Wesfarmers Shareholder Review 2012
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Wesfarmers Shareholder Review 2012
Contents Target14 Board of directors 24
Highlights summary 2 Kmart15 Corporate governance summary 26
Chairman’s message 4 Insurance16 Remuneration overview 30
Managing Director’s review 6 Resources17 Five-year financial history 34
Finance Director’s review 8 Chemicals, Energy and Fertilisers 18 Group structure 35
Coles12 Industrial and Safety 19 Wesfarmers brands 36
Home Improvement Other activities 20 Corporate directory 37
and Office Supplies 13 Sustainability summary 21
About Wesfarmers Wesfarmers is one of Australia’s largest Securities exchange listing
Strength through diversity. employers and has a shareholder base Wesfarmers is a company limited
From its origins in 1914 as a Western of approximately 500,000. by shares that is incorporated and
Australian farmers’ cooperative, Our objective domiciled in Australia. Australian
Wesfarmers has grown into one of Wesfarmers remains committed Securities Exchange (ASX) listing
Australia’s largest listed companies. to providing a satisfactory return codes:
Headquartered in Western Australia, to shareholders. – Wesfarmers (WES)
its diverse business operations –W esfarmers Partially Protected
cover: supermarkets; department Proud history, strong future Shares (WESN)
stores; home improvement and office Steeped in a foundation of distribution
supplies; coal mining; insurance; and retailing since its formation,
chemicals, energy and fertilisers; today Wesfarmers is one of Australia’s
and industrial and safety products. leading retailers and diversified
industrial companies.
Wesfarmers Limited ABN 28 008 984 049
Our people are our most important asset. We are proud
to have them as representatives of the Wesfarmers team.
This, combined with the strength of our diverse portfolio
of businesses, strong commitment and sustainable
practices, ensures that we create long-term value –
and provide satisfactory returns for our shareholders.
This is our story.
Wesfarmers Shareholder Review 2012 1
Highlights summary
All our business divisions achieved improvements in underlying
performance and profits exceeded $2 billion for the first time.
Results summary – year ended 30 June
Key financial data 2012 2011
Revenue $m 58,080 54,875
Earnings before interest and tax $m 3,549 3,232
Net profit after tax $m 2,126 1,922
Dividends $m 1,909 1,735
Total assets $m 42,312 40,814
Net debt $m 4,904 4,343
Shareholders’ equity $m 25,627 25,329
Capital expenditure on property, plant and equipment and $m 2,626 2,062
intangibles
Depreciation and amortisation $m 995 923
Key share data
Earnings per share cents 184.2 166.7
Dividends per share cents 165.0 150.0
Net tangible assets per share $ 4.45 4.12
Operating cash flow per share $ 3.15 2.52
Key ratios
Return on average shareholders’ equity (R12) % 8.4 7.7
Gearing (net debt to equity) % 19.1 17.1
Interest cover (cash basis) times 10.8 9.5
Key financial data
Net profit after tax ($m) Earnings per share (cents)
$2,126 million 184.2 cents
2012 2,126 2012 184.2
2011 1,922 2011 166.7
2010 1,565 2010 135.7
2009 1,522* 2009 158.5*
2008 1,063 2008 174.2
* Restated for change in accounting policy for Stanwell royalty payment.
2 Wesfarmers Shareholder Review 2012
Financial highlights
• Operating revenue of $58.1 billion, up 5.8 per cent
• Earnings before interest and tax (EBIT) of $3,549 million, up 9.8 per cent
• Net profit after tax of $2,126 million, up 10.6 per cent
• Earnings per share of $1.84, up 10.5 per cent
• Operating cash flows of $3,641 million, up 24.8 per cent
• Free cash flow of $1,472 million, up 41.4 per cent
• Fully-franked full-year dividend of $1.65 declared, up 10.0 per cent
2012 2011
Wealth created by Wesfarmers $12,280 million $11,449 million
Employees – salaries, wages and other benefits
10% 10%
Government – tax and royalties
Lenders – borrowed funds 16 %
15 %
58% 59%
Shareholders – dividends on their investment 4% 5%
Reinvested in the business 12% 11%
Operational highlights Underlying earnings were maintained through a
• COLES achieved strong earnings growth of focus on the profitability of promotions and lower
16.3 per cent to $1,356 million. Savings generated levels of clearance.
through improved operating efficiencies supported
• INSURANCE earnings were $5 million after
continued price reinvestment, driving growth in
increasing reserve estimates for the February
volumes. The continued renewal refurbishment
2011 Christchurch earthquake by $108 million.
program and the improvement of the store
Excluding this event, earnings were ahead of last
network benefited performance.
year due to reduced catastrophe claims expenses
• BUNNINGS recorded earnings growth of 4.9 per in underwriting and growth in broking.
cent to $841 million. This result was underpinned
• RESOURCES earnings increased by 19.0 per cent
by solid transaction growth from a number of
to $439 million due to higher export coal prices
merchandise initiatives, investments in customer
in the first half and improved sales volumes in the
service and value, and improvements in the
second half following the completion of expansion
store network.
projects at the Curragh and Bengalla mines.
• KMART and OFFICEWORKS recorded earnings
• CHEMICALS, ENERGY AND FERTILISERS
growth of 32 per cent and 6.3 per cent respectively.
reported earnings of $258 million. Earnings
Kmart and Officeworks continued to drive higher
were supported by higher pricing and good
customer transactions during the year, and Kmart’s
plant production performances in the chemicals
improvements in product sourcing and stock
business and increased fertiliser sales.
management supported continued reinvestment in
lower prices. • INDUSTRIAL AND SAFETY delivered a good
result, with earnings increasing by 14.5 per cent to
• TARGET reported earnings of $244 million, which
$190 million, supported by strong demand from the
were in line with last year after excluding a one-off
resources and engineering construction sectors
$40 million provision in the current year for future
and an enhanced competitive position.
supply chain restructuring.
