Wesfarmers (WES) is handing out cash by the truck load to shareholders to celebrate not only its 100th year in business, but also another solid full year result.
In yesterday’s 2013-14 profit result, the company announced plans to return $1.1 billion, or $1 a share, to shareholders after selling its insurance operations for $3 billion earlier this year.
Wesfarmers shares were up 3.77% to $45.66 by the close yesterday, as investors cheered the largesse, especially news of the buyback.
Managing Director Richard Goyder said in yesterday’s statement that it was pleasing to have recorded a solid increase in underlying profit in its centenary year.
"Growth in underlying earnings during the year was largely driven by stronger performances in Coles and Bunnings and lower financing costs," he said.
The distribution which is likely to take the form of a capital return and a full franked dividend, is subject to approval by the Australian Taxation Office and shareholder approval at the annual meeting later this year.
On top of that shareholders will receive more cash via a higher dividend and a special payment to celebrate the company’s centenary.
The $1.05 final ordinary dividend helped lift the total annual payout by 5.6% to $1.90.
In addition, shareholders will be rewarded an extra 10c a share "centenary dividend" taking the full year total to $2. The full year payout for 2012-13 was $1.80 a share.
Wesfarmers returned 50c a share or $580 million, to shareholders in November of last year, so this year’s figure will be double that.
The capital return was widely expected by investors after the sale of the insurance business to Insurance Australia Group.
Finance director Terry Bowen said the capital management was being undertaken to return a portion of surplus capital to shareholders and ensure a more efficient capital structure.
The company told the ASX yesterday that thanks to earnings growth from its Coles supermarkets, Bunnings hardware chain and the Officeworks business net profit rose 6.1% to $2.39 billion on an underlying basis.
The higher profit was struck on a 4.2% lift in revenue to $62.348 billion.
WES Vs WOW 1Y – Coles, Officeworks, Bunnings boost Wesfarmers
The better returns from the trio offset the expected weaker earnings from coal, the Target department store chain and the company’s chemicals business which must now be close to being put up for sale.
The company booked net one-off gains of $291 million from the sale of its insurance operations to IAG, sending net profit from all sources up by close on 19% to $2.69 billion.
The profit on the insurance sale more than offset the $677 million write-down in the value of the goodwill attached to Target.
On a group earnings before interest and tax, and one-off items basis, the result was less sparkly with a 3.5% rise to $3.78 billion.
Coles 9.1% growth in earnings before interest and tax, to $1.672 billion, and the 8.3% rise in Bunnings’ EBIT to $979 million, more than offset the 37% slide in Target’s EBIT, a 12% drop for coal to $130 million.
The Chemicals, Energy and Fertilisers division earned $221 million down 11.2%, while earnings at the Industrial and Safety division plunged $34 million to $131 million.
Officeworks saw earnings rise 10.8% to $103 million. Target continues to drag the chain, as it has done for the past two years.
This year’s slide in Target’s earnings to $86 million was made to look a dunce by K-Mart, which lifted earnings 6.4% to $366 million, thanks to a solid second half performance, and especially in the fourth quarter with a 2.2% rise in headline sales and 1.5% rise in same store sales.
Looking to the rest of 2014-15, Wesfarmers was very circumspect – no forecasts of sales or profit growth. There was an expectation that the businesses will grow.
"The Group’s retail businesses are expected to grow as they improve customer propositions through innovation in customer service and merchandise offers, and develop and expand channel reach through the growth and optimisation of store networks and digital platforms.
"The retail businesses will also look to further invest productivity gains, better sourcing and supply chain efficiencies into increased value for customers.
"Coles, Bunnings, Officeworks and Kmart all have good momentum as they lead into the 2015 financial year, while Target is expected to undergo significant change and improve as it progresses its transformation plan.
"Good market positions support a positive long-term outlook for the Group’s industrial businesses.
"In the Chemicals, Energy and Fertilisers division, the benefit from a full-year of expanded ammonium nitrate capacity is expected to be offset by a planned shutdown of the ammonia plant, a full-year of increased gas input costs and the loss of carbon abatement income. A strong recent grain harvest affords a positive outlook for the fertilisers business, subject to seasonal conditions.
"A strong focus on productivity and cost control will continue in the Resources division, with pricing pressures expected to continue into the new financial year with recent price settlements for Australian export hard coking coal below those recorded in the prior comparable period.
"In the Industrial and Safety division, market conditions are expected to remain subdued. Within this environment, the division will continue to focus on expanding its addressable market and reducing its costs of doing business," the company said in yesterday’s statement.
WES Results Video
