08-June-2024: Wesfarmers (WES) have always been innovators and for one of Australia's largest companies, surprisingly nimble in terms of WES' management thinking on their feet and making good strategic decisions. Not sure how their "One Pass" is making them any money - it's likely to further increase their market share, but they are already leaders in most categories. I received a small Target order (a hoodie and T-shirt) delivered this morning, and four Bunnings orders during the week that I didn't have to pay any delivery fees for. Hint: if you order two or more bags of potting mix, top dressing soil, etc. they'll charge you $25 to $50 for delivery but if you order one at a time - up to 25L and some 50L bags, even 4 orders on the same day, they are all delivered for free with "One Pass" and the delivery driver told me he gets paid $5/order delivered, even when he delivers 4 or 5 orders to the same person on the same day, so he's loving it!. Some of these deliveries are for items that cost me LESS than $5, so hard to see how WES is making money out of that. I imagine they'll close that loophole at some point.

Point is, they're definitely embracing the whole online shopping side of things, with free delivery on most items removing that impediment and encouraging more people to try it out. And it won't do their market share any harm. My Target delivery came from one of their online-only stores that are not open to the public, so basically a distribution warehouse set up for online orders. It makes sense.

WES famously bought Coles a few years back when they were struggling, and that acquisition came with Target and K-Mart, and WES turned Coles around and spun them out into a separate company again (COL) around the time they were being perceived as market leaders over Woolworths once more. But they kept K-Mart and Target and they continue to improve those two businesses and grow their online presence and market share. They already owned Bunnings and Officeworks of course, both clear market leaders in their segments. So what's next for Wesfarmers.

Two main growth areas.

The first is their foray into lithium with their purchase of Kidman Resources in 2019 for $776m - so they owned Mt Holland in WA, however they are aware of their own strengths and weaknesses, so they partnered with global lithium giant Sociedad Quimica y Minera de Chile (SQM), forming a JV (joint venture) partnership called Covalent Lithium with a plan to jointly develop the Mt Holland lithium mine and build a lithium hydroxide plant at Kwinana, south of Perth. These projects have had some setbacks, but WES are moving into lithium, and, importantly, their JV partner is from Chile, not China, something that is a big positive when you see companies like IGO who partnered with Tianqi - a Chinese lithium specialist company - and are now finding themselves on the wrong side of US legislation that seeks to either ban or else impose heavy tarriffs on lithium produced by Chinese companies - legislation introduced by Biden but that would also be kept in place by Trump if he wins the election later this year and becomes POTUS again - in fact Trump would likely take it even further - coz he's knows that anti-Chinese tirades and tariffs play well within his demographic (supporters).

Covalent sits within Wesfarmers' Chemicals, Energy and Fertilisers (WesCEF) division, which posted record earnings of $540 million in FY22 and beat that by +23.9% in FY23 to post a new record earnings number of $669.

Source: WES-2023-full-year-results.pdf

Ian Hansen (picured below), Wesfarmers' MD of their WesCEF division, said in 2022 that there were two key factors at play in the company’s battery minerals strategy.

“One is how do we get involved further in this thematic of battery minerals, and obviously Australia, in particular, is blessed with a number of key components for electric vehicles and batteries in terms of minerals,” he said.

“The second component of going further downstream into battery manufacture is, I think, a lot more challenging in Australia given there is ... no car manufacturing in Australia.

“The more we learn about the battery sector, the more we see the battery manufacturers having very close relationships with the individual car manufacturers, the OEMs (original equipment manufacturers) because the batteries really dictate the car’s performance.

“The design of the batteries, the nuance of batteries both the chemistry and packaging reflect the performance of the car and so individual OEMs want to have their battery suppliers very close to them, so they can rapidly enhance, modify, change the battery design or packaging design to optimise the vehicle design.

“I think the prospect of a battery manufacturing sector in Australia is a little bit more challenging than us getting involved in further minerals opportunities.”

Source: Wesfarmers: Record earnings push Bunnings owner deeper into battery metals beyond lithium (afr.com) [29-Aug-2022]

Ian Hansen is in charge of Wesfarmers’ sprawling chemicals, energy and fertiliser division (WesCEF). Photo: Tony McDonough

OK, so there's that.

WES' latest division however is their Wesfarmers Health (Care) division, which posted negative earnings (a loss) of $25m in FY22, a $45m profit in FY23, and is really just getting started.

