Examining the Strategic and Corporate Actions of Wesfarmers

Found in June 1914 as a farmers co-operative, Wesfarmers has now not only become a leading employer but also one of largest listed companies in Australia with headquarters in Western Australia, more than 200,000 employees and 450,000 shareholders, the operation in many diverse businesses including retailing, insurance, industrial, energy and about thirty three famous brands across Australia and New Zealand. [1] 

Business Description

Wesfarmers’ business is currently divided into two main segments. The Retail segment comprises of four divisions in which are Coles (a food, liquor, fuel and convenience retailer) [2] , Home Improvement and Office Supplies (a home improvement, outdoor living and office products retailer and a building materials supplier) [3] , Target (a clothing and housewares retailer) [4] , Kmart (a discount department store and automotive service retailer) [5] . The remaining Industrial and Other Businesses one consists of five divisions and those are Resources (a coal miner and producer) [6] , Insurance (operating in the general and financial service insurance sector) [7] , Chemicals – Energy and Fertilizers (running with chemical, fertilizer, power generation and gas businesses) [8] , Industrial and Safety (mainly supplying the products and services serving this industry) [9] , and Other Activities lastly.

The acquisition of Coles Retail Group by December 2007 has made Wesfarmers become one of largest retailers in Australia. [10] As result, this business has been contributing the largest amount to the Company’s revenue on the following years. The Retail segment generated of AU$ 27,688 million (82.6%) in 2008, AU$ 43,736 million (85.9%) in 2009 and AU$ 45,688 million (88.2%) in 2010. And among all divisions, Coles holds the biggest contribution with AU$ 16,876 million (50.3%) in 2008, AU$ 28,799 million (56.6%) in 2009 and AU$ 30,002 (58%) million in 2010. [11] 

Not only generating the largest revenue, but also the Retail segment brings the highest profit to the Company. And the evidence is that EBIT of AU$ 1,432 million (61.4%) in 2008, AU$ 2,021 million (62.2%) in 2009 and AU$ 2,341 million (78.8%) in 2010. However, the contribution rank for the divisions, is different each year such as the highest EBIT in 2008 is of the Home and Office Supplies division with AU$ 625 million (26.8%) but the Resources division comes to the top by 2009 with nearly AU$ 885 million (27.2%) and year 2010 is the come-back of the Coles division with AU$ 962 million (32.4%). [12] 

Because of getting the diversified effort in business, Wesfarmers has invested in all potential activities in which it is operating [13] . However, looking at the impressive growth about both of revenue and EBIT during the past three years, it can be said that the Retail group is the main business which will drive the growth of the Company in the future. This is currently quite true with the Company’s expectation when considering the acquisition of Coles Group as the core potential to underwrite earning growth through margin expansion in the next decade for maximizing returns to shareholders. [14] 

In general, the road to the diversification is not really easy for Wesfarmers, especially from 2007 on. Beside some difficulties such as the increase of net debt after acquiring Coles Group in December 2007 [15] , the negative impact of global financial crisis [16] and gas crisis in 2008 [17] or flu crisis in 2009 [18] , Wesfamers has also obtained some great achievement in business. By applying the appropriate strategies, the Company has driven its business out of crisis step by step and together continued to maintain the unbroken and strong growth in revenue and profit each year as below. [19] 

Corporate Responsibility

“As one of Australia’s leading companies, Wesfarmers is committed to continually improving the sustainability of our business to the benefit of all our stakeholders. Our strong economic, environmental and social performance, within a sound governance framework, is central to our objective of providing value to shareholders, customers, employees, suppliers and community partners. Our businesses interact with millions of people every day and our sustainability performance is central to maintaining and enhancing our reputation, which in turn allows us to make a substantial positive contribution to the communities in which we work.” [17] said Richard Goyder, managing director. Once again, Wesfarmers sent to its shareholders an engagement for performing CSR [a] in 2010.

