Wesfarmers Limited (WES) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to Wesfarmers' 2020 Annual General Meeting. We would like to begin the meeting by acknowledging the traditional owners of the land we are on today. We'll now go to a special Welcome to Country, performed by Dr. Richard Walley OAM and Noongar Elder recorded at Kings Park in Perth. [Presentation]

Well, good afternoon, everyone, and welcome to this meeting. I am Michael Chaney, the Chairman of Wesfarmers. I am advised that we have a quorum present and I now officially open the 39th Annual General Meeting for Wesfarmers Limited. Can I start by thanking Dr. Richard Walley OAM on his Welcome to Country on behalf of the Noongar people, the traditional owners of the part of Australia from which I am joining you today, and I'll pay my respects to their elders, past and present. And thank you to everyone who has joined today's meeting, which of course is our first virtual AGM. Life for all of us changed pretty dramatically in early 2020. At all times since the commencement of the COVID-19 pandemic, Wesfarmers has been focused on the health and the safety and the wellbeing of its team members and of its customers and the communities in which we operate. And as a result, like many other companies, we decided that the appropriate approach in the current circumstances was to hold our 2020 Annual General Meeting online or virtually, rather than at a physical venue. While the Wesfarmers Board and Executive Leadership Team are really disappointed that we're not meeting with our shareholders in the usual way for this meeting, we've done our best to ensure that we can provide you with the same opportunity to participate as if we could all meet together, well, except for the food and drink, of course, and we're very pleased to be able to welcome a number of shareholders who may not have previously had the opportunity to participate in our AGMs. In response to a large number of shareholder queries received in relation to the format of next year's AGM, I wanted to say that we expect to be able to hold it physically again and we certainly hope we can, but we'll assess it closer to the time, as it will obviously depend on the circumstances in light of the uncertainty around COVID-19. And I am joining you today from the Wesfarmers corporate office in Perth, along with our Managing Director, Rob Scott; our Company Secretary, Vicki Robinson, who were delighted to have joined as Company Secretary this year, she is a long-standing member of our corporate legal team prior to that; and also our longest serving Director -- Non-Executive Director, Diane Smith-Gander, who will chair this AGM during the consideration of my re-election later on. As set out in our 2020 Notice of Meeting, Diane will retire as a Director at the conclusion of this meeting and won't be seeking re-election and I'll say a few words about Diane's significant contribution to Wesfarmers later in the meeting. Joining us today from various locations around Australia and New Zealand, we have the rest of Wesfarmers' Independent Non-Executive Directors and I'd like to welcome each of them. Firstly, Wayne Osborn, Vanessa Wallace, Jennifer Westacott AO, Sir Bill English in New Zealand, Mike Roche who chairs our Remuneration Committee, and Sharon Warburton who chairs our Audit and Risk Committee. Now while all of those Directors are present and listening, to minimize the risk of technical issues, they won't be speaking at the meeting. Also joining us today are Michael Schneider, the Managing Director of Bunnings Group; Ian Bailey, Managing Director of Kmart Group; Sarah Hunter, Managing Director of Officeworks; Ian Hansen, Chief Executive Officer of Wesfarmers Chemicals, Energy and Fertilisers; Tim Bult, the Managing Director of Wesfarmers Industrial and Safety; and Anthony Gianotti, Chief Financial Officer, along, of course, with other members of senior management and employees from across the Group. We also have in attendance on the telephone Wesfarmers' audit partners from EY, Trevor Hammond and Jemma Newton, who are available to answer any questions on the audit and related matters. And now, onto some procedural matters. Many of our shareholders have taken the opportunity to submit their voting instructions and questions through the online voting platform, and we thank them for doing so in advance of this meeting. As outlined in our Notice of Meeting, shareholders and proxyholders may vote and submit questions during this meeting using the Lumi AGM online platform. We've also provided shareholders and others who may not be able to participate online with the opportunity to listen to the AGM by telephone, but please note that those joining the meeting by phone won't have the opportunity -- the ability to vote or ask questions. All resolutions will be decided on a poll. And to provide ample opportunity for shareholders and proxyholders to submit their votes, I now open the poll on all resolutions. I will provide a reminder to submit any outstanding votes later in the meeting before the poll is closed. I encourage shareholders and proxyholders to submit any questions as early as possible during the meeting. Consistent with the approach taken at our previous AGMs, we'll respond to questions relating to a particular item of business during discussion on that item and unless these questions have already been addressed through earlier remarks, that will be procedure, and I'll answer general questions at the end of the meeting. In the interests of all participants, please ensure that your questions are relevant to all shareholders and if your question relates to a particular item of business, please refer to that item when you submit your question. To minimize repetition and to maximize the number of questions that we can respond to during the meeting, questions may be moderated, for example, by amalgamating into 1 question or choosing the broadest question which covers things on the same topic. As time of course is always limited, it may not be possible to respond to all questions during this meeting, but I hope we can. But if this is the case, or if there are questions that might be better addressed on an individual basis about an individual matter you might have, we will respond to these after the meeting and somebody can be in touch. If you wish to ask a question, press or click on the speech bubble, the icon, which can be found on the navigation bar on your screen. This will open a new screen. At the bottom of that new screen, there is a section for you to type in your question. Once you finish typing your question, please press the arrow symbol to submit it. Following our formal addresses, questions which we will take during the meeting will be read to us by our external moderator, Ruth Callaghan, who introduced you at the start. If you are eligible to vote at this meeting and have logged onto the online platform, a voting icon will appear on your device or navigation bar. Selecting this icon will bring up a list of resolutions and present you with voting options. Now to cast your vote, simply select one of the options; for, against, or abstain. There is no need to press submit or click the enter button as your vote will be automatically recorded. Now you may change your vote during the meeting if you wish until I declare the poll closed. So please submit your votes anytime from now until just before the end of the meeting. Sam Erna from Computershare will act as the Returning Officer for the purposes of conducting and determining the results of the poll on each resolution, and the results will be announced through the ASX announcements platform later today and will also be available on the Wesfarmers website. A user guide on the Wesfarmers website is available which sets out instructions on how to submit your vote and ask questions during the meeting, if what I've said to-date isn't clear enough. Now if you're having any issues with the Lumi AGM online platform, please refer to the user guide or call Computershare on the number shown on the slide and there is that number there that you can see. I'll give you just a moment to write that down in case anyone wants to -- will need to call it during the course of the meeting. If technical difficulties arise during the course of the meeting, I'll exercise my discretion as to whether and how the AGM should proceed and I'll have regard to the extent to which participation in the business of the AGM is affected. In the case of a technical difficulty, I'll endeavor to provide clear guidance as to the approach and next steps, but if that's not possible then we'll make an announcement through the ASX company announcements platform and this will also be available on the Wesfarmers website necessarily. Hope that won't occur and we'll have a very smooth meeting as far as the technology is concerned. Transcripts of my address and Rob's address are available on our website already and on the ASX platform and a recording of the meeting will be made available on the Wesfarmers' website after the meeting. Now as you'd be aware from the Notice of Meeting, there are 5 items of business to be discussed when we move into the formal proceedings; but before that, I wanted to make some general observations about the last 12 months and the business environment and then Rob Scott will provide us with some reflections on current trading, on our COVID-19 response, and on the outlook for the Group. Well it'd be an understatement to say that 2020 was one of the most challenging any of us in business has faced and, indeed, one of the