Acquisition Analysis
WESFARMERS ANNUAL REPORT 2018 W e sfa rm e rs A n n u a l R e p o rt 2 018 CONTENTS Governance 66 Board of directors 68 Corporate governance overview Directors’ report 72 Directors’ report 77 – Remuneration report Financial statements 97 Financial statements 103 Notes to the financial statements Signed reports 145 Directors’ declaration 146 Independent auditor’s report Shareholder and ASX information 152 Shareholder information 153 Investor information 154 Five-year financial history 155 Corporate directory 156 Wesfarmers brands Overview 2 2018 year in review 4 Primary objective 5 Group structure 6 Performance overview 8 Chairman’s message 10 Managing Director’s report 12 Leadership Team Operating and financial review 14 Operating and financial review 26 Retail businesses 26 Bunnings 32 Coles 40 Department Stores 42 – Kmart 44 – Target 46 Officeworks 50 Industrials 52 – Chemicals, Energy and Fertilisers 54 – Industrial and Safety 56 – Resources 57 Other activities Sustainability 58 Sustainability Wesfarmers 2018 Annual Report 1 About Wesfarmers 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, its diverse business operations cover: supermarkets, liquor, hotels and convenience stores; home improvement; department stores; office supplies; and an Industrials division with businesses in chemicals, energy and fertilisers, industrial and safety products and coal. Wesfarmers is Australia’s largest private sector employer with approximately 217,000 employees (including more than 5,200 Indigenous team members) and is owned by approximately 495,000 shareholders. About this report This annual report is a summary of Wesfarmers and its subsidiary companies’ operations, activities and financial performance and position as at 30 June 2018. 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 2018 unless otherwise stated. All dollar figures are expressed in Australian dollars (AUD) unless otherwise stated. All references to ‘Indigenous’ people are intended to include Aboriginal and/ or Torres Strait Islander people. Wesfarmers is committed to reducing the environmental footprint associated with the production of this annual report and printed copies are only posted to shareholders who have elected to receive a printed copy. This report is printed on environmentally responsible paper manufactured under ISO 14001 environmental standards. Department Stores Record earnings delivered for the year Coles Customer metrics, sales momentum and earnings performance improved over the year Industrials Increased earnings from continuing operations Officeworks Continued growth through a relentless focus on price, range and service Bunnings Continued growth in earnings and sales delivered through strong execution of customer-focused strategy Sustainability Improvements in safety, emissions intensity, ethical sourcing and community contributions 40 50 32 46 58 26 Wesfarmers 2018 Annual Report 3 $148M COMMUNITY CONTRIBUTIONS $9.3B SALARIES AND WAGES 217K LARGEST PRIVATE SECTOR EMPLOYER $2.23 DIVIDENDS PER SHARE $47.2B$2.1B PAYMENTS TO SUPPLIERS GOVERNMENT TAXES AND ROYALTIES DEMERGER OF COLES PROPOSED ROB SCOTT BECAME WESFARMERS’ EIGHTH MANAGING DIRECTOR DIVESTED CURRAGH COAL MINE AND HOMEBASE 2018 YEAR IN REVIEW TEAM MEMBERS Wesfarmers 2018 Annual Report2 The 2018 financial year was one of significant change for Wesfarmers, with decisive actions taken to reposition the Group’s portfolio to deliver sustainable growth in earnings and improved shareholder returns. S u sta in a b ility S ig n e d re p o rts S h a re h o ld e r a n d A S X in fo rm a tio n F in a n c ia l sta te m e n ts D ire c to rs’ re p o rt G o ve rn a n c e O p e ra tin g a n d fin a n c ia l review O ve rview 1 The 2018 earnings before interest and tax for Department Stores excludes Target’s pre-tax non-cash impairment of $306 million. Coles 2018 2017 Revenue $m 39,388 39,217 Earnings before interest and tax $m 1,500 1,609 Segment assets $m 21,180 21,140 Segment liabilities $m 4,561 4,245 Capital employed (R12) $m 16,386 16,586 Return on capital employed (R12) % 9.2 9.7 Capital expenditure $m 762 811 Industrials (including Curragh mine) 2018 2017 Revenue $m 5,269 5,161 Earnings before interest and tax $m 867 915 Segment assets $m 3,500 4,229 Segment liabilities $m 758 1,125 Capital employed (R12) $m 3,295 3,393 Return on capital employed (R12) % 26.3 27.0 Capital expenditure $m 167 169 Officeworks 2018 2017 Revenue $m 2,142 1,964 Earnings