During years over the last decade, many global issues, like greenhouse emissions, have become more pressing, bigger and demanded strategic responses in long terms. As a listed Company in diversified business, Wesfarmers has changed significantly during this time. The Company has performed a huge responsibility by getting its sustainability efforts [20]  through focusing five key areas (in which are the importance of people, efficient energy management and carbon reduction, community investment, the overall environmental footprint reduction and the contribution of a strong economy) to create values providing to all shareholders and communities across all its businesses. [21] 

By performing some policy such as providing a safe, ethical and stimulating working environment or improving the talent management systems, Wesfarmers has used human as a key competitive factor for developing. [22] Not just that, the Company has invested in four areas of communities (including indigenous communities, arts and innovation, medical and education) to create a long-term cohesion through the projects about conservation, land care, welfare, schools… [23] Further, the Company has minimized the negative impacts to the environmental footprint from its operations by reducing used water, packaging, emissions, waste… [24] Concurrently, maintaining annual growth in business to intensify the contribution to national economy.

One more very important thing is the carbon reduction and the efficient energy management. Aside from using the solutions for reducing the environmental footprint as above, Wesfamers has penetrated further into the efficiency by investing strongly in new energy methodologies and technologies. In this way, the Company has contributed to making a new low carbon economy. [25] Furthermore, this has also contributed in reducing significantly greenhouse emissions which have been considered as a main reason causing climate change on the world [26] through applying these techniques for the whole Company. Especially, aiming to improve the refrigerant system efficiency and reduce the loss of gas for the Coles’ giant supermarket system. [27] 

Crisis Management

On June 3rd 2008, a big explosion had occurred at a gas processing plant of Apache Energy on Varanus Island, which annually has supplied a third of the national gas, and caused a major disruption in supplying natural gas for almost three months. This plant was resumed at the end of August, run with 85% of normal capacity in mid-October and totally recovered by December. In a country as Australia, where most of industries heavily has depended upon gas, the above incident is really a crisis. 11 of 301 businesses surveyed on June 18th 2008 had completely shut down, 5% could be close after three months of gas shortages and nearly 630 employees had been stood down or redundant – nearly 1% of the people surveyed. The crisis had cost the economy $2.4 billion on 10 July, up to around $6.7 billion in December 2008 and resulted in the reduction in the Australia GDP growth of 0.25%.

Wesfarmers was significantly affected form this gas crisis. The estiam

Wesfarmers’ share slumped after the gas crisis had happened. The energy and fertilizer business was affect the most.

Strategy

Consistent with the diversified business structure is the strategy that Wesfarmers has been pursuing during its operation. The Company started the business diversification since 1950s with the pioneered program of distributing liquefied petroleum gas. Then continued to move into fertilizer production and distribution in 1984, coal mining in 1989, launched insurance business in 1991, also hardware and forest products one in 1994, became a supplier of home improvement, building, industrial and safety products in 2001, got in the retail section by December 2007 and kept unchanged up to now. [28] 

The diversification in business is also the core strength of Wesfarmers. This success has brought it the opening in portfolios, consuming markets, the associations between its divisions and the yearly gigantic profit. Actually, Wesfarmers is currently a leading retailer in Australia and New Zealand with 3,000 retailed locations in many sectors including food, liquor, fuel, home, building… The retail operation generated the revenue of AU$ 45.7 million and the profit of AU$ 2.3 million in 2010 [29] , involving earnings from the association with the Insurance divisions and some other one [30] . Not just so, the diverse business has also made up a solid foundation for the stable economic growth in general and capital turnover in detail with the annual average increase of cash flow, EBIT and NPAT were consecutively 31%, 22% and 16% over the past five years. [31] 

Wesfarmers had many initiatives on the road to its diversification. That could be community partnerships (an essential factor for a long-term success in business through supporting communities), energy efficiency (an efficient method for reducing carbon emissions and cost of energy usage by using new technologies) [32] or prudent capital management (a way to help equity raise and debt reduce) [33] and… But altogether, most of these initiatives have come from performing community and sustainability responsibilities which way the Company has chosen to pursue its business diversification objective.

Vision, Mission and Goal

The provision of satisfactory returns to shareholders in the diversified business is the vision that Wesfarmers has been tending. [34] And this pursuance has been performed through the Company’s responsibilities to sustainability and communities during the past few years. In reality, Wesfarmers has been one of Australia biggest Company with the operation in many sectors from retailed to industrial, the diversification of products and their presence in Australia, New Zealand [35] and some other countries, the big contribution to sustainability and communities through the initiatives such as community partners or efficient energy management, and… [36] This also means Wesfarmers advanced a long step in its development.

