Government to reiterate
that a carbon price would provide certainty for future
investment and may mitigate this risk. Applying an
internal carbon price to our investment decisions
ensures we are properly valuing the cost of carbon and
will be well-positioned if the Australian Government
moves into alignment with the global community.
Ensure we maintain a business model that can pivot
both offer and range to meet changes in consumer
demand at the right price point, while doing all we can
within our businesses control to keep costs low.
For our industrial businesses, there may be opportunities
for efficient operators as relatively inefficient and more
carbon-intensive operators become less competitive.
Continue to assess opportunities in the carbon capture
and storage, and carbon capture and utilisation areas.
R Reputational concerns may drive businesses to more
proactively manage carbon and other environmental
risks.
R Continue to invest in technology to reduce Scope 1
emissions, including collaboration with research
organisations.
TIMEFRAME – MEDIUM TERM (FROM 5–15 YEARS)
SCENARIO
1.5°C 2°C 4°C
RISKS
AC Suppliers of commodities or key inputs may be
impacted including certain timber suppliers to
Bunnings and pulp suppliers to Officeworks, which
may experience shortages because of insufficient
domestic supply and extreme weather. Green life stock
is impacted by extreme weather events such as heat
waves and hail storms.
In some areas, extreme weather including flooding,
rising temperatures and associated water scarcity may:
− damage agricultural-based inputs, reduce yields and
impact growing regions;
− require changes to the way we make products and
how much we can sell; and
− reduce plant productivity and increase downtime.
AC
M
R
AC Extreme heat and more regular hot days may impact
employee health, safety and productivity.
AC Retail customers may prefer air-conditioned stores and
undercover parking, requiring a change to store design
and increasing operating costs. Customer behaviour
may change with reduced foot traffic in retail stores and
increased online shopping.
RE
R
RE
R
RE
R
ES
PS
MITIGATION AND OPPORTUNITIES
Improve supplier diversity. Suppliers that are aware
of the risk may also look at alternate inputs, e.g.
composite wood-based products that incorporate
recycled materials, or non-timber plant-based
alternatives to pulp for paper production.
Progress strategies to move away from virgin inputs and
into circular economy or recycled alternatives. Various
stock lines through the retail businesses are now made
from recycled and recyclable content.
CSBP has invested in plant optimisation technology to
continuously monitor all aspects of plant performance.
It has also invested in improved catalyst abatement
research to identify strategies which further reduce
emissions intensity. CSBP is also continuing to assess
opportunities in recycled wastewater.
Invest in the energy efficiency of our network including
insulation, to assist temperature control, as well as
investigating other additional technologies. In the DCs
where extreme heat is particularly problematic, we are
investing in energy efficient ways to cool facilities, alongside
amended shift hours and additional breaks to manage this.
In our manufacturing operations, we adapt by altering
shift hours and investing in energy efficient ways to cool
facilities. Additionally, as technology improves less physical
exertion is required within the manufacturing process.
Install energy efficiency technology and source renewable
energy to reduce costs and emissions.
Continue to work with landlords to invest in renewable
energy on rooftops and energy efficiency projects.
Continue to invest in online delivery platforms to enhance
the offer to our customer base.
Continue to review our approach to store and DC design
to update design standards and include solar power and
energy efficient fit-outs as standard.
Continue to assess and evolve the store format to meet
changing customer preferences.
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Wesfarmers 2021 Annual Report
BACK TIMEFRAME – MEDIUM TERM (FROM 5–15 YEARS) CONTINUED
SCENARIO
1.5°C 2°C 4°C
RISKS
AC Extreme weather may mean some lines of commercial
property insurance become harder or more expensive
to obtain.
Increasing impacts from climate change may mean
access to debt funding becomes more difficult as
financiers’ risk profiles change.
AC
R
L
AC Extreme heat and prolonged drought may increase
water scarcity, affecting our customers or our water-
intensive operations.
AC
M
PL
M
R
PL
M
R
M
R
PL
M
PL
M
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 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 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.
Customers and other stakeholders, including investors,
financiers and activists, may increasingly focus on the
sustainability of our products.
Regulatory changes such as carbon 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.
Carbon 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.
M
For WesCEF, demand for natural gas may fall as
consumers favour renewables and hydrogen.
RE
R
M
R
RE
R
M
R
RE
PS
PS
M
PS
M
RE
R
RE
M
ES
M
MITIGATION AND OPPORTUNITIES
Ensure company assets including supply chain are
designed to be prepared for potential extreme weather
events, particularly where, for example, assets are
located in a flood plain.
We undertake a self-insurance function to mitigate
premium increases.
Ensure our industrial operations are prioritising
reductions in their emissions and analysing the risks
and opportunities presented by climate change and the
impacts on their business.
Ensure we are meeting our carbon emissions targets
and aspirations.
CSBP’s water supply strategy developed to ensure the
long-term supply of suitable quality water for ongoing
operations. Technology solutions for recycled wastewater
via reverse osmosis systems provide additional supply
opportunities.
Diversify supplier base and geographic footprint to assist
in prompt repositioning of supply chains and inputs.
Examine alternate inputs from a composition, quality,
price and sourcing standpoint. Actively investigate
circular economy inputs and greener choices. As the
cost of one input increases, other options will become
viable.
Continue to assess tree species that require less water
and are more resilient to extreme heat. Support the
transition to more circular products.
Transitioning to lower carbon operations ahead of our
competitors may provide efficiency, cost or marketing
opportunities.
Continue to assess the operating environment,
competitors and key drivers of change, as well as
enhancing diversified product offerings, helping to
reduce risk.
Continue to invest in technology to reduce Scope 1
emissions, in collaboration with research organisations.
Continue to maximise plant efficiency to minimise cost
of production.
We incorporate a carbon price into our capital allocation
decisions to reduce this risk.
In the shorter term, the use of natural gas as a transition
fuel is an opportunity. In the longer term, investing in
R&D for alternate energy sources and technologies,
including green ammonia, is a priority to capitalise on
expanding markets as they develop.
Physical risk
Acute AC Acute and Chronic
Transition risk
PL Policy & Legal M Markets R Reputation L Liability
= most relevant
Opportunities
RE Resource Efficiency ES Energy Source PS Products and Services M Markets R Resilience
Wesfarmers 2021 Annual Report
79
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Operating and financial review | Climate-related financial disclosures
TIMEFRAME – MEDIUM TERM (FROM 5–15 YEARS) CONTINUED
SCENARIO
1.5°C 2°C 4°C
RISKS
R
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.
M
T
Customer preference for less emissions-intensive
products may impact demand for WesCEF Coregas
products.
If the transition to a low carbon economy is not
managed effectively some communities, or certain
industries may be adversely impacted.
AC
PL
R
MITIGATION AND OPPORTUNITIES
Continue to build further circular and low carbon
economy awareness in our business. For example,
a continued focus on reducing plastic in product and
packaging, and increased recycling rates as well as
actively investigating circular economy opportunities
to transition product lines where possible.
Replacement of componentry can be problematic and
a focus on durability and ability to repair, or where this
is not possible, providing opportunities for recycling
of products at end of life.
Projects are designed and developed with the
opportunity to change fuel source in mind.
In the transport sector the move to hydrogen is an
opportunity our Coregas business is well-placed to
capitalise on.
Focus on supporting policy designed to enable a just
transition for all affected communities or industries.
PS
M
ES
PS
PS
R
TIMEFRAME – LONG TERM (FROM 15+ YEARS)
SCENARIO
1.5°C 2°C 4°C
RISKS
AC 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 within Western Australia, reducing
fertiliser demand or making alternative suppliers more
competitive. Changes to farming practices to improve soil
quality may impact fertiliser demand. Extreme heat and
increased humidity may also reduce plant productivity,
increase downtime and reduce product quality.
R Our industrial businesses may need to respond to
increasing stakeholder activism relating to the carbon
intensity of their operations.
M Our businesses may need to adapt as the economy
transitions to low carbon products and customer
demand changes or costs increase.
MITIGATION AND OPPORTUNITIES
M
PS
Explore alternative markets less affected by reduced
precipitation. Investigating additional services,
particularly in technology and data to assist farmers
maximise value and efficiency. WesCEF is also investing
in adjacent opportunities such as granular fertiliser that
acts as a nitrification inhibitor to improve plant uptake
and reduce nitrous oxide emissions.
R Continuing to evaluate and invest in emissions reduction
technology and engage in industry collaboration to
prioritise decarbonisation opportunities and greener
product alternatives.
M
R
Continue to build on the capabilities and skills of our
teams through recruiting and developing outstanding
people to adapt to risks and to take advantage of the
opportunities associated with climate change.
L
R
R
PL
M
AC
L
Increased liability risk associated with class actions over
climate change or lack of management of environmental
risk.
R Sustainability is a key strategy for Wesfarmers.
Our businesses are managed with carbon awareness.
This awareness helps to inform investment decisions.
Changing stakeholder risk profiles, particularly in relation
to carbon intensive operations, may make access to
funding more difficult.
M
R
Continue to invest in technology to reduce emissions.
Engage in R&D initiatives to develop strategies for
the longer term including technology such as green
ammonia.
As insurance companies focus on the carbon intensity
of their insurance portfolio, some lines of commercial
insurance may become harder to obtain or more
expensive.
R Continue to invest in technology to reduce emissions.
Engage in R&D initiatives to develop strategies for
the longer term including technology such as green
ammonia.
Physical risk
Acute AC Acute and Chronic
Transition risk
PL Policy & Legal M Markets R Reputation L Liability
= most relevant
Opportunities
RE Resource Efficiency ES Energy Source PS Products and Services M Markets R Resilience
80
Wesfarmers 2021 Annual Report
BACK Our Conclusion: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 disclosures (‘selected sustainability and Indigenous affairs disclosures’) published in the Wesfarmers 2021 Annual Report, the Wesfarmers sustainability website and Wesfarmers’ Modern Slavery Statement 2021 for the financial year ended 30 June 2021. Based on our review, nothing came to our attention that causes us to believe that the subject matter for our review has not been prepared and presented fairly, in all material respects, in accordance with the criteria defined below. What our review covered (subject matter)Ernst & Young (‘EY’ or ‘we’) reviewed:• Wesfarmers’ approach to defining report content (‘materiality assessment’)• Wesfarmers’ reported alignment to ‘core’ level of ‘in accordance’ requirements of the Global Reporting Initiative’s (‘GRI’) Sustainability Reporting Standards (‘GRI Standards’)• Wesfarmers’ Modern Slavery Statement 2021• Selected sustainability and Indigenous affairs disclosures in the Annual Report, limited to the following: −‘Group Sustainability Performance’ and ‘Climate-related financial disclosures’ sections of the Operating and Financial Review −The divisional sections for Bunnings (pp 28-30), Kmart Group (pp 35-37), Officeworks (pp 42-44), Chemicals, Energy and Fertilisers (pp 48-50), and Industrial and Safety (pp 54-56).• Selected sustainability and Indigenous affairs disclosures, including the performance metrics set out in the table below, presented on Wesfarmers’ website under wesfarmers.com.au/sustainability as at 26 August 2021.Performance metrics• Scope 1, Scope 2, and Scope 3 greenhouse gas emissions in kilotonnes of carbon dioxide equivalent (ktCO2e)• Waste disposed and recovered in kilotonnes (kt)• Water consumption in megalitres (ML)• Energy consumption in petajoules (PJ)• Workplace health and safety data (Total Recordable Injury Frequency Rate (TRIFR) and workers compensation claims)• Community contributions (AUD)• Aboriginal and Torres Strait Islander employee numbers• Aboriginal and Torres Strait Islander procurement spend (AUD)• Ethical sourcing audit program data• Employment and People dataCriteria In preparing its sustainability and Indigenous affairs disclosures, Wesfarmers applied the following criteria: • GRI Standards, including the Reporting Principles for defining report quality and content• National Greenhouse and Energy Reporting Act 2007 for Scope 1 and 2 greenhouse gas data• GHG Protocol guidance for Scope 3 greenhouse gas data and Scope 2 market-based emissions• Other selected Criteria, as determined by Wesfarmers, and as set out in its sustainability disclosures.Key responsibilities EY’s responsibility and independenceOur responsibility was to express a conclusion on the selected sustainability and Indigenous affairs disclosures based on our review. We were also responsible for maintaining our independence and confirm that we have met the requirements of the APES 110 Code of Ethics for Professional Accountants, including independence, and have the required competencies and experience to conduct this assurance engagement. Wesfarmers’ responsibility Wesfarmers management (‘management’) was responsible for selecting the Criteria and preparing and fairly presenting the sustainability and Indigenous affairs disclosures in accordance with that Criteria. This responsibility includes establishing and maintaining internal controls, adequate records, and making estimates that are reasonable in the circumstances/Our approach to conducting the reviewWe conducted our review in accordance with the Australian Auditing and Assurance Standards Board’s Australian Standard on Assurance Engagements Other Than Audits or Reviews of Historical Financial Information (‘ASAE 3000’), Assurance Engagements on Greenhouse Gas Statements (‘ASAE 3410’), and the terms of reference for this engagement as agreed with Wesfarmers on 23 February 2021.Summary of review procedures performed A review consists of making enquiries, primarily of persons responsible for preparing the selected sustainability and Indigenous affairs disclosures, related information in the 2021 Annual Report and Wesfarmers’ Modern Slavery Statement 2021 and applying analytical and other review procedures. Our procedures included: • Assessing Wesfarmers’ adherence to the GRI Standards Reporting Principles for defining report quality and report content, including the processes involved at a divisional and corporate level• Determining whether material topics and performance issues identified during our procedures had been adequately disclosed• Interviewing selected personnel from divisional and corporate offices, to understand the key sustainability issues related to the subject matter and processes for collecting, collating and reporting the performance data during the reporting period• Where relevant, gaining an understanding of systems and processes for data aggregation and reporting• Performing analytical tests and detailed substantive testing to source documentation for material qualitative and quantitative information• Checking the accuracy of calculations performed• Obtaining and reviewing evidence to support key assumptions in calculations and other data• Reviewing selected management information and documentation supporting assertions made in the subject matter• Checking that data and statements had been accurately transcribed from corporate systems and/or supporting evidence• Reviewing the presentation of claims, case studies and data against the relevant GRI principles contained in the criteria.We believe that the evidence obtained was sufficient and appropriate to provide a basis for our limited assurance conclusion. Limited AssuranceProcedures performed in a limited assurance engagement vary in nature and timing from, and are less in extent than, for a reasonable assurance engagement. Consequently, the level of assurance obtained in a limited assurance engagement is substantially lower than the assurance that would have been obtained had a reasonable assurance engagement been performed. Our procedures were designed to obtain a limited level of assurance on which to base our conclusion and do not provide all the evidence that would be required to provide a reasonable level of assurance.While we considered the effectiveness of management’s internal controls when determining the nature and extent of our procedures, our assurance engagement was not designed to provide assurance on internal controls. Our procedures did not include testing controls or performing procedures relating to checking aggregation or calculation of data within IT systems. Use of our Assurance StatementWe disclaim any assumption of responsibility 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.The extent of our review included the information available at www.wesfarmers.com.au/sustainability as at 26 August 2021. We provide no assurance over changes to the content of this web-based information after the date of this assurance statement, nor over any information available through web-links that are beyond the boundary of the selected sustainability and Indigenous affairs disclosures and related information in the 2021 Annual Report and Wesfarmers’ Modern Slavery Statement 2021. Independent Limited Assurance Statement to the Management and Directors of Wesfarmers LimitedErnst & YoungA member firm of Ernst & Young Global Limited. Liability limited by a scheme approved under Professional Standards LegislationTerence Jeyaretnam FIEAustPartner Melbourne, Australia 26 August 2021 Wesfarmers 2021 Annual Report81OVERVIEW01OPERATING AND FINANCIAL REVIEW02GOVERNANCE03DIRECTORS’ REPORT04FINANCIAL STATEMENTS05SIGNED REPORTS06SHAREHOLDER AND ASX INFORMATION07 Sharon WarburtonDIRECTORBBus (Accounting & Business Law), FCA, FAICD, FAIBAge 51Term: Director since August 2019.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, infrastructure and property sectors, along with significant expertise in governance and remuneration. She was previously Executive Director Strategy and Finance at Brookfield Multiplex, and 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): -Director of Thiess Group Holdings Pty Limited (since July 2021) -Director of Blackmores Limited (since April 2021) -Director of Worley Limited (since February 2019) -Director of Gold Road Resources Limited (since May 2016) -Director of Karlka Nyiyaparli Aboriginal Corporation RNTBC (since December 2020) -Director of the Perth Children’s Hospital Foundation (since February 2014) -Member of the Australia Takeovers Panel (since May 2015) -Director and Co-Deputy Chairman of Fortescue Metals Group Limited (retired March 2020) -Director of NEXTDC Limited (retired March 2020)Rob Scott MANAGING DIRECTORB.Comm, MAppFin, CA, GradDipAppFinAge 52Term: Director since November 2017.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): -Chairman and director of the Flybuys joint venture with Coles Group Limited (since December 2018, resigned as Chairman in June 2020) -Chairman of Rowing Australia (since October 2014) -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)Michael Chaney AOCHAIRMANBSc, MBA, Hon. LLD W.Aust, FAICDAge 71Term: 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 Northern Star Resources Limited (since July 2021) -Chairman of the National School Resourcing Board (since November 2017) -Director of the Centre for Independent Studies (since 2000) -Governor of the Forrest Research Foundation (retired December 2020) -Member of the Gresham Resources Royalties Fund Investment Committee (since June 2020)The Right Honourable Sir Bill English KNZMDIRECTORBA (Hons), BCom (Otago)Age 59Term: 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) -Chairman of Manawanui Support Ltd (since April 2019) -Chairman of Impact Lab Ltd (since May 2019) -Director of The Todd Corporation Limited (since May 2021) -Director of The Instillery (since August 2019) -Director of Centre for Independent Studies (since March 2021) -Advisor to Jarden Financial Services (since May 2018) -Member of Macquarie Infrastructure and Real Assets’ Impact Advisory Group (since March 2021)GovernanceWesfarmers 2021 Annual Report82Board of DirectorsBACK Anil SabharwalDIRECTORBMath, BCompScAge 43Term: Director since February 2021.Skills and experience: Anil is Vice President of Product Management at Google and the company’s most senior product and engineering leader in Australia and New Zealand. He is also an advisor to venture capital firm, AirTree Ventures. Anil’s 12 years at Google have included leading the strategy and team behind the launch of Google Photos in 2015, which reached more than one billion monthly active users within four years. He later led product, design and engineering for Google Chrome, one of the world’s most popular web browsers. Before joining Google, Anil co-founded online learning company Desire2Learn, headquartered in Canada, and was General Manager of the knowledge management division in Australia for human resources company, Talent2.Directorships of listed entities (last three years), other directorships/offices (current and recent): -Vice President of Product Management of Google (since April 2016, various other roles held at Google since January 2009) -Advisor to AirTree Ventures (since March 2017)Vanessa WallaceDIRECTORB.Comm (UNSW), MBA (IMD Switzerland), MAICDAge 57Term: 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, living and working in Asia, 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): -Managing Director of MF Advisory (since 2015) -Deputy Chairman of Ecofibre Limited (since July 2021) -Director of Palladium Holdings Pty Ltd (since January 2021) -Director of SEEK Limited (since March 2017) -Director of O’Connell Street Associates (since June 2018) -Director of Doctor Care Anywhere PLC (since April 2021) -Founding Chairman of DROP Bio Pty Ltd, a digital health company (since January 2019)Jennifer Westacott AODIRECTORBA (Honours), FAICD, FIPAA, FANZSOGAge 61Term: 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): -Chair of Studio Schools of Australia (since July 2019) -Chair of the Western Parkland City Authority (since February 2019) -Board member of Cyber Security Research Centre (CSRC) Ltd (since February 2018) -Member of University of New South Wales Council (since December 2019) -Adjunct Professor at the City Futures Research Centre of the University of New South Wales (since 2013) -Co-Patron of Pride in Diversity (since November 2017) -Patron of The Pinnacle Foundation (since March 2019) -Chair of the Mental Health Council of Australia (retired August 2019)Mike RocheDIRECTORBSc, GAICD, FIA (London), FIAA (Australia)Age 68Term: 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 Macquarie Bank (since January 2021) -Director of Macquarie Group (since January 2021) -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)Wayne OsbornDIRECTORDip Elect Eng, MBA, FAICD, FTSEAge 69Term: 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) Wesfarmers 2021 Annual Report83OVERVIEW01OPERATING AND FINANCIAL REVIEW02GOVERNANCE03DIRECTORS’ REPORT04FINANCIAL STATEMENTS05SIGNED REPORTS06SHAREHOLDER AND ASX INFORMATION07 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. The 2021 Corporate Governance Statement details the key
aspects of the governance framework and practices of Wesfarmers. The
company regularly reviews its governance framework and practices so as
to ensure they reflect market practice and stakeholder expectations.
The Board believes that the governance policies and practices adopted
by Wesfarmers during the reporting period ended 30 June 2021
follow the recommendations contained in the fourth edition of the ASX
Corporate Governance Council’s Corporate Governance Principles and
Recommendations (ASX Principles) released on 27 February 2019.
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;
• guide and monitor the management of Wesfarmers and
its businesses in accordance with the purpose, values
and strategic plans;
• oversee good governance practice; and
Wesfarmers has also announced the appointment of Alan Cransberg as a
director of the company from 1 October 2021. He is the former Chairman
and Managing Director of Alcoa of Australia Limited whose broad technical
and management expertise in the resources sector will be invaluable.
The Board is of the view that 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; apparel; general
merchandise and office supplies; and businesses in chemicals, energy and
fertilisers, and industrial and safety products.
In fulfilling its roles and responsibilities, the key focus areas of the Board
during the 2021 financial year are set out below.
KEY FOCUS AREAS OF THE BOARD DURING THE 2021
FINANCIAL YEAR INCLUDED:
Guiding and supporting management in relation to the Group’s
response to the COVID-19 outbreak, with a key focus on the health,
safety and wellbeing of the Group’s team members and customers
Setting new emission reduction targets and aspirations for the
Group's businesses
• set the Group’s risk appetite and monitor and review the Group’s
financial and non-financial risk management systems.
Approving the Final Investment Decision for the Mt Holland lithium
project and commitment of initial funding
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.
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.
The Board currently comprises nine directors, including eight
non-executive and independent directors. Detailed biographies of the
directors as at 30 June 2021 are set out on pages 82 and 83 of this annual
report.
Diane Smith-Gander retired as a non-executive director at the end of the
2020 Annual General Meeting on 12 November 2020 after serving as a
director for 11 years.
Anil Sabharwal was appointed a director on 1 February 2021. He is
Vice President of Product Management at Google. His appointment
further strengthens the Board’s mix of skills, knowledge and experience,
particularly in digital, data and technology.
On 24 June 2021, Wesfarmers announced the appointment of Alison
Watkins as a director from 1 September 2021. She is the former Group
Managing Director of Coca-Cola Amatil Limited and will bring extensive
experience, at both CEO and Board level.
Overseeing management’s strategy to accelerate data and digital
capabilities including improvements to supply chain systems and
processes to accommodate increased demand due to COVID-19
and development of a Group data and digital ecosystem
Reviewing and providing input into the business operations and the
strategic plans of each division likely to impact long-term shareholder
value creation
Overseeing management’s performance in strategy implementation
Overseeing the implementation of strategy to address areas of
underperformance and reposition the portfolio to deliver growth
in shareholder returns including ongoing changes to the Target and
Kmart store networks
Monitoring and evaluating growth opportunities to complement the
existing portfolio
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, overseeing
the implementation of strategies to improve the Group’s risk
management framework and monitoring that the Group is operating
with due regard to the risk appetite set by the Board
Reviewing and updating the Group's risk appetite statement to
reflect new and emerging risks and changing circumstances
Monitoring the Group’s safety performance and overseeing
implementation of strategies to improve safety performance and
enhance workplace safety awareness
Overseeing the Group’s remuneration framework and remuneration
outcomes for senior management
Reviewing the processes in place to attract, develop, motivate
and retain talent
Reviewing and updating policies, reporting and processes to improve
the Group’s system of corporate governance and compliance
Monitoring the Group's performance on key ESG metrics
and overseeing implementation of strategies to improve ESG
performance and enhance ESG awareness
84
Wesfarmers 2021 Annual Report
BACK Corporate governance overview
The Board skills matrix set out below 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.
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.
SKILLS AND EXPERIENCE
BOARD
Leadership
Experience in a senior management position in a listed company, large or complex
organisation or government body.
Corporate governance
Experience in and commitment to the highest standards of corporate governance, and
includes experience as a director or senior executive in a listed company, large organisation
or government body.
Financial acumen
Understanding of financial statements and reporting, key drivers of financial performance,
corporate finance and internal financial controls.
Risk management
Experience in identification, monitoring and management of material financial and
non-financial risks and understanding, implementation and oversight of risk management
frameworks and controls.
Digital, data and technology
Experience and expertise in identifying, assessing, implementing and leveraging digital
technologies and other innovations, understanding the use of data and analytics and
responding to digital disruption.
People and culture
Experience in overseeing workplace culture, people management, development and
succession planning, setting remuneration frameworks and promoting diversity and inclusion.
Strategy
Experience in corporate planning, including identifying and analysing strategic opportunities
and threats, developing, implementing and delivering strategic objectives and monitoring
performance against strategic objectives.
Corporate transactions
Experience in assessing and completing complex business transactions, including mergers,
acquisitions, divestments, capital management, major projects and business integration.
Retail markets
Knowledge and experience in the retail and consumer goods industry, including
merchandising, brand development, customer relationships and supply chain.
Industrial, resources and infrastructure
Senior executive or non-executive director experience and expertise in the industrial,
resources or infrastructure sectors, including project construction.
Regulatory and public policy
Experience in the management and oversight of compliance with legal and regulatory
requirements and/or experience in the development, implementation and review of regulatory
and public policy, including professional experience working or interacting with government
and regulators.
Corporate sustainability and community engagement
Understanding and experience in sustainability best practices to manage the impact of
business operations on the environment and community and the potential impact of climate
change on business operations, and expertise in community and stakeholder relations.
International experience
Experience in international business, trade and/or investment at a senior executive level
and exposure to global markets and a range of different political, regulatory and business
environments.
9
9
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9
9
7
4
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7
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Wesfarmers 2021 Annual Report
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Governance
Corporate governance overview
DIRECTOR INDEPENDENCE
ROLE OF THE REMUNERATION COMMITTEE
Full details of the remuneration paid to non-executive directors and
executive key management personnel (KMP), along with details of
Wesfarmers’ policy on the remuneration of the executive KMP are
set out in the remuneration report on pages 94 to 122 of this annual
report.
The executive KMP, comprising the Group Managing Director,
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
have a variable or ‘at risk’ component as part of their total
remuneration package via participation in 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
2021 financial year have been undertaken. More details about
Wesfarmers' performance and development review process for
the executive KMP are set out in the 2021 Corporate Governance
Statement.
KEY FOCUS AREAS OF THE REMUNERATION
COMMITTEE DURING THE 2021 FINANCIAL YEAR
INCLUDED:
Reviewing and making recommendations 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
amendments to the KEEPP to improve efficiency
Reviewing and making recommendations to the Board for the
vesting outcomes of the 2017 KEEPP Performance Shares based
on the assessment of performance against the performance
targets
Reviewing and making recommendations to the Board regarding
the delegated authority for remuneration-related approvals and
reviewing and making recommendations to the Board regarding
the Remuneration Committee Charter
Reviewing the succession and transition plans for the
Wesfarmers Leadership Team
Reviewing and making a recommendation to the Board on
non-executive director fees
Reviewing and monitoring gender pay equity
Directors are expected to bring views and judgement to Board
deliberations that are independent of management and free of
any interest, position, association, business 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 having regard to the ASX Principles. In
particular, the Board focuses on the factors relevant to assessing
the independence of a director set out in recommendation 2.3
of the ASX Principles and the materiality guidelines applied in
accordance with Australian Accounting Standards.
The Board has reviewed the position and relationships of all
directors in office as at the date of this report and considers that all
eight non-executive directors are independent.
COMMITTEES OF THE BOARD
The Board has established an Audit and Risk Committee,
a Nomination Committee and a Remuneration 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 2021
Corporate Governance Statement on the company's website at
www.wesfarmers.com.au/cg
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 ensuring that there
is a robust and effective process for evaluating the performance of
the Board, its committees and individual non-executive directors.
In relation to the re-appointment of a non-executive director, the
Nomination Committee reviews the performance of the relevant
non-executive director during their term of office and makes
recommendations to the Board.
The form of the Board, committee and individual non-executive
director performance reviews is considered and determined each
year. The outcomes of each Board and committee performance
review are discussed by the Board and each respective committee.
The outcomes of the performance review for each non-executive
director are discussed between the non-executive director and
the Chairman (and in the case of the performance review of the
Chairman, between the Chairman and a nominated senior director).
From time to time, the facilitation process may be facilitated by
an external consultant. More details are available in the 2021
Corporate Governance Statement.
KEY FOCUS AREAS OF THE NOMINATION COMMITTEE
DURING THE 2021 FINANCIAL YEAR INCLUDED:
Consideration of feedback from major shareholders during the
Chairman’s Roadshow conducted prior to the 2020 Annual
General Meeting
Identifying and considering potential candidates to fill Board
vacancies and recommending to the Board candidates for
appointment to the Board
Recommending to the Board the process for the Board, committee
and individual non-executive director performance reviews
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Wesfarmers 2021 Annual Report
BACK Corporate governance overview
ROLE OF THE AUDIT AND RISK COMMITTEE
ROLE OF THE EXTERNAL AUDITOR
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, setting,
articulating and reviewing 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.
KEY FOCUS AREAS OF THE AUDIT AND RISK
COMMITTEE DURING THE 2021 FINANCIAL YEAR
INCLUDED:
The company’s external auditor is Ernst & Young. The
effectiveness, performance and independence of the external
auditor is reviewed annually by the Audit and Risk Committee.
The lead audit partner is required to rotate after a maximum of
five years. Mr Trevor Hammond is the lead audit partner and was
appointed on 1 July 2019.
Ernst & Young has provided the required independence declaration
to the Board for the financial year ended 30 June 2021. The
independence declaration forms part of the directors’ report and is
provided on page 93 of this annual report.
GOVERNANCE POLICIES
Monitoring the crisis management responses across the Group
resulting from COVID-19 and the identification of risks (current
and emerging) and associated mitigation strategies. Key risks
considered as part of this included health, safety and wellbeing,
global supply chain impact and business continuity
The corporate governance section of the company’s website at
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 2021 Corporate
Governance Statement.
ETHICAL AND RESPONSIBLE BEHAVIOUR
The Wesfarmers Way is the framework for the company’s
business model and comprises its values of integrity, openness,
accountability and entrepreneurial spirit, details of which are
published on the company’s website at www.wesfarmers.com.au
The Wesfarmers Way, together with the Code of Conduct and
other policies, guide the behaviour of everyone who works at or
for Wesfarmers as the company strives to achieve its primary
objective. The Board and senior executives of the Group strive to
ensure that their own actions and decisions reference and reinforce
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.
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 information security framework,
including data protection management, third-party data risk
management and the reporting structure and escalation process
on information security risks
Overseeing the payroll assurance and remediation activities of
the relevant Group businesses
Monitoring the ethical sourcing of products and services
throughout the Group 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 Group’s risk management framework, overseeing
the implementation of strategies to improve the Group’s risk
management framework and monitoring that the Group is
operating with due regard to the risk appetite set by the Board
Reviewing and updating the Group's risk appetite statement to
reflect new and emerging risks and changing circumstances
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
Overseeing the Group's compliance program, supported
by approved guidelines and standards, covering safety, the
environment, legal liability, compliance with key governance
policies, whistleblower reporting, information technology, data
privacy and human rights
Monitoring compliance with Group policies including the Code
of Conduct and reporting processes
Overseeing the development of reporting and limited assurance
in relation to emissions reduction and other key ESG matters
Overseeing the Group's internal audit program
Wesfarmers 2021 Annual Report
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Governance
Corporate governance overview
RISK MANAGEMENT
RISK MANAGEMENT FRAMEWORK
Wesfarmers believes that good risk management practice is crucial
to effectively managing operations, driving commercial outcomes
and ultimately supporting the company's objective of delivering
shareholder value over the long term.