most challenging for Australians generally. The bushfires that raged through the eastern states and ravaged large areas over the summer, followed by the onset of the COVID-19 pandemic shortly afterwards, made all of our lives much harder. It's really gratifying that your Company was able to come through this in strong financial health and, equally importantly, in a position to assist those who were less fortunate and I'll say more about that in a moment. Details of the financial results for 2020 are contained in our annual report and I don't propose to repeat all of that here. As has been the case in recent years, the bottom-line figure was affected by a number of significant, non-operating items but the most important profit figure for us is how much the Group earned from continuing operations. That rose 8% in 2020 to $2.1 billion, a really gratifying result in the face of the enormous challenges that confronted us all. I pay tribute here to the efforts of all of our employees, from our CEO, Rob Scott, to each and every team member across the Group. They went above and beyond to bring about such a result, and pleasingly did so without recourse to the Australian Government's JobKeeper program. With a strong profit result, we were able to pay a final dividend of $0.77 per share fully-franked, plus a special dividend of $0.18 cents per share fully-franked, the latter reflecting the after-tax profit on the sale of 10.1% of Coles Group Limited. This brought the total dividend payments for the full year to $1.70 per share, fully-franked. Importantly, in these uncertain times, the Company finished the year with no net debt which positions us very strongly to cope with whatever the next years present. Our bottom-line result in 2020 was made up of strong contributions from Bunnings, Officeworks, the Chemicals, Energy and Fertilisers business and Kmart; but earnings were below expectation in Target and the Industrial and Safety division. Target's financial performance has been unsatisfactory for some time and, in May, we announced actions to address structural challenges, simplifying Target's operating model and enhancing the value of the store network. These changes will further strengthen the performance of Kmart while improving the future prospects of Target. As challenging as the last year has been, one of its most positive outcomes was that it gave us the opportunity at Wesfarmers to put our money where our mouth was in respect of corporate citizenship. I'm referring here to the commitment that we have always expressed to look after the interests of all our stakeholders. As you'd all know, we have never been at all backward about stating that our single purpose as a Company is to provide satisfactory returns to you, our shareholders. The reason you own shares in Wesfarmers rather than in another company is that you hope we'll give you better returns over the long term; but we have always been at pains to state that the only way we can achieve financial success over the long term is if we look after the interests of all stakeholders: employees, team members, our customers, our suppliers and the communities in which we operate and if we act ethically and sustainably. The bushfires and the COVID-19 pandemic provided the opportunity to prove that they were not hollow words. I described our actions in response to the bushfires in the Annual Report, but in summary they involved providing volunteering leave to team members, committing substantial sums to fire-affected communities, donating equipment to firefighters and, as the recovery commenced, supporting community organizations. And we did that as a Company financially and also through all of our team members who made contributions. With regard to the COVID-19 pandemic, we demonstrated our commitment to live up to those principles. Our management team played a very significant role developing COVID-safe work practices to protect the health and safety of team members and of customers. They also provided practical advice to governments on how to reduce the potential damage of imposing too-drastic shutdowns on businesses, damage arising from the resulting lack of availability of essential products and from the effects of widespread unemployment and the economic downturn. Throughout the COVID-19 pandemic, we incurred substantial additional costs to keep our team members and customers safe; we continued to pay our rent and to pay our suppliers on time; and we extended additional financial support to our community not-for-profit partners which found their revenues drying up. For example, companies in the art sector. And finally, after the close of the 2020 financial year, we announced that during the six-week lockdown of our businesses in Victoria, where our team members are permanent, or who work more than 12 hours a week as casuals, we would pay them in full if we were unable to provide meaningful work for them. As we all now know, that six-week period in Victoria turned out to be 12 weeks but as a result of our decisions, we go forward with a fully available, committed and loyal workforce, a team of employees who have not had to suffer the crisis of unemployment and evaporating income. Now, while the bushfire and the COVID-19 initiatives involved substantial costs, I have to say that at no time when making those decisions did we hesitate because of the effect they would have on our annual profit result. We were much more focused on them as long-term investments, investments in our people and our community and which will enhance the reputation and welfare of the Company over the long term. Improvingly -- and importantly, we were able to bear those costs because of our conservative approach to balance sheet management. The COVID-19 pandemic I think has once again illustrated how essential that is, that you conservatively geared if a company is to continue to operate successfully during downturns. A strong balance sheet, of course, is also important with respect to a Company's capacity for new business acquisitions and it wouldn't surprise you to hear that, as always, we've got a range of potential investment opportunities under review. But it's important to understand how your Board and your management view this issue; namely, that given the strong businesses we already own and the potential they all have for organic growth, we certainly feel no urgency about acquiring anything else. We'll certainly endeavor to do so if we feel we could manage it successfully, if it fits with our ethical values and, critically, if it will add value to our shareholders over the long term. I think that's the value of being a conglomerate: we don't feel any obligation to expand in a particular direction or build an empire, but we are ready to make an acquisition if the right opportunity arises at the right sort of value. In summary, while the last year has required us to face into the challenges we have and it's very much business as usual at Wesfarmers. We are focused on providing you with a good return on your investment through running our businesses well, expanding them as we are able to do so and adjusting our business portfolio as needs and opportunities arise. At the end of the day, the health of the Australian economy relies on the health of companies like Wesfarmers. We are a huge employer of people. We employ over a 100,000 people, and we're responsible for the collection of billions of dollars in tax revenues each year; but prosperity for a company is hard to achieve without efficient and effective economic settings in industrial relations, taxation and regulation, to describe a few as I mentioned in the Annual Report. The enormous government debt burden that has arisen from COVID-19 makes change in these areas even more critical if we're going to make sure that our next generation has gainful employment and access to all of the social services we take for granted. That will require inspired and determined governments and oppositions that appreciate the issue and support change. I take this opportunity, on behalf of my fellow directors, to thank our outgoing Director, Diane Smith-Gander AO, for her outstanding contribution to the Board and the Company over the last 11 years. Diane has had a wealth of experience over the course of her career from her banking and management consulting days to her numerous board and chair roles in not-for-profit and for-profit organizations and that frankly that experience showed in the way she conducted herself on our Board: ready and able to provide wise counsel to management, independent minded and focused at all times on the Company and our stakeholders' interests. Now, Diane, as many of you will know, has been recognized nationally for her constant advocacy for the engagement of women in executive roles and for gender equality. We all greatly miss her contribution around the Board and wish Diane very well for all of our future endeavors. The Board is currently in the process of identifying potential new directors, one to replace Diane and a second to fill what we identify as a skills gap in the digital space and evaluation processes and so on ongoing and we hope to be in a position to conclude that over the next few months. In closing, I want to pay tribute to our dedicated team members, led by Chief Executive Officer, Rob Scott. The last year, as I said, has presented enormous and unique challenges for all of us, and our employees have responded in a truly outstanding way, with great dedication and effort. They are a wonderful team. I now invite Rob to deliver his address as Managing Director.