Dividends per share (cents) Operating cash flow ($m)
165 cents $3,641 million
2012 165 2012 3,641
2011 150 2011 2,917
2010 125 2010 3,327
2009 110 2009 3,044
2008 200 2008 1,451
Wesfarmers Shareholder Review 2012 3
Chairman’s message
Our objective must be to ensure Wesfarmers is successful in a sustainable
way for our shareholders, our employees, our customers and suppliers.
Our Resources division reported
a 19 per cent increase in earnings
and improved sales volumes in
the second half after completion
of expansion projects at both
Curragh and Bengalla.
Our Insurance businesses had a
very difficult year with the February
2011 earthquake in Christchurch,
New Zealand, having a major
impact on the performance of the
Insurance division.
I am especially pleased at the
improvement shown in all the
former Coles Group businesses
and at how these businesses
represent further improvement
opportunities and a platform for
more growth.
Wesfarmers has outperformed
the market since the acquisition
of Coles as confidence in the
It gives me great pleasure to That result is very pleasing, and turnaround has increased.
introduce the 2012 Wesfarmers demonstrates yet again the
annual report in a year when our benefits of being a diversified Businesses sold
profit exceeded $2 billion for the conglomerate. During 2012 we sold three
first time. It is a milestone which businesses: the Premier Coal mine
Business performance in Collie, Western Australia; the
reflects the continued strength
While there has been a lot of focus enGen regional power generation
of our business model and
on the performance of the former business, also in Western
the tremendous expertise and
Coles Group businesses since Australia; and the gas distribution
capacity for hard work residing
we acquired them in 2007, I am business in Bangladesh. We
in our employee teams across
delighted to point out that many were pleased with the outcomes
our eight business divisions.
of our established Wesfarmers of the sale processes, believing
Ever since Wesfarmers became businesses have continued to good prices were obtained for our
a listed company, it has been perform very well and make shareholders. I would like to put on
our stated objective to provide a significant contributions to the record my thanks and appreciation
satisfactory return to shareholders. Group’s results. to the employees at these
That remains, and will continue to businesses for the contribution
Bunnings has continued to deliver
remain, the central focus of our they have made to our company
outstanding results in generally
efforts. In 2012, we recorded a and for the way they conducted
tighter trading conditions.
six per cent increase in operating themselves while the sales were
revenue to $58 billion, and a 10.6 Industrial and Safety continued being progressed.
per cent increase in after tax profit. its path of ongoing improvement
In a year in which caution and and increased its profit and return Sustainability
uncertainty marked consumer and on capital from previous years. Our objective must be to ensure
investor sentiment in Australia, that Wesfarmers is successful in a
Wesfarmers Chemicals, Energy sustainable way, not only for
is a good performance. and Fertilisers had a solid year the benefit of our half-a-million
The directors were able to declare with Board approval given and shareholders, but for our 200,000
a fully-franked dividend of 95 cents construction now underway on employees, millions of customers
per share at year’s end, taking the the $550 million expansion of and thousands of suppliers in
full-year dividend to $1.65, up from the ammonium nitrate facility at the communities in which we
$1.50 per share fully-franked Kwinana, Western Australia. operate right across Australia
in 2011. and New Zealand.
4 Wesfarmers Shareholder Review 2012
Good safety is good business The major reasons for the Significant capital expenditure
and financial results will not reduction were energy efficiency projects for the year included
be sustainable if we do not do investments, especially at Coles, continued investment in our retail
everything to ensure safety is and nitrous oxide emission store networks, completion of
part of daily work. Our safety abatement at our Chemicals, production expansions in our coal
performance is improving, but Energy and Fertilisers business’ businesses, and commencement
we still have a long way to go nitric acid plants. Incidentally, of the ammonium nitrate expansion
on this critical measure of our if Premier Coal, enGen and project in the chemicals business.
success as a company. I am the gas distribution business
On behalf of the Board I would
pleased that the leadership team in Bangladesh were still within
like to thank all of our 200,000
has set up a group, led by John the Group, our 2012 emissions
employees for their dedication and
Gillam, to benchmark our safety would have been about 4.9 million
hard work that has translated into
performance across all aspects of tonnes, still a decrease from 2011.
a good performance for the past
the Wesfarmers business against
Total electricity use around the financial year. We have an excellent
the best in the world.
Group was lower in 2012 than in culture within the company and the
The team consists of individuals 2011, despite an increase in our Board is determined to maintain
from all the divisions. The project retail floor space and the size of and sustain this strong culture.
will look at how we compare with our businesses in general.
There is no doubt that external
best practice around the world
The Board factors will continue to challenge
but, more importantly, look at how
I would like to thank my Board our company but, under Richard
we can take the best learnings
colleagues for their hard work Goyder’s excellent leadership
from companies within the Group
and support throughout the year. and his strong management team,
and across the world to improve
Although we had no departures I believe Wesfarmers is well-placed
our own safety performance.
from or new appointments to the to meet those challenges and
One of the big challenges thrown Board during the 2012 financial continue to prosper in the interests
out to businesses in Australia year, we have made provision of our shareholders and the wider
recently has been the decision in our remuneration settings for communities of Australia and
by the federal government to put the potential expansion of the New Zealand.
a price on carbon. No business Board’s numbers.
Finally, my thanks go to you, our
looks forward to additional cost
While the Board continues shareholders. Wesfarmers exists
burdens, but I am pleased to
to believe our current size for your benefit and the Board
tell you about how our company
is appropriate for Wesfarmers, and entire leadership are grateful
has responded.
the proposed increase is intended for your ongoing support of this
The National Greenhouse and to provide sufficient ‘headroom’ great company.
Energy Reporting Act 2007 to appoint up to two additional
emissions for Wesfarmers members to allow for effective
Limited in 2011 were 5.04 million Board succession over the next
tonnes. Despite the fact that two to three years.
our businesses have grown
Investing for the future
in the just completed financial Bob Every AO, Chairman
We have every reason to be
year, our greenhouse emissions
confident about the future and
have declined to approximately
that confidence is reflected in our
4.67 million tonnes. I believe this
capital expenditure decisions.
is a remarkable accomplishment
Net capital expenditure for 2012
and is a tribute to the way
was $2.35 billion, which represents
we have worked in previous
a substantial investment in growth.
years to position ourselves for
what we considered to be an
inevitable price on carbon in the
Australian economy.
