WESFARMERS managing director Richard Goyder has highlighted the strength of the conglomerate's balance sheet as he prepares to invest another $2 billion in capital and pursue further acquisitions.
The Australian Financial Review reports Mr Goyder said Wesfarmers – once considered highly geared – could repay net debt of $5 billion from annual operating cash flows.
"We could comfortably be able to pay debt during any one year through operating cash flows, which is a great position for a business to be in, large or small," Mr Goyder told a Financial Services Association lunch in Sydney.
Rather than repay debt, however, Wesfarmers is continuing to invest capital at historically high levels to underpin future profit growth.
Last week Mr Goyder revealed plans to invest more than $2 billion in capital expenditure this year, developing new Coles and Bunnings stores and expanding ammonium nitrate capacity at Kwinana.
He has also flagged further acquisitions, although he said returns from purchases would be weighed against the benefits of capital management.
Mr Goyder said yesterday Wesfarmers' $19 billion acquisition of the Coles Group in 2007 reflected the risk the company was prepared to take to drive long-term growth.
Since the acquisition, Wesfarmers' sales have risen from $9.7 billion in 2007 to $58 billion in 2012 and net profit from $795 million to $2.14 billion.
However, Wesfarmers' return on capital remains well below its level before the Coles acquisition and below group weighted-average cost of capital, because of the new capital raised in 2008 and 2009 to strengthen the balance sheet.
Australian Financial Review
Source: Argentine Beef Packers S.A.
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