Wesfarmers : 2017 Half-year Results - Shareholder Quick Guide

2017 HALF-YEAR RESULTS

GROUP PERFORMANCE SUMMARY

The Group reported a net profit after tax (NPAT) of $1,577 million for the half-year ended

31 December 2016, an increase of 13.2 per cent on the prior corresponding period. Earnings per share increased 12.8 per cent to $1.40 per share, and return on equity (R12) increased 20 basis points to 10.2 per cent¹.

It was pleasing to record strong earnings growth

EARNINGS BEFORE INTEREST AND TAX BREAKDOWN

Industrials

Coles

INTERIM DIVIDEND PER SHARE

up 13.2 per cent

for the half, with the results reflecting the benefits of the Group's conglomerate structure.

In light of the overall improved Group earnings and cash flows, the directors have declared an

$377m

Officeworks

15%

Total divisional EBIT

37%

$920m

Outlook

The Group continues to remain generally optimistic in its outlook. Strong momentum and strong market positions provide for a positive outlook for BANZ,

Kmart and Officeworks for the second half of the financial year. Coles will continue

to focus on delivering a strong customer proposition to support long-term growth in earnings and returns. In the short term, margin pressures are expected to persist as the focus remains on delivering customer value in a competitive market. Target's performance in the second half is expected to improve relative to the prior corresponding period as merchandising progressively improves and restructuring costs and provisions incurred in the prior year are not repeated.

The full-year result for the Resources business is expected to benefit from the increases in coal prices experienced during the first half, but prices are expected to remain highly volatile for the remainder of the year, with recent spot prices trading significantly below

their November 2016 peak. The focus for the business will remain on improving operational productivity, cost control and capital discipline. WesCEF's earnings in the second half will be subject to

international commodity prices, exchange rates and seasonal conditions in fertilisers. In Industrial and Safety, improved merchandising, sourcing and pricing strategies, as well as realised cost savings, are expected to continue to mitigate the impact of subdued market conditions.

Home Improvement

We are pleased to provide

shareholders with a summary of Wesfarmers Limited's

increase of 13.2 per cent in the interim dividend to $1.03 per share.

Retail

$62m 3%

Department Stores

$2,468m

29% $722m

results for the half-year ended

$387m

16%

31 December 2016. For more detail we encourage you to read the relevant announcements

Total retail earnings were in line with the prior

corresponding period, with very strong results reported for Bunnings Australia and New Zealand (BANZ), Kmart and Officeworks. The continued momentum in these businesses was

released by the ASX on 15 February 2017.

Michael Chaney AO

Chairman

Richard Goyder AO

Managing Director

16 February 2017

particularly pleasing and reflects the strong

market positions they have each established.

Coles' sales performance during the half built on the strong growth achieved in the prior corresponding period, but significant investment in value, particularly in the second quarter, led to lower earnings despite a reduction in costs.

BANZ delivered very strong improvements in both earnings and return on capital due to good execution of its strategic agenda. In the

United Kingdom and Ireland, Bunnings (BUKI) has moved at pace, making solid progress

on phase one of its transformation plan. Earnings for BUKI were affected by necessary restructuring, including clearance of deleted lines and high levels of price deflation associated with the move to 'Always Low Prices'.

While reported earnings for Department Stores declined marginally, underlying earnings2 were higher than the prior corresponding period, with strong growth in Kmart partially offset by

difficult trading and further restructuring activity in Target.

Officeworks' performance was pleasing as it continued to drive growth from its 'every channel' strategy.

Industrials

Earnings for the Industrials division were significantly above the prior corresponding period, with Resources benefitting from higher coal prices and strong production in the second quarter. The Chemicals, Energy and Fertilisers business (WesCEF) delivered a strong result for the half, primarily driven by higher chemicals earnings and growth in natural gas retailing, while earnings for Industrial and Safety also improved, benefitting from lower costs following 'Fit for Growth' restructuring activities.

Cash flow

The Group's cash flow management was a highlight for the half. Operating cash flows increased $244 million to $2,648 million, with the cash realisation ratio improving to

119.7 per cent3.

Strict disciplines were also maintained in respect of capital expenditure, which contributed to

a $566 million increase in free cash flows to

$2,231 million. This resulted in a strengthening of the Group's balance sheet, with net financial debt at 31 December 2016 largely in line with the prior corresponding period, despite the debt-funded acquisition of Homebase in February 2016.

Portfolio management

The Group continues to focus on enhancing shareholder value through portfolio optimisation and, during the half, announced divestment options were being evaluated for the Resources business. This process is ongoing.

The Group has also commenced a strategic review of Officeworks. Since Wesfarmers acquired Officeworks in 2007, the business has successfully executed a turnaround plan, more than doubling its earnings

and improving its return on capital from

5.7 per cent in the 2009 financial year to 13.9 per cent in the current period.

Officeworks is well positioned for future growth with a strong competitive position and ongoing initiatives to grow its addressable market. In light of its performance, options to monetise the value created for shareholders, including via an initial public offering4, are being evaluated. The business will be retained if divestment options do not meet Wesfarmers' valuation hurdles.

See page 3 for footnotes.

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It was pleasing to record strong earnings for the half with the results reflecting the benefits of the Group's conglomerate structure.