Wesfarmers Shareholder Review 2012 5
Managing Director’s review
Wesfarmers is well-placed to grow and create value for all our stakeholders
due to the strength of our businesses, our balance sheet and the quality of
our people.
Officeworks’ earnings increased
6.3 per cent to $85 million. The
focus on the strategic agenda
of the business continued to
drive transaction growth during
the year, offsetting heavy deflation
and generally challenging
trading conditions, particularly
in technology-related areas.
Kmart achieved pleasing growth
in earnings for the year, up
31.4 per cent to $268 million.
Improvements in range, together
with better sourcing and stock
management, continued to drive
business efficiencies and support
reinvestment in lower prices
that were positively received by
customers. Kmart has now achieved
10 consecutive quarters of growth
in transactions and units sold.
Target’s reported earnings of
At Wesfarmers, we are fortunate Business divisions $244 million include a one-off
to have a great portfolio of Coles achieved strong earnings $40 million provision in the current
assets, a very strong balance growth of 16.3 per cent to year for future supply chain
sheet and, most importantly, a $1,356 million, building on the restructuring. Excluding this provision,
team of talented and enthusiastic 21.2 per cent earnings growth Target’s earnings of $284 million
employees. Thanks to their efforts, achieved last year. Savings were just above the prior year,
your company has enjoyed a year generated through improved despite difficult trading conditions,
in which we returned profits of operating efficiencies supported particularly in consumer electronics.
more than $2 billion for the very continued price reinvestment during Underlying earnings were maintained
first time and lifted our dividends the year, driving growth in volumes through a focus on the profitability
to shareholders by 10 per cent over and profitability. The continuation of promotions and lower levels of
the previous year. of the renewal refurbishment clearance activity due to better
program and the improvement of inventory management.
We had turnover of $58 billion for
the store network further benefited The Insurance division reported
the year. Our profit after tax was
performance in the year. earnings of $5 million after
$2,126 million, up 10.6 per cent, and
our earnings before interest and Bunnings’ earnings increased increasing reserve estimates for
tax, which is how we measure the 4.9 per cent to $841 million the 22 February 2011 Christchurch
divisional performance, was more which represented another earthquake by $108 million during
than $3.5 billion. Our earnings per good result for the business. the year. Excluding this event,
share were up and our cash flows In tighter trading conditions, underlying earnings were ahead
were very strong. this result was underpinned by of last year.
solid transaction growth from a The Resources division’s
In an underlying profit sense,
number of merchandise initiatives earnings increased 19.0 per cent
every one of the eight divisions
and investment in customer service to $439 million. The major driver of
recorded increased earnings
and value. Earnings were further the result was increased revenue
compared to last year, which is
supported by cost management due to higher export coal prices in
a really outstanding outcome
initiatives and the improvement the first half, and improved sales
in an environment that has
of the store network. volumes in the second half, following
been challenging economically
in Australia. the completion in the fourth quarter
of expansion projects at the Curragh
and Bengalla mines.
6 Wesfarmers Shareholder Review 2012
Higher revenue was partially offset I would like to sincerely thank We now purchase $1.6 billion
by extra costs associated with Launa Inman for her significant per annum more from Australian
flood recovery efforts, one-off mine contribution to Target as its primary producers than we did
expansion preparation costs and Managing Director for seven years, when we took control of the
higher government royalties. and for her support during the four business in 2007. We are committed
years of Wesfarmers ownership. to outcomes that are beneficial for
The Chemicals, Energy and
our shareholders and suppliers.
Fertilisers division reported Innovation
earnings of $258 million, One of our key values as a company Looking ahead
representing growth of 7.1 per is boldness. In order to progress Wesfarmers is well-placed to
cent after excluding $42 million of and provide better products grow and create value for all our
insurance proceeds in the prior and services to our customers, stakeholders due to the strength
year related to the 2009 Varanus and to win the battle against of our businesses, our balance
Island gas outage. Earnings were our competitors, we have to be sheet and the quality of our people.
supported by higher prices in the prepared to be bold by innovating We will continue to invest to grow
chemicals business and increased and being creative. During the our existing businesses and we
fertiliser sales, which offset a lower year we launched the Wesfarmers have the capacity to further add
contribution from Kleenheat Gas Innovation Awards, an initiative to the portfolio should suitable
and the loss of earnings from that came from the Leadership opportunities arise. As always, we
the enGen business following its Conference two years ago. We had will be patient and disciplined, and
divestment in August 2011. outstanding applicants and winners endeavour to make decisions which
for these awards. I have had the are in the long-term interests of all
The Industrial and Safety division
great privilege of meeting these our stakeholders, particularly you,
delivered a good result, with
teams and congratulating them. our owners.
earnings increasing by 14.5 per cent
The depth of innovation underway
to $190 million, supported by strong The leadership team has a very
across the Group is encouraging.
demand from the resources and positive working relationship with
engineering construction sectors, Suppliers Bob Every and the Board and we
and an enhanced competitive There has been a lot of public thank them for that.
position. comment this year on Wesfarmers’
relationship with our suppliers
Other businesses’ earnings
through the Coles business. This
were broadly in line with last year
is an issue we take very seriously.
with lower interest revenue and
We know Coles is a big player and
a $15 million expense associated
that we buy a lot of product from
with non-trading items largely
Australian suppliers and producers. Richard Goyder
offset by a reduction in the
We provide an important way of Managing Director
Group’s self-insurance expense.
getting to market.
Non-trading items for the year
included a $181 million non-cash Coles, a once iconic Australian
writedown in the carrying value of business, was in steep decline
Coregas, which was partially offset prior to our acquisition. When we
by gains on asset sales totalling walked into the business we had a
$166 million. product range that was unwieldy
and extensive. We had to get a
Management change
better range for our customers
During the year, Dene Rogers
and increase the efficiency and
replaced Launa Inman as Managing
cost-competitiveness of our supply
Director of Target. Dene has
chain. In that turnaround process,
extensive retailing experience
it was inevitable that some suppliers
from North America and has been
would miss out.
making encouraging progress with
several major initiatives in what has
been a difficult retail environment
for Target.