Robust, integrated and effective risk management is central
to Wesfarmers’ broader governance framework and is fully
supported by the Board and the Wesfarmers Leadership Team, as
demonstrated through its commitment outlined in the Wesfarmers
Board approved Risk Management Policy which is available in the
corporate governance section of the company’s website at
www.wesfarmers.com.au/cg
The Board recognises that a values-based culture is fundamental
to an effective risk management framework. Wesfarmers, through
the Board, instills and promotes a culture which is underpinned
by the Wesfarmers Way, including Wesfarmers’ core values of
integrity, openness, accountability and entrepreneurial spirit.
Wesfarmers' approach to risk management is aligned with the
principles and requirements of International Standard ISO 31000:2018
– Risk Management Guidelines and is depicted diagrammatically
below. These elements are necessary to support effective risk
identification and awareness, and to support appropriate behaviours
and judgements about risk-taking within the parameters and risk
appetite set by the Board.
C o m munication
The Wesfarmers Risk Management Framework is reviewed on an
annual basis by the Board to satisfy itself that it is sound, continues
to operate effectively, and that the Group is operating with due
regard to the risk appetite set by the Board, or that appropriate
action is taken should performance fall outside the risk appetite.
The framework was last comprehensively reviewed in December 2020
following the appointment of the Group Chief Risk Officer. The Group
Risk Appetite Statement was reviewed and updated in May 2021 to
reflect new and emerging risks and changing circumstances.
DIVERSITY AND INCLUSION
Wesfarmers considers building a diverse and inclusive workforce
a key enabler for delivering its objective of satisfactory returns to
shareholders. Wesfarmers' customers and stakeholders are diverse
and to gain the best insight into their needs and expectations,
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 develops team members with a wide range
of strengths and experiences ensures that Wesfarmers is best
equipped for future growth.
The Wesfarmers Diversity and Inclusion Policy encourages an
inclusive work environment where everybody feels respected and
safe at work and includes fostering diversity in all its facets at all
levels across the Group.
Further details on diversity and inclusion are set out on page
62 of this annual report and in the 2021 Corporate Governance
Statement.
Wesfarmers has adopted a three-lines approach to risk
management whereby all team members have an important role in
the operation of the risk framework. The three-lines approach:
– promotes accountable decision-making; and
–
reinforces the responsibility of divisional management and
Group management in:
–
identifying, understanding and managing the risks within
their respective realms of responsibility; and
– ensuring that business operations and risk-taking remains
within the risk appetite set by the Board, or that appropriate
action is taken should they fall outside the risk appetite.
88
Wesfarmers 2021 Annual Report
BACK Directors' report
Wesfarmers Limited and its controlled entities
The information appearing on pages 6 to 88 forms part of the directors’ report for the financial year ended 30 June 2021 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 resolved to be paid by the directors since the
commencement of the financial year ended 30 June 2021:
(a) out of the profits for the year ended 30 June 2020 and retained earnings on the fully-paid ordinary
shares:
(i) fully-franked final dividend of 77 cents (2019: 78 cents) per share paid on 1 October 2020 (as
disclosed in last year’s directors’ report)
(ii) fully-franked special dividend of 18 cents (2019: nil cents) per share paid on 1 October 2020 (as
disclosed in last year's directors' report)
(b) out of the profits for the year ended 30 June 2021 on the fully-paid ordinary shares:
(i) fully-franked interim dividend of 88 cents (2020: 75 cents) per share paid on 31 March 2021
(ii) fully-franked final dividend of 90 cents (2020: 77 cents) per share to be paid on 7 October 2021
Capital Management
The following capital return has been proposed by the directors to be paid during the financial year ended
30 June 2022:
2021
$m
2020
$m
2,380
1,697
873
204
884
-
998
1,020
850
873
(i) a capital return of 200 cents (2020: nil) per fully-paid share paid (proposed for payment on
2 December 2021)
2,268
-
PRINCIPAL ACTIVITIES
The principal activities of entities within the consolidated Group during the year were:
•
•
•
retailing of home improvement and outdoor living products and
supply of building materials;
retailing of general merchandise and apparel products;
retailing of office and technology products;
• manufacturing and distribution of chemicals and fertilisers;
•
industrial and safety product distribution;
• gas processing and distribution; and
• management of the Group's investments.
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
• W G Osborn
• M Roche
• A Sabharwal
• V M Wallace
• S L Warburton
• J A Westacott
All directors served on the Board for the period from 1 July 2020 to 30 June 2021, except A Sabharwal who was appointed a director of
the company on 1 February 2021.
The following directors retired during the year:
• D L Smith-Gander retired as a director of the company on 12 November 2020, at the conclusion of the 2020 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 82 and 83 of this annual report.
Wesfarmers has announced the appointment of A M Watkins and A J Cransberg as directors of the company, with Ms Watkin's
appointment effective 1 September 2021 and Mr Cransberg's appointment effective 1 October 2021. Further information on each
appointment is available at www.wesfarmers.com.au
Wesfarmers 2021 Annual Report
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Directors' 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
W G Osborn
M Roche
A Sabharwal
R G Scott*
V M Wallace
S L Warburton
J A Westacott
BWP Trust
Wesfarmers Limited
Units
–
–
–
–
-
–
–
–
–
Shares
87,597
3,399
14,728
5,000
1,017
990,495
13,983
7,036
6,788
* R G Scott holds 331,834 Deferred Shares (previously referred to as Restricted Shares) and 201,101 Performance Shares under the Key Executive Equity Performance
Plan (KEEPP). Mr Scott also holds 25,774 Performance-tested Shares. For further details, please see the remuneration report on pages 94 to 122 of this annual report.
D L Smith-Gander retired as a director of the company on 12 November 2020, at the conclusion of the 2020 Annual General Meeting.
Ms Smith-Gander had a relevant interest in 12,045 shares in Wesfarmers Limited, and held no relevant interests in BWP Trust units as at
her resignation date.
Directors’ meetings
The following table sets out the number of directors’ meetings (including meetings of Board committees) held during the year ended
30 June 2021 and the number of meetings attended by each director.
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
M A Chaney3
S W English
W G Osborn
M Roche4
A Sabharwal5
R G Scott
D L Smith-Gander6
V M Wallace
S L Warburton7
J A Westacott
9
9
9
9
3
9
4
9
9
9
9
9
9
9
3
9
4
9
9
9
-
6
-
-
3
-
2
-
6
6
-
6
-
-
3
-
2
-
6
6
9
-
9
9
-
-
-
9
-
-
9
-
9
9
-
-
-
9
-
-
9
9
9
9
3
-
5
9
9
9
9
9
9
8
3
-
5
9
9
9
1 Number of meetings held while the director was a member of the Board/Committee.
2 Number of meetings attended.
3 Notwithstanding he is not a member, M A Chaney attended all meetings of the Audit and Risk Committee held during the year.
4 M Roche was granted a leave of absence for one Nomination Committee meeting during the year.
5
A Sabharwal was appointed as a director of the company effective 1 February 2021.
6 D L Smith-Gander resigned as a director of the company on 12 November 2020, at the conclusion of the 2020 Annual General Meeting.
7 Notwithstanding she is not a member, S L Warburton attended all meetings of the Remuneration Committee held during the year.
90
Wesfarmers 2021 Annual Report
BACK 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 to the full extent permitted by law.
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 94 to 122 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
Vicki Robinson was appointed as Executive General Manager, Company Secretariat and Company Secretary of Wesfarmers Limited on
2 March 2020. Prior to this, Vicki was General Manager, Legal (Corporate) and has played a key role in many of the Group's key merger
and acquisition transactions. Vicki joined Wesfarmers in July 2003 as a Legal Counsel with the Corporate Solicitors Office. In 2007, she
moved to the role of General Manager for enGen, and she returned to the Corporate Solicitors Office in 2009. Vicki holds a Bachelor
of Laws (Honours) and a Bachelor of Commerce from The University of Western Australia and was admitted to practise as a barrister
and solicitor in 1999. Vicki chairs the Advisory Board of the Curtin University Law School, is a member of the Methodist Ladies College
Council, and was a director of the Black Swan State Theatre company from 2009 to 2018. She is 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 $30,846 million to $33,941 million
• profit after tax for the year up from $1,697 million to $2,380 million. The profit for the year includes $41 million post-tax restructuring
costs in the Kmart Group
• dividends per share of $1.78 (2020: $1.70 per share)
•
total assets up from $25,425 million to $26,214 million
• shareholders’ equity up from $9,344 million to $9,715 million
• net debt/(cash) up from $(85) million to $227 million
• net cash flows from operating activities down from $4,546 million to $3,383 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 81 of this report.
EVENTS AFTER THE REPORTING PERIOD
The following significant events have arisen since the end of the financial year:
Dividends
A fully-franked final dividend of 90 cents per share resulting in a dividend payment of $1,020 million was determined with a payment date
of 7 October 2021. The dividend has not been provided for in the 30 June 2021 full-year financial statements.
Wesfarmers 2021 Annual Report
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Directors' report
Directors' report
Wesfarmers Limited and its controlled entities
Capital Management
The directors have also recommended a return of capital to shareholders of 200 cents per share. The recommended return of capital is
subject to shareholder approval at the 2021 Annual General Meeting on 21 October 2021.
If approved, the total amount of the distribution will be approximately $2,268 million and will be paid on 2 December 2021. The form
of the distribution is dependent on a final ruling by the ATO, but is likely to be entirely capital in nature, with no dividend component.
Shareholders will be unable to elect to participate in the Dividend Investment Plan in relation to the capital return.
The distribution has not been provided for in the 30 June 2021 full-year financial statements.
Proposal to acquire Australian Pharmaceutical Industries Limited
On 12 July 2021, Wesfarmers announced that it had submitted a non-binding, indicative offer to acquire 100 per cent of the shares
outstanding in Australian Pharmaceutical Industries Limited (API, ASX:API) for $1.38 cash per share by way of a scheme of arrangement
(the Proposal).
The Proposal price corresponds to a total equity value for API of approximately $687 million. If the transaction proceeds, it will be funded
through Wesfarmers' existing balance sheet capacity and debt facilities. The Proposal is conditional upon the satisfaction of conditions
including the completion of confirmatory due diligence, entry into a Scheme Implementation Deed, obtaining ACCC clearance, API Board
approval and the approval of API shareholders. There is no certainty as to whether the proposed transaction will proceed.
COVID-19
Subsequent to year-end, sales in the Group's retail divisions have been affected by recent lockdowns that have required store closures
and restricted trading across multiple regions.
NON-AUDIT SERVICES
Ernst & Young provided non-audit services to the consolidated entity during the year ended 30 June 2021 and received, or is due to
receive, the following amounts for the provision of these services:
Tax compliance
Other
Total
$’000
752
-
752
The total non-audit services fees of $752 thousand represents 11.4 per cent of the total fees paid or payable to Ernst & Young
and related practices for the year ended 30 June 2021. Total non-audit services fees and other assurance and agreed-upon procedures
fees were $1,452 thousand. Further details of amounts paid or payable to Ernst & Young and its related practices are disclosed in note 29
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).
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Wesfarmers 2021 Annual Report
BACK Wesfarmers 2021 Annual Report93Directors' reportWesfarmers Limited and its controlled entitiesOVERVIEW01OPERATING AND FINANCIAL REVIEW02GOVERNANCE03DIRECTORS’ REPORT04FINANCIAL STATEMENTS05SIGNED REPORTS06SHAREHOLDER AND ASX INFORMATION07The directors received the following declaration from Ernst & Young:Auditor’s independence declaration to the directors of Wesfarmers LimitedAs lead auditor for the audit of the financial report of Wesfarmers Limited for the financial year ended 30 June 2021, 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; andb. 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.Ernst & YoungT S HammondPartner 26 August 2021A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards LegislationENVIRONMENTAL REGULATION AND PERFORMANCE 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. 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.During the year there have been no known material breaches of the consolidated entity’s licence conditions.PROCEEDINGS ON BEHALF OF THE COMPANY 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 believe that the governance policies and practices adopted for the year ended 30 June 2021 follow the recommendations contained within the fourth 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 84 to 88 of this annual report. The full corporate governance statement is available in the corporate governance section of the company’s website at www.wesfarmers.com.au/cgCORPORATE INFORMATION 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.ROUNDING 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. Directors' report
Remuneration report
Message from the Chairman of
the Remuneration Committee
Dear Shareholders,
On behalf of the Board, I am pleased to present the 2021 Remuneration Report.
The Board set initial financial targets but resolved to review these
towards the end of the half-year when the effect of the COVID-19
pandemic on trading became clearer. Revised financial targets
were subsequently established, based on the actual results
up to the end of October 2020, resulting in more demanding
performance hurdles than those established earlier. The safety
targets and individual performance objectives for the annual
KEEPP scorecards were set at the outset of the 2021 financial
year as per the usual practice.
Following the strong business performance over the
2021 financial year, when considered alongside the individual
contributions from each of the executive KMP, the Board has
approved above target KEEPP outcomes, as discussed below.
Group Managing Director and Group Chief Financial Officer
For the Group Managing Director and the Group Chief Financial
Officer the financial component (being 60 per cent of the potential
incentive award, measured against profit and return on equity
targets) exceeded the stretch performance targets set by the
Board and therefore the maximum KEEPP award was made in
respect of this component.
At the same time, management was very effective in continuing
to work with all stakeholders to manage the Group through the
evolving COVID-19 environment, and generating further success
in safety performance, portfolio reshaping and advancing key
strategic agendas in digital and data.
The total 2021 KEEPP awards represent 98.3 per cent and
90.8 per cent of the Group Managing Director's and the
Group Chief Financial Officer's maximum variable remuneration
opportunity respectively.
Divisional executive KMP
The Board awarded KEEPP outcomes for our divisional executive
KMP reflecting the financial performance of the specific divisions
led by the executives, as well as each executive KMP’s individual
performance, as described in more detail in section 5.3.
The total 2021 KEEPP awards represent 87.5 per cent and
88.8 per cent of the Managing Director, Bunnings Group and
the Managing Director, Kmart Group’s maximum variable
remuneration opportunity respectively.
Vesting of prior year awards
Following 30 June 2021, the Board assessed the vesting
outcomes of the 2017 KEEPP Performance Shares for the
Group Managing Director, the Group Chief Financial Officer and
the Managing Director, Bunnings Group.
Given the very strong performance of Wesfarmers Limited shares
over the four-year performance period, relative to peer companies
in the ASX 100, the shares subject to the relative total shareholder
return performance conditions vested in full.
Throughout 2021, the evolving impact of COVID-19 and related
state-wide and localised lockdowns (both snap and extended)
presented enormous operational challenges and uncertainty for
the Group and its executive key management personnel (KMP) to
navigate. Despite these challenges and the associated increased
costs, our financial results for the year were strong with NPAT,
ROE and TSR all increasing for the 2021 financial year. These
achievements reflect the agility and resilience of teams throughout
the Group, led by the Group Managing Director, Rob Scott, and
the executive KMP in managing their response to these ongoing
challenges.
Our financial outcomes are particularly pleasing as, in addition to
this, we:
•
provided support to our team members throughout
lockdowns and more recently, the provision of paid leave to
receive the COVID-19 vaccination, as well as continued our
ongoing commitment to COVID-safe operating practices
to ensure the health and wellbeing of team members,
customers and suppliers within our workplaces;
increased the number of team members across the Group,
including increasing employment of those identifying as
Aboriginal and/or Torres Strait Islander;
supported and invested in our community and arts
partnerships;
announced our ambitions to reach net zero Scope 1 and 2
carbon emissions and completed the issue of the first
sustainability-linked bonds in the Australian market; and
continued to invest and deliver in our e-commerce
capabilities, while leveraging both our online and our bricks
and mortar stores to provide great service and experiences
for our retail customers.
•
•
•
•
Our results also reflect the strategic decisions made in respect
of Target, and Industrial and Safety, which have seen an
improvement in performance following writedowns last year which
materially reduced the 2020 Key Executive Equity Performance
Plan (KEEPP) awards for all the executive KMP except the
Managing Director, Bunnings Group.
Wesfarmers' performance in 2021 and
remuneration outcomes
Wesfarmers' strong result for the 2021 financial year was
achieved through each of the retail businesses delivering strong
sales and earnings growth for the year. The result in Chemicals,
Energy and Fertilisers reflected a solid operating performance,
and the performance of all business units in the Industrial and
Safety division improved during the year.
Consistent with the 2020 financial year, the Board did not
adjust the reported financial results for executive remuneration
purposes. However, as I noted in the 2020 Remuneration Report,
in determining the 2020 KEEPP outcomes, some significant items
relating to the restructure of Target were brought forward from
the 2021 financial year and these have been excluded from the
2021 targets and results for executive remuneration purposes.
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Wesfarmers 2021 Annual Report
BACK Remuneration report
The Board also assessed that the Group Managing Director and
the Group Chief Financial Officer performed strongly in relation
to their individual strategic goals component with this vesting
at 85.0 per cent. Further details of these results are provided in
section 5.4.
Fixed annual remuneration for executive KMP
No changes were made during the 2021 financial year to the fixed
annual remuneration for the executive KMP which has remained
unchanged since 2017 (or 2018 in the case of the Managing
Director, Kmart Group). The Board has undertaken a review of
fixed remuneration and decided to make adjustments for the
2022 financial year from 1 October 2021. Further details are
provided in section 5.1.
Operational changes to the KEEPP
Following on from the detailed review of the KEEPP in the
2020 financial year, the Board has made a change to the structure
of the program in relation to dividends.
The need for this arises because the majority of the KEEPP
awards are provided in quoted Wesfarmers Limited shares which
are held in trust (pending vesting/forfeiture) with dividends being
held in escrow. The payment of these dividends on unvested
shares has led to a misalignment of the payment of the tax on the
dividends and receipt of the cash by the participant.
This misalignment has required the release of a portion of the
escrowed dividend to fund the associated tax payments. This
has led to some criticism that dividends are being released from
escrow ahead of vesting outcomes becoming known and also
creates inefficient tax outcomes for the company where shares
are subsequently forfeited.
In June 2021, the Board amended the KEEPP such that the
shares component, from the 2021 award onwards, will be
satisfied in unquoted Wesfarmers shares. These are identical to
other ordinary Wesfarmers shares except that they are unquoted
and the payment of dividends during the vesting period is
delayed until either the shares vest (with the dividends paid to
the participant) or upon forfeiture (with the dividends paid to the
trustee). This means no component of any dividend will be paid to
the executive KMP unless and until the vesting outcome is known
as well as removing any tax inefficiency to the company in the
event of forfeiture.
In addition to the change above, the financial targets for the
KEEPP (in both the annual scorecard and the Performance
Shares) have been changed to reflect the changes to reported
results following the introduction of AASB 16 Leases. For
example, we now use EBT rather than EBIT with ROC measured
as divisional EBT divided by divisional rolling 12 months capital
employed, where capital employed excludes right-of-use assets
and lease liabilities.
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Non-executive director fees
The main Board fees remained unchanged since 1 January 2017.
In December 2020, the Board reviewed the fees payable to
the non-executive directors having regard to benchmark data,
market position and relative fees. Following this review, the Board
increased the annual Board member fee by $10,000 to $240,000.
No changes were made to the fees for the Chairman or for
membership of any of the Committees. Further information is set
out in section 6.
Thank you for your continued support of Wesfarmers. We look
forward to our ongoing engagement with you and sharing in the
company's future success.
MIKE ROCHE
– Chairman, Remuneration Committee
Wesfarmers 2021 Annual Report
95
Directors' report
Remuneration report (audited)
Contents
Section 1: 2021 Key management personnel
Section 2: Overview of Group performance
Section 3: Remuneration governance
Executive remuneration
Section 4: Executive KMP remuneration framework and policy
Section 5: Executive KMP remuneration
Non-executive director remuneration
Section 6: Non-executive directors
Other remuneration information
Section 7: Further information on remuneration
Section 8: Independent audit of remuneration report
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1.
2021 KEY MANAGEMENT PERSONNEL
The key management personnel (KMP) include the directors of Wesfarmers Limited and the executive KMP (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 KMP for the 2021 financial year are as follows:
These directors were members of the Board of Wesfarmers Limited
throughout the whole of the 2021 financial year.
Mr Sabharwal became a member of the Board of Wesfarmers
Limited on 1 February 2021.
Ms Smith-Gander retired from the Board of Wesfarmers Limited on
12 November 2020.
These executive KMP held their positions throughout the whole of
the 2021 financial year.
Current directors
Michael Chaney AO
Wayne Osborn
Vanessa Wallace
Jennifer Westacott AO
The Right Honourable Sir Bill English KNZM
Mike Roche
Sharon Warburton
Anil Sabharwal
Former director
Diane Smith-Gander AO
Current executive KMP
Rob Scott, Group Managing Director
Anthony Gianotti, Group Chief Financial Officer
Ian Bailey, Managing Director, Kmart Group
Michael Schneider, Managing Director, Bunnings Group
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2. OVERVIEW OF GROUP PERFORMANCE
Wesfarmers recorded a strong result for the 2021 financial year, with all businesses responding well to changing operating conditions
and the challenges presented by COVID-19. The Group’s businesses continued to focus on providing a COVID-safe environment and the
strong result reflects ongoing efforts to invest in building trust and deeper customer relationships by providing greater value, quality and
convenience during a period of uncertainty and disruption.
Bunnings, Kmart Group and Officeworks delivered strong sales and earnings growth for the year. While customer demand remained
resilient, sales growth in Bunnings, Officeworks and Catch moderated from mid-March as the businesses began to cycle elevated demand
following the onset of COVID-19 in the prior year. The result in Chemicals, Energy and Fertilisers reflected a solid operating performance,
and the performance of all business units in the Industrial and Safety division improved during the year.
The Group reported statutory NPAT of $2,380 million for the 2021 financial year. NPAT from continuing operations, excluding significant
items was $2,421 million. For the purpose of assessing executive KMP KEEPP outcomes in the 2021 financial year, the Board used
$2,421 million. The reason for this was that these significant items related to the restructure of Target which were known and factored into
the outcomes for the 2020 financial year (resulting in the executive KMP receiving lower KEEPP awards than they otherwise would have).
Five-year statutory results
Financial year ended 30 June (as reported)1
Net profit after tax (NPAT) ($m)
NPAT (excluding significant items) ($m)2
Return on equity (ROE) (rolling 12 months) (%)3
ROE (excluding significant items) (rolling 12 months) (%)2
Earnings per share (EPS) (cents)
EPS (excluding significant items) (cents)2
2017
2,873
2,873
12.4
12.4
254.7
254.7
2018
2019
1,197
5,510
2,772
2,339
2020
1,697
2,075
5.24
38.74,5
17.84
11.7
19.2
22.1
2021
2,380
2,421
25.84
26.1
105.84
487.24
150.04
210.44
245.1
206.8
183.4
214.1
1
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3
4
5
The Group applied AASB 16 Leases (AASB 16) from 1 July 2019 using the modified retrospective approach. Under this approach, comparatives were not restated.
These are considered non-IFRS measures. 2021 post-tax significant items include restructuring costs of $41 million in the Kmart Group. 2020 post-tax significant items
include the gain on sale of Wesfarmers' 10.1 per cent interest in Coles Group Limited (Coles) completed in February 2020 (4.9 per cent) and March 2020 (5.2 per cent)
of $203 million, gain from revaluation of the retained Coles investment of $154 million and the benefit from the finalisation of tax positions on prior year disposals of
$83 million, offset by the $298 million non-cash impairment of the Industrial and Safety division, and the $520 million non-cash impairment of the Target brand name and
other assets and associated restructuring costs and provisions in the Kmart Group. 2019 post-tax 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 post-tax 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 $123 million gain on sale of Curragh Coal Mine. The Board exercises its discretion in determining whether these significant items are adjusted for when
determining remuneration outcomes.
This is considered a non-IFRS measure.
2018, 2019, 2020 and 2021 EPS and ROE include the items outlined in footnote 2 above.
2019 ROE was 17.7 per cent when adjusted to remove the increase in the ROE as a result of the Coles demerger.
Five-year shareholder returns
Financial year ended 30 June (as reported)
Total dividends per share (declared/determined) (cents)
Closing share price ($ as at 30 June)1
Adjusted closing share price ($ as at 30 June)2
Five-year rolling Total Shareholder Return (%, per annum)3
ASX 100 five-year rolling Total Shareholder Return (%, per annum)3
2017
223
40.12
28.66
11.3
12.1
2018
223
49.36
35.26
9.8
9.8
2019
2020
2784
1705
36.16
36.16
9.8
8.9
44.83
44.83
15.9
5.8
2021
178
59.10
59.10
21.5
11.2
1
2
The opening share price on 1 July 2016 was $40.20.
The adjusted closing share price for 2017 and 2018 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 post-listing. The adjusted opening share price on 1 July 2016 was $28.71.
3 Source: Bloomberg.
4
5
2019 total dividends per share includes the 100 cent special dividend.
2020 total dividends per share includes the 18 cent special dividend reflecting the distribution of profits on the sale of the 10.1 per cent interest in Coles.
Wesfarmers 2021 Annual Report
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Directors' report
Remuneration report (audited)
3. REMUNERATION GOVERNANCE
3.1 Role of the Board
The Board is responsible for setting remuneration policy and determining non-executive director, executive director and executive KMP
remuneration and ensuring that policy is aligned with the Group's purpose, values, strategic objectives, and risk management framework.
In addition, the Board is responsible for approving the remuneration of and overseeing the performance review of the Group Managing
Director and approving all targets and performance conditions set under the executive KMP variable remuneration framework, being the
Key Executive Equity Performance Plan (KEEPP).
The Board delegates responsibility to the Remuneration Committee for reviewing and making recommendations to the Board on these
matters. The Board has powers under the terms of the Group's incentive plans to calculate the achievement of performance conditions,
including to decrease or increase variable remuneration outcomes, and make malus or clawback adjustments. The Board may exercise
these powers when approving variable remuneration award outcomes to ensure that they are fair and reasonable and may use this
discretion to decrease or increase the outcome as it considers appropriate.
The Board has regular meetings with each of the executive KMP during the year to discuss ongoing performance.
3.2 Role of the Remuneration Committee
The Remuneration Committee makes recommendations to the Board regarding all aspects of executive KMP remuneration. This includes
making recommendations in relation to the targets (including threshold and stretch performance targets) to be included in the KEEPP
scorecards and in relation to setting performance conditions that attach to Performance Shares (both the financial conditions and the other
non-financial performance conditions). As part of setting performance conditions on the Performance Shares for the divisional managing
directors, the Remuneration Committee makes recommendations to the Board on whether the conditions should be set at a divisional or
business level. The Group Managing Director provides updates and makes recommendations to the Remuneration Committee on these
matters in relation to his direct reports throughout the year. The Group Managing Director provides formal updates to the Remuneration
Committee on a six-monthly basis. To inform the Board and Remuneration Committee, and to assist with their decision-making processes,
additional information and data is sought from management and remuneration consultants, as required.
The Audit and Risk Committee Chairman attends the Remuneration Committee meetings and is formally involved in the remuneration
outcome recommendations, ensuring that there is a tight linkage between behaviour, risk management and remuneration outcomes.
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. During the 2021 financial year, the
Remuneration Committee charter was reviewed and updated by the Board.
3.3 Culture and risk management
The Board believes that embedding the right culture and ensuring that the Group operates within effective risk management protocols
are enablers of strategic execution over the long term. Wesfarmers considers that it can only achieve its primary objective of generating
satisfactory returns for shareholders over the long term by: looking after its team members, customers and suppliers; taking care of the
environment and making sure that the Group is environmentally conscious in all of its activities; by acting ethically and honestly in all of its
dealings; and by making meaningful contributions to the communities in which the Group operates.
The Board, in consultation with the Audit and Risk Committee, considers these principles in setting the executive KMP remuneration
framework, which in turn has a positive impact upon the Group and therefore shareholder outcomes. This includes overseeing that
executive KMP remuneration outcomes are aligned with the Board's approach to risk management.
Fixed remuneration levels are set so as to sufficiently reward the executive KMP for performing the key requirements of their roles, having
regard to the competitive environment for talent and other internal and external factors.
In the annual KEEPP scorecards, the financial and safety measures and the individual performance objectives set by the Board are
designed to drive strategic outcomes that benefit the Group and its shareholders. This includes setting the levels for threshold performance,
target performance and stretch performance. The maximum outcome under the KEEPP scorecards can only be achieved if all of the
financial and safety measures and the individual performance objectives are assessed at stretch performance and the Board judges this
outcome to be fair and reasonable. Section 5.3 contains further information on the KEEPP scorecards for the 2021 financial year.
Targets set by the Board are assessed 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. In assessing the annual KEEPP scorecards,
the Board also considers how the outcomes have been achieved, for example, through the demonstration of behaviours aligned with
appropriate ethics, values and culture, including a focus on team member safety and wellbeing, and consideration of any actions
impacting Group reputation.
3.4 Responsibility for determining remuneration of non-executive directors
The Board is responsible for assessing non-executive director fees, assisted by the Remuneration Committee. Each year the
non-executive director fees, including committee fees, are benchmarked externally against Australian companies of a comparable size and
complexity. In the event of any proposed increase in fees, including committee fees, a reasonableness opinion is obtained from an external
remuneration consultant. The Remuneration Committee and the Board (or only the Board if this relates to Remuneration Committee
fees) consider this benchmarking and external remuneration consultant opinion, along with other factors such as the reasonableness of
any change to the fees in the context of the external environment and any regulatory changes impacting Board accountability, before
proposing any increase in fees. See section 6 for further information on non-executive director remuneration.
3.5 Use of remuneration consultants
No remuneration recommendations as defined in section 9B of the Corporations Act 2001 were obtained during the financial year ended
30 June 2021.
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Executive remuneration
4. EXECUTIVE KMP REMUNERATION FRAMEWORK AND POLICY
Wesfarmers’ primary objective is to provide satisfactory returns to shareholders over the long term. The guiding remuneration principles
are focused on driving leadership performance and behaviours consistent with this objective, as well as with the Wesfarmers Way (as
explained on page 15 of this annual report) and the Group’s overall strategies.
Our guiding remuneration principles
1
2
3
4
5
6
Attract, motivate and retain world-class talent and outstanding people to drive outcomes
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 direct link to Group performance
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
(a) Remuneration framework
The remuneration framework for the executive KMP comprises fixed annual remuneration (FAR) and variable at-risk remuneration (through
participation in the KEEPP). Total remuneration is set at a competitive level to attract, retain and engage key talent, with FAR set at a level
that is appropriate for the requirements of the role.
Fixed annual remuneration
FAR comprises salary and other benefits (including statutory superannuation). FAR, along with the other elements of executive
remuneration, including total remuneration and each component of remuneration, is benchmarked to our external peers and levels vary
between the executive KMP. FAR for each executive KMP is based upon: role and responsibility; business and individual performance;
internal and external relativities; and contribution, competencies and capabilities. FAR is not varied 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.
Variable remuneration - KEEPP
Opportunity
Delivery vehicles
The KEEPP is a single total incentive established for each
executive KMP, with each cycle operating over seven years.
The quantum of the KEEPP award is determined against
an individually personalised 12-month scorecard, split into
financial performance measures, individual performance
objectives and safety performance measures, weighted
60 per cent, 30 per cent and 10 per cent respectively. The
scorecard sets out the threshold, at target and stretch level of
performance required for each measure.
The Remuneration Committee and the Board set the
scorecards at the beginning of the financial year following
consultation with the Group Managing Director (however
the Group Managing Director is not involved in setting his
own KEEPP scorecard). The KEEPP award can vary up to a
maximum of 300 per cent of FAR and is delivered through up
to three vehicles. See section 5.3 for further information on
the KEEPP scorecards.