before interest and tax $m 156 144 Segment assets $m 1,452 1,401 Segment liabilities $m 532 488 Capital employed (R12) $m 939 980 Return on capital employed (R12) % 16.6 14.7 Capital expenditure $m 45 36 Department Stores 20181 2017 Revenue $m 8,837 8,528 Earnings before interest and tax $m 660 543 Segment assets $m 3,617 3,928 Segment liabilities $m 1,482 1,423 Capital employed (R12) $m 2,013 2,253 Return on capital employed (R12) % 32.8 24.1 Capital expenditure $m 293 222 Bunnings 2018 2017 Revenue $m 12,544 11,514 Earnings before interest and tax $m 1,504 1,334 Segment assets $m 5,025 4,846 Segment liabilities $m 1,875 1,785 Capital employed (R12) $m 3,045 3,192 Return on capital employed (R12) % 49.4 41.8 Capital expenditure $m 497 367 Divisional performance Wesfarmers 2018 Annual Report 7 BACK RETAIL INDUSTRIALS CORPORATEOTHERBUSINESSESCOLES OFFICEWORKSBUNNINGS DEPARTMENT STORES Coles* Chemicals, Energy and Fertilisers Kmart Industrial & SafetyTarget ResourcesOfficeworksBunnings Coles Online CSBP Blackwoods BWP Trust (24.8%) Curragh* Coles Express Australian Vinyls Workwear Group Gresham Partners (50%) Vintage Cellars Australian Gold Reagents (75%) Coregas Wespine Industries (50%) First Choice Liquor Queensland Nitrates (50%) Greencap Liquorland EVOL LNG NZ Safety Blackwoods Spirit Hotels Kleenheat Coles Financial Services Quadrant Energy* (13.2%) Kmart Tyre and Auto Service* GROUP STRUCTURE * In March 2018, Wesfarmers announced its intention to demerge Coles and the completion of the sale of the Curragh coal mine. In August 2018, Wesfarmers announced that it had entered into agreements to sell Kmart Tyre and Auto Service, its 40 per cent interest in Bengalla, and its indirect interest in Quadrant Energy. Bengalla* (40%) Wesfarmers 2018 Annual Report 5 anticipating the needs of our customers and delivering competitive goods and services supporting the communities in which we operate acting with integrity and honesty in all of our dealings taking care of the environment engaging fairly with our suppliers, and sourcing ethically and sustainably looking after our team members and providing a safe, fulfilling work environment THE PRIMARY OBJECTIVE OF WESFARMERS IS TO PROVIDE A SATISFACTORY RETURN TO SHAREHOLDERS We believe it is only possible to achieve this over the long term by: Wesfarmers 2018 Annual Report4 The 2018 financial year was one of significant change for Wesfarmers, with decisive actions taken to reposition the Group’s portfolio to deliver sustainable growth in earnings and improved shareholder returns. S u sta in a b ility S ig n e d re p o rts S h a re h o ld e r a n d A S X in fo rm a tio n F in a n c ia l sta te m e n ts D ire c to rs’ re p o rt G o ve rn a n c e O p e ra tin g a n d fin a n c ia l review O ve rview 1 The 2018 earnings before interest and tax for Department Stores excludes Target’s pre-tax non-cash impairment of $306 million. Coles 2018 2017 Revenue $m 39,388 39,217 Earnings before interest and tax $m 1,500 1,609 Segment assets $m 21,180 21,140 Segment liabilities $m 4,561 4,245 Capital employed (R12) $m 16,386 16,586 Return on capital employed (R12) % 9.2 9.7 Capital expenditure $m 762 811 Industrials (including Curragh mine) 2018 2017 Revenue $m 5,269 5,161 Earnings before interest and tax $m 867 915 Segment assets $m 3,500 4,229 Segment liabilities $m 758 1,125 Capital employed (R12) $m 3,295 3,393 Return on capital employed (R12) % 26.3 27.0 Capital expenditure $m 167 169 Officeworks 2018 2017 Revenue $m 2,142 1,964 Earnings before interest and tax $m 156 144 Segment assets $m 1,452 1,401 Segment liabilities $m 532 488 Capital employed (R12) $m 939 980 Return on capital employed (R12) % 16.6 14.7 Capital expenditure $m 45 36 Department Stores 20181 2017 Revenue $m 8,837 8,528 Earnings before interest and tax $m 660 543 Segment assets $m 3,617 3,928 Segment liabilities $m 1,482 1,423 Capital employed (R12) $m 2,013 2,253 Return on capital employed (R12) % 32.8 24.1 Capital expenditure $m 293 222 Bunnings 2018 2017 Revenue $m 12,544 11,514 Earnings before interest and tax $m 1,504 1,334 Segment assets $m 5,025 4,846 Segment liabilities $m 1,875 1,785 Capital employed (R12) $m 3,045 3,192 Return on capital employed (R12) % 49.4 41.8 Capital expenditure $m 497 367 Divisional performance Wesfarmers 2018 Annual Report 7 BACK The 2018 financial year was one of significant change for Wesfarmers, with decisive actions taken to reposition the Group’s portfolio to deliver