THE YEAR AT A GLANCE

In my comments last year I referred to the Wesfarmers commitment to long term thinking and decision-making and its likely origins in our rural past.

At the risk of repetition, it is hard to imagine a year in which that fundamental principle has been more important than the 12 months we are reviewing in this report. That is particularly the case in the context of our proposal to acquire Coles Group Limited, to which I will return.

At Wesfarmers, we faced a year in which we expected the group’s profit would decline because of the fall in export coal prices. In those circumstances, we had to work even harder across all our businesses and concentrate on what was within our ability to directly manage and influence.

The net profit for the year of $786.3 million, a decline of 9.6 per cent on the previous year when the profit from the sale of our rail interest is excluded, is a good result. With a more than 40 per cent drop in earnings from coal because of the lower prices, the rest of the group rallied, led by an absolutely outstanding performance from the Bunnings home improvement division. Bunnings’ achievement of a 16.1 per cent increase in trading earnings and underlying store-on-store cash sales growth of more than 10 per cent is a tribute to the skill and hard work of the more than 24,000 people employed in that business across Australia and New Zealand.

Despite the price decline, the coal division remained our second main contributor to group profit with an increase in sales from the Curragh mine in Queensland and our 40 per cent-owned Bengalla mine in the Hunter Valley but a decline at the Premier mine in Western Australia. Both Curragh and Bengalla remain affected by infrastructure constraints but both are actively investigating expansion plans.

We were somewhat disappointed in the performance of the insurance division which was affected by higher than expected claims related to severe weather events and by strong competition.Wesfarmers Federation Insurance, our original entry to the insurance sector, had a record year despite unfavourable seasonal conditions. Recent acquisitions, particularly the OAMPS and Crombie Lockwood purchases, performed well and will play a more significant part in the 2007/08 result.

The industrial and safety division benefited from a restructure and improved its customer service to better-than-competitor benchmark levels. The division recorded a significant lift in earnings and all of its businesses are looking forward to continuing growth.

Revenue from the CSBP chemicals and fertilisers division was down but profits were up due to improved returns from fertilisers, ammonium nitrate and an asset sale. The fertilisers uplift was achieved despite another poor start to the season in Western Australia.

The new energy division, created with the separation in September 2006 of the gas and power generation businesses from the coal assets, showed earnings growth of more than 50 per cent with a part-year boost from the Coregas industrial and medical gases business, acquired in February 2007, and improved performance from the other businesses.

We continue to benefit from our involvement in Gresham Partners and their private equity activities and from our plantation pine sawmilling joint venture, Wespine. In 2006/07, there was a significant contribution from our investment in the Bunnings Warehouse Property Trust.

As always, we maintain an active replacement and expansion capital expenditure programme. During the year we exceeded the 2005/06 record by outlaying $680 million and we have budgeted more than $800 million for investment in existing businesses in 2007/08, with more than half allocated to growth assets.