Cash: There is no cash component for the Group Managing Director
and the Group Chief Financial Officer, with their awards delivered
solely in equity. For the other executive KMP, cash is zero for awards
at or below 100 per cent of FAR. For awards above this level, a
maximum of 30 per cent of FAR may be awarded in cash (down from
35 per cent in 2020).
Equity: KEEPP equity awards are delivered as long-dated equity,
with the ‘at target’ awards split equally between Deferred Shares and
Performance Shares.
Deferred Shares are restricted up to a total of six years once granted
and can be subject to additional conditions if set by the Board at
allocation.
Performance Shares are subject to further performance conditions
over a future four-year performance period. The Board has discretion
to adjust the performance conditions in appropriate circumstances,
so that participants are not unfairly advantaged or disadvantaged.
Where the KEEPP scorecard process results in an allocation of Performance Shares lower than 100 per cent of FAR (or 85 per cent of
FAR for the divisional managing directors), additional Performance Shares (which vest only to the extent the performance conditions
are met over the following four years) will be allocated to achieve that level. This aims to ensure variable remuneration is less
dependent on performance over the initial 12-month period and more tied to performance over time.
Determining outcomes
The financial and safety performance measures are assessed after the preparation and audit of the relevant results each year. The
individual performance component is simultaneously assessed after a review against the individual performance objectives set. If
performance against any measure or objective is assessed as below threshold, no outcome is awarded for that measure or objective.
Board consideration of other factors
The last step in determining the outcome is calibration by the Board of the scorecard result and of the personal performance and
behaviours of each participant alongside the consideration of whether the calculated outcome is fair and reasonable, including that it is
not inappropriate or simply formulaic.
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(b) KEEPP life cycle
The chart below shows the life cycle for each element of the KEEPP. The 2020 KEEPP award follows this life cycle and was awarded in the
2021 financial year, based on performance in the 2020 financial year. For further information on the timing for the 2020 KEEPP award, see
section 5.7(a).
•
12-month period (July to June)
Performance
assessment
Performance of each member of the executive KMP is assessed over the 12-month performance period
ending 30 June against a scorecard that has financial measures (60 per cent weighting), individual
performance objectives specific to the role (30 per cent weighting) and safety measures (10 per cent
weighting).
Award
determination
assessment
If the assessment determines that performance on any measure is below threshold, the amount of the
award for that measure is zero. If performance for a measure is assessed at threshold, then the award
is 50 per cent of the target opportunity for that measure. If performance for a measure is assessed as
at or above threshold, there is a straight-line calculation up to the target level and then a straight-line
calculation up to the maximum level. The target opportunity across all measures is 200 per cent of FAR
and the maximum award opportunity is 300 per cent of FAR.
Once the scorecard is assessed and the award amount is calculated, the Board then considers whether
the proposed award is fair and reasonable in the circumstances. This assessment is a deliberate
exercise of Board discretion to determine whether modifiers should decrease or increase the amount of
the award. KEEPP awards are then delivered as follows:
•
•
Cash: The Group Managing Director and the Group Chief Financial Officer receive 100 per cent
of their KEEPP awards in equity and are not eligible to receive any cash under the KEEPP. For the
other executive KMP, the amount of the cash component is zero where the award is equivalent
to or below 100 per cent of FAR. An award above that level is paid in cash up to a maximum of
30 per cent of FAR, with the remainder delivered in equity. Any cash is generally paid in August,
following the release of Wesfarmers’ full-year results.
Equity: Equity is allocated equally in Deferred Shares and Performance Shares at no cost to
participants. The number of shares allocated is determined using a face value calculated based
upon the 10-day, volume-weighted average price (VWAP) of Wesfarmers shares typically over
the period following the full-year results announced in August of that year. In the 2021 financial
year, the Board approved the 10-day period should not include shares trading both cum and
ex dividend. Where required, the 10-day period will be delayed to include shares trading
ex dividend only. This will apply for the 2021 KEEPP award onwards. The allocation of equity
generally occurs shortly after the Annual General Meeting.
To reduce dependence on performance over the initial 12-month period, where the scorecard process
results in an allocation of Performance Shares lower than 100 per cent of FAR (or 85 per cent of FAR for
the divisional managing directors), additional Performance Shares (which vest only to the extent they
meet the performance conditions over the following four years) will be allocated to achieve that level.
Deferred Shares
and Performance
Shares allocated
•
Deferred Shares: 12-month forfeiture and four-, five- and six-year trading restrictions
Deferred Shares: Deferred Shares are subject to a 12-month service condition (the forfeiture period)
and any additional conditions that may be set by the Board at the date of allocation and are subject
to trading restrictions for four, five or six years. Deferred Shares are held in trust and can only be
transferred to the executive KMP once all trading restrictions and any other conditions are met. For the
2020 Deferred Shares, one-third will be released from the trading restriction in August 2024, one-third
will be released in August 2025 and the remainder released in August 2026.
•
Performance Shares: four-year performance period
Final number
of vested shares
determined
Performance Shares: Performance Shares remain at risk and will vest only to the extent further
performance conditions are met when tested over a future performance period. Performance Shares
are held in trust and can only be transferred to the executive KMP once vested. The 2020 Performance
Shares will be performance tested over a four-year performance period ending 30 June 2024, against
role-specific performance conditions. The Performance Shares will only vest to the extent that these
performance conditions are met.
•
All vesting conditions are complete on the equity after four years and all trading
restrictions have ended after six years under each KEEPP award
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BACK Remuneration report (audited)
(c) Remuneration mix
The charts below show each component of the remuneration framework for the executive KMP as a percentage of total remuneration.
Group Managing Director and Group Chief Financial Officer
Total target remuneration
Total maximum remuneration
Fixed annual remuneration
33.3%
At-risk remuneration
66.7%
KEEPP Performance Shares 33.35%
KEEPP Deferred Shares
33.35%
Fixed annual remuneration
25.0%
At-risk remuneration
75.0%
KEEPP Performance Shares
37.5%
KEEPP Deferred Shares
37.5%
Divisional managing directors
Total target remuneration
Total maximum remuneration
Fixed annual remuneration
At-risk remuneration
33.3%
66.7%
KEEPP Performance Shares
28.35%
KEEPP Deferred Shares
KEEPP Cash
28.35%
10.0%
Fixed annual remuneration
25.0%
At-risk remuneration
75.0%
KEEPP Performance Shares 33.75%
KEEPP Deferred Shares
33.75%
KEEPP Cash
7.5%
5. EXECUTIVE KMP REMUNERATION
5.1 Fixed annual remuneration
2021 financial year
After consideration, the Board made no changes to fixed remuneration for any member of the executive KMP in the 2021 financial year.
2022 financial year
In July 2021, the Board undertook a review into the remuneration for the executive KMP. Following this review the Board concluded there
was a need to increase the FAR for the Group Chief Financial Officer, Managing Director, Kmart Group and Managing Director, Bunnings
Group and these changes were approved in July 2021, to take effect from 1 October 2021. These increases are the first changes in
FAR for the executive KMP since 2017 other than for the Managing Director, Kmart Group who received an increase in FAR upon his
appointment in November 2018. There is no change to the FAR for the Group Managing Director.
The Board considered each executive KMP’s performance and leadership since appointment to their role, the strong company
performance delivered and the shareholder value created, the competitiveness of each remuneration package and the increases in
fixed remuneration provided to other team members across the Group over the preceding four-year period. In addition, the Board
acknowledges that the variable remuneration opportunity under the KEEPP is lower in comparison to some peer companies, and is
delivered in long-dated equity, has no cash component for the Group Managing Director and the Group Chief Financial Officer and a
smaller cash component for the other executive KMP. Further, the Board also acknowledges that the KEEPP is subject to more rigorous
testing than most other plans in the market (with the initial award determined by annual performance and then at least half of the equity
subject to further performance conditions over the following four years). After considering these factors, the Board firmly believes these
increases are justified and in the best interests of the company, and therefore shareholders.
The Board approved the following FAR increases for the executive KMP:
• Mr Gianotti’s FAR will increase from $1,350,000 to $1,450,000 per annum;
• Mr Bailey’s FAR will increase from $1,350,000 to $1,550,000 per annum; and
• Mr Schneider’s FAR will increase from $1,500,000 to $1,700,000 per annum.
Wesfarmers 2021 Annual Report
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5.2 2021 KEEPP award outcomes
The 2021 KEEPP award outcomes relate to performance from 1 July 2020 to 30 June 2021. The table below sets out specific information
relating to the actual award outcomes for the 2021 financial year.
Name
R G Scott
A N Gianotti
I Bailey
M D Schneider
Balance available
for Deferred
Shares
($)
for Performance
Shares
($)
for cash
award
($)
Percentage of
maximum 2021 KEEPP
opportunity awarded
%
Percentage of
maximum 2021 KEEPP
opportunity forfeited
%
3,684,701
1,837,864
1,596,375
1,743,750
3,684,701
Not eligible
1,837,864
Not eligible
1,596,375
1,743,750
405,000
450,000
98.3
90.8
88.8
87.5
1.7
9.2
11.2
12.5
The cash component for the 2021 KEEPP award is expected to be paid to eligible divisional managing directors on 30 August 2021. The
Deferred Shares and Performance Shares are expected to be allocated in December 2021 once performance conditions are set. Details of
these equity grants will be provided in the 2022 Remuneration Report.
5.3 Details of the 2021 KEEPP annual scorecards
The 2021 KEEPP scorecards comprise financial measures, individual performance objectives relevant to the role of each executive KMP
and safety measures. Scorecard financial targets are set in relation to the annual budgets and the safety targets are generally based upon
an improvement on the previous year’s result. Individual performance objectives are customised based upon the participant’s role and
the specific circumstances and strategic priorities of the Group and/or division, as appropriate. Where the Board considers it appropriate
to do so, the scorecard targets will be adjusted so that participants are not unfairly advantaged or disadvantaged, for example, following
portfolio management activity.
Given the high levels of uncertainty surrounding business performance as a result of the COVID-19 pandemic at the time the relevant
budgets were set for the 2021 financial year, the Board set initial financial targets based on those budgets but determined that the
2021 KEEPP scorecard financial targets would be revisited around mid-financial year when there was expected to be more visibility of
the impact of COVID-19. This enabled the Board to set more meaningful KEEPP scorecard targets for the 2021 financial year and this
resulted in a more demanding level of performance. The safety targets and individual performance objectives were set at the outset of the
2021 financial year as per the usual practice.
The Board approved the 2021 KEEPP scorecard financial targets in early December 2020. At the time of the approval, the Group’s
businesses had experienced significant disruptions and volatility in trading since the beginning of the financial year and it was far from
clear how the balance of the year would unfold. For example, the Group had experienced both temporary and extended trading restrictions
across different regions including ongoing domestic border closures, significant supply chain disruption and increased costs, higher
operational costs associated with COVID-safe practices and other unbudgeted costs including wage and leave support to team members.
Despite these headwinds, year-to-date trading results were above budget at that time, owing to increased retail spending generally and
management’s success in positioning the Group in the COVID-19 environment. Considering these factors and the updated estimates of
full-year 2021 financial outcomes given an expected moderation in trading conditions over the balance of the year, the Board approved wider
threshold and stretch performance ranges to apply to the financial measures for the executive KMP where considered appropriate, with, as
mentioned above, on-target performance for each measure set higher than the level previously approved in the 2021 financial year budget.
Financial measures (60 per cent weighting)
Group NPAT and ROE were chosen for the Group Managing Director and the Group Chief Financial Officer 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.
Group NPAT and ROE are adjusted, where the Board considers it appropriate, to ensure participants are not unfairly advantaged or
disadvantaged, for example, following portfolio management activity.
Divisional financial measures of EBT, ROC (calculated as divisional EBT divided by divisional rolling 12 months capital employed,
where capital employed excludes right-of-use assets and lease liabilities), sales growth and, where applicable, gross transaction value
(GTV), were chosen for the divisional managing directors because they are key financial measures directly linked to accountability 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. Similar to Group NPAT and ROE,
divisional financial measures are adjusted, where the Board considers it appropriate, to ensure participants are not unfairly advantaged or
disadvantaged, for example, following portfolio management activity.
Individual performance objectives (30 per cent weighting)
The individual performance objectives are split into two categories, comprising business enhancing objectives with 20 per cent weighting,
and sustainability objectives, including reputation, risk management, people and culture, and climate change-related initiatives, with
10 per cent weighting. The individual performance objectives 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 generating long-term growth. Progress against the individual performance objectives is assessed by the Board following a review
of performance against the individual performance objectives by the Group Managing Director or Chairman, as appropriate, as part of the
performance review cycle.
Business enhancing objectives and strategies are designed to maximise business and growth opportunities over the long term, with a
strong focus on digital and data capabilities and channels. For businesses undergoing a turnaround, the business enhancing objectives
focus on key milestones. Examples of business enhancing objectives include assessing growth and investment opportunities, deepening
digital and data analytics capability with demonstrated outcomes and operational optimisation projects.
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Sustainability objectives provide a focus on the Group’s licence to operate and include several interrelated areas, for example, Group-wide
sustainability initiatives such as emissions reduction targets and operational risk controls, including cyber security. Diversity, including
gender balance, remains a focus as Wesfarmers recognises the importance and value of diverse teams throughout its businesses.
Safety (10 per cent weighting)
Safety performance is measured through the total recordable injury frequency rate (TRIFR) at the Group or divisional level, as relevant to
the executive KMP, and was chosen to reflect the Group's relentless focus on providing safe workplaces for all team members, in addition
to the priority placed on the health and safety of the Group's customers and the community. TRIFR performance is assessed following
completion of the annual sustainability assurance process.
A
2021 KEEPP scorecard
2021 KEEPP scorecard
assessment
+
Consideration of
other factors
=
Outcome and
delivery
Financial measures
(60% of target)
Individual performance
objectives (30% of target)
Safety (10% of target)
Individual performance
objectives specific to the
role of each executive
KMP, where applicable:
• Business enhancing
objectives, including
business growth, data
and digital initiatives, and
turnaround/newly acquired
businesses
• Sustainability objectives,
including reputation, risk
management, people
and culture, and climate
change-related initiatives
Safety:
• Group or divisional TRIFR
Threshold performance for
TRIFR is generally set based
on the previous year’s result.
No award will be made
in respect of the relevant
safety measure if there is a
fatality or a critical risk failure
within a managed entity.
Group Managing Director
Group Chief Financial Officer
• 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.
Divisional managing directors
• EBT and ROC1
• Sales growth
• Divisional specific measures
(Kmart Group only)
Threshold performance is
required for both EBT and ROC1
before any award is made in
respect of these measures.
Threshold EBT performance is
also required before any award is
made in respect of sales growth.
The Managing Director,
Kmart Group also has a measure
in relation to Catch GTV. A
threshold level of performance
is required for Catch EBT and
the customer lifetime value to
cost per acquisition (CLV/CPA)
ratio before any award is made in
respect of GTV.
• Remuneration Committee
and Board, with input
from the Audit and Risk
Committee, evaluation
of each executive
KMP’s performance and
behaviours, including
whether any modifiers
should apply to the award
• External environment
and impact
• The Board considers
whether the outcome
is fair and reasonable,
not inappropriate or
simply formulaic
The maximum opportunity
available is 300 per cent of FAR.
Where the scorecard results in
an allocation of Performance
Shares lower than 100 per cent
of FAR for the Group Managing
Director or the Group Chief
Financial Officer, or 85 per cent
of FAR for the divisional
managing directors, additional
Performance Shares (subject
to performance conditions over
the following four years) will be
allocated to achieve that level.
The minimum KEEPP award
level can still be zero per cent
of FAR if the Board determines
this to be appropriate when
considering other factors.
Final approved KEEPP outcomes
are delivered as follows:
Group Managing Director
Group Chief Financial Officer
• Deferred Shares
• Performance Shares
Divisional managing directors
• Up to 30% of FAR in cash
After cash
• Deferred Shares
• Performance Shares
1 ROC is calculated as divisional EBT divided by divisional rolling 12 months capital employed, where capital employed excludes right-of-use assets and lease liabilities.
In assessing performance against the scorecards, the Board considers the behaviours demonstrated by each executive KMP and, if the
Board considers it appropriate, the outcome is reduced or modified. This includes, for example, behaviours in relation to risk management
and demonstration of appropriate ethics, values and culture, actions negatively impacting the Group's reputation, and team member
safety and wellbeing. Further, the Board considers whether the calculated outcome is fair and reasonable, and may decrease or increase
the outcome where appropriate.
The results of the performance against the annual scorecard and final outcome for each of the executive KMP for the 2021 KEEPP
allocation are outlined on the following pages. In assessing the performance of executive KMP through the year, the Board considered the
impact of COVID-19 on financial results and management’s response to the significant changes in operating environment through the year.
No adjustments were made to the reported financial results for executive remuneration purposes. COVID-19 presented various unforeseen
challenges to businesses including additional operating costs, restrictions to trade and lockdowns and availability of inventory. The retail
divisions benefited from stronger consumer demand and adapted their customer offering in order to service this demand. Management
demonstrated a very pleasing response to the challenges associated with COVID-19 as evident through positive operational and financial
outcomes while also providing significant support to team members, customers and community partners.
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Remuneration report (audited)
Rob Scott – Group Managing Director, Wesfarmers Limited
2021 Performance highlights
Financial (60% weighting)
Mr Scott's financial targets were as follows:
• Group NPAT: $1,987.0m
• Group ROE: 21.5%
Outcome: 180% of FAR (Maximum opportunity: 180% of FAR)
Threshold performance was set at 92.5% of target and stretch performance would be achieved at 110% of target (consistent with the prior year).
• The Group achieved reported Group NPAT (excluding significant items) of $2,421.1m and reported ROE (excluding significant items)
of 26.1%. Following strong performance of the Group over the 2021 financial year, both Group NPAT and ROE were above the stretch
performance target set by the Board. As a result, Mr Scott achieved the maximum 2021 KEEPP outcome on financial measures.
• The Board is very pleased with Mr Scott’s performance and his leadership of the Group in achieving the financial results, given the continuing
external challenges during a period of ongoing disruption.
Safety (10% weighting)
Group TRIFR target: 9.88
Outcome: 25% of FAR (Maximum opportunity: 30% of FAR)
• The Group TRIFR result was 9.56. There were no fatalities and no critical risk failures across managed entities and therefore the gateway on
payment for this measure was met.
• The safety and wellbeing of all team members across the Group continues to be the highest priority. An 8% improvement on last year’s
TRIFR result was achieved throughout the year, reflecting the ongoing efforts to provide a safe environment for our team members. Also
of note was the strong focus across the Group to implement COVID-safe operating practices and to provide additional support to team
members through the COVID-19 pandemic.
Business enhancing (20% weighting)
Outcome: 60% of FAR (Maximum opportunity: 60% of FAR)
Mr Scott was set a number of business enhancing objectives for the performance period, each of which has been individually assessed by the Board.
• Business growth: The Board assessed Mr Scott on a number of business growth objectives set at the beginning of the financial year.
These included the growth and investment opportunities recommended by Mr Scott to the Board (including both step out and incremental
opportunities), and the achievement of superior sales growth for the retail divisions.
• Data and digital initiatives: Since appointment in 2017, the advancement of the Group’s capability within the data and digital space has been
a key objective for Mr Scott. Throughout the 2021 financial year, significant progress has been made in this area with the development of the
marketplace ecosystem and the Group’s Advanced Analytics Centre has continued to deliver value at both a divisional and Group level. This
includes the successful development of a Group data platform. E-commerce across the Group has continued to strengthen, supported by the
rapid acceleration of data and digital assets across divisions and the growth of the recently acquired Catch marketplace business.
• Turnaround/newly acquired businesses: The Board is pleased with the progress on actions to optimise the Target store network and accelerate
the growth of Kmart. In addition, the Blackwoods turnaround has continued, with the business delivering stronger financial results and with the
first phase of the new ERP system implemented during the year. Further, good progress continued on the development of the Mt Holland lithium
project, including the Final Investment Decision on the project in February 2021.
Sustainability (10% weighting)
Outcome: 30% of FAR (Maximum opportunity: 30% of FAR)
Mr Scott has continued to lead the company decisively, successfully navigating challenges during an ongoing period of uncertainty. Good
progress has been achieved against the Group’s emissions reduction targets this year, with Scope 1 and 2 emissions reduced by 8.9 per cent,
and the Group successfully launched Australia’s first sustainability-linked bonds. Throughout the year, the Group’s risk framework was reviewed
with increased focus upon risks associated with cyber and data. Good progress has been made in relation to the development of Group talent
including executive succession and recruitment of senior talent into the retail businesses. Significant progress has been made in relation to
Aboriginal and/or Torres Strait Islander (ATSI) employment and there have been pleasing improvements in relation to gender pay equity.
2021 KEEPP outcome
Scorecard measure
Financial
Safety
Business enhancing
– Business growth
– Data and digital initiatives
– Turnaround/newly acquired businesses
Sustainability
– Reputation
– Risk management
– People and culture
Weighting
(%)
Threshold
not met
Threshold met
or exceeded
Target met
or exceeded
Maximum
achieved
60
10
20
10
– Climate change-related initiatives
Mr Scott’s total 2021 KEEPP outcome will be allocated as:
• $3,684,701 in Deferred Shares
• $3,684,701 in Performance Shares
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Anthony Gianotti – Group Chief Financial Officer, Wesfarmers Limited
2021 Performance highlights
As Group Chief Financial Officer, Mr Gianotti’s Group financial and safety measures and outcomes are the same as those of the
Group Managing Director.
• Mr Gianotti has had a successful year with the Group delivering a strong financial result and being well-placed to take advantage of future
opportunities. Further to his role as Group Chief Financial Officer, Mr Gianotti continues to provide strategic support to the Group Managing
Director and lead strategic projects, as identified by the Group Managing Director.
• Business enhancing: Mr Gianotti has continued to deliver strong results in relation to balance sheet, capital management, debt management,
credit ratings and cash management throughout the financial year. Further, Mr Gianotti assumed direct oversight of the Industrial and Safety
businesses during the 2020 financial year, and pleasingly operational improvements have delivered stronger financial results during the
2021 financial year with the first phase of the new ERP system implemented during the year. Mr Gianotti has continued to lead the Business
Development teams in undertaking major commercial projects as well as continuing to work closely with Kmart Group on the progress of the
store closure and conversion program.
• Sustainability: Mr Gianotti has continued to positively engage with key external participants to support the Group’s capital structure.
Mr Gianotti has also actively strengthened finance and governance teams through talent management and supported an increased focus
on risk through development of clear strategic frameworks. Further, Mr Gianotti also oversaw the successful launch of $1.0 billion in
sustainability-linked bonds, the first of their kind in the Australian market.
2021 KEEPP outcome
Scorecard measure
Financial
Safety
Business enhancing
– Balance sheet and capital management
– Business growth
– Turnaround/newly acquired businesses
Sustainability
– Reputation
– Risk management
– People and culture
Weighting
(%)
Threshold
not met
Threshold met
or exceeded
Target met
or exceeded
Maximum
achieved
60
10
20
10
– Climate change-related initiatives
Mr Gianotti’s total 2021 KEEPP outcome will be allocated as:
• $1,837,864 in Deferred Shares
• $1,837,864 in Performance Shares
Wesfarmers 2021 Annual Report
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Directors' report
Remuneration report (audited)
Ian Bailey – Managing Director, Kmart Group
2021 Performance highlights
Mr Bailey's financial targets were set in relation to achievement of Kmart Group EBT, Kmart ROC and comparable sales growth, and Catch GTV.
Threshold performance for the EBT measure was set at 87% of target and stretch performance would be achieved at 116% of target. Threshold
performance for the ROC measure was set at 92.5% of target and stretch performance would be achieved at 110% of target (relative to 2020
where the threshold and stretch performance levels for both measures were 95% and 105% respectively).
• Kmart Group, has delivered strong financial results for the year, demonstrating a pleasing turnaround for Target and good progress relating to
the store closure and conversion program. This is notwithstanding the continued disruptions due to COVID-19 and international supply issues.
• Excluding the significant items relating to the restructure of Target, Kmart Group achieved EBT of $693.0m which was above target by more
than 15%. Kmart ROC was also above target by more than 15%.
• The ongoing reduction in the size of the Target store network and conversion of select Target stores to Kmart stores has progressed well and
ahead of business case in terms of sales, profitability and lower implementation costs. Kmart achieved comparable sales growth of 7.8%,
which was above target by more than 15%.
• The development of capabilities in the Catch business has continued, and good progress has been made leveraging the Kmart and Target
networks and products with the Catch e-commerce offer. Growth in GTV was achieved to $973.2m, above the threshold level set by the Board,
however the minimum required level of EBT and CLV/CPA ratio performance was not achieved and therefore there was no payment made in
respect of this component.
•
•
•
In total, Mr Bailey's 2021 KEEPP outcome on financial measures was 150.0% of FAR.
Kmart Group TRIFR for the year was 9.15. This represents a significant improvement on the prior year and is 23.4% above the target for the
2021 financial year.
Throughout the year Mr Bailey has demonstrated good progress on an ambitious strategic agenda, including the integration and growth of
Catch, while navigating operational complexity.
• Business enhancing: Pleasing progress has been made on the transformation of Target and the actions to optimise the Target store network
and accelerate the growth of Kmart with converted stores receiving positive customer feedback and trading results exceeding expectations.
A project is underway to digitise the Kmart Group supply chain to reduce risk, lead times and increase efficiency and good progress has also
been made in reducing shrinkage across the Kmart Group. Building upon the integration of Catch into Kmart Group, Mr Bailey has been the
joint lead in the Group’s data and digital ecosystem project which has significantly progressed over the year.
• Sustainability: Good progress has been made across Kmart Group in relation to ATSI employment and maintaining gender balance. Progress
continues to be made towards the 2025 emissions reduction targets and in ethical sourcing. Talent management and succession planning
continues to be a key focus with a number of appointments confirmed during the year.
2021 KEEPP outcome
Scorecard measure
Financial
Safety
Business enhancing
– Business growth
– Data and digital initiatives
– Turnaround/newly acquired businesses
Sustainability
– Risk management
– Reputation
– People and culture
Weighting
(%)
Threshold
not met
Threshold met
or exceeded
Target met
or exceeded
Maximum
achieved
60
10
20
10
– Climate change-related initiatives
Mr Bailey’s total 2021 KEEPP outcome will be allocated as:
• $405,000 in cash
• $1,596,375 in Deferred Shares
• $1,596,375 in Performance Shares
106
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BACK Remuneration report (audited)
Michael Schneider – Managing Director, Bunnings Group
2021 Performance highlights
Mr Schneider's financial targets were set in relation to achievement of Bunnings Group EBT, ROC and total sales growth. Threshold performance
for the EBT and ROC measures was set at 92.5% of target and stretch performance would be achieved at 110% of target (relative to 2020 where
the threshold and stretch performance levels for both measures were 95% and 105% respectively).
• Bunnings has delivered strong financial results for the year with EBT of $2,184.9m and ROC of 82.4%. EBT was between 10% and 15% above
target and ROC was more than 15% above target.
• Total sales growth (including trade centres) was 12.4%, more than 15% above target. Significant investment has been made into the
commercial offering to better service builders, tradespeople and organisations, including expanded supply and install product offer for
builders, and increased PowerPass app functionality and engagement.
• As a result, the maximum 2021 KEEPP outcome on financial measures was achieved by Mr Schneider.
• Bunnings TRIFR increased to 11.31.
• Mr Schneider has continued to perform and lead Bunnings at the highest level during another challenging year.
• Business enhancing: During the year, inventory management was successful in meeting the strong and sometimes volatile changes
in customer demand, that supported the positive financial result. The Bunnings digital offering also continued to evolve with the rapid
acceleration of technology allowing deeper insights into the Bunnings customer base, and the development and implementation of tools to
improve the shopping experience, supported by Click & Collect, Drive & Collect and Click & Deliver services. The recently acquired Adelaide
Tools performed well and good progress was made on future store formats and rollout plans with the successful opening of a new format store
in Parafield, Adelaide. During the year the acquisition of Beaumont Tiles was announced and completion is subject to regulatory approval.
• Sustainability: Risk has been a key focus area throughout the year, specifically cyber risk. Good progress has been made within Bunnings in
relation to ATSI employment and gender balance throughout the year. Progress continues to be made towards the 2025 emissions reduction
targets and in ethical sourcing. Talent management and succession planning continues to be a key focus with a number of appointments
confirmed during the year.
2021 KEEPP outcome
Scorecard measure
Financial
Safety
Business enhancing
– Business growth
– Data and digital initiatives
– Turnaround/newly acquired businesses
Sustainability
– Risk management
– Reputation
– People and culture
Weighting
(%)
Threshold
not met
Threshold met
or exceeded
Target met
or exceeded
Maximum
achieved
60
10
20
10
– Climate change-related initiatives
Mr Schneider’s total 2021 KEEPP outcome will be allocated as:
• $450,000 in cash
• $1,743,750 in Deferred Shares
• $1,743,750 in Performance Shares
Wesfarmers 2021 Annual Report
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Directors' report
Remuneration report (audited)
5.4 2017 KEEPP awards that vested during the 2021 financial year
In 2017, eligible executive KMP were invited to receive Deferred Shares and Performance Shares under the 2017 KEEPP. The four-year
performance period for the 2017 KEEPP Performance Shares ended on 30 June 2021. As explained in the 2019 Remuneration Report, the
original 2017 KEEPP awards were cancelled in 2018 and, following implementation of the demerger of Coles from the Wesfarmers Group,
replacement awards were allocated in December 2018. Further details of the terms of the (replacement) 2017 KEEPP are set out in the
2019 Remuneration Report.
Mr Scott, Mr Gianotti and Mr Schneider are the members of the current executive KMP who participated in the 2017 KEEPP. The
table below summarises the applicable performance conditions for each executive KMP and the vesting outcome of the 2017 KEEPP
Performance Shares, as approved by the Board in August 2021. Further information on each performance condition is provided below.
Vesting condition
Outcome
(2017-2021)
rTSR (70% of the award)
124.34%
89.0 percentile
ranking in ASX 100
Well above expectations
R G Scott
Strategic objectives
(30% of the award)
rTSR (70% of the award)
124.34%
89.0 percentile
ranking in ASX 100
A N Gianotti
Strategic objectives
(30% of the award)
Well above expectations
rTSR (20% of the award)
124.34%
89.0 percentile
ranking in ASX 100
M D Schneider1
Cumulative segment result
(80% of the award)
$7,166.8m
102.98% of target
100.0%
% of
maximum
opportunity
Total % of
Performance
Shares vested
Number of
Performance
Shares vested
100.0%
85.0%
100.0%
85.0%
100.0%
95.5%
81,743
95.5%
43,275
100.0%
42,294
1 When the 2017 KEEPP award was replaced in December 2018, the portion of the original 2017 KEEPP award that was subject to the financial performance of Bunnings United
Kingdom and Ireland was not replaced following the sale of the business and Mr Schneider has not received any outcome in relation to this portion.
Relative total shareholder return (rTSR) condition
This condition measures the performance of Wesfarmers' TSR relative to the TSR of the constituents of the S&P/ASX 100 Index. The
Group outperformed the majority of its peers over the performance period with regard to rTSR and was ranked at the 89th percentile in the
ASX 100.
Strategic objectives condition
The Board assessed Mr Scott’s contribution and outcomes over the four-year performance period against strategic goals across five
specific areas:
•
•
•
•
•
Portfolio management
Accelerating the data and digital agenda
Environmental, Social and Governance (ESG) strategies
Improving Corporate reputation
Talent management and leadership development
Greater emphasis was placed on strategic activity in the earlier years of the performance period to enable assessment over the longer
term. The Board acknowledged the challenge of achieving strategic success in each of these areas, given the Group’s autonomous
operating model and with businesses within the Group being at different stages of maturity. The Board also considered the extent to which
the decisions and actions taken by Mr Scott over the performance period have de-risked the Group in relation to future performance.