REVENUE

up 4.3 per cent

EARNINGS BEFORE INTEREST AND TAX

up 15.1 per cent

NET PROFIT AFTER TAX

up 13.2 per cent

EARNINGS PER SHARE

up 12.8 per cent

RETURN ON EQUITY (R12)1

up 20 bps

$33,462m

$34,917m

$2,110m

$2,429m

$1,393m

$1,577m

$1.24

$1.40

10.0

10.2

2016

2017

2016 2017

2016

2017

2016

2017

2016

2017

1. Excludes post-tax non-cash impairments of $1,844 million relating to Target and Curragh recorded in the 2016 financial year.

2. Underlying earnings exclude: in 2016, a provision of $13 million recognised for restructuring costs associated with the planned relocation of Target's store support office. In 2015 for Target, rebate income of $21 million recognised contrary to Group policy which was reversed in the second half of 2016, having no effect on the 2016 full-year results.

3. Operating cash flows as a percentage of net profit after tax, before depreciation and amortisation and NTIs.

4. This announcement does not constitute an offer to sell, or the solicitation of an offer to buy, any securities in any jurisdiction, including the United States. Any securities to be offered and sold in an initial public offering have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

3

• Headline food and liquor sales up 2.2 per cent on strong prior corresponding period

• Comparable food and liquor sales up 1.3 per cent

• Food and liquor deflation of

  0.9 per cent

• Decline in EBIT of 2.6 per cent mainly driven by a decline in shelf margin (gross margin excluding loss and logistics)

• Shelf margin decline was driven by

  • Proactive investment in the customer experience

  • Price investment including absorption of cost price increases in meat

  • A highly competitive market

• Lower gross margins partially offset by disciplined cost management

  growth in Coles Online

• Positive comparable sales growth in Liquor

• Coles Express revenue declined on lower fuel volumes and prices but convenience store sales continued to grow

  Outlook

• Gross margin pressures expected to persist through the rest of

  the year

• Providing a market-leading customer offer will remain a priority

• Over the long term, simplicity benefits expected to fund investments in the customer offer

• Progress the liquor transformation and provide a market leading convenience store offer

  and New Zealand

  Financial performance

• Total store sales growth of 8.4 per cent and store-on-store sales growth up

  6.5 per cent

• Sales growth achieved in consumer and commercial markets and across all major trading regions

• Earnings growth from solid trading and strong focus on cost control

• Focus on long-term value creation through store upgrades, category refresh work and investments in customer value

• Good outcomes on property divestments

• Nine new trading locations opened during the half

  Outlook

• Dynamic and competitive environment

• Continued focus on creating better experiences for customers,

  strengthening the core of the business and driving stronger growth

  and Ireland

  Financial performance

• Trading volumes in line with prior year after adjusting for previous owner's store closures and the exit of Habitat, Argos and other discontinued ranges

• Pleasing customer participation with transactions increasing 9.1 per cent on a like-for-like trading basis

• First Bunnings Warehouse pilot store opened on 2 February 2017 at St Albans

• One-off costs of £13 million (A$21 million) for transition work, concession exits, intangible write-offs and pilot store establishment costs

  Outlook

• All work prioritised around building strong business foundations

• Continued focus on implementing plans to establish four pilot Bunnings Warehouse stores in FY2017

  Financial performance

• First half reflected a difficult trading period and the transition underway

• Total store sales down 17.4 per cent and comparable store sales down

  18.2 per cent

• Sales affected by deflation resulting from the conversion to everyday low pricing which included the end of the Toy Sale event in July 2016

• Good progress on reducing costs

• Higher cash flows due to improved working capital management and moderated capital expenditure

• $13 million of restructuring costs related to support office relocation

  Outlook

• Outlook for balance of FY2017 reflects a transitional year

• Earnings in second half expected to be materially above prior corresponding period due to no repeat of restructuring costs and provisions in the prior period

  Financial performance

• Total store sales up 9.1 per cent, comparable sales up 5.7 per cent

• Strong sales growth supported by increased transactions and units sold

• Earnings growth driven by a strong contribution from everyday ranges sold at full price, sourcing and supply chain efficiencies and clearance management

• Opened five new stores, including

  two conversions from Target to Kmart, and completed 15 refurbishments

  Outlook

• Well positioned for continued growth

• Continued focus on sustainable growth by providing a great place to shop that is simple to run, better products at even lower prices and relentlessly pursuing lowest cost

• Plans to open five new stores and complete 18 store refurbishments in the second half

COLES

down 0.2 per cent

HOME IMPROVEMENT

up 27.2 per cent

BUNNINGS AUSTRALIA AND NEW ZEALAND

up 8.3 per cent

TARGET

down 17.7 per cent

KMART

up 8.9 per cent

2016 $20,087m

2017 $20,056m

REVENUE

2016

2017

2016 $5,500m

2017 $6,995m

2016

2017

2016 $5,500m

2017 $5,957m

2016

2017

2016 $1,972m

2017 $1,623m

2016

2017

2016 $2,750m

2017 $2,996m

2016

2017

EARNINGS BEFORE INTEREST AND TAX

down 2.6 per cent

up 3.0 per cent

up 9.8 per cent

down 78.4 per cent

up 16.3 per cent

2017

2016 $319m

2017 $371m

2016

2017

RETURN ON CAPITAL (R12)

down 10 bps

down 504 bps

up 317 bps

up 492 bps

4