Wesfarmers Shareholder Review 2012 7
Finance Director’s review
Cash flow from operations increased by 24.8 per cent to $3,641 million
and was driven by strong earnings growth and effective working
capital management.
Results overview Significant capital expenditure Balance sheet
Net profit after tax for the Group projects during the year included The strength of the balance sheet
in the 2012 financial year of continued retail network was maintained during the year,
$2,126 million was 10.6 per cent expansion and refurbishment as evidenced by improvements
ahead of last year. activity, completed production in all key liquidity ratios. Total net
expansions of the Curragh and debt at 30 June 2012 increased to
Earnings per share of 184.2 cents
Bengalla coalmines and the $4,904 million (from $4,343 million
were up 10.5 per cent on last year,
commencement of the ammonium 12 months earlier) reflecting the
in line with earnings growth, and
nitrate capacity expansion in the Group’s growth in capital investment.
average return on equity increased
chemicals business. Despite this increase, finance costs
to 8.4 per cent from 7.7 per cent in
for the Group declined by 4.0 per
the previous year. It is expected that the current
cent to $505 million for the year,
phase of strong capital investment
Cash flow following successful refinancing
will continue in the 2013 financial
Cash flows from operations of initiatives and the progressive expiry
year through plans to further
$3,641 million for the year were of pre-global financial crisis interest
improve and grow retail store
24.8 per cent higher than last year, swap hedges.
networks and progress the
representing a cash realisation
260,000 tonne ammonium nitrate Total property, plant and equipment
ratio of 117 per cent. Operating
expansion at Kwinana, Western increased over the year, from
cash flows during the year were
Australia. Proceeds from the sale $8,302 million to $9,463 million
supported by earnings growth
of businesses of $402 million, as at 30 June 2012, due to capital
and improved working capital
predominantly from the sales of the investment being well ahead of
performance, particularly across
Premier Coal mine and the enGen depreciation and amortisation.
the Group’s retail businesses.
business, offset higher net capital Strong working capital management,
The Group continued to invest expenditure, resulting in a 41.4 per particularly in the retail divisions,
strongly in capital expenditure over cent increase in free cash flows to kept capital employed in this area
the year in order to drive future $1,472 million. Cash dividends paid to a similar level to last year, despite
growth. Net capital expenditure increased to $1,789 million from the increased sales activity and
of $2,351 million, which included $1,557 million in the previous year. retail footprint.
a $245 million contribution from
property sales in Coles and
Bunnings, was up 27.4 per cent
on last year.
8 Wesfarmers Shareholder Review 2012Average debt tenor of 3.8 years across diversified sources of debt
00 1,500
00 1,000
5.9% Ban
5.9%
15.1% Syn
15.1
00 500
23.4% 23.4
US
27.1% 27.1
Eur
26.7% 26.7
Aus
1.8% 1.8%
Oth
0 0
5.9% Bank bilaterals
15.1% Syndicated facilities
00 -500 23.4% US Bonds
27.1% Euro Bonds
Capital markets
Capital markets Syndicated
Syndicated facilities facilities 26.7% Aust Bonds
Cash
Cash at bank andat on
bank and on deposit
deposit Bank bilaterals
Bank bilaterals 1.8% Other capital markets
00 -1,000
FY FY FYFY FYFY FYFY FYFY FYFY FYFY FYFY FY FY FY FY FY FY FY FY
2012 20132012
20142013
20152014 2015
2016 2016
2017 2017
2018 2018
2019 2019
2020 2020
2021 2021
2022 2022 2023
2023
Note: Amounts shown and average tenor based on the drawn amount at balance date of 30 June 2012, adjusted for 10 year bond issued August 2012.
Detailed impairment testing of Debt management Strong operating performance
non-current assets, including
Syndicated facilities The Group aims to maintain a and debt management initiatives
posit goodwill and other intangible
Bank bilaterals strong investment-grade rating resulted in improvements in the
assets recognised on business through prudent balance sheet Group’s fixed charges cover ratio
FY FY FY FY FY FY FY
2017 acquisitions,
2018 2019 2020was 2021carried out during
2022 2023 management. The Group’s credit to 2.8 times, up from 2.7 times a
the year. External experts were ratings remained unchanged at year ago, and the cash interest
engaged to provide support on A- (stable outlook) for Standard & cover ratio to 10.8 times, up from
model inputs including discount Poor’s and Baa1 (positive outlook) 9.5 times. Refinancing initiatives
rates and long-term growth rates. for Moody’s. contributed to a one percentage
Non-cash impairment charges point decrease in the weighted
During the year the Group
totalling $197 million were made average cost of debt to 7.8 per cent
continued to proactively diversify its
during the year, compared to compared to 8.8 per cent last year.
funding sources and extend its debt
$27 million in the prior year. The
maturity profile. Refinancing activity In August 2012, the Group
current year’s impairment charge
included two $500 million domestic raised ¤650 million in European
was mainly due to a non-cash
bond issues, comprising a five debt capital markets through
writedown in the carrying value of
year issue in November 2011 and a its first ten year bond issue,
Coregas as a result of BlueScope
seven year issue in March 2012. further confirming debt investors’
Steel Limited’s restructure of its
confidence in the Group’s
Port Kembla operations. In all other The proceeds of these issuances
businesses and balance sheet.
cases, recoverable amounts of were utilised to fund maturing
non-current assets determined for bank debt and general business Equity management
impairment testing exceeded their requirements, which resulted in a Over the year shares on issue
carrying values. Future impairment lengthening of the Group’s average were stable, with 1,157 million shares
testing of non-current assets tenor to 3.8 years across well on issue at 30 June 2012, made
remains sensitive to changes in diversified sources of debt. up of 1,007 million ordinary shares
general trading conditions and and 150 million partially-protected
As at 30 June 2012, the Group
outlook, as well as discount rates. ordinary shares.
had available to it $598 million
in cash at bank and on deposit and
$2,298 million in committed but
undrawn bank facilities.