Overall, the Board rated Mr Scott as having achieved significant positive results across each of these areas, with specific achievements in
relation to portfolio management and reshaping the Group for future growth – for example with the decisions in the 2018 financial year to
divest Bunnings United Kingdom and Ireland and to commence preparations to demerge Coles from the Group.
A core initiative when Mr Scott commenced as Group Managing Director was to create the Advanced Analytics Centre and the Group data
asset in the 2018 financial year. The Board acknowledged the challenges of embarking on such an ambitious initiative and commended
Mr Scott for the progress and the significant benefits and advantages this has brought to each division within the Group, both to date as
well as directionally into the future.
Mr Scott has performed strongly across a number of ESG strategies where the Group has made good progress in the areas of ethical
sourcing, modern slavery and adoption of the aspirational emissions reductions targets backed with the associated strategies in addition
to developing Wesfarmers’ reputation, ensuring the Group continues to care for its team members and suppliers, the community and the
environment in which it operates especially during external challenges such as bushfires, floods as well as COVID-19.
Notwithstanding the significant strategic achievements of Mr Scott since appointment as Group Managing Director, the Board did not
award full vesting of the Performance Shares.
Separately the Group Managing Director and the Board assessed Mr Gianotti’s outcomes against similar areas of focus, using
personalised strategic goals tailored to his role – for example, his leadership and tactical approach in relation to the significant portfolio
management activity undertaken to reposition the Group for future growth. In addition to the substantial support Mr Gianotti provides
to Mr Scott in relation to long-term Group strategy, Mr Gianotti was assessed as having performed very strongly in relation to his
personalised strategic objectives over the four-year performance period.
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Cumulative segment result condition
This condition measures the Bunnings Group's cumulative segment result against the Corporate Plan, subject to an average ROC gate
(noting ROC for the 2021 financial year was calculated as divisional EBT divided by divisional rolling 12 months capital employed, where
capital employed excludes right-of-use assets and lease liabilities). Over the four-year performance period, the Bunnings Group (excluding
Bunnings United Kingdom and Ireland) reported ROC of 52.64 per cent above the required average ROC condition. The cumulative
reported segment result was 2.98 per cent above the four-year Corporate Plan performance condition.
5.5 Performance summary for the Group Managing Director
The chart below summarises the performance of the Group since the appointment of Mr Scott as Group Managing Director on
16 November 2017. In addition, it shows his KEEPP outcomes over the same period.
Performance summary for the Group Managing Director
NPAT
(from continuing operations,
excluding significant items)1,2
0
4
9
,
1
9
9
0
,
2
9
0
7
,
1
1
2
4
,
2
$m
2,500
2,000
1,500
1,000
500
0
ROE (R12)
(from total operations,
excluding significant items)1,2
1
.
6
2
2
.
9
1
1
.
1
2
7
.
1
1
%
30
25
20
15
10
5
0
FY18
FY19
FY20
FY21
FY18
FY19
FY20
FY21
1 NPAT (from continuing operations, excluding significant items) and ROE (from total operations, excluding significant items) are considered non-IFRS measures.
2
FY18, FY19 and FY20 NPAT and ROE are presented on a pre-AASB 16 basis.
Wesfarmers' rTSR against the S&P/ASX 100 Index over the four-year performance period ending 30 June 2021 was 124.34 per cent.
Summary of KEEPP outcomes for the Group Managing Director
Annual KEEPP scorecard
(% of maximum opportunity)
Vesting of KEEPP Performance Shares
(% of award at end of four-year
performance period)
Performance measures
Group NPAT and ROE, safety,
individual performance objectives
FY18
84.4
FY19
86.6
FY20
37.0
FY21
98.3
2016 KEEPP Performance Shares
rTSR, divisional EBIT and ROC
2017 KEEPP Performance Shares
rTSR, strategic objectives
100.0
95.5
5.6 Executive KMP remuneration (statutory presentation)
(a) Statutory executive KMP remuneration table
In the following table, remuneration outcomes are presented based on the requirements of the Corporations Act 2001 and accounting
standards (which has the benefit of being readily comparable with other companies) rather than a take-home pay basis (generally being
cash and benefits and the value of equity received during the financial year). In this regard:
•
The KEEPP cash component is recognised for the year in which it is earned. The KEEPP Deferred 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 the assessed value when originally granted to the executive KMP. The value recognised
for the KEEPP Deferred Shares and KEEPP Performance Shares may be significantly different to their value if and/or when the
incentive vests to the executive KMP. Note, as at 30 June 2021, the service and performance conditions to determine vesting of the
2021 KEEPP Deferred Shares and KEEPP Performance Shares had not yet been finalised and therefore the following table does not
include the expensing of these grants.
•
In some circumstances, amounts are recorded as remuneration even when no equity vests to the executive KMP and in other cases
there can be negative remuneration from equity awards in a given year, for example due to non-vesting.
Wesfarmers 2021 Annual Report
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Remuneration report (audited)
Short-term benefits
Cash
salary
($)
KEEPP
cash5
($)
Non-
monetary
benefits6
($)
Long-
term
benefits1
Post-
employment
benefits2
Share-based
payments3
Termination
benefits
Total
Performance
related4
Other6
($)
Leave
($)
Super-
annuation
($)
KEEPP and
other equity
($)
Termination
payments
($)
($)
(%)
Executive director
R G Scott – Group Managing Director, Wesfarmers Limited
2021
2020
2,322,435
2,335,746
Senior executives
-
-
159,914
60,151
41,666
21,694
4,328,189
146,446
24,914
41,666
21,003
5,193,006
A N Gianotti – Group Chief Financial Officer, Wesfarmers Limited
2021
2020
1,265,531
1,261,265
-
-
66,932
60,151
22,500
21,694
2,284,596
73,357
24,914
22,500
21,003
2,907,533
I Bailey – Managing Director, Kmart Group
2021
2020
1,328,179
405,000
1,328,196
168,750
3,237
3,296
60,151
22,500
21,821
1,368,823
24,914
22,500
21,804
1,628,270
M D Schneider – Managing Director, Bunnings Group
2021
2020
1,398,754
450,000
83,698
60,151
25,000
21,821
3,501,107
1,399,256
525,000
84,234
24,914
25,000
21,804
1,695,844
Former senior executives
D A Baxby7 – Managing Director, Wesfarmers Industrials
-
-
-
-
-
-
-
-
6,934,049
7,762,781
3,721,404
4,310,572
3,209,711
3,197,730
5,540,531
3,776,052
62.4
66.9
61.4
67.5
55.3
56.2
71.3
58.8
2020
Total
2021
2020
919,854
327,600
2,296
1,493,178
15,569
15,752
2,507,970
255,789
5,538,008
51.2
6,314,899
855,000
313,781
240,604
111,666
87,030
11,482,715
- 19,405,695
7,244,317 1,021,350
309,629
1,592,834
127,235
101,366
13,932,623
255,789 24,585,143
-
-
1
2
3
4
Long-term benefits relate to leave entitlements earned during the year.
Post-employment benefits relate to superannuation contributions 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.
The amounts included in share-based payments relate to the KEEPP, Performance-tested Shares, and WESAP, as applicable – WESAP shares are share-based awards
received by the executive KMP under other incentive plans prior to commencing as a member of the executive KMP and participating in the KEEPP:
• The portion of the 2017 KEEPP, 2018 KEEPP and 2019 KEEPP that continue to be expensed in the 2021 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 2020 KEEPP are detailed in
section 5.7(a).
• The portion of the Performance-tested Shares that were expensed in the 2021 financial year, based on probability of vesting, as these shares are subject to
performance and forfeiture conditions. The amounts included for this award are detailed in section 5.7(b).
• The portion of the 2017 WESAP shares that continue to be expensed in the 2021 financial year based on probability of vesting, as these shares are subject to
performance and forfeiture conditions.
• The expensing for the Deferred Shares and Performance Shares that are yet to be granted under the 2021 KEEPP will be included in the remuneration table in the
2022 Remuneration Report.
The percentage performance related for the 2021 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 KEEPP shares only, being the amount expensed
in the 2021 financial year for the 2017, 2018, 2019 and 2020 KEEPP shares (including the 2017 KEEPP replacement allocation), as applicable, is as follows –
R G Scott 56.4 per cent, A N Gianotti 55.3 per cent, I Bailey 27.9 per cent, and M D Schneider 63.2 per cent.
5 Cash payments expected to be made in August 2021 to eligible participants in relation to the KEEPP for the 2021 financial year.
6
Short-term benefits, ‘non-monetary benefits’, include the cost to the company of providing vehicles, life insurance, travel and the fair value of any discounts received for
goods and services acquired by the executive KMP below retail price, available under the general team member discount schemes (noting that 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). The fair value of any discount
is included for the first time in 2021, and therefore, where required, the 2020 figures have been restated to include the fair value of any team member discount in order
to ensure that the comparison against the 2021 figures is meaningful. Short-term benefits, ‘other’, includes the cost of directors and officers liability insurance (see also
footnote 7 for additional inclusions for D A Baxby for the 2020 financial year).
7 D A Baxby ceased to be a member of the executive KMP effective 19 March 2020. Mr Baxby remained employed until 19 March 2021 during which time he was
subject to his obligations under his employment contract. In accordance with the terms of the offer, Mr Baxby was entitled to have his unvested 2019 KEEPP Deferred
Shares and his unvested 2017, 2018 and 2019 KEEPP Performance Shares continue to be restricted in the plan after he left the Group, subject to the original terms and
conditions (including performance conditions) of the offer. The amount shown in share-based payments for the 2020 financial year includes an accelerated expensing of
these unvested awards as at 30 June 2020.
Short-term benefits, ‘other’ for Mr Baxby for the 2020 financial year also includes fixed remuneration paid to Mr Baxby until his cessation of employment on
19 March 2021, life insurance and his statutory redundancy entitlement, which was subject to his ongoing employment obligations being met.
Termination benefits for Mr Baxby reflect the cost of his attendance at an advanced management program, legal expenses and a redundancy entitlement.
110
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BACK Remuneration report (audited)
(b) Summary of KEEPP shares that were expensed during the 2021 financial year
The table below sets out details of the KEEPP shares that were expensed during the 2021 financial year. In addition, this table shows the
KEEPP shares that vested during the year.
Name
R G Scott
A N Gianotti
I Bailey
M D Schneider
Deferred Shares vested
during the year2
Performance Shares vested
during the year3
Year1
Number
2017 KEEPP
2018 KEEPP
-
-
%
-
-
2019 KEEPP
79,995
100.0
Number
81,743
-
-
%
95.5
-
-
Range that could
be expensed over
the remaining
performance period4
($)
-
0 to 590,036
0 to 1,337,196
0 to 1,290,041
2020 KEEPP
2017 KEEPP
2018 KEEPP
-
-
-
-
-
-
2019 KEEPP
44,754
100.0
2020 KEEPP
2018 KEEPP
-
-
-
-
2019 KEEPP
17,296
100.0
2020 KEEPP
2017 KEEPP
2018 KEEPP
-
-
-
2019 KEEPP
31,016
2020 KEEPP
-
43,275
95.5
-
-
-
-
-
-
-
-
-
-
0 to 308,475
0 to 742,145
0 to 729,542
0 to 1,130,697
0 to 475,683
0 to 682,826
-
-
100.0
-
42,294
100.0
-
-
-
-
-
-
0 to 312,444
0 to 534,716
0 to 1,885,529
1
2
The EBIT and ROC performance conditions of the 2017, 2018 and 2019 KEEPP Performance Shares have been amended to post-AASB 16 EBT and ROC metrics.
There has been no incremental change in the fair value of the awards. The share price on which the amendment was communicated to participants was $59.10.
The 2017 Deferred Shares, replaced following the demerger of Coles, vested on 30 June 2019 although these remain subject to a trading restriction until August 2022
and August 2023 respectively. The 2018 Deferred Shares were subject to a 12-month service condition and vested in December 2019, although these remain subject
to a five- and six-year trading restriction until August 2023 and August 2024 respectively. The 2019 Deferred Shares were subject to a 12-month service condition and
vested in December 2020, although these remain subject to a five- and six-year trading restriction until August 2024 and August 2025 respectively. The 2020 Deferred
Shares remain unvested. The Deferred Shares are held in trust and can only be transferred to the executive KMP once all trading restrictions and any other conditions
are met.
3 The 2017 Performance Shares were subject to a four-year performance period that ended on 30 June 2021 (see section 5.4 for further information). The 2018
Performance Shares, 2019 Performance Shares and 2020 Performance Shares will reach the end of the four-year performance period on 30 June 2022, 30 June 2023
and 30 June 2024 respectively. The Performance Shares are held in trust and can only be transferred to the executive KMP once vested.
4 Should the executive KMP resign prior to vesting, the Deferred Shares and Performance Shares would be forfeited. Accordingly, the minimum value of the unvested
award would be nil.
(c) Summary of additional Kmart-related Performance-tested Shares that were expensed during the
2021 financial year
The Performance-tested Shares were granted in the 2021 financial year to the Group Managing Director, the Group Chief Financial Officer
and the Managing Director, Kmart Group to ensure continued focus on the successful implementation of the Kmart Group restructure.
Further information is provided in section 5.7(b).
The table below sets out details of the Performance-tested Shares that were expensed during the 2021 financial year. In addition, this
table shows the Performance-tested Shares that vested during the year.
Performance-tested Shares vested during the year1
R G Scott
A N Gianotti
I Bailey
Number
-
-
-
%
-
-
-
Range that could be expensed over
the remaining performance period2
($)
0 to 838,170
0 to 452,613
0 to 678,920
1 The Performance-tested Shares will reach the end of the three-year performance period on 30 June 2023. The Performance-tested Shares are held in trust and can only
be transferred to the participant once vested.
2 Should the participant leave the Wesfarmers Group for any reason other than ill health prior to vesting, the Performance-tested Shares would be forfeited. Accordingly,
the minimum value of the unvested award would be nil.
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Directors' report
Remuneration report (audited)
5.7 Details of equity allocated during the 2021 financial year
As foreshadowed in the 2020 Remuneration Report, both the 2020 KEEPP awards and the additional Kmart-related Performance-tested
Shares were delivered to executives during the 2021 financial year. Information on each award is provided on the following pages.
(a) 2020 KEEPP equity
Details of the 2020 KEEPP scorecard and outcomes for executive KMP were outlined in the 2020 Remuneration Report, including the
portion allocated in cash, Deferred Shares and Performance Shares. The 2020 KEEPP Deferred Shares and Performance Shares were
granted on 12 November 2020, with any cash component paid on 24 August 2020. Approval from Wesfarmers shareholders for the
issuance of these shares to the Group Managing Director was obtained under ASX Listing Rule 10.14 at the 2020 Annual General Meeting.
The terms applicable to the grant of Deferred Shares and Performance Shares for the 2020 KEEPP are set out on the following pages.
Details of prior year grants are set out in the Remuneration Report for the relevant year.
The 2020 KEEPP Deferred Shares and Performance Shares set out below were delivered to the executive KMP during the 2021 financial
year. The 2020 KEEPP outcomes were presented in section 5.2 of the 2020 Remuneration Report, including the percentage of the
2020 KEEPP award opportunity that was forfeited.
Deferred Shares
allocated (subject to a
four-, five- and six-year
restriction from
trading)1, 3
Performance Shares
allocated (vesting
subject to performance
conditions over a four-year
performance period)2, 3
Fair value of
Deferred Shares
at grant date4
($)
Fair value of
Performance Shares
at grant date4
($)
28,609
16,179
13,918
38,768
28,609
16,179
13,918
38,768
1,395,547
789,212
678,920
1,891,103
1,035,061
585,344
569,316
1,585,805
Name
R G Scott
A N Gianotti
I Bailey
M D Schneider
1
2
3
4
The 2020 KEEPP Deferred Shares were granted on 12 November 2020 and are still subject to restrictions. No 2020 KEEPP Deferred Shares vested or were forfeited
during the reporting period.
The 2020 KEEPP Performance Shares were granted on 12 November 2020 and are still subject to performance conditions until 30 June 2024. Accordingly, no
2020 KEEPP Performance Shares vested or were forfeited during the reporting period.
The number of Deferred 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 full-year results announcement in August 2020 (i.e. 21 August – 3 September 2020) being $48.497908.
For accounting purposes, the fair value at grant date is shown above, in accordance with AASB 2 Share-Based Payment. The Performance Shares subject to market
conditions (rTSR condition) have been independently valued using the Monte Carlo simulation using the Black-Scholes framework. The Deferred Shares and the
Performance Shares subject to non-market conditions (e.g. divisional EBT and ROC) have been valued with reference to the Wesfarmers share price on grant date.
The value per Performance Share for the rTSR performance condition is $33.03 and the value per Deferred Share and per Performance Share subject to the portfolio
management and investment outcomes condition or the divisional EBT and ROC condition is $48.78, valued as at 12 November 2020. 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.
2020 Deferred Shares
The 2020 Deferred Shares were allocated in December 2020. They carry both dividend and voting rights. Dividends will be escrowed
until the end of the 12-month forfeiture period and thereafter be paid to the executive KMP. If Deferred Shares are forfeited during the
12-month forfeiture period, the executive KMP is not entitled to the escrowed dividends. During the forfeiture period, a portion of the
escrowed dividend amounts will be paid to the executive KMP to satisfy their tax liability (after allowing for the use of the franking credits)
on dividends paid in respect of their Deferred Shares.
The 2020 Deferred Shares did not have further conditions applied but did have a 12-month service condition (the forfeiture period) from
the date they were allocated to participants and continue to be subject to trading restrictions as outlined below. Prior to allocation, the
executive KMP had the option of voluntarily applying a longer restriction period to their 2020 Deferred Shares of up to 15 years.
2020 KEEPP Deferred Shares
One-third of Deferred Shares are restricted from trading for six years
12-month
performance
period
One-third of Deferred Shares are restricted from trading for five years
One-third of Deferred Shares are restricted from
trading for four years
June 2020
2021
2022
2023
2024
2025
2026
Deferred Shares
allocated in
December 2020
Forfeiture
period ends in
December 2021
Restriction lifts
on one-third of
Deferred Shares
in August 2024
Restriction lifts
on one-third of
Deferred Shares
in August 2025
Restriction lifts
on one-third of
Deferred Shares
in August 2026
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Remuneration report (audited)
2020 Performance Shares
The 2020 Performance Shares were allocated in December 2020. They carry both 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. During the
performance period, a portion of the escrowed dividend amounts will be paid to the executive KMP to satisfy their tax liability (after
allowing for the use of the franking credits) on dividends paid in respect of their Performance Shares.
The 2020 Performance Shares have performance conditions over a four-year performance period, from 1 July 2020 to 30 June 2024. The
performance conditions will be tested shortly after the end of the performance period. Performance Shares will only vest based on the
extent of the satisfaction of the performance conditions outlined below. Following testing, any Performance Shares that do not vest will be
forfeited. The performance conditions applicable to the 2020 Performance Shares vary as set out below.
2020 KEEPP Performance Shares
12-month
performance
period
Group Managing Director and Group Chief Financial Officer:
rTSR (80% weighting) and portfolio management and investment
outcomes (20% weighting)
Divisional managing directors:
rTSR (50% weighting) and divisional financial performance1
(50% weighting)
June 2020
2021
2022
2023
2024
2025
Four-year
performance
period begins
1 July 2020
Performance
Shares allocated
in December 2020
Performance
period ends and
conditions tested
as at 30 June 2024
Board approves
testing and vesting
outcome, expected
to be in August 2024
1
Set at a divisional level through annual Corporate Planning processes.
Assessment of the performance conditions and achievement against the performance conditions will be determined by the Board having
regard to any matters that it considers relevant.
Specific divisional financial performance conditions have been set with regard to each divisional managing director and the relevant key
financial measures for their respective division:
•
•
The portion of Mr Schneider’s 2020 Performance Shares subject to divisional financial performance (being 50 per cent of his overall
Performance Shares allocation) will be wholly assessed against Bunnings Group EBT and ROC.
The portion of Mr Bailey’s 2020 Performance Shares subject to divisional financial performance will be assessed against Kmart
Group EBT and ROC (40 per cent of his overall Performance Shares allocation) and Catch GTV and CLV/CPA ratio (10 per cent of his
overall Performance Shares allocation).
The table below provides further detail on the performance conditions including how the testing and vesting, if applicable, will occur:
Measure
Relative TSR
Detail
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.
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.
Vesting schedule against rTSR:
Percentile ranking
Percentage of awards vesting
Below the 50th percentile
Equal to the 50th percentile
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
Wesfarmers’ 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 in relation to Group
results.
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Remuneration report (audited)
Divisional financial
performance
Wesfarmers’ portfolio
management and
investment outcomes
Divisional EBT and ROC
The EBT condition measures the respective division’s before tax profit against its profit targets, subject to
achieving an average ROC gate over the four-year performance period. ROC is calculated as divisional EBT
divided by divisional rolling 12 months capital employed, where capital employed excludes right-of-use assets
and lease liabilities. Both the EBT targets and average ROC gate have been calculated using the budget and
targets in the respective division’s Corporate Plan.
The ROC gate has been set at 90 per cent of the average ROC target over the four-year performance period.
Subject to the ROC gate being passed, a portion of the Performance Shares will vest for achievement against
the annual EBT targets. The annual EBT target is individually weighted for each year of the performance
period, with a 40 per cent weighting to the first year of the performance period, followed by 30 per cent,
20 per cent and 10 per cent weighting for years two, three and four respectively.
The EBT and ROC results 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.
Vesting schedule against EBT and ROC:
Subject to achieving the four-year average ROC gate,
Annual EBT result
Below 90% of target
Equal to 90% of target
Percentage of awards vesting
0% vesting
50% vesting
Between 90% and 100% of target
Straight-line vesting between 90% and 100%
Equal to 100% of target or above
100% vesting
Divisional annual EBT, 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.
The EBT and ROC targets will be adjusted, where the Board considers it appropriate to do so, so that
participants are not unfairly advantaged or disadvantaged, for example, due to portfolio management activity.
Catch GTV and CLV/CPA ratio
The GTV condition measures the total price paid by Catch’s customers for all of the items sold via Catch,
subject to achieving an average CLV/CPA ratio gate over the four-year performance period. The GTV targets
and the CLV/CPA ratio gate are set by the Board.
Subject to the CLV/CPA ratio gate being passed, a portion of the Performance Shares will vest for achievement
of the annual GTV targets. The annual GTV target is individually weighted for each year of the performance
period, with a 40 per cent weighting to the first year of the performance period, followed by 30 per cent,
20 per cent and 10 per cent weighting for years two, three and four respectively.
The GTV and CLV/CPA ratio results 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.
Vesting schedule against GTV and CLV/CPA ratio:
Subject to achieving the four-year average CLV/CPA ratio gate,
Annual GTV result
Below 90% of target
Equal to 90% of target
Percentage of awards vesting
0% vesting
50% vesting
Between 90% and 100% of target
Straight-line vesting between 90% and 100%
Equal to 100% of target or above
100% vesting
GTV and the CLV/CPA ratio were chosen as measures to ensure the remuneration of Mr Bailey is directly linked
to the long-term success of Catch, noting that this requires specific metrics as Catch is a marketplace with
multiple sellers transacting.
The GTV and the CLV/CPA ratio targets will be adjusted, where the Board considers it appropriate to do so, so
that Mr Bailey is not unfairly advantaged or disadvantaged, for example, due to portfolio management activity.
Wesfarmers portfolio management and investment outcomes were chosen to recognise the criticality of
decision-making with regards to potential acquisitions, investments and disposals on shareholder value creation.
At the end of the four-year performance 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.
Throughout the performance period, the Board maintains a log of the portfolio management and investment
decisions and rationale, including the decisions not to proceed with portfolio changes or investments. At the
end of the performance period, the Board will consider the validity of these decisions from a shareholder value
creation perspective, with a greater weighting placed upon decisions made in the first year of the performance
period.
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BACK Remuneration report (audited)
Further terms of the 2020 KEEPP
The table below sets out further terms applying to Deferred Shares and Performance Shares granted under the 2020 KEEPP.
Cessation of
employment
If an executive KMP ceases employment with Wesfarmers before the end of the forfeiture period, restriction
period or performance period (as applicable), their entitlement to the shares (if any) will depend on the
circumstances of their departure. The table below summarises the treatment that will generally apply, subject to
the Board's discretion to determine a different treatment to the treatment outlined below.
Reason
Deferred Shares
Performance Shares
Resignation
Dismissal by the Board
for cause or significant
underperformance
or in circumstances
justifying 'bad leaver'
treatment
Breach of restraint
under the executive’s
service contract
All other reasons
(including due to
death, disability or
serious injury)
The Performance Shares will be forfeited.
During the forfeiture period (i.e. within
12 months of allocation) – the Deferred
Shares will be forfeited.
After the forfeiture period has ended – the
Deferred Shares will remain on foot and
subject to the original conditions, other
than a portion which may be released on
termination to fund the tax liability on the
Deferred Shares (subject to any limit under
the Corporations Act 2001).
The Deferred Shares will be forfeited.
The Performance Shares will be forfeited.
The Deferred Shares will be forfeited.
The Performance Shares will be forfeited.
The Deferred Shares will remain on foot
and subject to the original conditions,
other than a portion which may be
released on termination to fund the tax
liability on the Deferred Shares (subject to
any limit under the Corporations Act 2001).
The Performance Shares will remain
on foot and subject to the original
conditions.
Following cessation of employment (where Deferred Shares remain on foot):
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 vested or unvested Deferred 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.
Change of control
If a change of control event occurs, the Board has broad discretion to determine the treatment of Deferred
Shares and Performance Shares, having regard to any matter that the Board considers relevant.
Clawback and
adjustment
The terms of the KEEPP allow for the Board to clawback or adjust any incentive awards (including cash or
shares) which were granted, vest or may vest, or are released or may be released (as applicable). For example,
these powers can be exercised 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. In such circumstances, 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 inappropriate benefit is derived. The Board has
discretion to adjust any conditions applicable to an award, if considered appropriate.
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Remuneration report (audited)
(b) Additional Kmart-related Performance-tested Shares
In the 2020 financial year, a decision was made to substantially reduce the size of the Target network and invest to convert many of its
stores to Kmart stores which are expected to perform more strongly. As a result, the restructuring costs and provisions, along with the
one-off costs to be incurred in the 2021 financial year, impacted the 2020 KEEPP awards related to the Group and Kmart Group financial
results. The Board did not make any adjustments to the 2020 KEEPP awards in relation to this.
As explained in the Chairman’s letter in the 2020 Remuneration Report, the Board approved a separate one-off Performance-tested Share
grant for the Group Managing Director, the Group Chief Financial Officer and the Managing Director, Kmart Group, which was allocated
in the 2021 financial year as set out below. This was to ensure continued focus on the successful implementation of the Kmart Group
restructure and to recognise that a substantial component of the restructure charge taken in 2020 was more in the nature of an investment
by Kmart. The Performance-tested Shares will be tested at the end of the 2023 financial year and will only vest to the extent that the total
cumulative converted store profit for the relevant stores in the 2022 and 2023 financial years is achieved without exceeding the capital
expenditure budget, relative to the Board-approved proposal.
R G Scott
A N Gianotti
I Bailey
Performance-tested Shares allocated
(vesting subject to performance conditions
over a three-year performance period)1,2
Fair value of Performance-tested Shares
at grant date3
($)
25,774
13,918
20,877
1,257,256
678,920
1,018,380
1
2
3
The Performance-tested Shares were granted on 12 November 2020 and are still subject to performance conditions until 30 June 2023. Accordingly, no
Performance-tested Shares vested or were forfeited during the reporting period.
The number of Performance-tested 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 full-year results announcement in August 2020 (i.e. 21 August – 3 September 2020) being $48.497908.
For accounting purposes, the fair value at grant date is shown above, in accordance with AASB 2 Share-Based Payment. As the Performance-tested Shares are subject
to non-market conditions these been valued with reference to the Wesfarmers share price on grant date. The value per Performance-tested Share is $48.78, valued as at
12 November 2020. 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.
Further details of the Performance-tested Shares
The Performance-tested Shares were allocated in December 2020. They carry both dividend and voting rights. Dividends will be escrowed
for the full three-year performance period and only paid to the executive KMP to the extent that the underlying shares vest. During the
performance period, a portion of the escrowed dividend amounts will be paid to the executive KMP to satisfy their tax liability (after
allowing for the use of the franking credits) on dividends paid in respect of their Performance-tested Shares.
The Performance-tested Shares have performance conditions measured over the three-year period to 30 June 2023. The performance
conditions will be tested shortly after the end of the performance period. Performance-tested Shares will only vest based on the extent of
the satisfaction of the performance condition outlined below. Following testing, any Performance-tested Shares that do not vest will be
forfeited.
Performance-tested Shares
Vesting subject to total cumulative store profit in the 2022 and
2023 financial years against the targeted store contribution in
the Board-approved proposal (100% weighting)
June 2020
2021
2022
2023
2024
Three-year
performance
period begins
1 July 2020
Performance-
tested Shares
allocated in
December 2020
Performance
period ends and
conditions tested
as at 30 June 2023
Board approves
testing and vesting
outcome, expected
to be in August 2023
116
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BACK Remuneration report (audited)
The table below provides further detail on the Performance-tested Share grant including how the testing and vesting, if applicable, will occur:
Allocation of
Performance-tested
Shares
The Board resolved the value of the Performance-tested Shares to be offered to the executive KMP as set out in
the 2020 Remuneration Report.
The number of Performance-tested Shares allocated was determined using the face value calculated based
upon the 10-day VWAP of Wesfarmers Limited shares immediately following the full-year results announcement
in August 2020 (i.e. 21 August – 3 September 2020) being $48.497908.
Conditions and
vesting
Provided the capital expenditure budget (net of landlord contributions) is not exceeded, the
Performance-tested Shares will vest and become unrestricted shares subject to a performance condition
relating to the successful execution of the Kmart Group restructure. The performance condition is total
cumulative converted store profit for the relevant stores, against the targeted store contribution in the
Board-approved proposal.
Rationale for
performance
condition
Testing
Vesting schedule:
– None of the Performance-tested Shares vest if the total cumulative store profit in the 2022 and
2023 financial years from all converted stores is less than or equal to 80 per cent of the total cumulative
store profitability for these financial years as set out in the Board-approved proposal; and
– 100 per cent of the Performance-tested Shares vest if the total cumulative store profit in the 2022 and
2023 financial years from all converted stores is equal to or greater than 100 per cent of the total
cumulative store profitability for these financial years as set out in the Board-approved proposal.
– Straight-line pro-rata vesting occurs in between.
The strategic intent of the performance condition is to ensure that the participants are focused on achievement
of future shareholder value from the restructure and are remunerated to the extent the reduction in the Target
network and the conversion of stores to Kmart adds shareholder value in line with the Board-approved plan,
measured at the end of the three-year performance period.
The total cumulative converted store profit and capital expenditure will be calculated after preparation and
audit of the financial statements following the end of the final year of the performance period and assessed
against the targets set.
This method of assessing the performance condition has been chosen as the Board believes it is the most
appropriate way to assess the reduction in the Target network and associated conversion of stores to
Kmart. In accordance with the terms of the Performance-tested Shares, the Board has discretion to make
adjustments to the performance conditions where it is considered appropriate to do so.
Cessation of
employment
If a participant ceases employment with Wesfarmers before the end of the performance period, their
entitlement to the Performance-tested Shares (if any) will depend on the circumstances of cessation.
Where a participant leaves due to ill health, a pro-rata number of Performance-tested Shares, based on the
length of the performance period worked, will remain on foot subject to the original terms of offer, unless the
Board determines otherwise.
If the participant ceases employment with the Wesfarmers Group for any other reason, their
Performance-tested Shares will be forfeited.
Change of control
If a change of control event occurs, the Board has broad discretion to determine the treatment of the
Performance-tested Shares, having regard to any matter that the Board considers relevant.
