Wesfarmers keeps long-term focus
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Christine St Anne: Fresh from last weekï¿½s profit results, Wesfarmers Chief Executive, Richard Goyder, spoke at a recent Financial Services Council lunch. Goyder spoke about managing a Group that operates eight businesses and employs over 200,000 people.
Richard Goyder: So, I think it's a testament to the leadership that's been at Wesfarmers, the Board, but also to the fact that we operate in a country where free enterprise has been supported and rewarded and that's enabled the Company to grow.
St Anne: Goyder drew on the Companyï¿½s rural heritage. He said the farming roots behind the Company allowed Wesfarmers to maintain its long-term focus.
Goyder: There has been one really important aspect to Wesfarmers over the years and that's that we've taken a long-term view of things. Weï¿½ve tried not to become hostage to short-termism. Although we report sales quarterly, we report results on a half yearly basis, and there are things that - fads and things that come through from time-to-time, we've tried to look through cycles and weï¿½ve tried to invest and run the Company for the long term, and I think our rural heritage has helped enormously on that.
When I joined the Company in ï¿½93, the Board consisted ï¿½ the non-executive directors were entirely farmers, and now we have no farmers on the Board, I think. We still have a culture, which goes back to those farmer cooperative days, and that is we know things bad can happen in the short-term, but we run the business for the long term.
St Anne: He also spoke about the key aspects that made Wesfarmers a successful business.
Goyder: We have three key inputs; access to capital, which is so critical, and that's from our shareholders and from our providers of debt. Incredibly important is superior people resources, and just as investing in capital is a really key decision, so is investing in people, and we invest heavily in people and I invest a lot of my time in people.
Every company says this, but we really do think that our employees provide a long-term sustainable competitive advantage, if we get it right, and clearly we are in some businesses at the moment and others we've got some work to do. And then we have this thing called strong corporate infrastructure, so we let the businesses get on and run the businesses. We have strong governance over the businesses, we have a strong say on things like people, capital and our reporting systems and obviously around integrity, but we let the businesses get on. We are very financially focused.
St Anne: Goyder was also confident with the growing number of its core businesses.
Goyder: Weï¿½ve got, you know, I would say this, a portfolio of quality businesses. We think we can grow them. We look to value add to the group through transactions like buying and selling businesses and, as I said, we look to do it over the long term.
The outputs that we're hoping to get are superior long-term financial performance for our shareholders and we measure that through a total shareholder return and a reputation as an admired Company, and that obviously depends on your financial performance, but then it depends on the way you can operate within the communities as well, and we take that pretty seriously.
St Anne: Consistent with the long term focus, Wesfarmers would also continue to invest through all market cycles.
Goyder: As I said, investing in people is important, but investing in the business is important, and we do invest through the cycle. This chart just shows you what our capital expenditure has been, and basically we've been spending in gross, this is net, in gross terms over $2 billion per annum. Our depreciation runs at about $1 billion. So we're spending well over $1 billion in growth capital in the business over the last few years.
So, if you think about that over three years, that will be somewhere between $4 billion and $5 billion of new growth capital invested in the business, which on its own, would be a sizeable acquisition. Now we're doing it through investing in our existing businesses, which we like doing, but we haven't pulled back at all on our investments and in fact a good example of that would be the Curragh expansion.
We just now commissioned our new wash plant at Curragh and we've got an operating capacity there of up to 8.5 million tons of export coal. This is our coal mine in the Bowen Basin in Queensland. And we made that decision in 2009 and we quite deliberately went to the Board and we said we want to spend a few hundred million dollars. And this is a time when everyone was negative on the outlook of coal, but we actually think longer term, the outlook for metallurgical coal is good.
St Anne: He labeled market criticism that the Company was not getting any return on its new investments as being too focused on the short-term.
Goyder: The problem with that is if youï¿½re going to spend $550 million building an ammonium nitrate plant, it takes you about three years to build it, two to three years to build. You don't get any return until you start producing that ammonium nitrate. Actually, you do have to invest upfront to get a return down the track. Weï¿½re confident weï¿½ll get a return down the track and people who are impatient for returns are just going to have to wait.
St Anne: As a favored income stock, Goyder also remained committed to growing the Companyï¿½s dividends.
Goyder: And the other thing we've tried to do on the yellow charts here is growing our dividends over time, and no doubt one of the reasons our results last week were received in a positive sense was the increase in our final dividend to $0.95 fully franked, and we're endeavoring to give our shareholders a lot of the profit we generate.
St Anne: Christine St Anne for Morningstar.
|This report appeared on www.morningstar.com.au||2013 Morningstar Australasia Pty Limited|
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