Wesfarmers Shareholder Review 2012 9Finance Director’s review (continued)
Dividend policy The main sources of foreign The internal audit plan is approved
Wesfarmers’ dividend policy seeks exchange risk include: the sale by the Board. The internal audit
to deliver growing dividends over of export coal, denominated in function delivers the approved
time, with the declared amount US dollars; purchases in foreign internal audit plan by engaging
reflective of the Group’s current currency, mainly retail inventory in a single outsource audit provider.
and projected cash position, profit US dollars; and current US dollar As part of the annual operating
generation and available franking and Euro denominated debt. cycle, each business is also
credits. Consistent with this policy, Businesses exposed to foreign required to review and report
a fully-franked, full-year dividend of exchange risk use forward on: legal liabilities; financial
165 cents per share was declared, contracts to minimise currency controls; information systems;
an increase of 10.0 per cent on exposure. US dollar and Euro environment, health and safety
last year. The final dividend, to be denominated debt and associated planning; risk assessment and
paid on 28 September 2012, is not interest costs are fully hedged at mitigation; and post implementation
provided for in the accounts. Given the time the debt is drawn down. reviews on all major capital
a preference by many shareholders The Group uses interest rate and investment expenditure.
to receive dividends in the form cross currency interest rate swaps
of shares, the directors decided to manage interest rate risk. Interest
to continue the operation of the rate swaps covering $2.2 billion
Dividend Investment Plan (the Plan). of debt are currently in place
No discount applies to shares for the 2013 financial year. The
allocated under the Plan and in annual corporate planning process Terry Bowen
recognition of the Group’s capital includes an established framework Finance Director
structure and strong balance sheet, for assessing broad business risk
all shares issued under the Plan will as well as considering appropriate
be acquired on-market by a broker risk mitigation strategies.
and transferred to participants.
Internal control and
Risk management assurance
The Group maintains and adheres The Group maintains an internal
to clearly defined policies covering audit function with a Group-wide
areas such as liquidity risk, market mandate that is fully independent
risk (including foreign exchange, of the business operations to
interest rate and commodity price monitor and provide assurance
risk) and credit risk. to the Board’s Audit Committee
and ultimately the Board as to the
It is, and has been throughout
effectiveness of risk management
the year, the Group’s policy that
and internal control systems.
no speculative trading in financial
The annual internal audit plan is
instruments be undertaken.
developed within a combined
assurance framework and
applies a risk-based methodology
to ensure that the Group’s key
risks are appropriately and
regularly reviewed.
10 Wesfarmers Shareholder Review 2012Divisional review summary
Coles page 12 Target page 14
Home Improvement and
Office Supplies page 13
Kmart page 15 Insurance page 16 Resources page 17
Industrial and Safety page 19
Chemicals, Energy and
Fertilisers page 18
Wesfarmers Shareholder Review 2012 11Coles
The Coles turnaround produced strong trading results in 2012 by improving
quality, service and value. The business achieved its thirteenth quarter of
industry out-performance.
Activities
••National full service supermarket
retailer operating 749 stores
••Liquor retailer operating three
brands through 792 liquor outlets,
as well as 92 hotels
••National fuel and convenience
operator managing 627 sites
••More than 18 million customer
transactions each week
••Employing more than
100,000 team members
Year in brief
••Full-year revenue of $34.1 billion
••EBIT of $1,356 million
••Food and liquor store sales
growth of 4.6 per cent, with
comparable store sales growth
of 3.7 per cent1
••13 consecutive quarters of
industry out-performance
Contribution to operating The business ••Continued focus on quality,
divisional EBIT Coles is a leading food, liquor service and value
and convenience retailer, with ••108 new format supermarket
a presence in every Australian stores delivered during
state and territory. The business the year and 252 since
operates more than 2,200 retail the Coles acquisition
37% outlets across Coles, BiLo,
First Choice Liquor, Liquorland,
••Easy ordering and easy
warehousing complete
Vintage Cellars, Coles Express ••Responsible sourcing
and Spirit Hotels. initiatives on track
••Loyalty program reinvigorated
••Improved safety performance
Revenue ($m)
$34,117 Future directions
2012 34,117 ••Enter second wave of
2011 32,073
transformation
••Further improvements in
2010 30,002
quality and value
2009 28,799 ••Investment in store network
2008* 16,876 and multi-channel offer
••Relentless focus on generating
EBIT ($m) savings through efficiency
$1,356 ••Continued cultural transformation
2012 1,356
2011 1,166
2010 962
2009 831
2008* 475
1 For the 52 week period 27 June 2011
* For the ownership period from 23 November 2007 to 30 June 2008. to 24 June 2012.
12 Wesfarmers Shareholder Review 2012
0.00 8529.25 17058.50 25587.75 34117.00Home Improvement and Office Supplies
Bunnings and Officeworks are the leading retailers in home improvement
and office supplies products in Australia.
Activities
••Bunnings: Retailing home
improvement and outdoor living
products and servicing project
builders, commercial tradespeople
and the housing industry across
Australia and New Zealand
••Officeworks: Retailer and supplier
of office products and solutions
for home, business and education
across Australia
Year in brief
Bunnings
••5.6 per cent increase in revenue
••4.9 per cent increase in EBIT
••Growth in consumer and
commercial sales
••13 new Bunnings Warehouse
stores opened
••One smaller format Bunnings
store opened
Contribution to operating The business ••Two new trade centres opened
divisional EBIT Bunnings is the leading retailer of Office Supplies
home improvement and outdoor
living products in Australia and ••0.7 per cent increase in revenue
New Zealand and a major supplier ••6.3 per cent increase in EBIT
to project builders, commercial ••Strong online sales growth from
25% tradespeople and the housing
industry. Officeworks is Australia’s
‘every channel’ strategy
••Six new stores, six full store
leading retailer and supplier of upgrades
office products and solutions for ••Good progress on actions to
home, business and education. improve the customer offer
Future directions
Revenue ($m) $8,644 ••Bunnings: Growth to be achieved
2012 8,644 through increased service levels,
category development, network
2011 8,251
expansion and reinvestment,
2010 7,822 an improved light and heavy
2009 7,151 commercial offer, and through
investment of productivity gains in
2008* 6,160
lower prices to drive volume
••Office Supplies: Continued
growth from improving the
EBIT ($m) $926 customer offer and expanding
2012 926 and renewing the network.
