14
Wesfarmers Annual Report 2011
Results overview
Net proft after tax for the Group in the
2011 fnancial year of $1,922 million was
22.8 per cent ahead of last year. This
was achieved despite diffcult operating
conditions experienced in a number of the
Group’s divisions as a result of the large
number of natural disasters in Australia
and New Zealand and declining consumer
confdence.
Earnings per share of 166.7 cents were up
22.8 per cent on last year, refecting the
strong proft growth achieved. Similarly,
average return on equity increased to 7.7 per
cent from 6.4 per cent in the previous year.
Cash flow
Cash fows from operations for the year
were $2,917 million. The Group’s cash
realisation ratio was solid at 102.5 per
cent, but down on last year’s result,
which benefted from signifcant business
restructuring in Kmart and Coles.
The Group continued to invest strongly
in capital expenditure, well ahead of
depreciation, in order to drive future growth.
Capital investment of $2,062 million was
up 24.5 per cent on last year following
signifcant retail network expansion and
improvement, and works associated with
capacity increases at the Curragh and
Bengalla coal mines.
It is expected that the current phase of
strong capital investment will continue in
the 2012 fnancial year as we drive strong
growth and improvement in our retail
networks; complete the current expansion
works in the Resources division; and,
subject to Wesfarmers Board approval,
further expand ammonium nitrate production
capacity at Kwinana.
Free cash fows for the year were
$1,041 million, compared to $1,631 million
in the previous year, given higher working
capital and increased capital investment.
Cash dividends paid increased to
$1,557 million from $1,325 million in
the previous year.
Balance sheet
The balance sheet was further strengthened
during the year, as evidenced by stronger
key liquidity ratios and an upgrade in the
Group’s credit rating by Standard & Poor’s
to A- (stable outlook).
Total debt at 30 June 2011 reduced to
$4,879 million (from $5,353 million 12
months earlier) as funds held in cash and
on deposit were progressively used to repay
debt following refnancing of the Group’s
syndicated loan facilities. This activity assisted
in fnance costs for the Group declining by
19.6 per cent to $526 million for the year.
Net debt increased from $4,035 million to
$4,343 million as at 30 June 2011.
The value of property, plant and equipment
increased over the year, from $7,542 million
to $8,302 million as at 30 June 2011, as
capital investment exceeded depreciation
and amortisation.
Working capital balances at 30 June 2011
increased by $316 million compared to
the prior year, primarily in the Group’s retail
businesses due to strong network expansion
and sales growth, as well as increased direct
sourcing and higher inventory levels in Coles
ahead of supply system changes.
Detailed impairment testing of non-current
assets, including goodwill and other
intangible assets recognised on business
acquisitions, was carried out during the
year. External experts were engaged to
provide support on model inputs including
discount rates and long-term growth rates.
Non-cash impairment charges totalling
$27 million were made during the year,
compared to $81 million in the prior year.
The current year impairment charge largely
related to retail property holdings. In all other
cases, recoverable amounts of non-current
assets determined for impairment testing
exceeded their carrying values. Future
impairment testing of non-current assets
remains sensitive to changes in general
trading conditions and outlook, as well as
discount rates.
Debt management
The Group aims to maintain a strong
investment-grade rating through prudent
balance sheet management. During the year,
the Group continued to proactively diversify its
funding sources and extend its debt maturity
profle, and in March 2011, Standard & Poor’s
upgraded the Group’s long-term credit rating
to A- (stable outlook) from BBB+ (positive
outlook). Moody’s has placed the Group on a
Baa1 positive outlook, from stable previously.
Refnancing activity comprised the
establishment in December 2010 of a
$2.5 billion revolving syndicated debt
facility with an average term to maturity of
3.5 years and, in May 2011, the issuance of
a US$650 million fve-year US bond. The
proceeds of both issuances were used to
repay shorter-term debt, which resulted in a
lengthening of the Group’s average tenor to
3.0 years across its diversifed sources of debt.
As at 30 June 2011, the Group had available
to it $536 million in cash at bank and on
deposit and $2,006 million in committed but
undrawn bank facilities. Over the year, the
Group’s fxed charges cover increased to
2.7 times, up from 2.4 times a year ago, and
cash interest cover improved to 9.5 times
from 6.8 times. The weighted average cost of
debt for the year was 8.8 per cent compared
to 8.9 per cent last year.
Equity management
Over the year, shares on issue were stable,
with 1,157 million shares on issue at 30 June
2011, made up of 1,006 million ordinary
shares and 151 million partially protected
ordinary shares.
Dividend policy
Wesfarmers’ dividend policy seeks to deliver
growing dividends over time, with the
declared amount refective of the Group’s
current and projected cash position, proft
generation and available franking credits.
Consistent with this policy, a fully-franked
full-year dividend of 150 cents per share was
declared, an increase of 20.0 per cent on
last year. The fnal dividend, to be paid on
30 September 2011, is not provided for in
the accounts. Given a preference by many
shareholders to receive dividends in the form
of shares, the directors decided to continue
the operation of the Dividend Investment Plan
(the Plan). No discount applied to shares
allocated under the Plan. In recognition of
our capital structure and strong balance
sheet, all shares issued under the Plan
were acquired on-market by a broker and
transferred to participants.
Finance Director’s review
The balance sheet was further strengthened
during the year, as evidenced by an upgrade
in the Group’s credit rating by Standard
& Poor’s to A- (stable outlook).