Clawback and
adjustment
The terms of the Performance-tested Shares allow for the Board to clawback or adjust any incentive awards
which were granted, vest or may vest, or are released or may be released (as applicable). For example, these
powers can be exercised 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. In such circumstances, 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 participant to ensure no inappropriate benefit is derived. The Board has
discretion to adjust any conditions applicable to an award, if considered appropriate.
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Directors' report
Remuneration report (audited)
5.8 Executive KMP share ownership
The Board considers it an important foundation of the Wesfarmers remuneration framework that the executive KMP hold a significant
number of Wesfarmers shares to encourage them to behave like long-term owners and, as at the date of this report, all current executive
KMP hold significantly more than their respective FAR in Wesfarmers shares.
The following table sets out the number of shares held directly, indirectly or beneficially by the current executive KMP (including their
related parties).
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
Name
R G Scott
A N Gianotti
I Bailey
M D Schneider
911,355
393,752
165,703
250,089
82,992
46,276
48,713
77,536
(3,852)
990,495
(17,923)
422,105
(15,000)
199,416
(8,980)
318,645
303,225
140,017
60,187
123,893
627,322
112,200
255,484
319,586
56,769
140,978
84,341
30,366
108,863
-
42,294
151,079
1,379
241,629
656,404
405,306
Total
1,720,899
255,517
(45,755)
1,930,661
1
2
3
4
5
6
7
8
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 2017 KEEPP Performance Shares, the 2018 KEEPP Performance Shares and the 2019 KEEPP Deferred Shares and Performance
Shares, and the 2017 WESAP shares, as appropriate. WESAP 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 2020 KEEPP and the Performance-tested Shares, as appropriate.
The net change may include changes due to personal trades 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 2018 KEEPP Performance Shares, the 2019 KEEPP Performance Shares and the 2020 KEEPP Deferred Shares and Performance
Shares, and the Performance-tested Shares, as appropriate.
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 Deferred Shares, the 2017 KEEPP Deferred Shares, the 2018 KEEPP Deferred Shares and the 2019 KEEPP Deferred
Shares, as appropriate.
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 2018 KEEPP Performance Shares, the 2019 KEEPP Performance Shares and the 2020 KEEPP Deferred Shares and Performance
Shares, and the Performance-tested Shares, as appropriate.
This number reflects the fully-paid ordinary shares held directly outside of an equity plan by the executive KMP including their related parties.
5.9
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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BACK Remuneration report (audited)
Non-executive director remuneration
6. NON-EXECUTIVE DIRECTORS
6.1 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 $3,600,000 was approved by shareholders at the 2015 Annual
General Meeting. Fees paid to Wesfarmers’ non-executive directors for membership of Wesfarmers’ divisional boards, in addition to
Wesfarmers’ Board and committee fees and superannuation contributions made on behalf of the non-executive directors in accordance
with Wesfarmers’ statutory superannuation obligations, are included in this aggregate fee pool.
Regular reviews of remuneration
The Board periodically reviews the level of fees paid to the non-executive directors, including consideration of external benchmarking.
In December 2020, the Board reviewed the main Board member fee payable to the non-executive directors having regard to benchmark
data, market position and relative fees. The Board approved a four per cent increase in the main Board member fee which was the first
change to this fee since 1 January 2017. There was no change to the main Board fee for the Chairman.
6.2 Non-executive director fees and other benefits
The fees shown in the table below (inclusive of superannuation) took effect from 1 January 2021. The 2020 fees are included for
comparison.
Fees/benefits
Description
Board fees
Committee fees
Main Board1
Chairman – M A Chaney
Members – all non-executive directors
Audit and Risk Committee
Chairman – S L Warburton
Members – J A Westacott, S W English, A Sabharwal2
Remuneration Committee
Chairman – M Roche
Members – M A Chaney3, W G Osborn, V M Wallace
Superannuation
Other Group fees
Made to the Mercer Tailored Super Plan or another regulated
superannuation fund. An amount is deducted from gross fees to meet
statutory superannuation obligations.
Non-executive directors are paid additional fees, where applicable, for
participation on the boards of Wesfarmers’ related bodies corporate (for
example BWP Management Limited). None of the current non-executive
directors participate on the boards of Wesfarmers’ related bodies
corporate.
2021 ($)
2020 ($)
770,000
240,000
770,000
230,000
70,000
40,000
60,000
30,000
70,000
40,000
60,000
30,000
1 D L Smith-Gander retired from the Board of Wesfarmers Limited on 12 November 2020.
A M Watkins is expected to be appointed to the Board of Wesfarmers Limited, effective 1 September 2021 and is expected to be KMP for part of the 2022 financial year.
2 A Sabharwal was appointed to the Board of Wesfarmers Limited and as a member of the Audit and Risk Committee, effective 1 February 2021.
3
The Chairman of the Board does not receive a separate fee for membership of any of the Board’s committees.
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Remuneration report (audited)
6.3 Non-executive director remuneration
The fees paid or payable to the non-executive directors in relation to the 2021 financial year are set out below:
Short-term
benef its
Fees –
Wesfarmers
Group
($)
Fees –
Wesfarmers
Limited
($)
Post-employment
benef its
Total
Other
benef its1
($)
Superannuation2
($)
Non-executive directors
M A Chaney
S W English
W G Osborn
M Roche
A Sabharwal3
V M Wallace
S L Warburton4
J A Westacott
Former non-executive directors
D L Smith-Gander5
A J Howarth6
Total
2021
2020
2021
2020
2021
2020
2021
2020
2021
2021
2020
2021
2020
2021
2020
2021
2020
2020
2021
2020
748,306
748,997
253,306
248,997
243,306
236,997
278,729
275,499
112,618
248,729
247,499
283,306
247,870
269,576
259,499
94,219
259,499
105,562
2,532,095
2,630,419
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
39,353
-
39,353
62,805
28,459
60,151
24,914
60,151
24,914
60,151
24,914
24,720
60,151
24,914
60,151
22,804
60,151
24,914
46,809
24,914
17,810
495,240
218,557
21,694
21,003
21,694
21,003
21,694
21,003
16,271
10,501
4,049
16,271
10,501
21,694
20,027
5,424
10,501
5,424
10,501
10,073
134,215
135,113
($)
832,805
798,459
335,151
294,914
325,151
282,914
355,151
310,914
141,387
325,151
282,914
365,151
290,701
335,151
294,914
146,452
294,914
172,798
3,161,550
3,023,442
1 Short-term benefits, ‘other benefits’, includes the cost of directors and officers liability insurance and the cost of other business-related expenses.
The amount shown under short-term benefits, ‘other benefits’ for D L Smith-Gander is inclusive of a retirement gift.
2 Superannuation contributions are made on behalf of non-executive directors in accordance with Wesfarmers’ statutory superannuation obligations, except where
approval was obtained from the Australian Taxation Office by individual non-executive directors to be exempt from making superannuation contributions due to
obligations being met by other employers. Also included is any part of a non-executive director’s fees that have been sacrificed into superannuation.
3 A Sabharwal was appointed as a non-executive director on 1 February 2021.
4 S L Warburton was appointed as a non-executive director on 1 August 2019.
5 D L Smith-Gander retired from the Board, effective 12 November 2020.
6 A J Howarth retired from the Board, effective 14 November 2019. Mr Howarth received fees for participation on the board of BWP Management Limited.
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BACK
Remuneration report (audited)
6.4 Non-executive director share ownership
The Board considers it an important foundation of the Wesfarmers remuneration framework that the directors hold a significant number of
Wesfarmers shares to encourage them to behave like long-term owners. Directors are required to hold a minimum of 1,000 Wesfarmers
shares within two months of appointment and 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 former directors (including their
related parties).
Name
M A Chaney
S W English
W G Osborn
M Roche
A Sabharwal4
D L Smith-Gander5
V M Wallace
S L Warburton
J A Westacott
Total
Balance at beginning of year1
Net change2
Balance at year-end3
87,597
2,296
14,728
3,000
-
12,045
13,983
7,036
6,788
147,473
-
1,103
-
2,000
1,017
-
-
-
-
4,120
87,597
3,399
14,728
5,000
1,017
12,045
13,983
7,036
6,788
151,593
1
2
3
4
5
This number reflects the fully-paid ordinary shares held directly as well as vested and unrestricted equity under plans.
The net change includes changes due to personal trades.
This number reflects the fully-paid ordinary shares held directly as well as vested and unrestricted equity under plans. Where a director ceased to be a director
throughout the year, 'Balance at year-end' reflects the balance of equity as at the date they ceased to be a director.
The information for A Sabharwal reflects his time since appointment to the Board and as a member of the KMP, from 1 February 2021.
D L Smith-Gander retired from the Board and ceased to be a member of the KMP, effective 12 November 2020.
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Wesfarmers 2021 Annual Report122Remuneration report (audited)Directors' reportOther remuneration information7. FURTHER INFORMATION ON REMUNERATION7.1 Share trading restrictionsWesfarmers’ 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 and BWP Trust securities and for short selling, short-term trading, security interests, margin loans and hedging relating to Wesfarmers and BWP Trust 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.7.2 Other transactions and balances with key management personnelFrom time to time, the executive KMP and directors of the company or its controlled entities, or their 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 2021, between Wesfarmers and its directors and executive KMP and/or their related parties.8. INDEPENDENT AUDIT OF REMUNERATION REPORTThe remuneration report has been audited by Ernst & Young. Please see page 176 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 AOR G ScottChairmanManaging DirectorPerth26 August 2021BACK Financial statements
For the year ended 30 June 2021 – 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 124
Page 125
Page 126
Page 127
Page 128
Page 129
Page 131
Group
performance
P. 134
Group balance
sheet
P. 137
Capital
P. 146
Risk
P. 150
Group information
Other
P. 159
P. 166
1.
Revenue and
other income
4.
Cash and cash
equivalents
14. Capital
management
19. Financial risk
management
22. Associates
and joint
arrangements
27. Commitments
and
contingencies
2. Expenses
5. Receivables
15. Dividends and
distributions
20. Hedging
23. Subsidiaries
28. Events after the
reporting period
3. Tax expense
6.
Inventories
16. Equity and
reserves
21. Impairment of
non-financial
assets
24. Parent
disclosures
29. Auditors’
remuneration
7.
Other financial
assets
17. Earnings per
share
8.
Property, plant
and equipment
18. Interest-bearing
loans and
borrowings
25. Deed of Cross
Guarantee
30. Other
accounting
policies
26. Related party
transactions
31. Share-based
payments
9.
Goodwill and
intangible
assets
10. Mineral rights
11. Mine properties
12. Leases
13. Provisions
32. Director and
executive
disclosures
33. Tax
transparency
disclosures
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Financial statements
Income statement
For the year ended 30 June 2021
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 of associates and joint ventures
Earnings before finance costs and income tax expense
Interest on lease liabilities
Other finance costs
Profit before income tax expense
Income tax expense
Profit after tax from continuing operations
Discontinued operations
Profit 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
2021
Note
$m
2020
$m
1
2
2
2
2
2
1
22
12
2
3
17
33,941
30,846
(20,877)
(5,500)
(540)
(461)
(1,509)
(70)
(1,457)
(30,414)
87
103
190
3,717
(226)
(118)
3,373
(993)
2,380
-
2,380
cents
210.4
210.2
210.4
210.2
(19,307)
(4,990)
(435)
(446)
(1,528)
(941)
(1,329)
(28,976)
661
213
874
2,744
(237)
(133)
2,374
(752)
1,622
75
1,697
cents
143.4
143.3
150.0
149.9
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BACK
Statement of comprehensive income
For the year ended 30 June 2021
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
Cash flow hedge reserve
Unrealised (losses)/gains on cash flow hedges
Realised losses transferred to net profit
Realised losses/(gains) transferred to non-financial assets
Share of associates and joint ventures reserves
Tax effect
Items that will not be reclassified to profit or loss:
Financial assets reserve
Changes in the fair value of financial assets designated at fair value through other
comprehensive income
Tax effect
Retained earnings
Remeasurement loss on defined benefit plan
Tax effect
Other comprehensive profit/(loss) for the year, net of tax
Total comprehensive income for the year, net of tax, attributable to members of the parent
arising from:
Continuing operations
Discontinued operations
Note
16
16
3
16
3
Consolidated
2021
$m
2,380
2020
$m
1,697
(8)
(4)
(191)
-
308
5
(38)
(3)
1
-
-
74
136
-
(259)
(1)
37
30
(9)
-
-
(70)
2,454
-
2,454
1,552
75
1,627
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Financial statements
Balance sheet
As at 30 June 2021
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
Other financial assets
Deferred tax assets
Property , plant and equipment
Goodwill and intangible assets
Mineral rights
Mine properties
Right-of-use assets
Derivatives
Other
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Interest-bearing loans and borrowings
Lease liabilities
Income tax payable
Provisions
Derivatives
Other
Total current liabilities
Non-current liabilities
Interest-bearing loans and borrowings
Lease liabilities
Provisions
Derivatives
Other
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Equity attributable to equity holders of the parent
Issued capital
Reserved shares
Retained earnings
Reserves
Total equity
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Consolidated
2021
Note
$m
4
5
6
20
22
7
3
8
9
10
11
12
20
18
12
13
20
18
12
13
20
16
16
16
3,023
1,247
4,502
152
172
9,096
775
1,124
613
3,496
3,902
1
865
6,035
282
25
17,118
26,214
4,234
950
969
349
1,152
43
218
7,915
2,072
6,136
374
2
-
8,584
16,499
9,715
15,826
(102)
60
(6,069)
9,715
2020
$m
2,913
1,037
3,844
41
229
8,064
710
1,123
670
3,623
3,814
813
-
6,212
386
10
17,361
25,425
4,008
503
1,019
392
1,078
81
189
7,270
2,153
6,223
346
4
85
8,811
16,081
9,344
15,818
(89)
(245)
(6,140)
9,344
BACK Cash flow statement
For the year ended 30 June 2021
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Dividends and distributions received from associates
Dividends received from other investments
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
Payments for mineral exploration
Payments for mine properties and development
Proceeds from sale of property, plant and equipment and intangibles
Net proceeds from sale of businesses
Net proceeds from disposals of interest in associates and other investments
Net investments in associates and joint ventures
Acquisition of subsidiaries, net of cash acquired
Purchase of other financial assets
Net cash flows (used in)/from investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Repayment of lease liabilities
Equity dividends paid
Net cash flows used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Consolidated
2021
Note
$m
2020
$m
37,403
(32,773)
51
40
12
(335)
(1,015)
3,383
(843)
(22)
(31)
264
5
-
(8)
(2)
(5)
(642)
1,000
(571)
(986)
(2,074)
(2,631)
110
2,913
3,023
34,197
(28,725)
159
-
9
(367)
(727)
4,546
(844)
(23)
-
299
-
2,198
-
(988)
-
642
-
(381)
(955)
(1,734)
(3,070)
2,118
795
2,913
4
4
4
4
4
4
Wesfarmers 2021 Annual Report
127
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Financial statements
Statement of changes in equity
For the year ended 30 June 2021
Consolidated
Note
$m
$m
$m
$m
Attributable to equity holders of the parent
Issued Reserved
shares
capital
Retained Reserves
earnings
Total
equity
$m
Balance at 1 July 2020
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
Changes in the fair value of financial assets designated at fair
value through other comprehensive income, 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 Wesfarmers Long Term
Incentive Plan (WLTIP) and Key Executive Equity Performance
Plan (KEEPP)
Acquisition of shares on-market for Performance shares
Equity dividends
Balance at 30 June 2021
Balance at 1 July 2019
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
Changes in the fair value of financial assets designated at fair
value through other comprehensive income, 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 WLTIP and KEEPP
Equity dividends
Balance at 30 June 2020
16
16
16
16
16
16
16
15
16
16
16
16
16
15
15,818
-
(89)
-
(245)
2,380
(6,140)
-
9,344
2,380
-
-
-
-
-
-
8
-
-
-
8
15,826
15,809
-
-
-
-
-
-
-
9
-
-
9
15,818
-
-
-
-
-
-
-
(10)
(3)
-
(13)
(102)
(81)
-
-
-
-
-
-
-
-
(8)
-
(8)
(89)
-
-
-
-
-
2,380
-
-
-
(2,075)
(2,075)
60
(208)
1,697
-
-
-
-
-
1,697
-
-
(1,734)
(1,734)
(245)
(8)
84
(2)
-
74
74
(3)
-
-
-
(3)
(6,069)
(6,067)
-
(4)
(87)
21
-
(70)
(70)
(3)
-
-
(3)
(6,140)
(8)
84
(2)
-
74
2,454
5
(10)
(3)
(2,075)
(2,083)
9,715
9,453
1,697
(4)
(87)
21
-
(70)
1,627
6
(8)
(1,734)
(1,736)
9,344
128
Wesfarmers 2021 Annual Report
BACK Notes to the financial statements: About this report
For the year ended 30 June 2021
ABOUT THIS REPORT
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.
The continued impact of COVID-19 has been considered in
applying the Group's key judgements and estimates. As these are
subject to increased uncertainty, actual outcomes may differ from
the applied estimates.
Judgements and estimates which are material to the financial
report are found in the following notes:
Page
134
136
138
139
140
141
142
144
157
159
Note 1
Revenue and other income
Note 3
Tax expense
Note 6
Inventories
Note 8
Property, plant and equipment
Note 9
Goodwill and intangible assets
Note 11
Mine properties
Note 12
Leases
Note 13
Provisions
Note 21
Impairment of non-financial assets
Note 22
Associates and joint arrangements
FOREIGN CURRENCY
The functional currencies of overseas subsidiaries are listed in
note 23. 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 (ASX). 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 financial
year ended 30 June 2021 (FY2021) was authorised for issue in
accordance with a resolution of the directors on 26 August 2021.
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
investment properties 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 2020, except for AASB 2020-4, which was early
adopted in the 30 June 2020 reporting period. Refer to note 30
for further details; and
• except as outlined above, does not early adopt Accounting
Standards and Interpretations that have been issued or
amended but are not yet effective.
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 23.
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.
Wesfarmers 2021 Annual Report
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Financial statements
Notes to the financial statements: About this report
For the year ended 30 June 2021
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:
• Group balance sheet: provides a breakdown of individual line
items in the balance sheet that the directors consider most
relevant and summarises the accounting policies, judgements
and estimates relevant to understanding these line items;
the amount in question is significant because of its size or
nature;
• Capital: provides information about the capital management
practices of the Group and shareholder returns for the year;
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:
• Group performance: provides a breakdown of individual line
items in the income statement that the directors consider most
relevant and summarises the accounting policies, judgements
and estimates relevant to understanding these line items;
• 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 information: explains aspects of the Group structure
and how changes have affected the financial position and
performance of the Group, as well as disclosing related party
transactions and balances; and
• Other: 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 provides information on items which require
disclosure to comply with Australian Accounting Standards
and other regulatory pronouncements.
•
•
•
•
SIGNIFICANT ITEMS IN THE CURRENT REPORTING PERIOD
Impact of COVID-19
Kmart Group
COVID-19 has continued to have significant impacts on the Group
in FY2021 including:
• Retail sales being impacted by significant volatility in foot
traffic, driven by government restrictions and physical
distancing requirements;
• Customers spending more time at home and government
stimulus measures for households and businesses had a
positive impact on the Group's retail sales;
• Higher online transaction volumes, particularly during periods
of government-mandated trading restrictions for retail stores,
with some additional fulfilment costs associated with peak
demand and disruptions to transport providers;
• Higher ocean freight charges and inventory delays as a
result of disruptions and capacity constraints in global
supply chains;
•
Incremental costs associated with additional cleaning, security
and personal protective equipment required to ensure a safe
environment for customers and team members; and
• Some additional costs associated with the provision of
two weeks of COVID leave for team members required to
self-isolate or care for others, COVID-related vaccination
leave and the Group’s commitment to pay all permanent and
many casual team members during prolonged COVID-related
lockdowns, even in the event there was no meaningful work
for them.
During FY2020, a strategic review into the operations of Target
was completed, identifying a number of actions to accelerate
the growth of Kmart and address the unsustainable financial
performance of Target. These actions included the conversion of
suitable Target stores to Kmart stores, the closure of a number
of Target stores and a restructuring of the Target store support
office. Total restructuring costs incurred in FY2021 were $59 million
(post-tax $41 million) (2020: $110 million (post-tax $83 million)),
and included store closure costs, store remuneration costs, store
conversions and clearance activity.
Mt Holland lithium project - Final Investment Decision
On 17 February 2021, Wesfarmers announced the joint approval,
together with Sociedad Quimica y Minera de Chile S.A., of the
Final Investment Decision (FID) for the Mt Holland lithium project
(the Project) based on an updated definitive feasibility study.
Prior to FID the Project was classified as a ‘Mineral right’. When
technical feasibility and commercial viability of extracting the
resource is demonstrable, associated expenditure is reclassified to
'Mine properties'. The reclassification threshold was met in respect
of the Project upon the announcement of FID.
On reclassification, the Project was tested for impairment. Refer to
note 21 for further information.
130
Wesfarmers 2021 Annual Report
BACK Notes to the financial statements: Segment information
For the year ended 30 June 2021
SEGMENT INFORMATION
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 other finance costs 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:
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
• Retailer of apparel, homewares and general merchandise,
including accessories, electricals and toys.
Catch
• Online retailer offering branded products on a first-party basis
and a third-party online marketplace.
Officeworks
• Retailer and supplier of office products and solutions for
home, small-to-medium sized businesses, and education.
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;
• Manufacturer of wood-plastic composite decking and
screening products; and
• 50 per cent joint operator of the Mt Holland lithium project.
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: 4.9 per cent (2020: 4.9 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; 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.
Revenues from contracts with customers by
segment for FY2021
Segment result for FY2021
Bunnings
Kmart Group
Officeworks
WesCEF
WIS
Other
$m
16,861
9,914
3,014
2,144
1,855
9
%
49.9
29.4
8.9
6.3
5.5
0.0
Bunnings
Kmart Group1
Officeworks
WesCEF
WIS
Other
$m
2,185
693
212
384
70
6
%
61.5
19.5
6.0
10.8
2.0
0.2
1 The Kmart Group segment result excludes restructuring costs of $59 million.
Wesfarmers 2021 Annual Report
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Financial statements
Notes to the financial statements: Segment information
For the year ended 30 June 2021
SEGMENT INFORMATION
Revenue from contracts with customers
Other revenue
Segment revenue
EBITDA
Depreciation and amortisation
Interest on lease liabilities
Segment result
Items not included in segment result2,3
Other 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 assets4
Net assets
BUNNINGS1
2021
$m
2020
$m
16,861
10
16,871
14,996
3
14,999
2,993
(692)
(116)
2,185
2,601
(658)
(117)
1,826
-
-
KMART GROUP
OFFICEWORKS
WesCEF
OTHER
CONSOLIDATED
2021
$m
9,914
68
9,982
1,326
(539)
(94)
693
(59)
2020
$m
9,152
65
9,217
1,113
(601)
(102)
410
(635)
8,289
17
8,163
17
6,040
-
5,725
-
1,892
1,819
-
-
2,676
81
2,450
87
1,712
1,585
-
-
4,303
24,826
24,045
(5,944)
(6,062)
(4,656)
(4,518)
(985)
(1,028)
(473)
(458)
(583)
(543)
2,362
(2,078)
284
2,118
(1,790)
328
1,384
428
1,812
1,207
354
1,561
Capital expenditure5
Share of net profit or loss of associates and joint ventures included in segment
result
445
511
195
132
-
-
-
-
1
2
3
The 2021 Bunnings segment result includes a net property loss of $10 million (2020: contribution of $16 million).
The 2021 Kmart Group segment result excludes restructuring costs of $59 million. The 2020 Kmart Group segment result excludes impairments of the Target brand
name and other assets of $525 million and restructuring costs and provisions of $110 million. The 2020 WIS segment result excludes impairment of $310 million.
The 2020 Other segment result includes the share of profits from Wesfarmers' interest in Coles when it was an associate and accounted for using the equity method,
but excludes the gain of $290 million on the sale of 10.1 per cent of the interest in Coles and a gain of $220 million on the revaluation of the retained 4.9 per cent interest
in Coles.
4 Other net assets relate predominantly to intercompany financing arrangements and segment tax balances.
5 Capital expenditure, inclusive of property, plant and equipment, intangibles, mineral exploration and mine properties, includes accruals for costs incurred during the year.
The amount excluding movements in accruals is $896 million (2020: $867 million).
132
Wesfarmers 2021 Annual Report
2021
$m
2020
$m
2020
$m
2021
$m
2020
$m
2021
$m
2020
$m
WIS
2021
$m
2021
$m
3,014
15
3,029
328
(106)
(10)
212
-
2020
$m
2,775
12
2,787
307
(99)
(11)
197
-
2,144
2,081
1,855
1,745
2
4
-
-
2,146
2,085
1,855
1,745
481
(86)
(1)
394
148
(74)
(4)
70
121
(77)
(5)
39
473
(88)
(1)
384
-
-
-
(310)
-
510
9
49
58
17
(10)
(1)
6
4,217
677
613
(487)
(349)
1,649
3,359
5,008
2
88
4
9
13
84
(7)
(1)
76
606
670
(424)
(392)
2,107
2,671
4,778
5
201
33,797
30,753
144
93
33,941
30,846
5,285
(1,509)
(226)
3,550
(59)
(118)
3,373
(993)
2,380
4,707
(1,528)
(237)
2,942
(435)
(133)
2,374
(752)
1,622
775
613
710
670
26,214
25,425
(13,128)
(13,033)
(349)
(3,022)
(16,499)
9,715
-
9,715
906
103
(392)
(2,656)
(16,081)
9,344
-
9,344
861
213
(3,022)
(2,656)
907
175
1,082
65
-
791
286
1,077
40
-
2,284
(1,106)
1,178
137
15
2,079
(853)
1,226
114
12
1,129
(778)
351
62
-
1,042
(668)
374
59
-
BACK Notes to the financial statements: Segment information
For the year ended 30 June 2021
BUNNINGS1
KMART GROUP
OFFICEWORKS
WesCEF
WIS
OTHER
CONSOLIDATED
2021
$m
2020
$m
16,861
14,996
10
3
16,871
14,999
(692)
(116)
(658)
(117)
2,185
1,826
-
-
2021
$m
9,914
68
9,982
(539)
(94)
693
(59)
2020
$m
9,152
65
9,217
(601)
(102)
410
(635)
2,993
2,601
1,326
1,113
2021
$m
3,014
15
3,029
328
(106)
(10)
212
-
2020
$m
2,775
12
2,787
307
(99)
(11)
197
-
2021
$m
2,144
2
2,146
473
(88)
(1)
384
-
2020
$m
2,081
4
2,085
481
(86)
(1)
394
2021
$m
1,855
-
1,855
148
(74)
(4)
70
2020
$m
1,745
-
1,745
121
(77)
(5)
39
-
-
(310)
8,289
17
8,163
17
6,040
5,725
-
-
1,892
-
1,819
-
2,676
81
2,450
87
1,712
-
1,585
-
(5,944)
(6,062)
(4,656)
(4,518)
(985)
(1,028)
(473)
(458)
(583)
(543)
Share of net profit or loss of associates and joint ventures included in segment
2,362
(2,078)
284
2,118
(1,790)
328
1,384
428
1,812
1,207
354
1,561
445
511
195
132
-
-
-
-
907
175
1,082
65
-
791
286
1,077
40
-
2,284
(1,106)
1,178
137
15
2,079
(853)
1,226
114
12
1,129
(778)
351
62
-
1,042
(668)
374
59
-
Revenue from contracts with customers
Other revenue
Segment revenue
EBITDA
Depreciation and amortisation
Interest on lease liabilities
Segment result
Items not included in segment result2,3
Other 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 assets4
Net assets
Capital expenditure5
result
2021
$m
2020
$m
9
49
58
17
(10)
(1)
6
-
4,217
677
613
(487)
(349)
(3,022)
1,649
3,359
5,008
2
88
4
9
13
84
(7)
(1)
76
510
4,303
606
670
(424)
(392)
(2,656)
2,107
2,671
4,778
5
201
2021
$m
33,797
144
33,941
5,285
(1,509)
(226)
3,550
(59)
(118)
3,373
(993)
2,380
24,826
775
613
26,214
(13,128)
(349)
(3,022)
(16,499)
9,715
-
9,715
906
103
2020
$m
30,753
93
30,846
4,707
(1,528)
(237)
2,942
(435)
(133)
2,374
(752)
1,622
24,045
710
670
25,425
(13,033)
(392)
(2,656)
(16,081)
9,344
-
9,344
861
213
Total revenue
from continuing operations
$33,941m
$m
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
FY17
FY18
FY19
FY20
FY21
10.0%
$m
33,941
30,846
27,920
26,763
25,083
FY21
FY20
FY19
FY18
FY17
GEOGRAPHICAL INFORMATION
The table below provides information on the geographical location
of revenue from contracts with customers and non-current assets
(other than financial instruments, deferred tax assets and pension
assets). Revenue from contracts with 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
Non-current assets
2021
$m
31,283
2,488
19
7
33,797
2020
$m
28,595
2,101
35
22
30,753
2021
$m
14,821
671
-
14
15,506
2020
$m
14,439
711
2
22
15,174
Australia
New Zealand
United Kingdom
Other
Total
Wesfarmers 2021 Annual Report
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Financial statements
Notes to the financial statements: Group performance
For the year ended 30 June 2021
1. REVENUE AND OTHER INCOME
FROM CONTINUING OPERATIONS
Sale of retail goods instore
Sale of retail goods online
Sale of fertilisers, chemicals, speciality
gases, LPG and LNG
Sale of industrial products
Services revenue
Revenue from contracts with customers
Interest revenue
Dividend revenue
Other
Other revenue
Total revenue
Consolidated
2021
$m
2020
$m
26,890
25,039
2,804
1,814
2,137
1,811
155
33,797
11
40
93
144
33,941
2,074
1,699
127
30,753
10
-
83
93
30,846
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.
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.
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.
Gain on sale of associate
Gains on disposal of property, plant and
equipment and other assets
Other1
Other income
-
290
Dividends
3
84
87
8
363
661
Revenue from dividends, other than those arising from associates,
is recognised when the Group’s right to receive the payment is
established.
1
The FY2020 Other includes a $220 million gain recognised on the revaluation of
the Group's retained 4.9 per cent interest in Coles.
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 either through the sale of retail goods instore
or online. Control of goods typically passes at the point of
sale (refer to Bunnings, Kmart Group and Officeworks in the
segment information).
• 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 information); and
ii. produced or purchased by the Group including fertilisers,
chemicals, speciality gases, LPG and LNG (refer to
WesCEF in the segment information).
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.
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 2021,
$128 million of revenue is deferred in relation to gift cards
(2020: $96 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 only to arrange for Flybuys to
provide the goods or services.
134
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BACK Notes to the financial statements: Group performance
For the year ended 30 June 2021
2. EXPENSES
FROM CONTINUING OPERATIONS
Remuneration, bonuses and on-costs
Superannuation expense
Share-based payments expense
Employee benefits expense
Short-term and low-value lease payments
Contingent rental payments
Outgoings and other
Occupancy-related expenses
Depreciation
Depreciation of right-of-use assets
Amortisation of intangibles
Amortisation other
Depreciation and amortisation
Impairment of plant, equipment and other
assets
Impairment of goodwill and intangible
assets
Impairment of right-of-use assets
Impairment of trade and other receivables
Impairment expenses
Repairs and maintenance
Utilities and office expenses
Insurance expenses
Merchant fees
Other
Other expenses
Interest on interest-bearing loans and
borrowings
Discount rate adjustment
Amortisation of debt establishment costs
Other finance-related costs
Other finance costs
RECOGNITION AND MEASUREMENT
Employee benefits expense
Consolidated
2021
$m
2020
$m
5,084
355
61
5,500
28
37
396
461
393
972
69
75
1,509
16
12
26
16
70
247
510
47
132
521
1,457
90
2
8
18
118
4,573
325
92
4,990
23
30
393
446
433
964
61
70
1,528
168
551
198
24
941
209
486
53
103
478
1,329
113
3
5
12
133
The Group’s accounting policy for liabilities associated with
employee benefits is set out in note 13. The policy relating to
share-based payments is set out in note 31.
