About our business
Kmart is one of the largest general merchandise and apparel retailers in Australia and New Zealand, with 187 stores, five distribution centres and sourcing teams located in Hong Kong, China, Bangladesh and India. Our 24,000 team members, excluding Kmart Tyre and Auto (KTAS), are focused on delivering exceptional customer service to families and supplying great products at low prices right across the store, every day.

KTAS is one of the largest automotive service, repair and tyre businesses in Australia. KTAS has 251 stores and more than 1,400 team members.

Year in review
The entire Kmart business is now operating an 'everyday low price' model, where traditional sales have ceased in favour of offering our customers quality products at the lowest prices, every day. Our 'expect change' campaign, which ran from January 2010 and invited customers back into our stores, was well received and our focus for the coming year is to educate customers about the 'new' Kmart.

We have continued to reduce the number of injuries in our sites; however, our targeted aim of reducing the number of lost time injuries by 50 per cent was not met, with our business recording a 29 per cent reduction.

A review of product packaging has commenced with key highlights mentioned in this report.

We have identified new energy saving initiatives which will reduce the amount of energy our sites use by 20 to 40 per cent.

Our community program focused on our annual Wishing Tree Appeal which has once again seen significant support, collecting almost 500,000 gifts. Our Art of Giving competition received 7,800 entries and we raised over $475,000 through our coin collection program (excluding the Kmart Wishing Tree Appeal).

For the year, our operating revenue was $4.04 billion and EBIT was $201 million¹. Whilst customer transactions and volumes continued to grow, this was offset by reduced prices. Our focus for the coming year is to ensure we have the right product across the store, executed as efficiently as possible from the supplier to the shop floor.

Material issues
Our business will continue to focus on five key areas to improve our sustainability:

• Continue to restore the foundations of our business
• Ensure our sites are safe for team members and customers
• Reduce the amount of energy we use
• Ensure our packaging meets the requirements of the business and the Australian Packaging Covenant
• Continue to focus on our community program.

People
We are committed to ensuring our sites are safe, our 25,462 team members receive training to reach their full potential and we have a diverse workforce that is recognised and rewarded for the work they do.

Safety improvements introduced this year include providing improved materials handling equipment as well as providing new storage racks in selected stores. Additionally, we have introduced new initiatives, including boom gates and safety rails, to reduce the potential for falls from our loading docks. During the year, a new health and wellbeing program called 'Kmeasures' was launched to assist team members improve their health and reduce the risk of conditions including heart disease and type two diabetes.

We recorded 167 lost time injuries for the year, down 29 per cent on last year (our target for the year was to reduce this by 50 per cent). We are now working on a range of initiatives, including new training programs focusing on line manager and safety committee capability to assist in further reducing team member injuries. The coming year will also see us introduce a 'safety score' for each site. This is a positive performance indicator and is intended to drive activities and behaviours that have a positive effect on reducing injuries. For the year, our TRIFR was 40.79, up four per cent on last year.

More than 67 per cent of our workforce are female and we are focused on increasing their representation in leadership roles across our business. The number of women in leadership roles has decreased to 30 per cent this year as we included over 100 team members in error last year. Through an employee survey, 0.51 per cent of all of our team members identify themselves as Aboriginal. To further increase that representation we continued our work trial program which now provides employment for 19 team members.

This year, more than 13,900 team members received some form of training, with 40,921 hours of training delivered.

Carbon and energy
This year, we identified a range of initiatives to significantly reduce the amount of energy consumed in our existing stores. These initiatives include: using the sun to provide light in stores; installing more energy efficient lighting; monitoring and controlling where and when we use energy; using natural ventilation to provide fresh air; and making our air conditioning systems more efficient. These initiatives will soon be trialled.

As a result of a review of the specifications for new distribution centres, as mentioned in last year's report, our new sites in Victoria and New South Wales use a range of improved energy efficiency measures: rain water harvesting; more efficient tap ware; solar hot water; better use of natural sunlight; motion sensors to turn off lights in office areas; window glazing; improved insulation; and using recycled concrete.

To reduce the amount of energy used when charging our electric forklifts, we have introduced a policy to only recharge these devices when they fall below 25 per cent charge at these sites. In addition, the New South Wales site will use more energy efficient lighting, which we expect will reduce lighting energy use by over 40 per cent.