Well, thank you, Chairman, and thank you too, Richard, for your welcome to Whadjuk Country this NAIDOC week. I'm pleased to provide this update on Wesfarmers' performance in the 2020 financial year. As our Chairman said, this has been one of the most extraordinary and challenging years for our Group. More than ever before, our performance is testament to the dedication of our talented and committed team and our connection to the community. The Group's response to the bushfires, and then COVID-19, was grounded in an unwavering focus on the safety and wellbeing of our team, our customers and the general public. Our businesses showed tremendous leadership and ingenuity in developing COVID-safe practices, expanding online and digital solutions for customers and supporting our stakeholders when they most needed our help. When our communities do well and when Australia does well, then so too can Wesfarmers. This year, we put these words into action. In the early stages of COVID-19, I visited Officeworks in Fremantle, here in Western Australia, which was one of the first stores in Australia to install the Perspex screens. Now, store manager Chloe and her team were working around the clock, helping customers set up home offices, get ready for home schooling, all while keeping their team safe. At about the same time, at Bunnings in O'Connor, also here in Perth, Sacha, Aaron and the team continued to deliver their trademark welcome, while counting customers into the store, from big wide queues to help with the physical distancing, and they were doing this well before being required to do so by government. The garden center here was doing a roaring trade and the local green-life suppliers were busy replenishing the shelves to keep up with the demand. For always putting the safety of colleagues and customers first, I particularly thank our team members who have shown incredible professionalism, knowing that they'll always be supported for doing what is right. Now, this year, Melburnians have endured the harshest of lockdowns and congratulations to the people of Victoria for your efforts to contain the spread of COVID-19 and thank you for your ongoing support of our teams and our businesses. I would like to give a special thanks to our Melbourne-based teams, and the leaders of our retail businesses that are all based in Melbourne. In particular, Mike Schneider at Bunnings, Ian Bailey at Kmart Group and Sarah Hunter at Officeworks. At a time of great personal hardship, your commitment to your teams and our businesses was exceptional. Millions of customers and thousands of businesses benefited from your leadership. And also a special thanks to our Chief Human Resources Officer, Jenny Bryant, who has provided exceptional support to our team, whilst personally being locked down at her home in Melbourne. And a special thanks as well to Jenny's dog Lilly, who has been making an active contribution to video conferences, especially around dinner time. Now, there has been no time to rest in our retail divisions as we prepare for what will probably be our biggest trading season and Christmas ever. Our stores are in great shape and have employed thousands of new team members ready to welcome customers to our COVID-safe operations. Now, in the context of the challenges associated with COVID, it was particularly pleasing to reduce our total recordable injury frequency rate by 23% last year. We also expanded our commitment to safety by increasing the focus on mental health and wellbeing, which is a particularly important issue in the current environment. In 2020, across the Group, we added around 2,700 team members. In this NAIDOC week, I'm pleased to report that we now have more than 2,100 team members who identify as Aboriginal or Torres Strait Islander, and we are well on the path to achieving proportional representation. Our annual report and website detail the progress on our sustainability agenda. We were particularly pleased this year to commit to new targets and aspirations, responding to climate change. Our retail businesses adopted net zero targets for 2030, which will be achieved through improved energy efficiency and increased use of renewable power. Now in addition to reducing carbon emissions, these initiatives make good commercial sense and will help us to build more resilient businesses. The Chairman referred to our financial results for the 2020 financial year. Today, we also released a trading update for the year to date as at the end of October. And I will now provide some comments on recent trading and outlook. Trading performance has been pleasing in what was a period of significant disruption, with our businesses adapting well to restrictions on trade, particularly in areas such as Melbourne and New Zealand. Sales outside of these regions remained strong through the year to date, supported by the ongoing trend of people spending more time at home, the continued recovery of employment and various government stimulus initiatives. Sales in Bunnings, Officeworks and Catch were particularly strong. Sales in Kmart and Target were more impacted by the trading restrictions in Melbourne and New Zealand, given a higher weighting towards apparel lines. Inventory availability issues also affected sales at Kmart, particularly early on in the period. Now, in more recent months, Kmart has made good progress getting stock into stores and improving availability. Nine large Target stores and 6 Target Country stores were converted during this period ending October and the performance of the converted stores has been pleasing, with great feedback from customers and significant growth in transaction numbers. Growth in e-commerce sales, excluding Catch, have remained quite strong, at 166% for the first 4 months and this has been supported by the expansion of our capabilities with home delivery, contactless click & collect and drive and collect. Catch sales also grew by 114% over the same period. So, for the first four months of the year, group online sales were $1.3 billion and this builds on the $2 billion of e-commerce sales last financial year. This is been supported by our recent investment in data and digital capabilities. As noted in our trading update, additional direct costs have been incurred to ensure COVID-safe operations, as well as some other costs associated with paid pandemic leave and the commitment to pay our Victorian team members through the lockdown. There were also additional costs associated with supporting higher levels of online sales, particularly during peak demand times. Our Industrial divisions have made a pleasing start to the year, and performance is in line with internal expectations. Blackwoods has benefited from growth in sales to major customers and strong demand for safety and hygiene products while the demand from oil and gas companies has been weaker. Blackwoods' outlook depends on future activity levels particularly in the mining, manufacturing and construction sectors. In Chemicals, Energy and Fertilisers, demand for ammonium nitrate remains resilient but as always, the outlook for this division is dependent on commodity prices and seasonal conditions. Good progress is being made optimizing the design of the Covalent Lithium project and a final decision on this project will be considered in the first quarter of next calendar year. Subject to the continued successful containment and management of COVID-19 cases, we're optimistic about the trading through the remainder of the calendar year in our retail divisions and this is also supported by the pent-up demand in Melbourne. The longer-term outlook remains uncertain and it will depend on a range of factors, including the future treatment and management of COVID-19, the capacity of our businesses to maintain operations, the extent of recovery in employment levels, and future government stimulus and reform initiates. Now even with a vaccine, we will likely all be living with the risks of COVID-19 for months, if not years to come. Importantly, we've learnt an enormous amount this year including how to manage the risks of COVID-19, to protect those most vulnerable and to minimize the harm to lives and livelihoods. By working together, governments, health experts, businesses, community groups and the general public can achieve some remarkable outcomes. At Wesfarmers, we are committed to playing our part and I am confident that our 107,000 team members will respond well to this challenge. Now, while uncertainties remain, Wesfarmers businesses are well-positioned for a range of economic scenarios and our strong balance sheet will provide financial flexibility to invest in our existing businesses but also to invest in new opportunities that may arise. So I'd like to finish by, once again, thanking our team for their contribution during an exceptionally difficult year. I'll now hand back to you, Chairman.