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
$m
6,000
5,000
4,000
3,000
2,000
1,000
0
Bunnings
Kmart Group
Officeworks
WesCEF
WIS
Other
FY21
FY20
Depreciation and amortisation
Refer to notes 8, 9 and 12 for details on depreciation and
amortisation.
Impairment
Impairment expenses are recognised to the extent that the
carrying amounts of assets exceed their recoverable amounts.
Refer to note 5 for details on the impairment of trade and other
receivables, including a reconciliation of the allowance for
credit losses, and note 21 for further details on impairment of
non-financial assets.
Other finance costs
Other 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 applicable to its outstanding
borrowings, including lease liabilities, during the year. For FY2021,
the weighted average interest rate applicable was 3.57 per cent.
Wesfarmers 2021 Annual Report
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Financial statements
Notes to the financial statements: Group performance
For the year ended 30 June 2021
3. TAX EXPENSE
RECOGNITION AND MEASUREMENT
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
Adjustment for prior years
Consolidated
2021
$m
2020
$m
996
(21)
9
9
932
(4)
(193)
17
Income tax expense reported in the
income statement
993
752
Statement of changes in equity
Net loss on revaluing cash flow hedges
Net gain on revaluing financial assets
Income tax benefit reported in equity
38
(1)
37
(37)
9
(28)
Tax reconciliation (continuing operations)
Profit before tax
3,373
Income tax rate at the statutory rate of 30% 1,012
Adjustments relating to prior years
(12)
Non-deductible items
10
Share of results of associates and
joint ventures
Non-assessable dividends
Utilisation of previously unrecognised tax
losses
Other
Income tax on profit before tax
-
(10)
993
5
(12)
Deferred income tax in the balance
sheet relates to the following:
Provisions
Employee benefits
Accruals and other payables
Interest-bearing loans and borrowings
Leases
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
136
Wesfarmers 2021 Annual Report
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.
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.
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 the
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:
i. 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.
ii. 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 judgement: 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 $34 million
(2020: $30 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 through value-adding transactions.
2,374
712
13
156
2
(34)
(80)
(17)
752
271
250
58
161
229
26
52
144
70
1,261
128
128
222
16
97
591
670
239
293
76
146
225
14
57
165
66
1,281
172
130
237
14
115
668
613
35
(139)
20
(37)
18
(21)
(16)
(176)
BACK Notes to the financial statements: Group balance sheet
For the year ended 30 June 2021
4. CASH AND CASH EQUIVALENTS
For the purpose of the cash flow statement,
cash and cash equivalents comprise the
following:
Cash held in joint operation
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
Adjusted for
Depreciation and amortisation
Impairment and writedown of assets
Net gain/(loss) on disposal of non-current
assets including investments and
associates
Share of net profits of associates and
joint ventures
Dividends and distributions received from
associates
Gain on disposal of business
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
RECOGNITION AND MEASUREMENT
Cash at bank and on deposit
Consolidated
2021
$m
2020
$m
50
228
2,745
3,023
5
172
2,736
2,913
2,380
1,697
1,509
70
1,528
941
38
(495)
(103)
(213)
51
2
2
2
(226)
(665)
(18)
21
(4)
214
(43)
115
38
3,383
159
-
3
6
(34)
443
(32)
(225)
(7)
346
173
224
32
4,546
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.
Cash at bank and on deposit is held with banks and financial
institutions with investment grade credit ratings. Refer to note 19(d)
for credit risk disclosures.
Cash held in joint operation
Cash held in joint operation is only available for use within the
joint operation.
Cash capital expenditure
Payment for property
Payment for plant and equipment
Payment for intangibles
Payment for mineral exploration
Payment for mine properties
Proceeds from sale of property, plant,
equipment and intangibles
Net cash capital expenditure
Consolidated
2021
$m
2020
$m
194
503
146
22
31
896
264
632
243
483
118
23
-
867
299
568
Cash capital expenditure by segment for FY2021
Bunnings
Kmart Group
Officeworks
$m
445
185
65
%
49.7
20.6
7.3
WesCEF
137
15.3
WIS
Other
62
2
6.9
0.2
Wesfarmers 2021 Annual Report
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Financial statements
Notes to the financial statements: Group balance sheet
For the year ended 30 June 2021
5. RECEIVABLES
Trade and other
Trade receivables
Allowance for credit losses
Other debtors
Allowance for credit losses
Movements in the allowance account for
expected credit losses were as follows:
Carrying amount at beginning of year
Allowance for credit losses recognised
Write-offs
Unused allowance for credit losses
reversed
Carrying amount at the end of the year
Consolidated
2021
$m
2020
$m
1,070
(33)
210
1,247
890
(23)
170
1,037
23
19
(6)
(3)
33
47
26
(48)
(2)
23
RECOGNITION AND MEASUREMENT
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 credit losses. Refer
to note 19(d) for a description of the application of the simplified
approach to determine lifetime expected credit loss (ECL) on trade
receivables and details of the Group's credit risk exposure.
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. It is expected that other debtors'
balances will be received when due.
6. INVENTORIES
Raw materials
Finished goods
Right-of-return assets
Consolidated
2021
$m
2020
$m
28
4,465
9
4,502
30
3,806
8
3,844
Inventories recognised as an expense from continuing operations
for the year ended 30 June 2021 totalled $21,731 million
(2020: $20,084 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.
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Wesfarmers 2021 Annual Report
6. INVENTORIES (CONTINUED)
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.
• Retail and wholesale merchandise finished goods: purchase
cost on a weighted average basis, after deducting any
settlement discounts and 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: 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
net expense relating to inventory writedowns during the year
was $36 million (2020: $42 million). Any reasonably possible
change in the estimate is unlikely to have a material impact.
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 the 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.
7. OTHER FINANCIAL ASSETS
Financial assets measured at FVOCI
Other
Consolidated
2021
$m
2020
$m
1,124
-
1,124
1,122
1
1,123
The carrying value of the Group's 4.9 per cent interest in Coles at
30 June 2021 was $1,117 million (2020: $1,122 million). Dividends
received from Coles for the year ended 30 June 2021 totalled
$40 million (2020: nil).
RECOGNITION AND MEASUREMENT
The Group's other financial assets primarily comprise equity
instruments measured at fair value through other comprehensive
income (FVOCI). Fair value gains and losses are presented
in other comprehensive income and there is no subsequent
reclassification of fair value gains and losses to profit and loss on
the derecognition. Dividends are recognised in profit or loss as
other revenue when the Group's right to payment is established.
BACK Notes to the financial statements: Group balance sheet
For the year ended 30 June 2021
8. PROPERTY, PLANT AND EQUIPMENT
Consolidated
Year ended 30 June 2021
Gross carrying amount - at cost
Accumulated depreciation and impairment
Net carrying amount
Movement
Net carrying amount at beginning of year
Additions
Disposals and write-offs
Impairment
Depreciation and amortisation
Acquisition of controlled entities
Transfers
Other including foreign exchange movements
Net carrying amount at the end of the year
Assets under construction included above:
Year ended 30 June 2020
Gross carrying amount - at cost
Accumulated depreciation and impairment
Net carrying amount
Movement
Net carrying amount at beginning of year
Additions
Disposals and write-offs
Impairment
Depreciation and amortisation
Acquisition of controlled entities
Transfers
Other including foreign exchange movements
Net carrying amount at the end of the year
Assets under construction included above:
Land
$m
Buildings
$m
Leasehold
improvements
$m
Plant,
vehicles and
equipment
$m
Total
$m
369
-
369
392
42
(65)
-
-
-
-
-
369
-
392
-
392
448
33
(107)
-
-
-
18
-
392
-
506
(182)
324
404
153
(219)
-
(19)
-
5
-
324
120
555
(151)
404
371
210
(146)
-
(12)
-
(18)
(1)
404
211
870
(493)
377
409
62
(19)
-
(75)
-
-
-
377
40
864
(455)
409
442
70
(3)
(34)
(71)
-
5
-
409
50
6,985
(4,559)
2,426
8,730
(5,234)
3,496
2,418
452
(18)
(16)
(374)
1
(36)
(1)
2,426
3,623
709
(321)
(16)
(468)
1
(31)
(1)
3,496
258
418
6,960
(4,542)
2,418
8,771
(5,148)
3,623
2,617
405
(26)
(134)
(420)
27
(45)
(6)
2,418
3,878
718
(282)
(168)
(503)
27
(40)
(7)
3,623
189
450
RECOGNITION AND MEASUREMENT
Derecognition
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.
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.
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, vehicles and
equipment is between three and 40 years. Land is not depreciated.
Leasehold improvements are amortised over the period of
the lease or the anticipated useful life of the improvements,
whichever is shorter.
Impairment
Refer to note 21 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 instore
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 2021 Annual Report
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Financial statements
Notes to the financial statements: Group balance sheet
For the year ended 30 June 2021
9. GOODWILL AND INTANGIBLE ASSETS
Consolidated
Year ended 30 June 2021
Gross carrying amount - at cost
Accumulated amortisation and impairment
Net carrying amount
Movement
Net carrying amount at beginning of year
Additions
Disposals and write-offs
Impairment
Amortisation for the year
Acquisition of controlled entities
Transfers
Other including foreign exchange movements
Net carrying amount at end of year
Year ended 30 June 2020
Gross carrying amount - at cost
Accumulated amortisation and impairment
Net carrying amount
Movement
Net carrying amount at beginning of year
Additions
Disposals and write-offs
Impairment
Amortisation for the year
Acquisition of controlled entities
Transfers
Other including foreign exchange movements
Net carrying amount at end of year
Goodwill
$m
Brand
$m
Contractual and
non-contractual
relationships1
$m
Software
$m
Total
$m
3,461
(494)
2,967
2,966
-
-
-
-
1
-
-
2,967
3,459
(493)
2,966
3,090
-
-
(270)
-
148
(2)
-
2,966
875
(258)
617
618
-
-
-
(1)
-
-
-
617
875
(257)
618
831
-
-
(231)
(2)
20
-
-
618
66
(37)
29
42
-
-
-
(8)
-
(5)
-
29
71
(29)
42
22
5
-
-
(7)
22
-
-
42
609
(320)
289
188
144
-
(12)
(60)
-
29
-
289
468
(280)
188
133
115
(12)
(50)
(52)
12
42
-
188
5,011
(1,109)
3,902
3,814
144
-
(12)
(69)
1
24
-
3,902
4,873
(1,059)
3,814
4,076
120
(12)
(551)
(61)
202
40
-
3,814
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
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 21 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 useful lives are tested
for impairment in the same way as goodwill. Refer to note 21 for
further details on impairment.
A summary of the useful lives of intangible assets is as follows:
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 10 years)
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.
140
Wesfarmers 2021 Annual Report
BACK Notes to the financial statements: Group balance sheet
For the year ended 30 June 2021
9. GOODWILL AND INTANGIBLE ASSETS (CONTINUED)
10. MINERAL RIGHTS
Consolidated
2021
2020
$m
$m
Allocation of goodwill to groups of cash
generating units
Gross carrying amount - at cost
876
856
816
2
417
2,967
876
856
816
2
416
2,966
Movement
Net carrying amount at the beginning of
the year
Acquisitions
Additions
Transfers to mine properties
Net carrying amount at end of year
Consolidated
2021
2020
$m
$m
1
1
813
813
813
-
22
(834)
1
-
790
23
-
813
Carrying amount of goodwill
Bunnings
Kmart Group
Officeworks
WesCEF
WIS
Allocation of indefinite life intangible
assets to groups of cash generating
units
Carrying amount of intangibles
Bunnings
Kmart Group
Officeworks
WIS
1
434
160
22
617
1
435
160
22
618
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.
Key judgement: capitalisation of software costs
In April 2021, the IFRS Interpretations Committee published
its final agenda decision on accounting for configuration
and customisation costs in a Software-as-a-Service (SaaS)
arrangement.
The Group has considered the final agenda decision and
whilst the Group does not have material configuration
and customisation costs relating to SaaS arrangements
capitalised on its balance sheet, it has clarified its respective
accounting policy to ensure that where an SaaS arrangement
is a service agreement, costs relating to configuration and
customisation are only capitalised when the Group has the
power to obtain the future economic benefits flowing from
the underlying resource and to restrict the access of others
to those benefits in accordance with the requirements of
AASB 138 Intangible Assets.
RECOGNITION AND MEASUREMENT
Exploration and evaluation
Exploration activity involves the search for mineral resources,
the determination of technical feasibility and the assessment of
commercial viability of an identified resource.
Exploration and evaluation expenditure in relation to separate
areas of interest for which rights of tenure are current, is capitalised
and carried forward as an asset in the balance sheet where it
is expected that the expenditure will be recovered through the
successful development and exploitation of an area of interest, or
by its sale; or where exploration activities have not yet reached
a stage which permits a reasonable estimate of the existence or
otherwise of economically recoverable reserves. $834 million of
mineral rights were reclassified to mine properties when technical
feasibility and commercial viability was demonstrable, refer to
note 11 for further details.
Refer to note 21 for details on impairment testing.
11. MINE PROPERTIES
Consolidated
Mine under construction - at cost
Movement
Net carrying amount at the beginning of the
year
Transfers from mineral rights
Additions
Net carrying amount at end of year
2021
$m
865
865
-
834
31
865
Key judgement: reclassification of mineral rights
When technical feasibility and commercial viability of
extracting the resource is demonstrable, associated
expenditure classified as a 'Mineral right' accounted for
in accordance with AASB 6 Exploration for and Evaluation
of Mineral Resources is reclassified to 'Mine properties'
and accounted for under AASB 116 Property, Plant and
Equipment. The reclassification threshold was met in respect
of the Mt Holland lithium project upon the announcement of
FID on 17 February 2021. On reclassification, the project was
tested for impairment, refer to note 21 for further details.
Wesfarmers 2021 Annual Report
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Financial statements
Notes to the financial statements: Group balance sheet
For the year ended 30 June 2021
12. LEASES
Group as a lessee
The Group has leases primarily in relation to retail and distribution properties, in addition to offices, motor vehicles and office equipment.
The lease terms vary significantly and can include escalation clauses, renewal or purchase options and termination rights. Escalation
clauses vary between fixed rate, inflation-linked, market rent and combination reviews. Changes to rental terms linked to inflation or
market rent reviews typically occur on an annual or five-yearly basis.
Set out below are the carrying amounts of the right-of-use assets and the movements during the year.
Consolidated
Year ended 30 June 2021
Gross carrying amount - at cost
Accumulated depreciation and impairment
Net carrying amount
Movement
Net carrying amount at the beginning of the year
Net additions1
Impairment
Depreciation expense
Other including foreign exchange movements
Net carrying amount at the end of the year
Year ended 30 June 2020
Gross carrying amount - at cost
Accumulated depreciation and impairment
Net carrying amount
Movement
Net carrying amount at the beginning of the year
Net additions1
Acquisition of controlled entities
Impairment
Depreciation expense
Other including foreign exchange movements
Net carrying amount at the end of the year
1
Includes new leases, reassessments and remeasurements, net of terminated leases.
Right-of-use assets
Land
$m
Buildings
$m
Vehicles
$m
Total
$m
57
(9)
48
42
10
-
(4)
-
48
46
(4)
42
48
(2)
-
-
(4)
-
42
7,916
(1,967)
5,949
6,147
791
(26)
(960)
(3)
5,949
7,263
(1,116)
6,147
6,287
992
32
(198)
(956)
(10)
6,147
49
(11)
38
8,022
(1,987)
6,035
23
23
-
(8)
-
38
27
(4)
23
17
10
-
-
(4)
-
23
6,212
824
(26)
(972)
(3)
6,035
7,336
(1,124)
6,212
6,352
1,000
32
(198)
(964)
(10)
6,212
142
Wesfarmers 2021 Annual Report
BACK Notes to the financial statements: Group balance sheet
For the year ended 30 June 2021
12. LEASES (CONTINUED)
Set out below are the carrying amounts of the lease liabilities and
the movements during the year.
Current
Non-current
Consolidated
2021
$m
2020
$m
969
6,136
7,105
1,019
6,223
7,242
Movement
Net carrying amount at the beginning of the year
Net additions1
Acquisition of controlled entities
Accretion of interest
Lease payments
Other including foreign exchange movements
Net carrying amount at the end of the year
7,242
852
-
226
(1,212)
(3)
7,105
7,275
896
38
237
(1,192)
(12)
7,242
1
Includes new leases, reassessments and remeasurements, net of terminated
leases.
The maturity profile of the Group's lease liabilities based on
contractual undiscounted payments is provided in note 19(b).
The Group has a number of lease contracts that include
extension options. Management exercises significant judgement
in determining whether these extension options are reasonably
certain to be exercised. Further details on this key judgement are
provided on the following page.
Lease extension options are available in respect of 82 per cent
(2020: 83 per cent) of the Group’s land and building leases. The
number and extent of available lease extension options differs
considerably between leases. Where the Group has deemed
the exercise of available option periods to be reasonably certain,
those option periods have been included in the lease term
and are therefore incorporated in the recorded lease liability of
$7,105 million (2020: $7,242 million). A number of available option
periods, which are exercisable at the discretion of the Group as
lessee, have not been included in the recorded lease liability on
the basis that they are not reasonably certain to be exercised, and
do not represent liabilities or contingent liabilities of the Group at
30 June 2021.
The following are the lease-related amounts recognised in the
income statement.
Depreciation of right-of-use assets
Interest on lease liabilities
Included in occupancy-related expenses:
Short-term and low-value lease
payments
Contingent rental payments
Outgoings and other
Consolidated
2021
$m
2020
$m
972
226
28
37
396
964
237
23
30
393
Total amount recognised in the income
statement
1,659
1,647
RECOGNITION AND MEASUREMENT
The Group assesses at contract inception whether a contract is, or
contains, a lease. That is, if the contract conveys the right to control
the use of an identified asset for a period of time in exchange for
consideration.
Right-of-use assets
Right-of-use assets are recognised at the commencement date
of the lease (i.e. the date the underlying asset is available for
use). Right-of-use assets are initially measured at cost, less any
accumulated depreciation and impairment losses, and adjusted
for any remeasurement of lease liabilities. The cost of right-of-use
assets includes the amount of lease liabilities recognised, initial
direct costs incurred, and lease payments made at or before
the commencement date less any lease incentives received.
Right-of-use assets are depreciated on a straight-line basis over
the shorter of the lease term and the estimated useful lives of the
assets. The estimated useful lives of the right-of-use land and
building assets are between one and 40 years and right-of-use
plant, vehicles and equipment assets are between one and 20
years. The right-of-use assets are also subject to impairment,
assessed in accordance with the Group’s impairment policy.
Lease liabilities
Lease liabilities are recognised by the Group at the commencement
date of the lease. Lease liabilities are measured at the present value
of lease payments to be made over the lease term.
The lease payments include fixed payments (including in-substance
fixed payments) less any lease incentives receivable, variable lease
payments that depend on an index or rate, and amounts expected
to be paid under residual value guarantees. The lease payments
also include the exercise price of a purchase option reasonably
certain to be exercised by the Group. Variable lease payments that
do not depend on an index or a rate are recognised as expenses
in the period in which the event or condition that triggers the
payment occurs.
In calculating the present value of lease payments, the Group uses
its incremental borrowing rate (IBR) at the lease commencement
date where the interest rate implicit in the lease is not readily
determinable. After the commencement date, the lease liability is
increased to reflect the accretion of interest and reduced for lease
payments made. In addition, the carrying amount of lease liabilities
is remeasured if there is a modification, a change in the lease term,
a change in the lease payments (e.g. changes to future payments
resulting from a change in an index or rate used to determine such
lease payments) or a change in the assessment to purchase the
underlying asset.
Short-term leases and lease of low-value assets
The Group applies the short-term lease recognition exemption to
its short-term leases, which are defined as those leases that have
a lease term of 12 months or less from the commencement date.
It also applies the lease of low-value assets recognition exemption
to leases that are considered to be low value. Lease payments on
short-term leases and leases of low-value assets are recognised as
expenses on a straight-line basis over the lease term.
Lease liabilities by segment
as at 30 June 2021
Bunnings
Kmart Group
Officeworks
WesCEF
WIS
Other
$m
3,738
2,817
334
23
160
33
%
52.6
39.6
4.7
0.3
2.3
0.5
Wesfarmers 2021 Annual Report
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Financial statements
Notes to the financial statements: Group balance sheet
For the year ended 30 June 2021
12. LEASES (CONTINUED)
13. PROVISIONS
Key judgements and estimates: leases
Lease term
The lease term is considered to be a key judgement. At
lease commencement, Wesfarmers considers an option to
extend a lease to be reasonably certain 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.
Discount rate
The discount rates applied in measuring the lease liability
are a key estimate area. As at 30 June 2021, the rates were
between 1.0 and 3.7 per cent (2020: 1.8 and 3.8 per cent).
On commencement of a lease, the future lease payments are
discounted using the IBR where the interest rate implicit in
the lease is not readily available. The lessee's IBR reflects the
Group's IBR adjusted for lease tenure and the currency of the
lease. Where there is a lease modification, a revised discount
rate is applied in remeasuring the lease liability.
Stand-alone price of lease and non-lease components
As applicable, the calculated lease liability excludes an
estimate of the gross lease payments allocated to non-lease
components. This estimate is determined on a lease-by-lease
basis on inception of the lease.
In determining the stand-alone price of the lease and
non-lease components, consideration is given to benchmark
property outgoings and historical information of the Group's
lease portfolio.
Current
Employee benefits
Self-insured risks
Restructuring and make good
Other
Non-current
Employee benefits
Self-insured risks
Restructuring and make good
Other
Total provisions
Consolidated
2021
$m
2020
$m
889
151
56
56
1,152
105
118
148
3
374
1,526
723
149
124
82
1,078
97
116
125
8
346
1,424
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 benefits provision balances are calculated using
discount rates derived from the high-quality corporate bond
(HQCB) market in Australia provided by Milliman Australia.
Employee benefits provisions have been calculated using
discount rates of between 0.2 and 2.8 per cent
(2020: between 0.6 and 2.7 per cent).
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BACK Notes to the financial statements: Group balance sheet
For the year ended 30 June 2021
13. 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 the 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 $390 million
(2020: $364 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.
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.
Make good
The Group recognises the present value of the estimated costs
that may be incurred in restoring leased premises to their original
condition at the end of the respective lease terms as a provision for
make good. The costs are recognised as the obligation is incurred
either at commencement of the lease or as a consequence of using
the asset and are included in the cost of the right-of-use assets.
This estimate is reviewed at each reporting date and adjusted for
any known changes in the initial cost estimate.
Restructuring
Provisions for restructuring are recognised where steps have been
taken to implement a detailed plan, including discussions with
those impacted by it and relate principally to:
•
•
the closure of retail outlets or distribution centres;
restructuring; and
• associated redundancies.
Carrying amount at 1 July 2020
Arising and acquired during year
Utilised
Carrying amount at 30 June 2021
Carrying amount at 1 July 2019
Arising during year
Utilised
Acquisition of controlled entities
Carrying amount at 30 June 2020
Employee
benefits
$m
Self-insured
risks
$m
Restructuring
and make
good
$m
820
618
(444)
994
688
409
(281)
4
820
265
65
(61)
269
236
107
(78)
-
265
249
4
(49)
204
52
220
(23)
-
249
Other
$m
90
48
(79)
59
72
41
(23)
-
90
Total
$m
1,424
735
(633)
1,526
1,048
777
(405)
4
1,424
Wesfarmers 2021 Annual Report
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Financial statements
Notes to the financial statements: Capital
For the year ended 30 June 2021
14. 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 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
2021
$m
2020
$m
3,383
4,546
Free cash flow
Net cash flows from operating
activities
Less:
Capital expenditure
Net acquisition and disposals
(896)
(10)
(867)
(988)
Add:
Proceeds from sale of
property, plant and equipment
and intangibles
Net proceeds from disposals
of interest in associates and
other investments
Consolidated
2021
2020
Free cash flow
Note
$m
$m
Debt cover
Equity and reserves
Issued capital
Reserved shares
Retained earnings
Reserves
Net debt - exclusive of lease
liabilities
Total interest-bearing loans and
borrowings
Less: cash and cash equivalents
Total capital employed
16
16
16
18
4
15,826
(102)
60
(6,069)
9,715
15,818
(89)
(245)
(6,140)
9,344
3,022
(3,023)
(1)
9,714
2,656
(2,913)
(257)
9,087
The Group manages its capital through various means, including:
• adjusting the amount of 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
free cash flow, debt cover and net debt/operating cash flow. The
principal external measures are the Group’s credit ratings from
Standard & Poor’s, and Moody’s.
Total interest-bearing loans
and borrowings
Total lease liabilities
Less:
Cash and cash equivalents
Net financial debt (A)
Profit before income tax
Interest on lease liabilities
Other finance costs
Depreciation and amortisation
EBITDA (B)
Debt cover (times) (A/B)
Adjusted EBITDA1,2 (C)
Debt cover (times) (A/C)
(applying adjusted EBITDA)
Net debt/operating cash flow
Cash at bank, on deposit and
held in joint operation
Less:
Total interest-bearing loans
and borrowings
Total lease liabilities
Net debt (D)
Operating cash flows (E)
Net debt/operating cash flow
(times) (D/E)
Group credit ratings
Standard & Poor’s
Moody's
264
299
-
2,741
2,198
5,188
3,022
7,105
(3,023)
7,104
3,373
226
118
1,509
5,226
1.4
5,285
1.3
2,656
7,242
(2,913)
6,985
2,374
237
133
1,528
4,272
1.6
4,707
1.5
2,795
2,741
(3,022)
(7,105)
(7,332)
3,383
(2,656)
(7,242)
(7,157)
4,546
2.2
1.6
A-(stable)
A3(stable)
A-(stable)
A3(stable)
1
2
The FY2021 adjusted EBITDA excludes restructuring costs of $59 million in the
Kmart Group.
The FY2020 adjusted EBITDA excludes impairments of the Target brand
name and other assets of $525 million, restructuring costs and provisions of
$110 million in the Kmart Group and an impairment to WIS of $310 million,
offset by a gain of $290 million on the sale of 10.1 per cent of the interest in
Coles and a gain of $220 million on the revaluation of the retained 4.9 per cent
interest in Coles.
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Wesfarmers 2021 Annual Report
BACK Notes to the financial statements: Capital
For the year ended 30 June 2021
15. DIVIDENDS AND DISTRIBUTIONS
Determined and paid during the period
(fully-franked at 30 per cent)
Interim dividend for 2021: $0.88 (2020: $0.75)
Final dividend for 2020: $0.77 (2019: $0.78)
Special dividend for 2020: $0.181
Proposed and unrecognised as a liability
(dividends fully-franked at 30 per cent)
Final dividend for 2021: $0.90 (2020: $0.77)
Special dividend for 2021: nil (2020: $0.18)1
Capital return for 2021: $2.002
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
619
558
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
(437)
(462)
1
2
The fully-franked special dividend reflects the distribution of profits on the sale
of the Group’s 10.1 per cent interest in Coles during FY2020.
A capital return to shareholders of 200 cents per share has been proposed by
the directors. Subject to shareholder approval, the capital return is proposed to
be paid on 2 December 2021.
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 this 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.
Shareholder distributions
Interim dividend
Special dividend
Final dividend (FY21: proposed)
Capital return (FY21: proposed)
$/share
4.0
3.0
2.0
1.0
0.0
2017
2018
2019
2020
2021
Consolidated
2021
$m
2020
$m
16. 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.
998
873
204
2,075
850
884
-
1,734
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.
1,020
-
2,268
3,288
873
204
-
1,077
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 the reporting date.
Movement in shares
on issue
Ordinary shares
$m
'000
Reserved shares
$m
'000
At 1 July 2020
Exercise of in-substance
options
Acquisition of
shares-on-market for
WLTIP
Acquisition of
shares-on-market for
KEEPP
Acquisition of
shares-on-market for
Performance shares
KEEPP vested during
the year
Transfer from other
reserves
At 30 June 2021
1,133,840 15,818
(2,535)
(89)
120
-
-
-
(215)
(10)
(61)
(3)
208
-
-
-
-
-
-
-
-
-
-
-
-
1,133,840
8
15,826
-
(2,483)
-
(102)
At 1 July 2019
Exercise of
in-substance options
Acquisition of
shares-on-market for
WLTIP
Acquisition of
shares-on-market for
KEEPP
KEEPP vested during
the year
Transfer from other
reserves
At 30 June 2020
1,133,840
15,809
(2,709)
(81)
-
-
-
-
-
-
-
-
105
(17)
-
-
(185)
(8)
271
-
-
1,133,840
9
15,818
-
(2,535)
-
(89)
Wesfarmers 2021 Annual Report
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Financial statements
Notes to the financial statements: Capital
For the year ended 30 June 2021
16. EQUITY AND RESERVES (CONTINUED)
Capital reserve
Cash flow hedge reserve
2021
$m
2020
$m
24
24
24
(60)
Demerger reserve
(5,860)
(5,860)
Financial assets reserve
Foreign currency
translation reserve
Leasing reserve
24
45
26
53
(518)
(518)
Restructure tax reserve
150
150
Share-based
payments reserve
42
45
Total reserves
(6,069)
(6,140)
17. EARNINGS PER SHARE
Nature and purpose
The capital reserve was used to accumulate capital profits. The reserve can be used
to pay dividends or issue bonus shares.
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 in an effective hedge relationship.
The change in cash flow hedge reserve for the year ended 30 June 2021 includes the
after-tax net increase in the market value of cash flow hedges from 30 June 2020,
and comprised $64 million (2020: $(68) million) of foreign exchange rate contracts,
$13 million (2020: $(7) million) of interest rate swaps, $5 million (2020: $12 million)
of commodity swaps and a $2 million (2020: nil) movement in associates and joint
venture reserves.
The demerger reserve is used to recognise the gain on demerger of Coles and the
demerger dividend.
The financial assets reserve records fair value changes on financial assets measured
at fair value through other comprehensive income.
The foreign currency translation reserve is used to record exchange differences
arising from the translation of the financial statements of foreign subsidiaries.
The leasing reserve is used to recognise the cumulative effect of applying AASB 16
at the date of initial application.
The restructure tax reserve is used to record the recognition of tax losses arising
from the equity restructuring of the Group under the 2001 Ownership Simplification
Plan. These tax losses were generated on adoption by the Group of the tax
consolidation regime.
The share-based payments reserve is used to recognise the value of equity-settled
share-based payments provided to employees, including key management
personnel, as part of their remuneration.
Profit attributable to ordinary equity
holders of the parent ($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
2021
2020
2,380
1,697
1,131
1,131
1,132
210.4
210.2
1,132
150.0
149.9
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.
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Wesfarmers 2021 Annual Report
Basic earnings per share
210.4 cents
cents/share
500
400
300
200
100
0
Reported
basic
EPS
Adjusted
basic
EPS
FY211
FY202
FY193
FY184
FY17
210.4
150.0
487.2
105.8
254.7
214.1
183.4
206.8
245.1
254.7
FY17 FY18 FY19 FY20 FY21
Reported basic EPS
Basic EPS adjusted for significant items
1
2
3
4
FY2021 EPS of 210.4 cents per share includes significant items relating to the
restructure of the Kmart Group. Excluding these items, adjusted basic EPS is
214.1 cents per share.
FY2020 EPS of 150.0 cents per share includes significant items relating to
non-cash impairments, write-offs and provisions for the Kmart Group, the
non-cash impairment of WIS, the finalisation of tax positions on prior year
disposals and the gain on sale of 10.1 per cent interest in Coles and subsequent
revaluation of the retained interest. Excluding these items, adjusted basic EPS is
183.4 cents per share.
FY2019 EPS of 487.2 cents per share includes significant items relating
to the gains on disposal of Bengalla, Kmart Tyre and Auto Service and
Quadrant Energy, the gain on demerger of Coles and the provision for Coles'
supply chain automation. Excluding these items, adjusted basic EPS is 206.8
cents per share.
