Wesfarmers has significantly changed its capital balance, taking $800 million from its three retail divisions and investing $600m more in its chemicals division ahead of its lithium expansion.
The move was revealed in the conglomerate’s strong profit announcement which was led by Bunnings, which increased earnings by 36 per cent to $1.3 billion.
The retailer has done well in the mass shift to home spending during the COVID-19 pandemic.
But the bean counters at Wesfarmers cut its capital expenditure by $50 million to $219 million and its capital by $400 million.
Wesfarmers’ return on capital was a solid 24.7 per cent, led again by Bunnings with an extraordinary 76.6 per cent return on capital.
Kmart and Target returned 36 per cent with a 42 per cent increase in earnings to $487 million.
Kmart too lost $300 million in capital while the chemical division capital increased by $600 million to $2.1 billion.
Wesfarmers is driven by returns on capital as the main drivers of business performance and the capital moves highlight a shift in strategy for the company.
The capital moves highlight the conglomerate nature of the company even though the three retail divisions accounted for 87 per cent of earnings, with Bunnings accounting for 59 per cent of Wesfarmers profits.
Industrial and safety showed some growth but its return on capital was at 5.4 per cent.
Chief Rob Scott was bullish in his outlook, noting the rebound in the economy.
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