Well, thank you very much, Rob. And now, onto the formal business of the meeting. I refer to the minutes of the 38th Annual General Meeting of the Company held on 14 November last year. I've reviewed the minutes and I've signed them as a true and correct record of that meeting. The minutes are available for inspection at the Company's registered office, if anyone wishes to do so. Now voting on all resolutions today will be carried out by way of a poll. All resolutions are ordinary resolutions, which required approval by a majority of the shareholders who vote on that resolution. Now whereas Chairman of the meeting, I've been nominated as the shareholders' proxy, I intend to vote all undirected and available proxies in favor of each of the resolutions. There are also voting restrictions for some resolution, as outlined in the Notice of Meeting, which applies to those who have an interest in the resolutions and certain of their related parties. A reminder that if you're having any issues casting your vote or submitting a question, please refer to the user guide on the Wesfarmers' website or call Computershare on the number shown, again, on the slide there below me. Sam Erna of Computershare will act as the Returning Officer for the poll and oversee the counting of the votes. And Ernst & Young, the Company's auditor will act as scrutineer. The proxy votes and the direct votes that have been submitted in advance of the meeting will be set out on a slide shown on each resolution and I'll provide details of the percentage of votes in favor and against for the benefit of those who are listening on the telephone and can't see it. And as mentioned earlier, the final results of the poll on each resolution will be available on the ASX Company announcement platform, and on the Wesfarmers website later today. I'll now proceed with the formal business of the meeting. The Notice of Annual General Meeting was distributed to shareholders on Wednesday the 7th of October 2020. I'll take the notice as read. And we'll now proceed with the items of business as listed in the Notice of Meeting. Now for each item of business, we'll display the wording of the relevant resolution on the slides. And for those listening to the meeting on the telephone, you could refer to your Notice of Meeting for the relevant wording. The first item is to receive and consider the financial statements and the reports of the Directors and of the Auditor for the year ended 30 June 2020 which are included in the Company's Annual Report. Trevor Hammond from Ernst & Young was the lead audit partner for the Company for the year and Trevor and his co-signing Partner Jemma Newton are here to answer any questions that you may have on the audit and related matters. So I now invite shareholders to submit any questions regarding this resolution, which you see there under me. Ruth, are there any questions in relation to Resolution 1.