FY2018 EPS of 105.8 cents per share includes significant items relating to
non-cash impairments and write-offs and store closure provisions at BUKI, loss
on disposal of BUKI and Target's non-cash impairment, offset by the gain on
disposal of the Curragh Coal Mine. Excluding these items, adjusted basic EPS
is 245.1 cents per share.
BACK Notes to the financial statements: Capital
For the year ended 30 June 2021
18. INTEREST-BEARING LOANS AND BORROWINGS
Current
Unsecured
Capital market debt
Non-current
Unsecured
Bank debt
Capital market debt
Total interest-bearing loans and borrowings
Consolidated
2020
2021
$m
$m
950
950
503
503
48
2,024
2,072
3,022
111
2,042
2,153
2,656
The illustration below provides details, including the principal
repayment obligations, of all loans and borrowings on issue at
30 June 2021.
Outstanding loans and borrowings
A$m
1,600
1,200
800
400
0
Bank debt
Capital market debt
Current
$950m
Non-current
$2,072m
FY22
FY23
FY24+
Net debt as at 1 July 2020
Cash inflows
Cash outflows
Transfers
Foreign exchange adjustments
Fair value changes, relating to hedged risk
Other non-cash movements
Net debt as at 30 June 2021
Net debt as at 1 July 2019
Cash outflows
Transfers
Foreign exchange adjustments
Fair value changes, relating to hedged risk
Other non-cash movements
Net debt as at 30 June 2020
Funding activities
The Group continues its strategy of maintaining diversity of funding
sources, pre-funding upcoming maturities (if required) and seeking
to maintain a presence in key financing markets.
In November 2020, $500 million of domestic bonds matured and
were repaid from available cash balances. In June 2021, the Group
issued $650 million of seven-year domestic sustainability-linked
bonds at an interest rate of 1.94 per cent per annum and
$350 million of 10-year domestic sustainability-linked bonds at
an interest rate of 2.55 per cent per annum. The bonds have two
sustainable performance targets (SPTs):
• SPT1: Wesfarmers’ retail businesses (Bunnings, Kmart Group
and Officeworks) to source 100 per cent of their electricity
requirements from renewable sources by 31 December 2025.
• SPT2: WesCEF Nitric Acid Ammonium Nitrate production
facility (NAAN Facility) to limit the average emission intensity
to 0.25 tonne CO2e per tonne of ammonium nitrate
produced, or lower, during the SPT Measurement Period,
which captures the emissions intensity for the 24 months to
31 December 2025.
If the SPTs are not met, there will be a maximum coupon step-up of
25 basis points (12.5 basis points per SPT), effective from the first
interest payment date after the occurrence of the relevant trigger
event until the maturity of the bond. The SPTs will be measured and
reported annually.
Throughout the period, a number of bank bilateral agreements have
been extended. The Group had unused financing facilities available
at 30 June 2021 of $5,094 million (2020: $5,005 million).
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.
Liabilities from financing
activities
Borrowings
due within
one year
Borrowings
due after
one year
Assets held
to hedge
long-term
borrowings
$m
503
-
(500)
981
(31)
(3)
-
950
356
(356)
508
-
(5)
-
503
$m
2,153
1,000
(71)
(981)
(34)
-
5
2,072
2,673
(25)
(508)
13
-
-
2,153
$m
(386)
-
-
-
65
3
(17)
(335)
(384)
-
-
(17)
4
11
(386)
Total
$m
2,270
1,000
(571)
-
-
-
(12)
2,687
2,645
(381)
-
(4)
(1)
11
2,270
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Financial statements
Notes to the financial statements: Risk
For the year ended 30 June 2021
19. 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, capital market debt, corporate bonds, 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 in the table below:
Risk
Nature
Liquidity risk (note 19(b))
Management
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 14).
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 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.
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.
Market risk (note 19(c))
Foreign
currency
risk
The Group’s primary currency exposure
is to the US dollar 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.
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.
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Wesfarmers 2021 Annual Report
The objective of the Group's 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 manages foreign currency risk centrally by hedging material
foreign exchange exposures for firm commitments relating to sales or
purchases or when highly probable forecast transactions have been
identified.
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 also aims to hedge 100 per cent of capital
expenditure-related foreign currency purchases, above divisional defined
limits, to match expected payment dates and these may extend beyond
12 months. The current hedge contracts extend to April 2023. The Group
has also hedged 100 per cent of its Euro borrowing facilities.
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. Management reviews interest rate risk exposure
on an ongoing basis (at least once each quarter) or whenever a major
change in debt levels is anticipated. The review includes a reference to
ongoing cash flow forecasts and considers future mergers, acquisitions,
divestments, capital management and capital expenditure as appropriate.
Recommendations in relation to interest rate hedging are provided to the
Wesfarmers Chief Financial Officer for approval, as required.
To manage the interest rate exposure, the Group generally enters into
interest rate swaps, in which it 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.
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.
BACK Notes to the financial statements: Risk
For the year ended 30 June 2021
19. FINANCIAL RISK MANAGEMENT (CONTINUED)
Risk
Nature
Management
Commodity
price risk
The Group’s exposure to commodity price
risk is operational and arises from the
purchase of inventory with commodity
price as a significant input, such as natural
gas and Brent oil.
Credit risk (note 19(d))
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.
To manage commodity price risk, the Group enters into Brent oil future
contracts to hedge the variability in cash flows arising from movements
in the natural gas price applicable to forecast natural gas purchases.
In December 2017, three year hedges were taken out which ended in
December 2020. An additional hedge was taken out in December 2020,
ending in December 2021.
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 future 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.
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.
Receivables
Credit risk management practices include 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.
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 who have
investment grade credit ratings. 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 are no significant concentrations of credit risk within
the Group.
19(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 20 represent the derivative financial assets and liabilities of the Group, that are subject to the above
arrangements, and are presented on a gross basis.
19(B) LIQUIDITY RISK
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. As at 30 June 2021,
the Group has total undrawn financing facilities available of $5,094 million (2020: $5,005 million).
The table on the following page analyses the Group’s financial liabilities, including net and gross settled financial instruments and lease
liabilities, 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.
Wesfarmers 2021 Annual Report
151
I
F
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
G
R
O
U
P
P
E
R
F
O
R
M
A
N
C
E
G
R
O
U
P
B
A
L
A
N
C
E
S
H
E
E
T
C
A
P
I
T
A
L
R
I
S
K
G
R
O
U
P
I
N
F
O
R
M
A
T
I
O
N
O
T
H
E
R
Financial statements
Notes to the financial statements: Risk
For the year ended 30 June 2021
19(B) LIQUIDITY RISK (CONTINUED)
< 3
months,
or on
demand
$m
3-12
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
$m
3,988
246
-
-
951
1,037
-
-
-
48
-
-
-
4,234
4,234
1,000
3,036
3,022
3
305
(2)
1
976
910
136
1,193
(1,014)
1,125
22
1,025
22
907
70
2,619
215
8,084
-
7,105
(2)
-
(55)
(279)
-
-
-
-
-
-
-
-
(4)
(4)
(333)
(335)
(6)
4,289
(19)
3,007
(25)
2,062
-
111
-
1,095
-
929
-
3,689
(50)
15,182
(50)
13,972
3,768
234
6
-
-
500
1,113
1,085
-
-
-
-
-
-
4,008
4,008
2,698
2,656
3
308
9
901
43
1,128
30
1,061
-
989
-
899
-
2,932
85
8,218
-
7,242
-
2
1
(3)
1
-
-
-
-
51
(104)
(329)
-
-
-
-
-
-
-
-
-
(3)
3
(3)
3
(381)
(383)
10
4,092
29
1,722
1
2,187
-
1,847
-
989
-
899
-
2,932
40
14,668
41
13,564
Consolidated
Year ended 30 June 2021
Trade and other payables
Loans and borrowings before
swaps
Expected future interest
payments on loans and
borrowings
Lease liabilities
Hedged commodity swaps
(net settled)
Cross-currency interest rate
swaps (gross settled)
Hedge forward exchange
contracts (gross settled)
Total
Year ended 30 June 2020
Trade and other payables
Loans and borrowings before
swaps
Expected future interest
payments on loans and
borrowings
Lease liabilities
Hedge interest rate swaps
(net settled)
Hedged commodity swaps
(net settled)
Cross-currency interest rate
swaps (gross settled)
Hedge forward exchange
contracts (gross settled)
Total
19(C) MARKET RISK
Foreign exchange risk
The Group's exposure to the US dollar and Euro (prior to hedging contracts) at the reporting date were as follows:
Consolidated
Financial assets
Cash and cash equivalents
Trade and other receivables
Cross-currency interest rate swap
Hedge foreign exchange derivative assets
Commodity derivative asset
Financial liabilities
Trade and other payables
Interest-bearing loans and borrowings
Commodity derivative liability
Hedge foreign exchange derivative liabilities
Net exposure
152
Wesfarmers 2021 Annual Report
2021
2020
USD
A$m
EUR
A$m
USD
A$m
EUR
A$m
25
24
-
49
4
-
-
335
-
-
6
18
-
-
-
-
-
383
-
-
(1,288)
-
-
-
(1,186)
(42)
(1,979)
-
-
(1,686)
(995)
-
(3)
(40)
(1,014)
(36)
(2,045)
-
(1)
(1,699)
BACK Notes to the financial statements: Risk
For the year ended 30 June 2021
19(C) MARKET RISK (CONTINUED)
Group's sensitivity to foreign exchange movements
Interest rate risk
Actual
+10% (2020: +10%)
-10% (2020: -10%)
0.75
0.83
0.68
0.63
0.69
0.57
0.69
0.76
0.62
0.61
0.67
0.55
Floating rate
Cash at bank, on deposit and held in joint
operation
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.
Consolidated
USD
EUR
USD
EUR
2021
2020
The impact on profit and equity is estimated by applying the
hypothetical changes in the US dollar and Euro exchange rate to
the balance of financial instruments at the reporting date.
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 the 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 2021, 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 below.
Consolidated
AUD/USD +10% (2020: +10%)
- impact on profit
- impact on equity
AUD/USD -10% (2020: -10%)
- impact on profit
- impact on equity
AUD/EUR +10% (2020: +10%)
- impact on profit
- impact on equity
AUD/EUR -10% (2020: -10%)
- impact on profit
- impact on equity
2021
A$m
2020
A$m
7
(145)
11
178
2
48
(2)
(59)
10
(143)
3
175
3
47
(3)
(57)
As at the reporting date, the Group had financial assets and
liabilities with exposure to interest rate risk as shown in the table
below. 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.
Consolidated
Financial assets
Fixed rate
Finance advances and loans
Financial liabilities
Fixed rate
Capital market debt
Floating rate
Unsecured bank debt
Capital market debt
2021
$m
2020
$m
3
3
2,795
2,741
2,974
2,042
48
-
111
503
At 30 June 2021, after taking into account the effect of interest rate
swaps, economic hedging relationships and early repayment of a
portion of core debt facilities, approximately two per cent of the
Group’s core borrowings are exposed to movements in variable
rates (2020: approximately 28 per cent).
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.
Wesfarmers 2021 Annual Report
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Financial statements
Notes to the financial statements: Risk
For the year ended 30 June 2021
19(C) MARKET RISK (CONTINUED)
19(E) FAIR VALUES
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 points)
(2020: +/- 50bps) and with all other variables held constant, profit
after tax and equity would be affected as follows.
The carrying amounts and estimated fair values of all the Group's
financial instruments carried at amortised cost in the financial
statements are materially the same with the exception of the
following:
2021
$m
2020
$m
9
4
(9)
(4)
7
10
(7)
(10)
Consolidated
Capital market debt: carrying amount
Capital market debt: fair value
2021
$m
2020
$m
2,974
2,987
2,545
2,574
The methods and assumptions used to estimate the fair value of
financial instruments are as follows.
Cash
The carrying amount is fair value due to the asset's liquid nature.
Consolidated
+50bps (2020: +50bps)
- impact on profit
- impact on equity
-50bps (2020: -50bps)
- impact on profit
- impact on equity
19(D) CREDIT RISK
The carrying amount of current receivables represents the Group's
maximum credit exposure.
The Group applies the simplified approach in measuring ECLs
for trade receivables and other short-term debtors, whereby an
allowance for impairment is considered across all trade receivables
and other short-term debtors, regardless of whether a credit event
has occurred, based on the expected losses over the lifetime of the
receivable. Therefore, the Group does not track changes in credit
risk but instead recognises a loss allowance based on lifetime
ECLs at each reporting date. The Group has established the
following provision matrix that is based on its historical credit loss
experience, adjusted for forward-looking factors specific to debtors
and the economic climate.
Trade receivables -
days past due
2021
Current
Under one month
One to two months
Two to three months
Over three months
Total
2020
Current
Under one month
One to two months
Two to three months
Over three months
Total
Estimated total
gross carrying
amount at default
($m)
Expected
credit
loss rate
(%)
Lifetime
expected
credit loss
($m)
896
261
72
13
38
1,280
853
133
18
28
28
1,060
1.0
1.9
2.8
7.7
42.1
0.3
1.6
8.3
9.3
52.9
9
5
2
1
16
33
3
2
1
3
14
23
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.
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Wesfarmers 2021 Annual Report
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 capital market debt have been calculated by
discounting the expected future cash flows at prevailing interest
rates using market observable inputs. The fair values other financial
assets have been calculated using market interest rates. The fair
values of listed investments, classified as financial assets held at
FVOCI, have been calculated using quoted share prices (Level 1).
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 the
commodity future contract 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.
The Group’s financial instruments were primarily valued using
market observable inputs (Level 2), with the exception of financial
assets measured at FVOCI (Level 1) and shares in unlisted
companies at fair value (Level 3) which were nil at 30 June 2021
(2020: $1 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 Level 3 fair value movements during the year.
BACK Notes to the financial statements: Risk
For the year ended 30 June 2021
20. 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 19, the Group holds the
following types of derivative instruments:
Forward exchange contracts: contracts denominated in US dollar
and Euro 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 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 (cash flow hedge).
Notional
$m
2021
Weighted
average
hedged rate
Asset Liability
Notional
$m
$m
$m
2020
Weighted
average
hedged rate
Asset
Liability
$m
$m
Foreign exchange contracts
Cash flow hedge - sales (AUD)
US$28
Cash flow hedge - purchases (AUD)
US$2,488
Cash flow hedge - purchases (NZD)
US$186
Cash flow hedge - purchases (AUD)
€ 15
Asset: 0.71
Liability: 0.76
Asset: 0.78
Liability: 0.71
Asset: 0.72
Liability: 0.67
Asset: 0.64
Liability: 0.58
-
-
US$14
87
(42) US$2,044
8
-
(2)
(1)
US$146
€ 8
A$ nil
-
-
-
A$300
Asset: 0.65
Liability: Nil
Asset: 0.71
Liability: 0.66
Asset: 0.67
Liability: 0.62
Asset: 0.61
Liability: 0.57
BBSW +
0.82%
floating
1
37
3
-
3
-
(76)
(5)
(1)
-
€ 1,250
5.32% fixed
335
-
€ 1,250
5.32% fixed
383
-
Interest rate swap contracts
Fair value hedge
Cross-currency interest rate swaps
Cash flow hedge
Brent oil contract
Cash flow hedge
Total derivative asset/(liability)
434
(45)
0.138m
barrels
AU$65.49
per barrel
4
-
0.257m
barrels
AU$70.34
per barrel
-
(3)
427
(85)
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 19(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.
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 (including the
analysis of sources of hedge ineffectiveness and how the hedge
ratio is determined). 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.
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.
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 2021 Annual Report
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Financial statements
Notes to the financial statements: Risk
For the year ended 30 June 2021
20. 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 FY2021 was less than $1 million (2020: less than $1 million).
The maturity profile of the fair value hedges is shown in note 19(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
2021
2020
Foreign
bonds
$m
1,630
349
1,979
(1)
1,978
-
1,978
Domestic
bonds
$m
1,000
-
1,000
(4)
996
-
996
Foreign
bonds
$m
1,630
415
2,045
(3)
2,042
-
2,042
Domestic
bonds
$m
500
-
500
-
500
3
503
There was no material ineffectiveness relating to financial instruments in designated fair value hedge relationships during the year
(2020: 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 19(b) with the recognition of the gain
or loss expected to be consistent with this profile.
2021
2020
Trade
$m
Foreign
bonds
$m
Foreign
debt
$m
Commodity
hedge
$m
Trade
$m
Foreign
bonds
$m
Foreign
debt
$m
Commodity
hedge
$m
Change in the fair value of
the hedged item
90
(48)
-
7
(129)
5
-
(17)
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.
156
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BACK Notes to the financial statements: Risk
For the year ended 30 June 2021
21. IMPAIRMENT OF NON-FINANCIAL ASSETS
Testing for impairment
The Group tests property, plant and equipment, goodwill,
intangibles and right-of-use assets 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.
Annual impairment testing of intangibles and goodwill is performed
at 31 March each year to coincide with the timing of the annual
corporate plan and business forecast process.
The carrying values of mineral rights and capitalised exploration
and evaluation assets are reviewed at each reporting date for
indicators of impairment in accordance with AASB 6 Exploration
for and Evaluation of Mineral Resources (AASB 6), and, when
indicators are identified, tested for impairment in accordance
with AASB 136 Impairment of Assets (AASB 136). Subsequent
to technical feasibility and commercial viability of extracting
the resource being demonstrable, the mineral rights asset shall
be reclassified to mine properties and tested for impairment in
accordance with AASB 136.
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. Mineral rights or exploration and
evaluation assets are allocated to the CGU to which the exploration
activity relates.
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.
The potential impacts of climate change and COVID-19 have been
considered in the Group's impairment testing through downside
scenario analysis.
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 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.
Recognised impairment
During FY2021, impairment of $54 million was recognised in
respect of non-financial assets.
Previously recognised impairment
Industrial and Safety
During FY2020, a pre-tax impairment of $40 million ($28 million
post-tax) was recognised on other assets where the recoverable
amount of the assets was determined to be nil. In addition, the
Industrial and Safety CGU was tested for impairment and as
the carrying value exceeded its recoverable amount, a pre-tax
impairment of $270 million was recognised against goodwill.
The methodology and key assumptions applied in assessing the
recoverable amount of the Industrial and Safety CGU for FY2021
are outlined on the following page.
Kmart Group - Target business
The Target trading store CGUs, including associated distribution
centre and support office assets, were tested for impairment
during FY2020, resulting in total pre-tax impairments to store plant
and equipment of $133 million and lease right-of-use assets of
$161 million. As the remaining significant asset associated with
Target was the Target brand name, the value of which is supported
by the cash flows of the underlying stores, an impairment test
was performed for the Target brand name, resulting in a pre-tax
impairment of $231 million.
The total impairment recognised in FY2020 on Target assets as
described above totalled $525 million ($437 million post-tax).
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 FY2021.
Wesfarmers 2021 Annual Report
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Financial statements
Notes to the financial statements: Risk
For the year ended 30 June 2021
21. IMPAIRMENT OF NON-FINANCIAL ASSETS (CONTINUED)
Key estimates: impairment of non-financial assets
Industrial and Safety CGU
The key assumptions used for assessing the recoverable amount of the Industrial and Safety CGU are set out below. The
recoverable value has been determined using the FVLCOD methodology.
Earnings growth over the forecast period is supported by a transformation program, including investment in a new
enterprise-wide resource planning (ERP) system and data and digital systems to realise productivity improvements and
improve the customer value proposition to increase market share. The ERP implementation is in progress and is expected to be
completed during FY2022.
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 FY2026 are based on market estimates of the long-term average industry growth rate.
Discount rate (post-tax)
Growth rate beyond corporate plan (nominal)
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
2021
2020
11.1%
2.5%
9.4%
88.7%
11.1%
2.5%
-
86.4%
The Industrial and Safety CGU's carrying value was impaired to its recoverable amount at 30 June 2020.
The recoverable value of Industrial and Safety is sensitive to changes in its post-tax discount rate and its forecast terminal
cash flow that drives terminal value. A 70 basis point increase in discount rate or a 10 per cent reduction in its forecast terminal
cash flow eliminates the headroom in the recoverable value. Despite the headroom evident at 30 June 2021, the impairment
expense of $270 million recognised in FY2020 related to goodwill, and cannot be reversed.
Kmart Group CGU - Target business (including brand, store and other assets)
Trading store CGUs and associated assets are reviewed for indicators of impairment using both external and internal sources
of information. Detailed impairment testing is completed when the existence of an indication of impairment is identified. Where
detailed impairment testing is required, the recoverable amount of the store CGU is determined using VIU calculations, based
on forecast cash flows for the store over its remaining life. Each trading store CGU primarily comprises leasehold improvements,
store plant and equipment and right-of-use assets. As a result of impairment testing in FY2020, total pre-tax impairments to store
plant and equipment of $133 million and lease right-of-use assets of $161 million were recognised. The store CGU impairment
tests are most sensitive to changes in revenue growth assumptions. No impairment was required to be recognised for trading
store CGU's in FY2021, as there were no indicators of impairment, and no previously recognised impairment was reversed.
As part of the impairment assessment of the Target business in FY2020, the recoverable amount of the Target brand was
assessed on a FVLCOD basis, using the relief from royalty methodology. The key assumptions applied in the valuation were
forecast revenue, a post-tax discount rate of 12.0 per cent, a royalty rate of 0.7 per cent and a nominal terminal growth rate of
2.5 per cent. As a result, the Target brand's carrying value was impaired to its recoverable amount of $62 million at 30 June 2020.
During FY2021, the impairment testing performed resulted in no impairment being recognised or the reversal of previously
recognised impairment.
Mt Holland lithium project (the Project)
Upon reclassification to mine properties (refer to note 11), the Project was tested for impairment. The reclassification threshold
was met upon the announcement of FID on 17 February 2021. At that time the recoverable amount of the Project exceeded its
carrying value. The recoverable value was determined using a VIU discounted cash flow model based on defined feasibility study
assumptions. Key assumptions in the calculation included a post-tax discount rate of 9.6 per cent, a long-term lithium hydroxide
price at the lower end of the range of available independent broker forecasts, a AUD/USD exchange rate of 70.0 cents and total
proved and probable reserves of 94 million tonnes.
Other CGUs
The Group has assessed the recoverable amounts of other CGUs with goodwill and other indefinite life intangible assets using
FVLCOD calculations and considered potential downside scenarios in respect of the continued impact of COVID-19. Post-tax
discount rates applied in the impairment testing for the Bunnings, Kmart Group and Officeworks CGUs and associated assets
ranged from 9.9 per cent to 11.6 per cent. Terminal growth rates ranging from 2.0 per cent to 2.7 per cent were also applied.
Based on current economic conditions and CGU performances, other than as noted above, no reasonably possible change in a
key assumption used in the determination of the recoverable value of CGUs would result in a material impairment to the Group.
158
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BACK
Notes to the financial statements: Group information
For the year ended 30 June 2021
22. ASSOCIATES AND JOINT ARRANGEMENTS
Investment in associates
Interest in joint ventures
Movement in investment in associates
Net carrying amount at the beginning of
the year
Share of net profit from operations of
associates
Dividends
Capital returns
Associates disposed of during the year
Associates derecognised during the year
Net carrying amount at the end of the
year
Total comprehensive income from
associates and joint ventures
Share of net profit from associates
Other comprehensive loss of associates
Share of profits from joint ventures
Other comprehensive income of joint ventures
Total comprehensive income for the year
Consolidated
2021
$m
2020
$m
660
115
775
625
85
710
625
3,337
86
(51)
-
-
-
193
(157)
(50)
(1,819)
(879)
660
625
86
-
17
5
108
193
-
20
(1)
212
BWP Trust
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
30 June 2021, was $679 million (2020: $610 million) (Level 1 in the
fair value hierarchy). The following table summarises the 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
2021
$m
2020
$m
53
2,557
(83)
(475)
2,052
509
152
(38)
149
263
65
68
2,419
(78)
(506)
1,903
472
156
(39)
94
211
52
RECOGNITION AND MEASUREMENT
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 are accounted for using
the equity method.
Investment in associates
The Group’s investments in its associates, being entities in which the
Group has significant influence and are neither subsidiaries or joint
arrangements, are accounted for using the equity method. Under this
method, the investment in the associates are 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 the 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,
the associates' management accounts 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.
Wesfarmers 2021 Annual Report
159
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Financial statements
Notes to the financial statements: Group information
For the year ended 30 June 2021
22. 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.
Interests in associates and joint arrangements
Associates
Principal activity
Reporting date
Country of
incorporation/place
of business
BWP Trust
Gresham Partners Group Limited
Queensland Nitrates Management Pty Ltd Chemical manufacture
Chemical manufacture
Queensland Nitrates Pty Ltd
Pine sawmillers
Wespine Industries Pty Ltd
Property investment
Investment banking
30 June
30 September
30 June
30 June
30 June
Australia
Australia
Australia
Australia
Australia
Ownership
2021
2020
%
24.8
50.0
50.0
50.0
50.0
%
24.8
50.0
50.0
50.0
50.0
Joint operations
Sodium Cyanide
Mt Holland Lithium
Joint ventures
BPI NO 1 Pty Ltd
Covalent Lithium Pty Ltd
Loyalty Pacific Pty Ltd1
Sodium cyanide manufacture 30 June
Lithium development
31 December
Australia
Australia
75.0
50.0
75.0
50.0
Property management
Management company
Loyalty programs
30 June
31 December
27 June
Australia
Australia
Australia
(a)
50.0
50.0
(a)
50.0
50.0
1
A wholly-owned subsidiary, Wesfarmers Loyalty Management Pty Ltd, has a 50.0 per cent interest in Loyalty Pacific Pty Ltd (Flybuys).
(a) 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.
160
Wesfarmers 2021 Annual Report
BACK Notes to the financial statements: Group information
For the year ended 30 June 2021
23. SUBSIDIARIES
The consolidated financial statements include the financial statements of Wesfarmers Limited and the subsidiaries listed in the
following table:
2021
%
2020
%
Entity
2021
%
2020
%
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. 008 734 567 Pty Ltd
A.C.N. 061 462 593 Pty Ltd
A.C.N. 092 194 904 Pty Ltd
A.C.N. 112 719 918 Pty Ltd
A.C.N. 645 670 711 Pty Ltd
A.C.N. 645 674 102 Pty Ltd
AEC Environmental Pty Ltd
ANKO Global Holdings Pty Ltd
ANKO Retail Incorporated
Australian Gold Reagents Pty Ltd
Australian Graphics Pty Ltd
Australian International Insurance
Limited
Australian Light Minerals Pty Ltd
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
BrandsExclusive (Australia) Pty Ltd
BUKI (Australia) Pty Ltd
Bullivants International Pty Ltd
Bullivants Pty Limited
Bunnings (NZ) Limited
Bunnings Group Limited
Bunnings Joondalup Pty Ltd
~
@
@
+
z
+
+
+
+
+
+
+
+
n
+
Bunnings Limited
# n
Bunnings Management Services
Pty Ltd
Bunnings Manufacturing Pty Ltd
Bunnings Properties Pty Ltd
Bunnings Technologies India Private
Limited
+
~
+
l
100
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
100
100
BWP Management Limited
C S Holdings Pty Limited
Campbells Hardware & Timber Pty
Limited
Casey Exploration Pty Ltd
Catch Essentials Pty Ltd
Catch Group Holdings Limited
Catch Group Share Holdings Pty
Ltd
Catch.com.au Pty Ltd
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
Crowl Creek Exploration Pty Ltd
100
100
CSBP Ammonia Terminal Pty Ltd
100
100
CSBP Limited
CTE Pty Ltd
Cuming Smith and Company
Limited
Dairy Properties Pty Ltd
Dowd Corporation Pty Ltd
Eastfarmers Pty Ltd
ECC Pty Ltd
ENV.Australia Pty Ltd
Environmental and Licensing
Professionals Pty Ltd
FIF Investments Pty Limited
Forrestania Lithium Pty Ltd
Fosseys (Australia) Pty Ltd
Geeks2U Holdings Pty Limited
Geeks2U International Pty Limited
Geeks2U IP Pty Limited
Geeks2U NZ Limited
Geeks2U Pty Limited
GPML Pty Ltd
Greencap Holdings Limited
Greencap Pty Ltd
HouseWorks Co Pty Ltd
Howard Smith Limited
Incorporatewear 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
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
<
+
~
+
+
n
+
n
+
+
+
~
+
n
+
# ~ p
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
Incorporatewear, Unipessoal LDA
< ~ v
J Blackwood & Son Pty Ltd
+
100
100
100
James Patrick & Co Pty Ltd
(in liquidation)
100
100
Wesfarmers 2021 Annual Report
161
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A
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A
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S
A
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Financial statements
Notes to the financial statements: Group information
For the year ended 30 June 2021
23. SUBSIDIARIES (CONTINUED)
Entity
KAS Direct Sourcing Private Limited
# l
t
x
u
t
l
~
~
+
+
n
+
+
+
@
n
+
+
n
+
m
KAS Global Trading Pty Limited
KAS International Sourcing
Bangladesh Pvt Ltd
KAS International Trading
(Shanghai) Company Limited
KAS Pty Limited
KAS Services India Private Limited
Kidman Barrow Creek Pty Ltd
Kidman Gold Pty Ltd
Kidman Mining Pty Ltd
Kleenheat Pty Ltd
Kmart Australia Limited
Kmart Group Asia Pty Ltd
Kmart Holdings Pty Ltd
Kmart NZ Holdings Limited
Kwinana Nitrogen Company
Proprietary Limited
Lawvale Pty Ltd
Liftco Pty Limited
Loggia Pty Ltd
Manacol Pty Limited
MC2 Pacific Pty Ltd
Meredith Distribution (NSW) Pty Ltd
Meredith Distribution Pty Ltd
MH Gold Pty Limited
Millars (WA) Pty Ltd
Modwood Technologies Pty Ltd
Montague Resources Australia Pty
Ltd
Moonyoora Minerals Pty Ltd
Mumgo 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
162
Wesfarmers 2021 Annual Report
2021
%
100
100
2020
%
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
Entity
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
Sotico Pty Ltd
Target Australia Pty Ltd
Target Australia Sourcing (Shanghai)
Co Ltd
Target Australia Sourcing Limited
Target Holdings Pty Ltd
TheActive Pty Ltd
The Builders Warehouse Group Pty
Limited
The Franked Income Fund
+
# u
# t
+
The Westralian Farmers Limited
The Workwear Group HK Limited
+
# t
The Workwear Group Holding Pty
Ltd
The Workwear Group Pty Ltd
Tincorp Holdings Pty Ltd
Trimevac 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 A Plus Pty Ltd
Wesfarmers Bengalla Management
Pty Ltd
Wesfarmers Bengalla Pty Ltd
Wesfarmers Bunnings Limited
Wesfarmers Chemical US Holdings
Corp
Wesfarmers Chemicals, Energy &
Fertilisers Limited
Wesfarmers Coal Resources Pty Ltd
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
+
+
+
+
+
@
+
+
z
+
+
+
+
+
+
2021
%
2020
%
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 Gas Limited
BACK Notes to the financial statements: Group information
For the year ended 30 June 2021
23. SUBSIDIARIES (CONTINUED)
Entity
2021
%
2020
%
Wesfarmers Holdings Pty Ltd
100
100
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
Wesfarmers Investments Pty Ltd
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 Provident Fund Pty Ltd
Wesfarmers Resources Pty Ltd
Wesfarmers Retail Holdings Pty Ltd
Wesfarmers Retail Pty Ltd
Wesfarmers Risk Management
(Singapore) Pte Ltd
Wesfarmers Risk Management
Limited
Wesfarmers Securities Management
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
WFM Investments Pty Ltd
WIS International Pty Ltd
WIS Solutions Pty Ltd
WIS Supply Chain Management
(Shanghai) Co Ltd
WPEQ Pty Ltd
WPP Holdings Pty Ltd
WW E-Services Australia Pty
Limited
WWG Middle East Apparel Trading
LLC
XCC (Retail) Pty Ltd
Yakka Pty Limited
# n
100
100
n
+
+
+
+
+
+
+
+
+
+
z
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
# ~ t
-
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
49
-
100
49
100
100
+
+
@
u
q
~
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
All subsidiaries are incorporated in Australia unless
identified by one of the following symbols:
Bangladesh
Bermuda
China
Hong Kong
India
Indonesia
New Zealand
Portugal
Singapore
United Arab Emirates
United Kingdom
United States of America
@
~
#
<
+
x
t
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, which utilises the Australian dollar
and KAS International Trading (Shanghai) Company
Limited, PT Blackwoods Indonesia and Wesfarmers Oil &
Gas Pty Ltd, which utilise the US dollar.
