Tax cuts, low rates to boost growth: Wesfarmers’ Rob Scott
Wesfarmers CEO Rob Scott talks up the economy’s prospects as key policy settings build a platform for growth.
Wesfarmers chief executive Rob Scott has talked up the economy’s prospects as key policy settings such as lower taxes and interest rate cuts build a platform for growth, but warns the nation is not immune to global tensions that could rattle consumers and the market.
Singling out the protracted war of words between the US and China over trade, Mr Scott said the conglomerate would focus on strengthening its portfolio, stretching from the Bunnings hardware chain to chemicals businesses, to ensure they come through any downturn with as little bruising as possible.
At the same time Mr Scott took a more conciliatory view of Treasurer Josh Frydenberg’s call for businesses to invest for growth rather than buying back shares and handing out dividends. The Wesfarmers boss argued companies could invest to drive up productivity while also paying out dividends.
“We feel there is an opportunity to both reward our shareholders with franked dividends — which frankly don’t have any value to us; they only have value to our shareholders — but to also invest in the future of our business,” Mr Scott said.
With Wesfarmers walking away last week from its $1.5 billion takeover bid for rare earths group Lynas, but likely to soon wrap up its $776m takeover bid for lithium player Kidman Resources, Mr Scott has plenty of other projects to get on with, such as getting the under-pressure Kmart and Target retail chains into shape.
Mr Scott believes long-time underperformer Target should be smaller and better differentiate itself from stablemate Kmart by going upmarket in terms of quality and fashion sense.
Following the release of Wesfarmers’ full-year results yesterday, which unveiled a net profit of $5.5bn, up 360 per cent on a statutory basis thanks to a string of asset sales and the demerger of Coles, Mr Scott said the economy was doing as well as in most countries but there were dangers.
“There are a few things on the horizon which could well deliver some improvement over time, such as tax relief, such as stabilisation of housing prices, lower interest rates, but then I guess that those potential positives need to be seen in light of quite a volatile global economic environment,’’ Mr Scott said.
“I wouldn’t necessarily say the consumer environment is negative. While there might be some challenges out there, the consumer market isn’t too bad and we are able to generate growth.
“I don’t think anyone is confident enough to make calls on broader global environment. And we are not immune to what happens globally particularly as it relates to China-US trade relations, so that’s why we are focused on (making) each of our businesses as well-positioned as possible.’’
Wesfarmers’ flagship Bunnings and Officeworks chains are well-placed, with earnings gains for the latest year helping to offset Kmart and Target, which are struggling to grow profitably, while the industrial and safety division was also disappointing.
Hardware giant Bunnings, which accounts for just over 50 per cent of total group earnings, posted an 8.1 per cent gain in earning before interest and tax to $1.626bn, while Officeworks punched above its weight, ringing up a 7.1 per cent increase in earnings to $167m.
Wesfarmers said net profit from continuing operations increased 13.5 per cent (excluding significant items in the prior year) to $1.94bn.
The bottom line result was helped by $3.171bn in gains relating to discontinued operations including the demerger of Coles and the disposal of Bengalla coal, Kmart Tyre and Auto Service and Quadrant Energy, which were completed during the first half of the year.
But it was the discount department stores that again caused heartburn for Mr Scott and shareholders, with both chains facing falling earnings as yet another transformation in a long line of restructures stretching back almost 10 years fails to resuscitate profitability.
Kmart group operations, which includes Target, recorded a 13.7 per cent slide in earnings to $540m. Like-for-like sales growth at Kmart was flat, while Target comparative sales fell 0.8 per cent, although that was an improvement on the 5.1 per cent sales dive in 2018.
Wesfarmers said the earnings decline at Kmart was driven by moderating sales momentum and an increase in stock loss, while at Target the falling profits were triggered by a lower operating leverage from the decline in sales. But Mr Scott isn’t giving up on serial laggard Target yet.
“The opportunity we see is to better distinguish the offer of Target from Kmart,” he said.
“If you look over the last eight years or so they were too similar and we see we are getting better sales in those categories within Target when we go a bit upmarket on the quality side, better style, investing more in the product. Those products seem to be better resonating with customers.
“Over time the opportunity is for Target to be a smaller, more focused and more profitable business.’’
Wesfarmers declared a fully franked final dividend of 78c per share, reflecting earnings from continuing operations and Wesfarmers’ dividend policy, which takes into account available franking credits, current earnings and cash flows, future cash flow requirements and targeted credit metrics.
This brings the full-year dividend to $1.78 per share and total dividends to shareholders this year to $2.78, including the special dividend of $1 paid in April. The final dividend will be paid on October 9.
Shares in Wesfarmers ended up 41c, or 1.06 per cent, at $39.10.
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