2011 882 Increasing business-to-business
sales and more online initiatives
2010 802 8644 remain high priorities. Ongoing
2009 724 8251 investment in the development of
7822 the Officeworks team will underpin
2008* 625 7151 all strategic initiatives
6160
* Officeworks’ contribution for the ownership period from 23 November 2007 to 30 June 2008. 4939
Wesfarmers Shareholder Review 2012 13
0 2161 4322 6483 8644Target
Target’s four-year transformation journey began with early success
from communicating value to customers and improving the profitability
of promotions.
Activities
••Mid-tier retailer offering superior
value through style, quality,
experience
••Customer destination for
fashionable clothing, underwear,
footwear and accessories for
women, children and men,
in addition to homewares,
entertainment and general
merchandise
••Network of 301 stores located
throughout regional and
metropolitan Australia
••Online store that now offers
free delivery to store via click
and collect
Year in brief
••Full-year revenue of $3.7 billion
••$284 million EBIT (excluding a
$40 million restructuring provision),
with EBIT margin of 7.6 per cent
Contribution to operating The business ••Comparable store sales decrease
divisional EBIT Target is a mid-tier retailer, of 2.1 per cent1, with an improved
aimed at offering customers second half performance due to
value through style, quality the 2012 mid-year toy sale brought
and an enhanced in-store forward to June
and online experience.
7% ••Four year transformation journey
started
••Number of items available for sale
online increased from 6,000 to
36,000 in six months, with plans to
grow to 60,000 in 12 months
Revenue ($m) ••12 new stores and 26 stores
$3,738 upgraded
2012 3,738 Future directions
2011 3,782 ••Customer remains the first priority
in decision making which will inform
2010 3,825
the transformation initiatives to build
2009 3,788 a sustainable growth company
2008* 2,198 ••Continued expansion of online
range and functionality to world
EBIT ($m) class
$244 ••Investment in systems to support
2012 244 improvement in stock planning,
replenishment, supply chain and
2011 280
buying processes
2010 381 ••10 new stores and four
2009 357 replacement stores to be
completed in 2013
2008* 221
1 For the 52 weeks from 26 June 2011
* For the ownership period from 23 November 2007 to 30 June 2008. to 23 June 2012.
14 Wesfarmers Shareholder Review 2012
0.00 956.25 1912.50 2868.75 3825.00Kmart
Kmart achieved strong EBIT growth, with 10 consecutive quarters
of growth in customer transactions and units sold.
Activities
••Kmart is committed to offering its
customers low prices on all products
every day, right across its network of
185 stores throughout Australia and
New Zealand
••Categories include menswear,
womenswear, childrenswear,
beauty, footwear, toys and sporting,
events and food, entertainment,
newsagency and home
••Kmart Tyre & Auto Service is one of
Australia’s largest retail automotive
service, repair and tyre businesses
with 260 stores
Year in brief
••Full-year revenue of $4.1 billion
••EBIT of $266 million1
••The ‘OK’ campaign, highlighting
Kmart’s everyday low prices, was
well received by customers
••Comparable store sales2 for the year
Contribution to operating The business were in line with last year’s result
divisional EBIT Kmart is one of Australia’s ••The business is continuing to operate
largest retailers with 185 stores on an everyday low-priced model
throughout Australia and
New Zealand, product sourcing ••Strong continued growth in volumes
offices in Hong Kong, China, and customer transactions
7% Bangladesh and India, and more
than 28,000 team members.
••One new Kmart store opened during
the year
••Six Kmart store refurbishments
completed
••238 Kmart Tyre & Auto Service
stores re-imaged during the year
Revenue ($m)
$4,055 Future directions
••Continue to lead on price
2012 4,055
••Continue to source more products
2011 4,036 directly to keep costs down
2010 4,019 ••Continue to drive prices down for
2009 3,998 Australian and New Zealand families
2008* 2,454
••Continue to improve the flow of stock
and reduce out of stocks
EBIT ($m) ••Continue to improve product ranges
$268 that connect with customers
20121 268 ••Continue to search for new and fresh
products that customers want
2011 1
204
••Continue to refurbish stores and
20101 196 open new sites
2009 109
2008* 111
1 Excludes $2 million earnings related to Coles
* For the ownership period from 23 November 2007 to 30 June 2008. Group Asia overseas sourcing operations.
1 2012 includes $2 million earnings related to Coles Group Asia overseas sourcing operations 2 For the 52 weeks from 27 June 2011
(2011: $3 million; 2010: $6 million). to 24 June 2012.
0.00 1013.75 2027.50 3041.25 4055.00
Wesfarmers Shareholder Review 2012 15Insurance
Wesfarmers Insurance delivered on rate increases, exposure management
and made solid progress with efficiency initiatives that have set the business
up for the year ahead.
Activities
••Key brands: Lumley, WFI, OAMPS
and Crombie Lockwood
••Provision of general insurance
products
••Insurance broking, risk
management and financial
services distribution
••Operations in Australia,
New Zealand and the
United Kingdom
Year in brief
••10.1 per cent increase in revenue
to $1.9 billion
••EBIT of $5 million, adversely
affected by a $108 million increase
in claims reserves associated with
the Christchurch earthquake
••18.7 per cent growth in broking
income, reflecting solid sales
growth in core business and the
successful integration of acquired
Contribution to operating The business businesses
divisional EBIT Wesfarmers Insurance provides ••Gross earned premium growth
insurance and risk management of 9.1 per cent achieved
solutions to corporates,
small-to-medium-sized ••Strong premium rate increases
businesses, not-for-profit achieved in Australia andResources
Stronger first half export coal prices, plus increased production and sales
volumes upon completion of mine expansion projects during the second half
saw earnings increase 19.0 per cent on the previous year.