Wesfarmers 2021 Annual Report
163
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S
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Financial statements
Notes to the financial statements: Group information
For the year ended 30 June 2021
24. PARENT DISCLOSURES
25. DEED OF CROSS GUARANTEE
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
2021
$m
2020
$m
11,667
5,981
17,648
11,194
6,113
17,307
1,623
2,170
3,793
13,855
1,235
2,187
3,422
13,885
15,719
3
1,425
292
150
(9)
39
(3,764)
13,855
15,724
2
1,460
292
150
(23)
44
(3,764)
13,885
The subsidiaries identified with a ‘+’ in note 23 are parties to a
Deed of Cross Guarantee under which each party has guaranteed
to pay any deficiency in the event of the winding up of any of the
members in the Closed Group. 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 consolidated income statement and retained earnings of the
entities that are members of the Closed Group is as follows:
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
Adjustment for companies transferred into/
out of the Closed Group
Total available for appropriation
Dividends provided for or paid
Retained earnings at end of year
Profit attributable to members of the parent
2,040
2,471
Total comprehensive income for the year,
net of tax, attributable to members of the
parent
2,053
2,464
Consolidated statement of comprehensive
income
Profit for the year
Other comprehensive income
Items that may be reclassified to profit or loss:
Exchange differences on translation of
foreign operations
Changes in the fair value of cash flow
hedges, net of tax
Items that will not be reclassified to profit or loss:
Changes in the fair value of financial assets
designated at FVOCI, net of tax
Remeasurement loss on defined benefit plan
Other comprehensive loss for the year, net
of tax
Total comprehensive income for the year,
net of tax
Contingencies1
Trading guarantees
150
157
1 Contingent liabilities at balance date are not included in this financial report.
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).
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.
164
Wesfarmers 2021 Annual Report
Deed
2021
$m
2020
$m
3,264
2,542
-
(901)
2,363
(648)
-
1,715
(2,075)
(360)
-
(671)
1,871
(304)
(481)
1,086
(1,734)
(648)
Deed
2021
$m
2020
$m
2,363
1,871
-
84
(4)
-
80
-
(87)
16
-
(71)
2,443
1,800
BACK
Notes to the financial statements: Group information
For the year ended 30 June 2021
25. DEED OF CROSS GUARANTEE (CONTINUED)
26. RELATED PARTY TRANSACTIONS
The consolidated balance sheet of the entities that are members of
the Closed Group is as follows:
Consolidated balance sheet
Assets
Current assets
Cash and cash equivalents
Receivables - trade and other
Receivables - related parties
Inventories
Derivatives
Other
Total current assets
Non-current assets
Investment in controlled entities
Investment in associates and joint ventures
Other financial assets
Deferred tax assets
Property, plant and equipment
Goodwill and intangible assets
Right-of-use assets
Derivatives
Other
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Interest-bearing loans and borrowings
Lease liabilities
Income tax payable
Provisions
Derivatives
Other
Total current liabilities
Non-current liabilities
Payables
Interest-bearing loans and borrowings
Lease liabilities
Provisions
Derivatives
Other
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserved shares
Retained earnings
Reserves
Total equity
Deed
2021
$m
2020
$m
2,767
1,078
933
4,125
152
154
9,209
3,058
268
1,124
741
3,336
3,826
5,446
282
2
18,083
27,292
3,664
893
950
333
1,079
43
219
7,181
963
5,693
2,023
336
2
-
9,017
16,198
11,094
15,809
(102)
(360)
(4,253)
11,094
2,707
909
956
3,443
41
206
8,262
3,093
239
1,123
727
3,313
3,739
5,844
386
2
18,466
26,728
3,590
503
920
384
997
81
158
6,633
973
2,033
5,932
328
4
81
9,351
15,984
10,744
15,809
(89)
(648)
(4,328)
10,744
Transactions with related parties
Associates
Lease rent paid
Operating lease rent received
Financial advisory fees paid
Management fees received
Sales of goods and services
Purchases of goods and services
Joint arrangements
Lease rent paid
Payments for loyalty program
Receipts from loyalty program redemption
Sales of goods and services
Purchases of goods and services
Outstanding balances with related
parties
Associates
Amounts receivable from associates
Amounts owing to associates
Consolidated
2021
$'000
2020
$'000
136,505
-
10
(14,730)
-
149
140,982
(13,255)
9
(14,364)
(36,546)
2,889
25,601
29,873
(40,039)
(1,152)
782
25,202
24,507
(33,439)
(1,402)
503
10,131
(163)
10,528
(195)
Joint arrangements
Amounts receivable from joint ventures
Amounts owing to joint ventures
6,680
(186,694)
7,123
(169,425)
The Group entered into transactions with related parties during the
year as follows:
• Rent for retail stores and warehouses has been paid by the
Group to an associated entity, BWP Trust, and to a joint
arrangement, BPI NO 1 Pty Ltd.
• 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.
• Partly-owned subsidiaries of an associate of the Group,
Gresham Partners Group Limited, have provided advisory
services to Wesfarmers and were paid fees of $10,300 in 2021
(2020: $9,159).
• Other related party transactions include sales and purchases
to associates and joint arrangements on normal commercial
terms and conditions.
Coles Group Limited was a related party for the period in which it
was an associate, being 1 July 2019 to 30 March 2020.
Wesfarmers 2021 Annual Report
165
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Financial statements
Notes to the financial statements: Other
For the year ended 30 June 2021
27. COMMITMENTS AND CONTINGENCIES
28. EVENTS AFTER THE REPORTING PERIOD
Capital commitments1
Within one year
Other expenditure commitments1
Within one year
Greater than one year but not more than
five years
More than five years
Contingencies1
Trading guarantees
Consolidated
2021
$m
2020
$m
359
359
112
120
69
301
270
270
85
93
75
253
150
157
1 Commitments arising for capital expenditure and other expenditure contracted
for at balance date and contingent liabilities at balance date are not included in
this financial report.
At 30 June 2021, the Group has commitments relating to lease
agreements that have not yet commenced, which are not
included in the above. The future lease payments (undiscounted)
for non-cancellable periods are $28 million within one year,
$157 million between one and five years and $258 million thereafter.
The commitments relate to lease agreements associated with
new stores.
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.
Contingent liabilities
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.
28. EVENTS AFTER THE REPORTING PERIOD
Dividends
A fully-franked final dividend of 90 cents per share resulting in
a dividend payment of $1,020 million was determined with a
payment date of 7 October 2021. The dividend has not been
provided for in the 30 June 2021 full-year financial statements.
Capital Management
The directors have also recommended a return of capital to
shareholders of 200 cents per share. The recommended return
of capital is subject to shareholder approval at the 2021 Annual
General Meeting on 21 October 2021.
If approved, the total amount of the distribution will be
approximately $2,268 million and will be paid on 2 December 2021.
The form of the distribution is dependent on a final ruling by the
ATO, but is likely to be entirely capital in nature, with no dividend
component. Shareholders will be unable to elect to participate in
the Dividend Investment Plan in relation to the capital return.
The distribution has not been provided for in the 30 June 2021
full-year financial statements.
(CONTINUED)
Proposal to acquire Australian Pharmaceutical
Industries Limited
On 12 July 2021, Wesfarmers announced that it had submitted a
non-binding, indicative offer to acquire 100 per cent of the shares
outstanding in Australian Pharmaceutical Industries Limited
(API, ASX:API) for $1.38 cash per share by way of a scheme of
arrangement (the Proposal).
The Proposal price corresponds to a total equity value for API of
approximately $687 million. If the transaction proceeds, it will be
funded through Wesfarmers’ existing balance sheet capacity and
debt facilities. The Proposal is conditional upon the satisfaction
of conditions including the completion of confirmatory due
diligence, entry into a Scheme Implementation Deed, obtaining
ACCC clearance, API Board approval and the approval of API
shareholders. There is no certainty as to whether the proposed
transaction will proceed.
COVID-19
Subsequent to year-end, sales in the Group’s retail divisions
have been affected by recent lockdowns that have required store
closures and restricted trading across multiple regions.
29. AUDITORS' REMUNERATION
Fees to Ernst & Young (Australia)
Fees for the audit and review of the
financial reports of the Group and any
controlled entities
Fees for other assurance and
agreed-upon-procedures services
Fees for other services
- tax compliance
- other
Fees to other overseas network firms of
Ernst & Young (Australia)
Fees for the audit and review of the
financial reports of the Group and any
controlled entities
Fees for other assurance and
agreed-upon-procedures services
Fees for other services
- tax compliance
Total auditors' remuneration
Consolidated
2021
$'000
2020
$'000
4,591
4,005
503
588
632
-
5,726
465
-
5,058
527
473
197
215
120
844
6,570
140
828
5,886
Other assurance and agreed-upon-procedures services and other
services represent 22.1 per cent (2020: 23.9 per cent) of the total
fees paid or payable to Ernst & Young and related practices for the
year ended 30 June 2021.
Auditors’ remuneration includes amounts reimbursed to the
auditors for incidental costs incurred in completing their services.
166
Wesfarmers 2021 Annual Report
BACK Notes to the financial statements: Other
For the year ended 30 June 2021
30. OTHER ACCOUNTING POLICIES
(A) NEW AND AMENDED ACCOUNTING STANDARDS AND INTERPRETATIONS ADOPTED FROM 1 JULY 2020
All new and amended Australian Accounting Standards and Interpretations mandatory to the Group as at 1 July 2020 have been adopted
and include:
Reference
Description
The effects of the following standards were not material:
AASB 2018-7 Amendments to
Australian Accounting Standards -
Definition of Material
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.
Conceptual Framework for Financial
Reporting
The revised conceptual framework includes a new chapter on measurement; guidance
on reporting financial performance; improved definitions and guidance, in particular, the
definitions of an asset and a liability; and clarifications in important areas, such as the roles of
stewardship, prudence and measurement uncertainty in financial reporting.
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
AASB 2019-3 Amendments to
Australian Accounting Standards -
Interest Rate Benchmark Reform
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).
This standard amends the definition of a business in AASB 3 Business Combinations.
These amendments to AASB 7 Financial Instruments: Disclosures, AASB 9 and AASB 139
Financial Instruments: Recognition and Measurement were issued in response to the effects
of Interbank Offered Rates reform on financial reporting. They provide mandatory temporary
relief enabling hedge accounting to continue during the period of uncertainty before the
replacement of an existing interest rate benchmark with an alternative ‘nearly risk-free’
benchmark.
AASB 2019-5 Amendments to
Australian Accounting Standards -
Disclosures of the Effect of New IFRS
Standards Not Yet Issued in Australia
This standard amends AASB 1054 Australian Additional Disclosures by adding a requirement
for entities complying with IFRS standards to disclose the potential effect of an IFRS standard
that has not yet been issued by the AASB so that an entity complying with Australian
Accounting Standards can assert compliance with IFRS standards.
Wesfarmers 2021 Annual Report
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Financial statements
Notes to the financial statements: Other
For the year ended 30 June 2021
30. OTHER ACCOUNTING POLICIES (CONTINUED)
(B) NEW AND AMENDED STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE
The following new and amended accounting standards and interpretations issued but not yet effective are relevant to current operations.
They are available for early adoption but have not been applied by the Group in this financial report.
Reference
Description
The effects of these standards and interpretations are not expected to be material:
AASB 2020-8 Amendments to
Australian Accounting Standards
- Interest Rate Benchmark Reform
(Phase 2)
The application of this amendment is effective from 1 January 2021, and will be adopted by
the Group on 1 July 2021. This standard makes amendments to AASB 9 Financial Instruments,
AASB 139 Financial Instruments: Recognition and Measurement, AASB 7 Financial Instruments:
Disclosures, AASB 4 Insurance Contracts and AASB 16 Leases to address issues that arise
during the reform of an interest rate benchmark, including the replacement of one benchmark
with an alternative one.
AASB 2021-3 Amendments to
Australian Accounting Standards -
COVID-19-Related Rent
Concessions beyond 30 June 2021
The application of this amendment is effective from 1 April 2021, and will be adopted by the
Group on 1 July 2021. This standard extends the availability of the practical expedient by one
year. The practical expedient applies to rent concessions for which any reduction in lease
payments affects only the payments originally due on or before 30 June 2022, provided the
other conditions for applying the practical expedient are met.
AASB 2021-2 Amendments to
Australian Accounting Standards -
Disclosure of Accounting Policies
The application of this amendment is effective from 1 January 2023, and will be adopted by
the Group on 1 July 2023. The amendments aim to help entities provide accounting policy
disclosures that are more useful by replacing the requirements for entities to disclose their
‘significant’ accounting policies with a requirement to disclose their ‘material’ accounting
policies and adds guidance on how entities apply the concept of materiality in making
decisions about accounting policy disclosures.
AASB 2021-2 Amendments to
Australian Accounting Standards -
Definition of Accounting Estimates
The application of this amendment is effective from 1 January 2023, and will be adopted by
the Group on 1 July 2023. The amended standard clarifies that the effects on an accounting
estimate of a change in an input or a change in a measurement technique are changes in
accounting estimates if they do not result from the correction of prior period errors.
AASB 2020-3 Amendments to
Australian Accounting Standards -
Annual Improvements 2018–2020
and Other Amendments
The application of this amendment is effective from 1 January 2022, and will be adopted by
the Group on 1 July 2022. This standard makes amendments to AASB 1 First-time Adoption of
Australian Accounting Standards, AASB 3, AASB 9, AASB 116 Property, Plant and Equipment,
AASB 137 Provisions, Contingent Liabilities and Contingent Assets and AASB 141 Agriculture.
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 (as deferred by AASB
2017-5 Amendments to AASs – Effective Date of Amendments to AASB 10 and AASB 128
and Editorial Corrections), 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 2020-1 Amendments to
Australian Accounting Standards -
Classification of Liabilities as Current
or Non-current
The application of this amendment is effective from 1 January 2023 (as deferred by AASB
2020-6 Amendments to AASs – Classification of Liabilities as Current or Non-current – Deferral
of Effective Date), and will be adopted by the Group on 1 July 2023. This amendment to
AASB 101 Presentation of Financial Statements clarifies the requirements for classifying
liabilities as current or non-current.
(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.
168
Wesfarmers 2021 Annual Report
BACK Notes to the financial statements: Other
For the year ended 30 June 2021
31. 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 FY2021 to satisfy
employee incentive schemes was 1,961,576 (2020: 2,009,216) at
an average price of $49.61 (2020: $41.79) 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
Key Executive Equity Performance Plan (KEEPP)
KEEPP was introduced in September 2016. Under the 2020
KEEPP, eligible executive key management personnel (KMP) were
invited to receive performance shares and deferred shares in the
company.
KEEPP is a single total incentive established for each executive
KMP that operates over seven years. The quantum of the KEEPP
award is determined against an individually personalised 12-month
scorecard, split into financial performance measures, individual
performance objectives and safety performance measures.
The earnings before interest and tax and return on capital (ROC)
conditions of the 2017, 2018 and 2019 KEEPP performance
shares have been amended to post-AASB 16 earnings before
tax and ROC metrics. There has been no incremental change
in the fair value of the awards. The share price on the date
which the amendment was communicated to participants was
$59.10 per share.
Performance shares - 2020 KEEPP
For the Group Managing Director and the Group Chief Financial
Officer, the performance conditions are Wesfarmers’ total
shareholder return (TSR) relative to the TSR of the ASX 100
(80 per cent weighting) and portfolio management and investment
outcomes (20 per cent weighting). For the divisional managing
directors, the performance conditions are the divisional financial
performance (50 per cent weighting) and Wesfarmers’ TSR relative
to the TSR of the ASX 100 (50 per cent weighting).
The fair value of the performance shares with a TSR condition is
determined using an option pricing model with the following inputs:
Grant date
Grant date share price ($)
Volatility (%)
Risk-free rate (%)
Fair value ($)
12 Nov 2020
48.78
22.68
0.20
33.03
Equity-settled awards outstanding
Weighted average share price in FY2021 was $50.19 (2020: $39.62). 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
KEEPP
(shares)
WESAP
(shares)
WLTIP
WESP
(shares)
(rights)
(options)
1,916,580
215,406
(304,854)
-
-
1,827,132
79,383
6,757,500
1,915,401
(2,579,725)
(131,408)
(24,286)
5,937,482
5,032,816
229,529
60,569
(114,045)
-
-
176,053
233,374
124,538
-
(124,538)
-
-
-
-
189,004
-
(19,094)
-
-
169,910
863,844
Wesfarmers 2021 Annual Report
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Financial statements
Notes to the financial statements: Other
For the year ended 30 June 2021
Annual incentive
In August 2020, eligible executives received a restricted (mandatory
deferred) share award under the WESAP as part of their annual
incentive. 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.
Wesfarmers Long Term Incentive Plan (WLTIP)
2020 performance-tested shares
The Board approved a one-off performance-tested share grant for
the Group Managing Director, the Group Chief Financial Officer and
the Managing Director, Kmart Group in relation to the restructure of
Kmart Group, which was allocated in FY2021 under the WLTIP.
The performance condition (with 100 per cent weighting) is
based on the conversion of Target stores to Kmart stores and
measured through total cumulative converted store profit for the
relevant stores, against the targeted store contribution in the
Board-approved proposal.
The fair value of the equity instruments granted was $48.78 and
was determined with reference to the share price on the date of
grant.
Further details and the terms of the performance-tested share
grants made during FY2021 are provided in the
remuneration report.
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 paid 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.
31. SHARE-BASED PAYMENTS (CONTINUED)
Key Executive Equity Performance Plan (KEEPP)
(continued)
Deferred shares - 2020 KEEPP
Eligible executive KMP’s also received a deferred shares award
under the KEEPP. The 2020 KEEPP deferred shares are subject to
a 12-month service condition (the forfeiture period). If an executive
resigns or is terminated for cause during the forfeiture period,
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 deferred
shares and the performance shares with divisional financial
performance conditions or the portfolio management and
investment outcomes condition.
Further details of the KEEPP and of the terms of the grants made
during FY2021 are provided in the remuneration report.
Wesfarmers Employee Share Acquisition Plan
(WESAP)
Employees other than executives
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 condition.
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 $50.95 (2020 average: $39.86) and was
determined with reference to the share price on the date of grant.
Executives
In November 2016, WESAP was introduced to eligible executives.
Under the 2020 offer, eligible executives are invited to receive
performance shares and deferred shares in the company.
Performance shares - 2020 WESAP
The performance condition (with 100 per cent weighting) is
Wesfarmers’ TSR relative to the TSR of the ASX 100 over a
four-year performance period.
The fair value of the performance shares with a TSR condition is
determined using an option pricing model with the following inputs:
Grant date
Grant date share price ($)
Volatility (%)
Risk-free rate (%)
Fair value ($)
12 Nov 2020
48.78
22.68
0.20
33.03
Deferred shares - 2020 WESAP
Deferred shares are subject to a three-year forfeiture period. If an
executive resigns or is terminated for cause within three years, the
deferred shares will be forfeited.
The grant date share price is the fair value of the deferred shares
and the award is expensed over the forfeiture period.
170
Wesfarmers 2021 Annual Report
BACK Notes to the financial statements: Other
For the year ended 30 June 2021
32. DIRECTOR AND EXECUTIVE DISCLOSURES
33. TAX TRANSPARENCY DISCLOSURES
Compensation of key management personnel
The remuneration disclosures are provided in sections one to eight
of the remuneration report on pages 94 to 122 of this annual report
designated as audited and forming part of the directors’ report.
Short-term benefits
Long-term benefits
Post-employment benefits
Termination benefits
Share-based payments
Consolidated
2021
$'000
2020
$'000
10,752
112
221
-
11,482
22,567
13,054
127
236
256
13,933
27,606
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.
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 Australian and global
operations of the Group are tabled below.
Continuing operations
Tax paid or payable reconciliation
Accounting profit
Income tax at the statutory rate of 30%
Non-deductible items
Temporary differences: deferred tax
Associates and other
Utilisation of previously recognised tax
losses
Current year tax paid or payable
Consolidated
2021
$m
2020
$m
3,373
1,012
10
(9)
(17)
-
996
2,374
712
156
193
(49)
(80)
932
Effective tax rate
Effective tax rate for Australian operations
Effective tax rate for global operations
29.4%
29.7%
30.7%
31.7%
Wesfarmers 2021 Annual Report
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Wesfarmers 2021 Annual Report172Directors' declarationWesfarmers Limited and its controlled entitiesSigned reportsIn 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 2021 are in accordance with the Corporations Act 2001, including: (a) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2021 and of its performance for the year ended on that date; and (b) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and1.2 the financial statements and notes comply with International Financial Reporting Standards as disclosed in the notes to the financial statements on page 129 of the 2021 Annual Report; and1.3 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. 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 2021.3. 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 23 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 25.On behalf of the Board:M A Chaney AO R G Scott Chairman Managing DirectorPerth 26 August 2021BACK 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
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 2021, the consolidated income statement, consolidated statement of comprehensive
income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes to the
financial statements, including a summary of significant accounting policies, and the directors’ declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including:
a) giving a true and fair view of the consolidated financial position of the Group as at 30 June 2021 and of its consolidated financial
performance for the year ended on that date; and
b) complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for opinion
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 (including Independence Standards)
('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.
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 judgment, 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 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
Wesfarmers 2021 Annual Report
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Signed reports
Independent auditor's report
To the Members of Wesfarmers Limited
1.
Inventory valuation and existence
Why significant
How our audit addressed the key audit matter
At 30 June 2021, the Group held inventory balances of $4,502
million, as disclosed in Note 6 Inventories.
Inventories are valued at the lower of cost and net realisable value
('NRV'). The NRV of inventories is the estimated selling price in
the ordinary course of business less estimated costs to sell, the
determination of which requires significant judgement by the
Group.
Key matters of judgement include:
• The variables affecting costs recognised in bringing the
Our audit procedures included the following:
• We assessed the inventory management, procurement and
commercial income processes, including an evaluation of the
effectiveness of relevant controls
• We tested the accuracy of the weighted average costing
systems and performed overhead allocation testing on a
sample of inventory
• We attended stocktakes at a sample of locations and reviewed
stocktake processes for compliance with internal policies
inventory to its location and condition for sale
• We tested the subsequent reconciliation of the stock count
• Estimated costs to sell
• The expected selling price.
In addition, the distribution of the Group’s inventory across a high
number of locations and the quantum of the inventory balances
may result in an increased risk in relation to existence.
results into the inventory records and general ledger
• We tested the costs incurred and the accuracy of the costs to
sell and pricing assumptions in the NRV testing
• We evaluated management’s assessment of stock
obsolescence provisions through attendance at stocktakes,
enquiries and analytical procedures
• We performed inventory cut-off testing on a sample of
transactions either side of year-end
• We reviewed key stock statistics, including sell-through rates,
stock ageing and stock turnover
• We performed analysis of shrinkage results and provision
calculations.
2. Supplier rebates
Why significant
How our audit addressed the key audit matter
Rebates associated with the Group's retail operations are received
from suppliers.
The value and timing of supplier rebates recognised requires
judgement and the consideration of a number of factors including:
• The commercial terms of each individual rebate
• 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.
Our audit procedures included the following:
• We gained an understanding of the nature of each material
type of supplier rebate including assessing the significant
agreements in place
• We assessed the effectiveness of relevant controls in place
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 2021 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 in respect to rebates 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
• 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
174
Wesfarmers 2021 Annual Report
BACK 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 Company’s 2021
Annual Report, 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 judgment 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, actions taken to eliminate threats or safeguards applied.
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
Wesfarmers 2021 Annual Report
175
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Wesfarmers 2021 Annual Report176Independent auditor's reportTo the Members of Wesfarmers LimitedSigned reportsA member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards LegislationReport on the audit of the Remuneration ReportOpinion on the Remuneration ReportWe have audited the Remuneration Report included in pages 96 to 122 of the directors’ report for the year ended 30 June 2021.In our opinion, the Remuneration Report of Wesfarmers Limited for the year ended 30 June 2021, complies with section 300A of the Corporations Act 2001.ResponsibilitiesThe 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 & YoungT S Hammond J K Newton Partner, Perth Partner, Perth 26 August 2021 26 August 2021BACK Five-year financial history
All figures in $m unless shown otherwise1
Summarised income statement
Revenue from contracts with customers
Other revenue
Total revenue
Operating profit before depreciation and amortisation,
finance costs and income tax
Depreciation and amortisation
Interest on lease liabilities
EBIT (after interest on lease liabilities)
Other finance costs
Income tax expense
Profit after tax from discontinued operations
Operating profit after income tax attributable to members
of Wesfarmers Limited
Capital and dividends
Ordinary shares on issue (number) 000's as at 30 June
Paid up ordinary capital as at 30 June
Fully-franked dividend per ordinary share (declared/
determined) (cents)
Fully-franked special dividend per ordinary share (declared/
determined) (cents)6
Financial performance
Earnings per share (weighted average) (cents)
Earnings per share growth (%)
Return on average ordinary shareholders' equity (R12)
(excluding significant items) (%)
Financial position as at 30 June
Total assets
Total liabilities
Net assets
Net tangible asset backing per ordinary share ($)
Net debt to equity (%)7
Total liabilities/total assets (%)
Post-AASB 16
20212
20203
Pre-AASB 16
20185
20194
33,797
144
33,941
30,753
93
30,846
44,485
199
44,684
69,595
283
69,878
5,226
(1,509)
(226)
3,491
(118)
(993)
-
4,272
(1,528)
(237)
2,507
(133)
(677)
75
7,627
(809)
-
6,818
(175)
(1,133)
3,570
4,079
(1,283)
-
2,796
(221)
(1,378)
(1,407)
2017
68,099
345
68,444
5,668
(1,266)
-
4,402
(264)
(1,265)
-
2,380
1,697
5,510
1,197
2,873
1,133,840
15,826
1,133,840
15,818
1,133,840
15,809
1,133,840
22,277
1,133,840
22,268
178
-
152
18
178
100
223
223
-
-
210.4
40.3
150.0
(69.2)
487.2
360.5
105.8
(58.5)
254.7
603.6
26.1
22.1
19.2
11.7
12.4
26,214
16,499
9,715
5.14
2.3
62.9
25,425
16,081
9,344
4.89
(0.9)
63.2
18,333
8,362
9,971
5.21
25.1
45.6
36,933
14,179
22,754
4.33
17.3
38.4
40,115
16,174
23,941
4.44
20.1
40.3
Stock market capitalisation as at 30 June
67,010
50,830
41,000
55,966
45,490
1
2
3
4
5
6
7
All figures are presented as last reported, including discontinued operations.
The summarised income statement for 2021 includes pre-tax (post-tax) restructuring costs of $59 million ($41 million) in the Kmart Group.
The summarised income statement for 2020 includes significant items relating to the following pre-tax (post-tax) items: $525 million ($437 million) impairment of the
Target brand name and other assets, $110 million ($83 million) restructuring costs and provisions in the Kmart Group and a $310 million ($298 million) impairment to WIS,
offset by a gain of $290 million ($203 million) on the sale of 10.1 per cent of the interest in Coles, a gain of $220 million ($154 million) on the revaluation of the retained
4.9 per cent interest in Coles and a benefit of $83 million from the finalisation of tax positions on prior year disposals.
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 2020 fully-franked special dividend reflects the distribution of after-tax profits on the sale of the Group's 10.1 per cent interest in Coles. The 2019 fully-franked
special dividend reflects the demerger dividend representing the fair value of the Coles distribution to shareholders.
The net debt balance excludes lease liabilities.
Wesfarmers 2021 Annual Report
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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 6.00 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
shareholders % of issued capital
383,790
86,924
9,792
4,957
155
10.85
16.01
5.98
8.84
58.32
There were 8,559 shareholders that held less than a marketable parcel of Wesfarmers ordinary shares.
There were 1.01 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 26 August 2021 were:
Name
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)
BNP Paribas Nominees Pty Ltd SIX SIS Ltd (DRP A/C)
Australian Foundation Investment Company Limited
Citicorp Nominees Pty Limited (Colonial First State Inv A/C)
Argo Investments Limited
CPU Share Plans Pty Limited (WESAP DFE Control A/C)
CPU Share Plans Pty Limited (WES Exu Control A/C)
Netwealth Investments Limited (Wrap Services A/C)
Milton Corporation Limited
BNP Paribas Nominees Pty Ltd HUB24 Custodial Serv Ltd (DRP A/C)
National Nominees Limited (N A/C)
Mutual Trust Pty Ltd
Australian Executor Trustees Limited (IPS Super A/C)
Mr Peter Alexander Brown
Number of shares % of issued capital
263,107,581
174,979,948
64,296,421
25,567,189
23,110,009
9,075,975
8,744,445
7,480,629
7,372,000
6,835,527
5,040,027
4,303,518
3,578,549
3,343,925
2,877,375
2,301,005
1,990,856
1,884,009
1,613,061
1,552,825
23.20
15.43
5.67
2.25
2.04
0.80
0.77
0.66
0.65
0.60
0.44
0.38
0.32
0.29
0.25
0.20
0.18
0.17
0.14
0.14
The percentage holding of the 20 largest shareholders of Wesfarmers ordinary shares was 54.60.
178
Wesfarmers 2021 Annual Report
BACK Investor information
MANAGING YOUR SHAREHOLDING
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 ‘Login’ for portfolio
membership or click on ‘Single Holding’ to view your Wesfarmers
shareholding 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
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CHANGE OF NAME OR CONSOLIDATION OF
HOLDINGS
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
the ‘Printable Forms’ button.
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
Computershare 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 2021 Annual Report
179
FINANCIAL CALENDAR+
Record date for final dividend
2 September 2021
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.
7 October 2021
21 October 2021
31 December 2021
February 2022
February 2022
March 2022
30 June 2022
ANNUAL GENERAL MEETING
The 40th Annual General Meeting of Wesfarmers Limited will be
held on Thursday 21 October 2021 at 1:00pm (Perth time) at the
Perth Exhibition and Convention Centre and shareholders will also
be able to participate in the meeting through an online platform.
Further details will be provided in the 2021 Notice of Meeting.
WEBSITE
To view the 2021 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
Shareholder and ASX information
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
Alan Cransberg (from 1 October 2021)
The Right Honourable Sir Bill English KNZM
Wayne Osborn
Mike Roche
Anil Sabharwal (from 1 February 2021)
Vanessa Wallace
Sharon Warburton
Alison Watkins (from 1 September 2021)
Jennifer Westacott AO
CHIEF FINANCIAL OFFICER
Anthony Gianotti
COMPANY SECRETARY
Vicki Robinson
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
180
Wesfarmers 2021 Annual Report
BACK This annual report has been printed utilising solar electricity onto sustainable FSC-certified paper. Both printer and paper manufacturer are ISO 14001 certified, the highest environmental standard. Papers used in this year’s annual report are: –Pacesetter Coated, an FSC Mix-certified paper, which ensures that all virgin pulp is derived from well-managed forests and controlled sources. It contains elemental chlorine free bleached pulp and is manufactured by an ISO 14001 certified mill. –Sumo Laser, an environmentally responsible paper manufactured under the ISO 14001 Environmental Management System, using elemental chlorine-free pulp. Sumo Laser is FSC Certified Mix pulp.Designed by Clarity CommunicationsBunningsChemicals, Energy and FertilisersIndustrial and SafetyKmart GroupOfficeworksOther activities4.9%50%50%50%24.8%Wesfarmers businesses W
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