Our total carbon emissions were estimated to be 311,668 tonnes of CO₂e, up 2.6 per cent on last year. Our energy use was estimated to be 1.08 petajoules, up four per cent on last year. Our major energy use was electricity for lighting and air conditioning.

Waste and recycling
This year we recycled more than 77 per cent of the waste generated by our stores, offices and distribution centres. As part of the ongoing upgrade of our information technology assets, we recycled more than 21 tonnes of computers, monitors, printers and checkout equipment.

Product and packaging improvements
Our merchandise team focused on improving the environmental performance on a range of products and reducing the amount of packaging used. A number of examples will be included in Wesfarmers' Australian Packaging Covenant report for 2010/11. Some key highlights include:

• reducing the number of pages in our weekly marketing catalogues, saving over 3,012 tonnes of paper
• removing the stuffing from footwear, resulting in a reduction of 174 tonnes of packaging material
• moving our reusable shopping bags to 100 per cent recycled material – more than 33 tonnes of recycled plastic will be used to make these bags now, rather than using virgin plastic
• changing the way Kmart's Homemaker-branded kettle is packed to reduce packaging by 25 per cent
• using recycled phone books to make our paper pet litter
• moving from blister packs for power leads, power boards and audiovisual accessories to cardboard packaging or shelf-ready packaging
• removing backing cards from kitchen utensils and bath mats, replacing this with a small sticker.

Community
The Kmart Wishing Tree Appeal is Australia's and New Zealand's largest Christmas gift collection appeal. Over the last 24 years, the Appeal has collected more than five million gifts and last year we set a new record, collecting almost 500,000 gifts, $300,000 in cash donations and $100,000 from the sale of Kmart Wishing Tree-branded merchandise.

This Appeal would not be a success without the 500 community champions in our stores, the support of The Salvation Army and the generosity of customers, businesses and communities throughout Australia and New Zealand.

Our Art of Giving competition continues to grow, with 7,800 students entering artwork in the 2010 competition to express 'what family means to me'. This year, our competition focuses on why helping others is important. At the time of writing we have already had over 1,400 entries with winners to be announced in November 2011.

All artwork will be displayed in Kmart stores once the competition closes, with the winning artworks forming the design for the Kmart Wishing Tree Appeal e-cards.

Our customers have continued to support our coin collection program, raising money for Variety, the Children's Charity; TLC for kids; and local community groups. Throughout the year, over $475,000 has been raised (in addition to the Wishing Tree Appeal).

Kmart store teams continue to support hundreds of schools, kindergartens and community groups by providing Kmart gift cards.

We also donate products including blankets, clothing and toys to assist people in need and more than 600 team members volunteered over 4,500 hours to assist with community-based programs throughout the year.

Our KTAS team has entered into a partnership with Rotary Youth Driver Awareness (RYDA). RYDA is a not for profit organisation which delivers road safety training to Australian high school students.

During the year, our business contributed $0.74 million in direct support to the community and $10.57 million in indirect support, as verified by LBG.

The contributions that can be included this year have changed, resulting in us being unable to include $0.10 million in direct support and $1.82 million in indirect support which have been included in previous years. These figures should be added to the verified data to enable accurate comparisons for previous years.

Governance
Kmart received 24 enquiries from regulators during the year. A number of these were related to product safety, following the introduction of mandatory reporting to the Australian Competition and Consumer Commission on 1 January 2011.

Other enquiries related to issues including fair trading, discrimination and privacy concerns. Kmart classified six as reportable as they alleged some form of regulatory breach or posed a significant risk to the business from a reputational or financial perspective. We responded to all enquiries within prescribed timelines. Throughout the year, Kmart conducted 11 recalls, four of which were for Kmart-branded products.

Ethical sourcing
Throughout the year, we undertook a comprehensive review of our ethical sourcing program. We worked closely with Target to align our programs where possible and our new code will be launched by the end of 2011. This year, 95 factories gained approval under our existing code, or were approved based on audit results commissioned by one of our peers and accepted under our mutual recognition program. In the course of these audits we uncovered no significant breaches of our code.