Thank you, Chairman. I've received no questions in relation to item 1.

All right, thank you very much. As there are no questions on this item, I'll now move on to the next item of business. And the next item is Director Election. As I mentioned earlier, Diane Smith-Gander is retiring at this meeting and is not seeking re-election after her 11 year stint. I'm offering myself for re-election today. And as Resolution 2 relates to my re-election, I'll now stand aside and hand the Chair to Diane to officiate.

Good afternoon, it's very much my pleasure to put this resolution to the meeting. Displayed on the screen is the position in relation to direct votes and proxies received for the re-election of Michael Chaney AO, prior to any revocations that may have occurred during this meeting. Now for the benefit of those listening on the phone, there are in excess of 98% of votes in favor of this resolution. Michael was appointed to the Wesfarmers' Board in June 2015 and was appointed as Chairman of the Board in November of that year. Michael, thank you so much for your very kind words relating to my time at Wesfarmers. It has been a great privilege. Perhaps I could ask you now to address the meeting.

Well thanks, Diane. Let me say what an honor it is to be Chairman of Wesfarmers and I very much appreciate your support as shareholders. I think most of you are probably aware of my background. I actually started out as a geologist in the oil and gas business, having got a science degree at UWA. And towards the end of that 8 to 9 years, I did an MBA degree and then moved into investment banking and banking, lending -- normal banking. And I was attracted to join Wesfarmers as Company Secretary back in 1983 and became Chief Financial Officer a couple of years later and was very much involved in the listing of the -- what was then the cooperative in 1984. I went on to become Managing Director of Wesfarmers in 1992, a position I held for 13 years. I came back -- so I retired in 2005 and I came back as Chairman in 2015, 10 years later. And in the interim period, I had been Chairman of National Australia Bank and of Woodside Petroleum and I've been on the Board of BHP. As I said earlier, I'm absolutely honored to be Chair of this Company. It is a fabulous company and I think has a culture, unlike you would see in many other places. It's had the single purpose of providing a satisfactory return to shareholders. But as always, as I said earlier, stress that you can't do that in the long term if you don't look after all stakeholders. I think, Wesfarmers, apart from being hugely successful financially, has developed a reputation in Australia, which is the envy of many companies. We on the Board are also aware that it takes a long time to build a reputation up and it can be lost in a very short time. And that is a really strong focus for the Board. We've got to ensure that we act ethically and honestly that we are good corporate citizens and all time, but we never lose sight of that purpose of the Company of providing good returns. Thank you very much for your support and I look forward to serving over this next term.

Thank you very much, Michael. I invite shareholders to submit any questions regarding this resolution. Are there any questions in relation to resolution 2?

Acting Chairman, there are no questions that have been received in relation to item 2.

Thank you. As there are no questions on this item. I will now hand the Chair back to Michael for the next item of business.

Well, thanks very much Diane. Item 3 relates to the Company's remuneration report for the year ended 30 June 2020. Displayed on the screen now is the position in relation to direct votes and proxies received for this resolution prior to any revocations that may have occurred during the meeting. And for the benefit of those who are listening on the phone, there are 96% of votes in favor of this resolution. The remuneration report provides information regarding the remuneration of your Directors and those Senior Executives considered to be key management personnel. And the report can be found beginning on Page 92 of the Company's 2020 annual report. The Board remains committed to an executive remuneration framework, which is underpinned by our guiding remuneration principles that is focused on driving leadership performance and behaviors to deliver satisfactory returns to shareholders over the long term. The total remuneration of our senior executives is set at levels which reflect the executive's contribution and competencies and capabilities and at a level that enables Wesfarmers to attract and retain the best people. The remuneration report in our annual report and the covering letter from the Chair of that committee, Mike Roche, provide a detailed explanation of the remuneration outcomes for the 2020 year. So I'm not going to repeat all of that here. Taking on feedback from last year, this year's report addresses the desire for greater transparency regarding our variable remuneration, including more information on why measures are used and how assessment decisions are made and so on. We've also disclosed the financial and safety target and the outcomes as well as the achievement of individual performance objectives this year. The remuneration report also provides details of further improvements to our executive plan to ensure that it remains fit-for-purpose and to address market competitiveness and we found when we did a detailed analysis, this year, it did need some tweaking which we'll apply going forward. I now invite shareholders to submit any questions they may have in regard to Resolution 3. Ruth, do you have any questions?