Activities
••Australian open-cut miner with
investments in coal mining:
»»Curragh, Queensland (100 per
cent) – metallurgical coal for
export and domestic markets
»»Bengalla, New South Wales
(40 per cent) – export steaming
coal for Asian market
••Mine operation and development
Year in brief
••19.9 per cent increase in revenue
to $2.1 billion
••EBIT up 19.0 per cent to $439 million
••Curragh metallurgical coal export
sales up 34.1 per cent to 7.2 million
tonnes
••Significant second half improvement
in Curragh’s mine cash costs
••Record fourth quarter
production and sales from both
Contribution to operating The business mines as current ‘Stage One’
divisional EBIT Wesfarmers Resources is a mine expansions completed
significant Australian open-cut ••Feasibility studies into next-stage
miner, with investments in two expansions of export capacity
world-scale coalmines. at both Curragh and Bengalla
continuing
12% ••Second half decline in export
coal prices
••Premier Coal (WA) divested
30 December 2011: profit on
sale of $98m (not included
in operating results)
Revenue ($m)
$2,132 Future directions
••Focus on future growth – maximise
2012 2,132
exports
2011 1,778 ••Feasibility study continuing to expand
2010 1,416 Curragh further from 8.0-8.5 to
2009 2,411
10 million tonnes annual metallurgical
export capacity (plus continuation of
2008 1,311 existing 3.5 million tonnes steaming
coal annual production capacity)
EBIT ($m) ••Feasibility study continuing to expand
$439 Bengalla to 10.7 million tonnes
2012 439 annual Run of Mine capacity
(100 per cent basis)
2011 369
••Strong business sustainability
2010 165 commitment
2009 885 ••Short-term global economic
2008 423 uncertainty, but longer term strong
export market fundamentals and
customer demand
Wesfarmers Shareholder Review 2012 17
0.00 602.75 1205.50 1808.25 2411.00Chemicals, Energy and Fertilisers
The division reported a strong result for the year and commenced
construction of its ammonium nitrate expansion in Western Australia.
Activities
••Manufacture and marketing of
chemicals for mining, minerals
processing and industrial sectors
••Production, marketing and
distribution of liquefied petroleum
gas (LPG) and liquefied natural gas
(LNG)
••Importation, manufacture and
marketing of broadacre and
horticultural fertilisers
••Manufacture, marketing
and distribution of industrial,
medical and specialty gases
Year in brief
••8.8 per cent increase in revenue
to $1.8 billion
••7.1 per cent increase in EBIT
(excluding insurance proceeds
from the 2009 Varanus Island gas
disruption claims) to $258 million
••Construction underway for
Contribution to operating The business $550 million expansion of current
divisional EBIT The activities of Wesfarmers ammonium nitrate production
Chemicals, Energy & Fertilisers capacity
include the manufacture and ••Sale of enGen, remote power
marketing of chemicals for generation business in August
mining, minerals processing
7% and industrial sectors through
CSBP, Australian Gold Reagents
2011, and Bangladesh LPG joint
venture in January 2012
(75 per cent owned), Queensland Future directions
Nitrates (50 per cent owned) ••Ammonium nitrate expansion on
and Australian Vinyls. track to be operational in 2014
••Completion of detailed engineering
Revenue ($m) to debottleneck sodium cyanide
$1,786 production
2012 1,786 ••Seek to grow sales of LPG and
2011 1,641 manage the impact of increased
gas costs and lower LPG content
2010 1,570
••Continue development of the
2009 1,760 LNG business
2008 1,562 ••Enhance fertiliser earnings
through market-focused customer
EBIT ($m) offers
$258 ••Continuing strong demand for
2012 258 chemicals; ammonia earnings
increasingly dependent on
2011 283 international ammonia pricing
2010 196 following transition to import
2009 127 parity pricing
2008 214
18 Wesfarmers Shareholder Review 2012
0.00 446.75 893.50 1340.25 1787.00Industrial and Safety
Strong sales and earnings momentum supported by
strong delivery performance and customer service.
Activities
••Leading provider of industrial and
safety products and services in
Australia and New Zealand to a
wide range of customers
••Strong focus on security
of supply to customers of
broadest product range
••Cost efficiency to customers
through local and global
procurement, supply chain
and eBusiness solutions
Year in brief
••8.5 per cent increase in revenue
to $1.7 billion
••EBIT increased by 14.5 per cent
••Strongest results in Blackwoods,
Protector Alsafe and Bullivants
••Strong contract, projects, services
and eBusiness growth
••Increased industry diversification
Contribution to operating The business ••Opened a Blackwoods branch
divisional EBIT in Indonesia
Wesfarmers Industrial and Safety
is the leading provider of industrial ••Restructured Coregas, Total
and safety products and services Fasteners and Blackwoods
in Australia and New Zealand. It Tasmania
services customers across mining, ••Improvement in Coregas,
5% oil and gas, construction and
infrastructure, retail, manufacturing,
increased collaboration with
other businesses in the division
health and government. ••Operational and capital
management contributing to
improved returns
••Non-cash writedown in the
Revenue ($m) carrying value of Coregas of
$1,690 $181 million (not included in
2012 1,690 operating results)
2011 1,557 Future directions
2010 1,412 ••Move to a more customer centric
2009 1,294
organisation
••Grow share of customers’
2008 1,309 products and services spend
••Invest in developing people and
EBIT ($m) broaden the talent pool
$190
••Continue to improve portfolio
2012 190 performance and efficiency
2011 166 through technology
2010 138 ••Develop new growth platforms,
ongoing revenue diversification
2009 114
••Growth through acquisitions
2008 130
Wesfarmers Shareholder Review 2012 19
0.0 422.5 845.0 1267.5 1690.0Other activities
Wesfarmers is also a major investor in Gresham Partners, Wespine Industries
and BWP Trust.
