Wesfarmers splashes cash

WESFARMERS has trumpeted the strength of its conglomerate model through the Covid-19 pandemic, with four of its five divisions posting earnings growth in 2021, led by profit juggernaut Bunnings, enabling it to deliver a $2.3bn capital return to shareholders.

It emerged from the first year of the pandemic carrying no net debt – unusual for a company of Wesfarmers’ size – a rising return on equity that is at its highest level in years and even growing profitability from its once troubled discount department store stablemates Kmart and Target.

However, the Perth-based conglomerate is showing some bruises and scars from Covid-19 and the fresh round of lockdowns inflicted on most of the eastern states since July.

Wesfarmers chief executive Rob Scott warned the impact on household and business confidence had become more acute as recent lockdowns were extended, with further restrictions to negatively impact business activity and the group’s trading performance.

“The big issue at a national level, which is unique, is that we have both of our largest cities, Melbourne and Sydney, in lockdown so this is the first time we have had that for an extended period of time,” Mr Scott said.

“And interestingly we are seeing probably a greater lack of confidence emerging in Melbourne … the longer the lockdowns last the more the hit to both consumer and business confidence and we are really starting to see that, particularly on the small business side in Victoria.

“At the moment the sales impact is challenging and the next couple of months are going to be really challenging, but what is on my mind is less on the short-term impact of profit and more about how do we support our team and the community.”

Currently, Wesfarmers has as many as 2500 staff members in isolation while Bunnings through the pandemic had racked up a total of 9000 workers lost to forced isolations, throwing into chaos everything from distribution centres and logistics to filling shifts at the local Bunnings or Kmart. It will continue to pay staff in isolation or who have no work, costing Wesfarmers an extra $2m to $4m a week.

Reporting the company’s annual results on Friday, which showed net profit up 40.2 per cent to $2.38bn as sales rose 10 per cent to $33.94bn, Mr Scott revealed a dent to its strong profit and sales momentum coming out of 2021 driven by lockdowns and shuttered stores.

The poor performance was most acute for its Kmart and Target chains, which recorded a 14.3 per cent slide in sales since July – worsened by the permanent closure of some stores.

Wesfarmers joined the ranks of Australian companies showering their shareholders with capital returns, dividend and special dividends this reporting season, announcing a $2.3bn capital return.

Wesfarmers announced a proposed return of capital to shareholders of $2 per share. The distribution is subject to approval by Wesfarmers shareholders at the annual general meeting on October 21.

“We had an opportunity to do a capital return and that is quite tax effective for shareholders. For most shareholders that will be a tax free capital return,” Mr Scott said.