Chairman, we've received 3 questions on the remuneration report of a similar nature. I'll read out each of the questions before handing over to you for response. The first is asked by Mr. Elio Manacov. When I'm paid for a job, I do it to the best of my ability without further incentive payments. Why are overpaid executives, directors, chairpersons always insisting on paying themselves some form of extra payments being it bonuses, share options et cetera? Asked by Ms. Mary Louise Baxter, why are greedy Directors continuing to increase their remuneration, especially through share grants at the time of economic difficulty for most Australian workers? And thirdly, a comment from Mr. John Veega, despite the sale of 40% of the assets, the write-off of $2 billion plus from an ill-fated and poly-researched foray into the U.K, not achieving KRAS and KPIs, the Board and Executives have awarded themselves another pay rise. You are not deserving of these increases, given the poor decisions and far reduced area of responsibility. This all smells of greed. Given how many board members serve in other boards, [indiscernible] little time is given to their employment at Wesfarmers.

Well, thank you to those three shareholders for those questions. I'm afraid to say that the questions are really based on a misunderstanding of the outcomes of our 2020 remuneration system. I'm not being critical of any shareholder for misunderstanding that. The financial review this morning committed the same error when I listed the sort of a ranking of CEO's salaries. The misunderstanding comes about because of what I think is quite unacceptable requirement of how you report remuneration under the law. And if you look in the annual report, I think it's Page 120, that there is a statutory by-law table that shows the remuneration of our senior executives, and if you look at that, it says that Rob Scott had remuneration rising from [ $6 million ] to [ $7 million ] this year and that's no doubt gave rise to the questions about why we're paying people more and so on. Well, in fact, Rob Scott and Anthony Gianotti and others had a significant decrease in remuneration this year and I think it's a real pity that under current law you're required to construct a table like that one I referred to which includes remuneration from prior year's being amortized over a period and much of that remuneration -- the share-based remuneration will never be received because it won't invest and depends on the Company's performance. The fact of the matter is that if you look at this year, 2020, Rob Scott's total remuneration in fixed and variable remuneration fell nearly 30% -- 27%, 28%, and is 28% below what it was 2 years ago, and similarly for Mr. Gianotti and that's because we took a very vanilla sort of approach to the bottom line and said, we won't make any adjustments. This means that -- except some downward ones actually but this means they didn't make threshold on the incentive plan for the financial measure, and so it didn't receive anything on that. We can talk in more detail about that if anyone would like to pursue it. But the plain fact is that remuneration outcomes for CEO and CFO were well down on last year. The Australian Shareholders Association unfortunately recommended against voting for this Remuneration Report, and one of the reasons is that they demand every year that we put in a table like all take-home pay. Well, in my view and in our view that is even more deceptive to shareholders than the statutory report because it often include something granted 4 years ago that might have vested this year because the Company performed well over the long term and try to use a take-home pay table and compare it to the performance of the Company this year is completely meaningless. And I think it's something if any ISO people listening that they should seriously consider because I think it goes to their credibility. We don't want to tick a box sort of approach to these things. What you need to do is stand back and say, is this remunerations fair for the executives, for the Company given the performance of the Company over the year. Now, there are a couple of specific things I should mention. Mr. Veega mentioned the Bunnings U.K. write-offs that with some years ago and the executives concerned lost millions of dollars actually in income as a result of that. He mentioned the spin-off of Coles 40% down, which undoubtedly was very good for shareholders, and he mentioned that some of the directors seem to be very busy. Well, I can assure you that we would not have a director on the Board that was not pulling their weight. We've got a terrific group of directors. They all make a great contribution, and I don't see any evidence that any of them is overworked. And finally, Mr. Manigong rise the issue of bonuses. Why do you get bonuses when you're just doing a job? Well, I could go on for some time about this but I won't. If we go back 30 years, remuneration was fixed salary and a bonus for doing the job even better than was expected. That changed over the last 30 years. So, it's now a fixed salary and an incentive plan, and a part of that incentive plan is for reaching target and then there's a stretch element, which is like the old bonus. And so, an alternative would be to take that first part of the incentive plan and make it fixed salary, but the practice it's been followed is let's put some of that at risk so that you're not guaranteed in getting it, and in the case of this last year, the CFO and the CEO did not receive all of that expected amount. So the system has changed and the bonus that Mr. Manigong referred to is really what we now call stretch and that's only achieved if you do a lot better than expected. All right. Is there any further questions on the remuneration?

Thank you, Chairman. I have 3 questions from the Australian Shareholders' Association on this matter. I'll read them each and then turn to you for response. Question 1, why doesn't Wesfarmers disclose take-home pay for listed KMP, most of the large companies do and many shareholders do not understand the basis of the amounts disclosed in the statutory remuneration table? Question 2, why is Wesfarmers keep fiddling with its keep remuneration structure? Is it because you recognize that COVID costs and Target restructuring have unfairly prejudiced the MD and CFO's 2020 remuneration? And question 3, is there a basic disconnect between last year's scorecard and an incentive for a good strategy in long-term management?

I'm not quite sure if I understand the final question. That was, is there a disconnect...

Between last year's scorecard and an incentive for good strategy and long-term management.

No. On that, I don't think there's any disconnect at all. I think the whole plan is designed to focus people on the long term. And one of the ways we do that is that when we're working out what award you should achieve for the year just gone, it's not all based on the short-term profit. 60% of it is in the case of the CEO and the CFO, along with return on equity, but 40% is what we call non-financials. They think that we expect the CEO and the CFO to do that might have a cost now that have real long-term benefit for the Company. And so we are really adamant that those sort of things need to be in there. I mentioned in my earlier words the issue of take-home pay. I think frankly the ASA trying to push this is absolutely against the interest of their members. I think it's a more confusing thing than even the statutory report. What needs to happen I think is to -- is for the ASX and the ASA to come to some sort of view on how to have more transparent standardized form. We're not interested in putting in take-home pay, while there is no standard for it, while everyone does it differently, and as I say, while it's very confusing. As far as the fiddling so-called with the key program, I mentioned that we are fine-tuning it, we found actually that it was uncompetitive in some senses in that the tests that our management had to pass and hopes they had to go through were much more severe than any other companies where long-term incentives specifically are provided as a fixed amount each year. We're not going that far, but we think our plan is more testing, actually more demanding than most plans in the market, and we think it serves the purpose of providing or trying to ensure good long-term shareholder returns. Any more questions, Ruth?

