Wesfarmers will embark on a $3 billion expansion plan this financial year as it shrugs off a hit from natural disasters and weak consumer sentiment.
The owner of retailers Coles and Bunnings and coal mines says the current phase of capital investment will strengthen its market presence and improve the group’s financial performance.
“We’ve got a pretty positive view on the outlook for the group,” chief executive Richard Goyder told reporters after the company posted a 23 per cent rise in full year profit.
“We have got a very good portfolio of assets. Some that are in turnaround mode, some that have got good momentum and some in which we’re investing significantly.”
But he said the outlook was dependent on how the Australian and New Zealand economies performed, which in turn depended on the international outlook, commodity prices and significant weather events.
While Mr Goyder refused to offer guidance on earnings growth for the group’s retail businesses, investors went on a buying spree.
That sent its share price up to $31.29 in intraday trade, before coming back to close 11 cents higher at $30.41 on a day the broader market was down 1.2 per cent.
Wesfarmers says it has “solid operating fundamentals” in place across the divisions and expects a recovery from one-off impacts associated with natural disasters experienced during fiscal 2011.
Wesfarmers’ insurance division took a hit due to the recent natural disasters, with earnings falling $102 million to $20 million.
The diversified conglomerate expects insurance earnings to improve, but higher reinsurance costs will add pressure to underwriting margins.
Still, it says its retail brands are well-placed given they sold staples such as groceries and compete on price.
Net profit rose to $1.92 billion for the 12 months to June 30, from $1.56 billion a year earlier, while revenue increased six per cent to $54.875 billion.
The result comes after ratings agency Standard and Poor’s recently upgraded Wesfarmers to -A stable.
Mr Goyder said the group was in a phase of “strong capital expenditure for growth”.
“We expect to spend around $3 billion on capital expenditure in the next year,” he said.
Wesfarmers will invest the money in mine and industrial expansion as well as retail property investments and store upgrades at Bunnings and Target.
The Coles division delivered strong earnings growth of 21.2 per cent for the year to $1.17 billion.
The result showed Coles’ turnaround remained “on track”, with the business growing faster than the market for nine consecutive quarters, Wesfarmers said.
Bunnings’ earnings increased 10.2 per cent to $802 million, representing “another good result”, with growth from both consumer and commercial customers, it said.
