Wesfarmers says it’s under no pressure to make acquisitions after the Coles float

  • Wesfarmers won’t be pressured into making acquisitions after the Coles float.
  • Chairman Michael Chaney says the financial strength of Wesfarmers doesn’t mean that there’s urgency to make acquisitions.
  • He was speaking to the company’s AGM in Perth.

Wesfarmers chairman Michael Chaney says the company is under no pressure to make acquisitions.

Analyst say the group could mount a purchase as large as $10 billion after the float of the supermarket business Coles.

However, Chaney told the AGM in Perth today he is bemused when he sees reports suggesting Wesfarmers is under pressure to make an acquisition to fill an earnings hole left after the Coles demerger.

“There is, of course, no earnings hole: the demerger simply splits what was one group profit into separate profits, for a smaller Wesfarmers and for Coles,” he told shareholders.

“And the financial strength of Wesfarmers doesn’t mean that we feel any urgency to make new acquisitions.

“Apart from there being many opportunities for growth within our existing businesses, new investments will only occur if they have the potential to deliver superior returns to our shareholders over the long term.”

Wesfarmers plans to keep a minority ownership interest of up to 20% in Coles and a substantial ownership stake in the supermarket chain’s loyalty program, flybuys.

Chaney says the obsessive focus of many investors, analysts and journalists on short-term profit growth is an issue for listed companies.

“This unreasonable focus was undoubtedly a factor in giving rise to the sorts of unacceptable behaviours we have all read about in reports on the Banking Royal Commission,” says Chaney.

“In endeavouring to satisfy market and press demands for short-term profit growth — to achieve what is called consensus forecasts — management sought to motivate employees through incentive schemes and these led to some employees and agents bending the rules.

“We even had one well-known analyst declaring that it was all very well for companies to talk about a long term focus, but they should appreciate that people like him and investors were just focused on the next few years’ performance.

“Let me make it very clear that your Board and management are focused on wealth creation for shareholders over the long term, not the short term.

“That means we may make investments that take a while to generate good returns and that our short-term profit growth may not be what some analysts or journalists demand.”

Managing director Rob Scott says Coles remains focused on customers and delivering sustainable earnings growth as it heads to the demerger.

He says the outlook for Bunnings remains positive.