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Wesfarmers Cutting Capital Expenditure and Boosting Investments

Wesfarmers Cutting Capital Expenditure and Boosting Investments
May 20, 2015 By Simon Herrmann

Australian retail, industrial and resource giant Wesfarmers (ASX:WES) has announced a plan to cut between $200m and $400m in capital expenditures. The company said it wanted to trim the fat and reinvest its savings into its top performing businesses. Bunnings and Coles, both owned by Wesfarmers, have received a boost in performance after spending projects revitalised struggling sectors of the companies. The company also said it would spend less on its business that are struggling to deliver positive returns.

Finance director Terry Bowen said Wesfarmers would invest net capex between $1.3bn and $1.5bn this year. Part of the investment will come from $700m in property sales. The total sum of investments is down from the company’s previous projections of $1.5bn to $1.9bn for 2015. Investors have put pressure on the conglomerate to redirect investments from waning industries such as coal and chemicals to stronger industries such as home improvement and its grocery business. Wesfarmers’ struggling industries include Target, chemicals and fertilisers, coal and industrial safety, which have lost the company about $563m over the last two years. But these losses have almost been offset by $504m in gains in its strongest industries, including Coles, Bunnings and Kmart.

During its strategy presentation on Wednesday, Wesfarmers did not specify how exactly it would allocate capex investments. However, it did detail plans to open and refurbish more Coles supermarket stores. Chief Executive Officer Richard Goyder discussed how the company wanted to reinvest its record growth on Wednesday. “We want to grow profits through sales not by building margins behind the businesses," he said. "We have invested $14 billion since 2009 - through that period our return on capital and return on equity has increased.” Shares of WES have fallen 32c, or .73 per cent, at $43.39 per share around 2:50pm on Wednesday. WES has advanced 1.56 per cent in the last 12 months and 3.94 per cent so far this year.

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Simon Herrmann Author: Simon Herrmann May 20, 2015

Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.

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