No, chairman, not at this time.

All right. Thank you very much. Well, as there appear to be no further questions on remuneration, I'll now move on to the next item of business. That item is agenda 4 and it relates to the ground of deferred shares and performance shares to the Group Managing Director. Displayed on the screen is the position in relation to direct votes and proxies received, and as you can see, there is about -- there is 96.6% in favor, and that of course is prior to any revocations again that have occurred during this meeting. Now, for the benefit of those on the phone, I've mentioned that 96% and the Board believes actually certainly in my view that reflects all the discussions I've had with investors who were I think very supportive of the way we've structured our incentive plan and of the equity awards that we now seek approval for of the Chief Executive. So, are there any questions on this item, Ruth?

Thank you, Chairman. I've received no questions on this item.

Okay. If there are no further questions and approval is sought for the grant of deferred shares and performance shares to the Group Managing Director, Mr. Rob Scott, under the 2020 key plan on the term summarized in the explanatory notes to the notice of meeting. And I invite shareholders to cast their votes on that as we have not had any questions on it. So moving on, as the -- the next item is the last time, it's Item 5 of the Notice of Meeting, and this is in relation to the award of a long-term incentive regarding the performance of the Target stores converted to Kmart. Ruth, are there any questions on this item?

Thank you, Chairman. We've received no questions on this item.

Okay. So, displayed on the screen with this item is 95% in favor for those who are on the telephone, and of course, again, that's before any revocations may be and occurring at this meeting. Now, as explained in Mike Roche's covering letter to the remuneration report, we felt it was appropriate to reward the decisions made by Mr. Scott and Mr. Gianotti during the last year in relation to the Target business, and so, we constructed this one-off LTI as I see it in relation to the conversion of those stores. This will only be received, of course, if the projections that we provided to the Board of increased profitability and so on are achieved within the capital expenditure they outlined and the extent to which they add shareholder value in the future. So we provided then incentive and that's now up for resolution Number 5. Since I've outlined that Ruth, had there been any questions in relation to the resolution 5?

No, Chairman.

Okay. All right. So that approval is now sort, and just 1 moment, and people will have voted on that hopefully and that concludes the formal business of the meeting. And I'll -- we'll go on to general business and you can ask questions but I'll close the pole at the end of any items of general business. So if you're eligible to vote and you haven't yet cast your vote and wish to do so, please ensure that you cast your vote now. I will now move on to general business. Ruth, are there any questions in relation to general business?

Thank you, Chairman. We've received a number of questions for general business. The first is from Ms. Natasha Lee. Inventories are down slightly AUD3.806 billion in 2020 from AUD4.209 billion in 2019. I've noticed that many of the shelves that came out have been empty, which is not only annoying but potentially a lost sale. What has caused so many shelves to be bare?

Well, perhaps I can hand over to Rob Scott for this question.

Thanks, Chairman. Well, Ms. Lee, just in answering your question, from a financial point of view, the key variance item on inventories actually related to Bunnings inventory levels. Given the very strong demand we had for products towards the end of the financial year, we did see inventory levels go down across all of our businesses, but most notably, in terms of quantum in Bunnings. You do raise a good point about the availability issues that we had within Kmart in particular. We talked about that in some detail at our full year results and I also referred to those issues earlier in my address. The issues with lack of stock and availability in Kmart, particularly back in the time of June to August, really related to the very long lead times that we have within Kmart's supply chain. One of the unique benefits of the Kmart supply chain is that we order in bulk, we have long lead times, deal directly with factories, and that's why we offer such unique products at such exceptional prices, but one of the downsides is adjusting to spikes in demand and highly volatile demand patterns, which we had. Now pleasingly, in recent months, we've started to get the inventory back flowing into stores. We monitor that on a weekly basis. So I am pleased to say that we're in much better shape around inventory. We've actually ordered a significant amount more in the lead up to Christmas to ensure that we've got ample stock to meet demand. So we're optimistic that we'll be in good shape in the months ahead.

Thank you, Rob. Ruth?

Chairman, we've received a question from Ms. Sofie Sicilla Otley. Workplace OHS is paramount in the Company's work sphere, no more so than in Australia and with the global pandemic outbreak. The costs associated with an accident that may be linked to outdated policy and programs or just adequately trained staff can be enormous, not to mention the attack on the Company's reputation. I note that FMG, BHP, WesTrac to name a few are moving to voice activated reporting systems, and ensuring that OHS information and data feeds their decision making, thus eliminating paperwork and the need for burdensome and problematic written competency. With profit margins being susceptible to unplanned issues and workplace accidents and where a checklist compliance to OHS is insufficient, when was the Company's OHS program reviewed and staff audited for their knowledge and training status of reporting in this area. What is the status of preparedness of the current policy and programs to meet the needs of a modern integrated workforce in today's tech world?

Well I think, as a general rule across the group, we've got incredibly strong focus on workplace safety. And if you look at our statistics over the last 10 years, the number of accidents and incidents occurring down -- over the years has been falling dramatically. And included in the last year, as you saw in the annual report, each division of course runs autonomously but we overlay group policies and procedures and so on, in relation to reporting and following up on incidents. Rob, you might like to comment on the specific question about online reporting.

