Wesfarmers in $600m capital return
Wesfarmers will thrust nearly $600 million of cash into shareholders' pockets as a reward for enduring its high-stakes decision to bet the company on Coles, but has denied the surprise capital return means a lack of growth opportunities to further plump up its weighty conglomerate frame.
With more than $2 billion set aside for capital expenditure in the year ahead, much of which will be poured into refurbishing Coles supermarkets, building new ones and opening 20 Bunnings sites, Wesfarmers will harness the rivers of cash flowing from its retail businesses to fund acquisitions - possibly going offshore for the first time.
Not in the mood for running a smaller company either, a divestment of any existing businesses, such as its hardware category killer Bunnings, was also off the agenda, with Wesfarmers chief executive Richard Goyder adamant he was happy to lead one of the few conglomerates still listed on the Australian sharemarket.
"We think the conglomerate model has worked," Mr Goyder said on Thursday as he unveiled Wesfarmers' full-year profit, which rose 6.3 per cent to $2.261 billion as revenue lifted 3 per cent to $59.83 billion. Free cash-flow raced ahead 47.5 per cent to $2.17 billion.
"For most of the 29 years as a listed company, the value of the whole has been more than the value of the component parts of the business and that goes to our capacity to do things from a portfolio point of view," Mr Goyder said.
"There is no attraction to me at all to spinning off a business unless it is demonstrably beneficial to shareholders in doing that, and I don't think there is a situation in existence for any of our businesses at the moment."
As he scoured the globe for acquisitions, with a new Wesfarmers team in Hong Kong reportedly kicking the tyres of a few businesses, including some owned by billionaire and tycoon Li Ka-shing, Mr Goyder said any maiden deal offshore for the Perth group would have to meet higher investment hurdles than for acquisitions in Australia.
"It's natural we would be thinking of going offshore because we have a substantial presence in Australia but we are not in any way seduced ... on going offshore. We need to be very careful, very considered in anything we do offshore, got to be very confident, as it's in a more complex environment.
"Our investment hurdle rate into an offshore market would be higher than ... in Australia because of the risks assigned with doing that."
In the meantime, shareholders will receive a special capital return of 50¢ per share - amounting to $579 million in total - and a share consolidation, which will uplift earnings per share. It is only the third capital return in 10 years.
"We are doing it for all the right reasons, which are we have the capacity to do it and we don't want to have an inefficient balance sheet and it does reward shareholders - and we always look to do that.
"It's a nice Christmas present for them."
The payment, which will need the approval of the Tax Office and shareholders at the annual meeting, will also be followed by a share consolidation of Wesfarmers shares, with one share converting into 0.9876 shares.
Mr Goyder said investors were also being rewarded following the last six years of turning around the Coles business, which it bought for $18 billion and which hamstrung cash reserves as it was rebuilt and hurt some measures of investment returns for the group.
"Certainly through periods of the Coles transition we had to ensure we had a very strong balance sheet to do the things we needed to do," he said.
Coles was again the star performer within the Wesfarmers group, posting a 13.1 per cent rise in earnings to $1.533 billion ahead of sales growth of 5.2 per cent.
Bunnings also muscled in to maintain its star halo, with earnings up 7.5 per cent to $904 million. Sales growth was 7 per cent.
On top of the 50¢ per share capital return, Wesfarmers declared a final dividend of $1.03 per share, taking full-year dividends to $1.80 per share, up 9.1 per cent.