Wesfarmers has defined its goals including the development of a unique, disciplined and highly focused working culture; the provision of values to all shareholders, employees, suppliers, customers and community partners in a sustainable way [37] ; and the enhancement of the people’s importance and equality. Simultaneously, the Company believes that the goals accomplishment must focus on the following missions:

Developing and maintaining a physically working environment in safety, saving, efficiency and less pollution.

Ensuring a strong business environment, society and economy, a sound governance framework and the investments in communities through partnerships and sponsorships.

Treating all people with decency, respect and always acting with the high ethical standards following. [38] 

Adhering to openness, integrity, boldness and accountability in working. [39] 

On the other hand, Wesfarmers also found that employees are the key for its success. Therefore, the Company has continuously focused to improve the talent management systems and related policies [40] . Integrity, openness, boldness and accountability are always the primary priorities at Wesfarmers [41] and there is no the discrimination of sex, age and ethnic here. Employees’ talent is valued through being commercial, delivering result and engaging people. They work on the base of job requirement in a safety, healthy and professional working environment. Besides, the Company often organizes the training courses for employees to develop their skills, knowledge and potentials. [42] 

Desirability as an employer

Acting in accordance with high ethical standards[

In order to provide satisfactory returns to shareholders, Wesfamers has set the goal for the development of a unique, highly-focused and disciplined working culture in its business through adhering to integrity, openness, accountability and boldness[5]. Simultaneously, providing value to shareholders, customers, employees, suppliers and community partners based on ensuring also the sound governance framework that their contributions will drive the Company’s business to the success in a broad and complex society[7]. Moreover, Wesfamers also aims to the national reconciliation with Aboriginal people as a way to enhance the importance and equality of people[8].

Wesfamers believes that the accomplishment of the goals must focus on the following key principles and actions:

Maintaining and enhancing the physical environment in which the Company operates including strategies to minimize carbon missions, improve water and energy efficiencies and minimize commercial by-products and waste.

Providing a safe and secure work environment for all employees, customers and stakeholders.

Treating stakeholders including employees, customers, shareholders, suppliers and the broader community with respect and decency.

Investing in the community through partnerships, programs and sponsorships over and above the direct economic and commercial benefits Wesfarmers provides.

Acting in accordance with high ethical standards[7].

1. Company history. About us. The Wesfamers Company. Retrieved from http://www.wesfarmers.com.au/about-us/Company-history.html

2. Wikipedia. Retrieve form http://en.wikipedia.org/wiki/Wesfarmers#Further_reading

3. Home . The Wesfamers Company. Retrieved from http://www.wesfarmers.com.au/

4. Company structure. About us. The Wesfamers Company. Retrieved from http://www.wesfarmers.com.au/about-us/Company-structure.html

5. Company Value. About us. The Wesfamers Company. Retrieved from

http://www.wesfarmers.com.au/about-us/Company-values.html

6. Home. Investors. Reports. The Wesfamers Company . Retrieved from http://media.corporate-ir.net/Media_Files/IROL/14/144042/Wesfarmers/WES/index.html

7. Retrieved from 2010 Share holder review.pdf

8. Retrieved from 2011 Reconciliation action plan.pdf

9. Retrieved from 2010 Annual report.pdf

10. About us. The Wesfamers Company. Retrieved from http://www.wesfarmers.com.au/about-us.html

11. http://finance.ninemsn.com.au/newsbusiness/aap/8212532/wesfarmers-profit-rises-33-per-cent +

12. Page 3. Australian equity commentary September 2010.pdf

13. Page 1/Page2. 2010 Sustainability Report.pdf

14. Page 7. 2010 Sustainability Report.pdf

15. http://www.newscientist.com/article/dn9903-instant-expert-climate-change.html

16. Page 5/11-14. 2010 Sustainability Report.pdf

17 Page 4. 2010 Sustainability Report.pdf