Thanks, Chairman. So in terms of the voice-activated reporting systems, we don't currently have those in place. We evaluate a whole range of options to make sure that we have more efficient, more practical solutions in the safety area. But just to go more deeply into your questions, we do have a very strong, continuous improvement program, we learn -- even though our businesses manage safety on an autonomous basis, we do share a lot of learnings. So a lot of learning such as -- issues such as items falling from height, forklift safety, a whole range of issues including now mental health and well-being, which is an additional focus. We also, in terms of our [ OH&S ] programs have a range of regular internal and external audits to monitor that. The final point I'd make which goes to your good point you mentioned around data and information feeds is that we've started to utilize some of the capabilities in our advanced analytics center to focus on opportunities to improve safety through analysis of vast amounts of data to identify some lead indicators and areas of additional focus. So that has been an enhancement to our safety and work in recent years, better analyzing advanced analytics to identify opportunities for improvement.

Well, thanks Rob, Ruth?

Thank you, Chairman. We received a question from Ms. Janet Broomfield in relation to Target and Kmart. And I'd note that we have also received similar questions from Mr. Hark and then Mr. Hart. Could Wesfarmers comment on the changes to Target and will you consider improving the quality of clothing such as throw away from the use of polyester or plastic clothing? I believe there is a move from throw-away clothing even prior to COVID induced rethinking, plus I believe there is a lot of real point of difference between Kmart and Target. Another question is, whether the buying public ask for the views on the type and quality of products, what do you think?

Well, certainly, maybe I could make some general comments. But we certainly do see quite a difference between Kmart and Target and we think the restructuring of Target will enhance that. We are, as we've announced converting around 90 Target stores to Kmart including about 40 small Target stores which will go into what we call the Kmart Hub based on our Anko experiments and research in the USA. And so far, those conversions are going extremely well. The gratifying thing I think about all of that is that the, we've been able to retain our team members in the K-Hub conversions we've retained 99% of the people that we had in there and in the large format conversions from Target to Kmart, we've retained 94%. The Kmart business has been absolutely fantastic over the years and we think that these conversions will really enhance that and will allow us to provide a product range across both of those networks that will, that is what our customers demand. Rob, do you want to add anything further?

Sure. Thanks, Chairman. I'll just make a couple of additional comments. We continue to focus on opportunities to improve the quality of products, but still maintaining very, very keen prices. You talked about polyester. Clearly, there are a lot of polyester products available in the market and there is a strong customer demand for those products. We have started to include additional natural cotton products, we've also started to utilize input for products where there is recycled plastics, for example, recycled bottles going into active wear, as an example. So we're always looking to innovate our product range. We've also been allocating some effort to looking at new technology opportunities to support the recycling of polyester products, there are some emerging technologies that we are looking at and in various parts of the world to see if there are ways in which we can contribute to commercializing those opportunities. The final point I'd make, and it goes beyond just apparel, there's been enormous progress in Kmart and Target over the last year to remove a lot of plastic items. So we've removed over 500 million items of plastic, now a large number of those relate to the single-use plastic bags. But even over and above that, over 100 million items of plastic in areas such as plastic spoons, replacing the plastic stems in cotton tips, continuing to promote BCI cotton in new products. So there's a lot that we've done in the last year and there is more opportunities that we think we have to improve this going forward.

Okay. Ruth?

Thank you, Chairman. We've received 2 related questions on Australian made products, Australian manufacturing and ethical sourcing. I'll read both questions out before handing to you for a response. The first is asked by Mr. Bennett Lola, why doesn't Bunnings and Blackwoods promote more Australian made products? Bunning seems reliant on Chinese manufacturing. For example, almost the entire paint section is made in China. Why can't Wesfarmers set up their own factory to produce Australian made paintbrushes and painting related products? Surely, with the right level of automation, we could be competitive and reduce reliance on China. China has a problem with human rights violations. We should be moving our supply chains away from China and looking for alternative suppliers. The second is from Mrs. Leslie Keton who has provided a number of questions and some context for her concerns. I applaud the conduct of the Board and executive team and the hard working staff during difficult times. I'm concerned that the Group's retail sectors are heavily skewed towards imports of cheap products from countries where wages are appallingly low end discriminatory. We in Australia are confronting the job losses and some export challenges. What are we, as a company, doing to encourage import replacement and locally manufactured product even if this means paying a slightly higher price? We could be playing a leading role in buying Australian and changing a culture of cheap and nasty now you consumerism. I'm aware that there is an increasingly significant appetite for Australians to buy quality local product even at a premium. I have no doubt that if Bunning, for example, would aggregate the national purchase of many, many products, this will provide many economically viable business case for producers to tool up and create jobs -- forgive me, sorry, tool up and supply quality products and create jobs. Further, we would not be held to ransom by countries and factors beyond our control. If we continue as we are, assuming this becomes possible again, we are complicit in the loss of the manufacturing capacity and jobs where cheap labor is effectively being dumped into Australia. The Wesfarmers Group has an important and an immediate opportunity to show leadership and encouraging new local businesses and creating huge job opportunities, contributing to improving our balance of payments numbers. As an unquestionably ethical company, we should not be complicit in the payment of peasant-grade wages for imports, no matter how tempting the resultant prices may be. Not only is this unethical, but it also deprives Australians of job opportunities when we can least afford to do so. Finally, I refer to the Managing Director's report where he states we need to treat our suppliers fairly, contribute positively to the communities in which we operate, and act with integrity and honesty in all our dealings. Wesfarmers can certainly lead the way in import replacement and buy Australian strategy. I welcome your response.