Gresham Partners Wespine Industries BWP Trust
Wesfarmers has a 50 per cent The 50 per cent-owned Wespine Wesfarmers’ investment in BWP
shareholding in Gresham Partners Industries, which operates a Trust contributed earnings of
Group Limited, the holding company plantation softwood sawmill in $16 million, compared to $19 million
for the Gresham Partners investment Dardanup in Western Australia, recorded last year.
banking operations. Gresham is a contributed earnings of $5 million
The Trust was established in 1998
leading independent investment after tax, a 28.6 per cent decrease
with a focus on warehouse retailing
house focused primarily on the on last year. Sales volume in the
properties and, in particular,
provision of financial advisory second half were constrained by
Bunnings Warehouses leased
services, structured finance, weak Western Australian house
to Bunnings Group Limited.
and property and private equity construction activity, combined
BWP Management Limited, the
funds management. with continued import competition
responsible entity for the Trust,
driven by the strong Australian
In addition, Wesfarmers is a is a wholly-owned subsidiary of
dollar and a global softwood timber
participant in the Gresham Private Wesfarmers Limited.
supply surplus. An improved safety
Equity wholesale investment funds
performance was achieved during Units in the Trust are listed on the
with underlying investments in
the year with no lost time injuries Australian Securities Exchange and
mining services, retail, logistics
and a 35 per cent reduction in the Wesfarmers holds, through a wholly
and other specialist sectors.
number of total recordable injuries. owned subsidiary, 23.5 per cent of
During the 2012 financial year, Wespine is targeting a further the total units issued by the Trust.
Wesfarmers’ investment in Gresham reduction in total recordable injuries During the 2012 financial year, the
Private Equity Funds recorded a loss in the coming year. Trust completed the acquisition of
of $55 million due to downward non-
The local housing market is forecast three new Bunnings Warehouses,
cash revaluations following a difficult
to improve during the coming and construction of two new
year for some of the funds’ trading
year, but with continued import Bunnings Warehouses on existing
businesses and generally lower
competition and subdued housing development sites. The Trust also
industry valuation multiples.
construction in overseas markets, sold the Bunnings Warehouse
Gresham participated in a number is expected to see a continuation of at Hoppers Crossing in Victoria,
of significant corporate advisory the challenging market conditions. realising a capital profit of
transactions during the year, $6.2 million, which was distributed to
including mergers and acquisitions, unit holders via a special distribution.
corporate restructurings and
The Trust’s current portfolio consists
refinancings on behalf of a range
of a total of 72 properties: 62
of domestic and international clients.
established Bunnings Warehouses;
Its property funds management four Bunnings Warehouses with
business, which is the manager other showrooms; one Bunnings
of three established funds with distribution centre; one
total capital commitments of development site for a Bunnings
more than $227 million, continued Warehouse; three office/warehouse
to support a range of projects industrial properties; and one retail/
primarily in New South Wales, bulky goods showrooms complex.
Victoria and Queensland.
20 Wesfarmers Shareholder Review 2012Sustainability summary
Sustainability is integral to how we do business, and we continue to strive
for innovative and efficient approaches to improve our social, environmental
and economic performance.
The importance of people • Improve talent management
With more than 200,000 employees, – at least once a year, the
Wesfarmers is committed Group Managing Director meets
to continually improving the with each division to review:
development and retention of its senior leader performance and
people. Wesfarmers’ employees development; succession plans
are crucial to the success of the for critical roles; and the pipeline
organisation, and there are a of high-potential leaders.
number of overarching principles
During the 2012 financial year,
and practices across the Group,
talent reviews were conducted
in addition to the many programs
with all divisions for senior
happening within the businesses.
Coles Online is trialling hybrid vans in manager level staff and above and
This included more than 2.2 million
Burwood, New South Wales, with a included 138 women. This is in
hours invested in training and
view to a national transport solution addition to detailed talent reviews
that reduces fuel consumption and development across the Group
conducted with employees by
carbon emissions for home deliveries in 2011/12.
individual businesses within the
Wesfarmers’ sustainability Wesfarmers’ commitment to the Wesfarmers Group. Throughout
priorities safety of its employees, customers the Group, all high-potential
As one of Australia and and visitors is absolute and the leaders benefit from an array
New Zealand’s largest companies, organisation has a number of of development opportunities
with a diverse portfolio of systems in place to focus on, and such as internal and external
businesses, Wesfarmers has a drive, safety performance. The development programs,
significant responsibility to get its Group’s lost time injury frequency stretch assignments, action
sustainability efforts right. This is rate was 10.90 compared to 12.78 learning projects, coaching,
a responsibility not only towards in the previous year, and the total mentoring and 360-degree
its employees and shareholders, recordable injury frequency rate was feedback.
but also its customers, suppliers, 42.67 compared to 40.94 in 2011.
• Enhance recruitment practices
communities and environment. Safety will continue to be prioritised
– in 2012, 37 per cent of externally
Wesfarmers has long recognised across all of the businesses.
recruited positions and 30 per
the value of sustainable business Diversity cent of internal promotions (all
practices, and this is the fifteenth A diverse workforce is of significant manager level and above roles)
year it has reported on a number social and commercial value were filled by women.
of key outcomes and performance and Wesfarmers recognises the
• Ensure pay equity – a pay audit
metrics. This year’s report will be importance of being an inclusive
is conducted annually on a Group
available in November. employer.
basis (which includes a review
Wesfarmers has five sustainable The Wesfarmers Diversity Policy of gender pay equity). Results
business strategies which focus on: outlines four core objectives which are reviewed by the Board and
• the importance of people are used to measure performance divisional Managing Directors.
in this area: In addition, a pay equity review
• carbon emissions reduction and of all Wesfarmers divisions was
energy management • Foster an inclusive culture –
undertaken during the year, in
Wesfarmers divisions undertake
• community partnerships and line with previous years, which
different initiatives and practices
investment did not indicate any observable
based on the needs of their
discrepancies in pay across each
• a reduced overall environmental business, such as flexible work
level, after taking into account
footprint practices at senior levels and paid
performance, experience,
parental leave.
• a strong economic contribution. location and job nature.
Specific targets are linked to
senior executive key performance
objectives under the annual
incentive plan.
Wesfarmers Shareholder Review 2012 21You can also read
