Wesfarmers has hinted that its various businesses are finding conditions a bit tougher than in the 2010 financial year.
Wet weather has hit its coal mining activities, especially in Queensland, and affected its Bunnings hardware business, while price deflation and more constrained consumers seems to be impacting on other areas of activity, especially in some divisions of retailer, Coles Group.
"Since we reported first quarter sales in our retail businesses, Coles, especially has continued to show strong sales momentum," CEO, Richard Goyder told the AGM in Perth yesterday.
But he added the company continues "to remain cautious towards potential negative factors, such as increasing interest rates and general economic uncertainty, which would place additional pressure on household budgets or consumer confidence. This is particularly so in the lead up to Christmas. "
"Since the end of the financial year, our businesses have continued to build upon the strong momentum achieved in 2010.
"Current trading across the group is in line with expectations and reflective of mixed conditions experienced by the Group’s diverse business operations.
"Our retail businesses have reported solid sales for the first quarter of 2011, headlined by Coles food and liquor comparable store sales growth of 6.2 per cent.
"Growth has been strongest in the Group’s turnaround business of Coles, Kmart and Officeworks while results in Bunnings and Target were still pleasing given the backdrop of the significant growth reported by Bunnings in the prior corresponding period, wetter and cooler weather conditions across many of these two businesses key markets on the east coast of Australia and an environment where price deflation was evident in the market.
"It is clear that the consumer has remained strongly value focused and purposeful and all our businesses have been working hard, and will continue to work hard, to ensure that their customer offers continue to drive growth in this environment.
"As I mentioned earlier, our resources business has been affected by very wet weather in the Bowen Basin, where our Curragh mine is located, which has led to reduced production and associated increases in cost, Mr Goyder told the meeting.
He warned that the Curragh mine would not be able to make up the lost sales from the wet weather over the rest of the 2011 financial year.
"Our team in Resources is now working hard to make up lost production, however due to wash plant capacity limitations, in the absence of materially higher coal prices in the second half we do not expect to be able to make up all of the impact over the full year."
But that hasn’t stopped the company working on the already announced expansion of Curragh by 1.5 million tonnes a year (around 25% of existing capacity), and Mr Goyder yesterday revealed a further plan to expand the mine was now being considered.
"Our business at Curragh is also strongly focused on the significant work underway to complete the 1.5 million tonnes per annum expansion of Curragh’s future production capacity which we expect to be completed by the fourth quarter of calendar year 2011.
"We have also just begun further feasibility work to assess the merit of expanding the mine to 10 million tonnes per annum export capacity."
He said Wesfarmers’ industrial businesses "have started the year well."
"Industrial and Safety has worked hard to place itself in a position to be able to benefit from strong levels of demand coming out of the resource industry.
"Our Chemicals, Energy and Fertiliser division continues to benefit from strong demand for ammonium nitrate and a return to more historical margins in fertiliser.
"The work done in our Insurance business over the last year in bringing better capability into this division and better risk assessment continues to drive improved performance, despite the impacts from the recent Christchurch earthquakes."
Wesfarmers’ shares ended the day down 26c at $33.56.
The AGM started at 4 pm Eastern Time, when the ASX’s trading for the day ended.
