Wesfarmers in no rush for acquisitions

18/11/2020

With sales from businesses such as Bunnings and Officeworks growing by almost a third in the first four months of 2021, Wesfarmers says it is still in no rush to make acquisitions, even though it has plenty of cash after selling most of its stake in Coles for $2 billion, according to a recent Australian Financial Review report.

With net cash on the balance sheet of $470 million, Wesfarmers has the capacity to borrow $10 billion to fund acquisitions, with analysts drawing up a wide-ranging list of potential targets, according to the report.

However, given the strong businesses Wesfarmers already owned and potential for organic growth the conglomerate was happy to sit tight, according to Chairman, Michael Chaney.

“We certainly feel no urgency about acquiring anything else. We shall endeavour 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,” Mr Chaney said in the report.

“That is the value of being a conglomerate – we do not feel any obligation to expand in a particular direction or build a new empire, but we are ready to make an acquisition if the right opportunity arises at the right sort of value,” he said.

Wesfarmers started the new financial year with a bang, with sales at Bunnings, which now accounts for about 65 per cent of group earnings, rising 25 per cent in the four months ending October, even though stores in Melbourne were closed to retail shoppers for three months.

According to the Australian Financial Review report, Bunnings’ same-store sales rose 30.9 per cent in the four-month period, after growing 25.8 per cent in the June-half, as consumers spent more time undertaking DIY and renovation projects around the home and garden – excluding metropolitan Melbourne stores, total sales rose 29.3 per cent.

Wesfarmers’ online sales across the group, excluding Catch Group, soared 166 per cent – beating the first-quarter online growth at Woolworths – buoyed by strong online demand from locked-down shoppers in Melbourne. Excluding online sales in metropolitan Melbourne, online sales rose 98 per cent.

Including Catch, total online sales across the group rose to $1.3 billion in the year to date, compared with $2 billion in the entire 2020 year.

Wesfarmers Managing Director, Rob Scott, said the performance across the group had been pleasing and trading across stores in Melbourne had been very strong since they reopened to retail customers on October 28.

Mr Scott said the group was optimistic about trading for its retail businesses for the rest of this calendar year, subject to no further major COVID-19 outbreaks, according to the Australian Financial Review report.

“The longer-term outlook remains uncertain and will depend on a range of factors including future treatment and management of COVID-19, the capacity of businesses to maintain operations, the extent of recovery in employment levels and future government stimulus and reform. Even with a vaccine, we will likely be living with the risks of COVID-19 for months, if not years,” Mr Scott said.

Mr Chaney echoed Mr Scott’s comments saying, “We don’t know what will happen when government support diminishes and don’t know when international borders will be open … the one big implication is to make sure you have a strong balance sheet because we want to be prepared for anything that happens.”

Wesfarmers’ COVID-19-related costs totalled about $23 million for the four months ending October, well below the $176 million incurred at Woolworths or $65 million at Coles in the September quarter. The group expects to incur costs of about $15 million a quarter while the threat of COVID-19 persisted, according to the report.

Mr Chaney reiterated his previous calls for changes in industrial relations, taxation and regulation.

“We are a huge employer of people and are 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,” Mr Chaney said.

“The enormous government debt burden that has arisen from COVID-19 makes change in these areas even more critical than before if we are to ensure that our next generation have gainful employment and access to all the social services which we take for granted. It will require inspired and determined governments to achieve this,” he said in the report.