Wesfarmers' Health was formed in March 2022 with WES' acquisition of API (Australian Pharmaceutical Industries) which is the main distributor of both regulated drugs and non-regulated products to pharmacies in all Australian states, and also includes more than 470 Priceline Pharmacy stores, 975 independent Soul Pattinson Chemist stores, Pharmacist Advice and Club Premium pharmacy members, over 80 Clear Skincare clinics across Australia and New Zealand as well as a health and personal care product range manufactured in New Zealand and marketed across Australasia and the United Kingdom by API Consumer Brands.

WES Health also bought InstantScripts in the middle of last year (2023) and then Silk Laser towards the end of the year.

Source: Wesfarmers Health enters agreement to acquire digital health business InstantScripts

SILK Laser Australia Limited Acquisition (wesfarmers.com.au)

API Acquisition (wesfarmers.com.au)

However, that's just the beginning, and WES have form for making big acquisitions. How big? Well, have a look at this:

Wesfarmers Reportedly Runs the Ruler over Ramsay Health Care - MarketScreener

Wesfarmers Reportedly Runs the Ruler over Ramsay Health Care

April 23, 2024 at 02:32 pm

The $74 billion Australian listed conglomerate Wesfarmers Limited (ASX:WES) is understood to have been carrying out detailed work in recent months, weighing up the merits of buying Ramsay Health Care Limited (ASX:RHC). It is understood that Wesfarmers - which owns Target, Kmart, Officeworks and other industrial and healthcare assets - is interested in securing Ramsay's Australian business. However, with its shares performing strongly and a $74 billion market value, it's not inconceivable that Wesfarmers buys all of the $12 billion private hospital operator and sells off the international assets to other parties.

Some believe that the timing could now be right for Wesfarmers to embark on its next major acquisition, after bedding down the 2022 purchase of Priceline pharmacy chain owner Australian Pharmaceutical Industries for $763 million to seed its healthcare unit. Whether it remains serious about a deal remains unclear. Wesfarmers is usually assessing the acquisition of a handful of targets at any given time, and maintains an active mergers and acquisitions team.

It has looked at plenty of opportunities in the past before opting to walk away, and can treat targets as simply a due diligence exercise. Another possibility is that it could simply be weighing up a tilt at Ramsay's pharmacy unit, which it has expressed interest in before. Still, Wesfarmers' share price has rallied since the start of this year so it could take advantage of that, while the healthcare sector has been struggling with high costs and staff shortages, dampening the performance of Australian listed stocks trading in the space, including Ramsay.

Also weighing in Wesfarmers' favour is the fact that Ramsay's shareholders have been unhappy with the company's performance since Kohlberg Kravis Roberts walked away from a bid in 2022, causing its share price to tumble, and the could be more open to a buyout. The David Thodey-chaired Ramsay is believed to be thinking about a potential exit from its European hospital owner, Ramsay Sante, in which it has a 52.79% stake. DataRoom understands that Wesfarmers has carried out work on all aspects of the Ramsay business, including its real estate, and has been speaking to healthcare funds and industry figures.

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So perhaps, watch this space!

I hold WES shares, but no RHC at this point (have held them previously and rate them as a very decent business, just not as good as WES).

Australia's largest listed private hospital and health clinic operator Ramsay Health Care (RHC) would be a major acquisition - RHC's market cap is currently around $11.3 Billion, however WES' m/cap is $75.2B, so in that context, perhaps not such a big acquisition.

Above: Rob Scott, CEO & MD, Wesfarmers (WES). Below: Emily Amos, MD of Wesfarmers Health.

Emily Amos (wesfarmers.com.au)

Wesfarmers’ Emily Amos: New health boss has plans for growth (afr.com) [23-Sep-2022]

New Wesfarmers health boss plans for growth

by Carrie LaFrenz, Senior reporter, AFR, Sep 23, 2022

Emily Amos’ first stab at a career was to become a young economist at what was then Pacific Power – the NSW-owned monopoly power generator.

It wasn’t long before it dawned on her that was not the right path.

Fast-forward 25 years and she appears to have found her groove quickly at Western Australia-based Wesfarmers. The conglomerate feels “relatively familiar”, she says, just five months into the job of bedding down its latest $774 million buy – major drug wholesaler Australian Pharmaceutical Industries (API).

Emily Amos is the new MD of Wesfarmers’ health division, where she is in charge of integrating API – the owner of Priceline Pharmacy. Photo: Louie Douvis

In her first in-depth interview, Amos says that after chatting with Wesfarmers boss Rob Scott, she could see this was a perfect role for her. It married the skills she had honed over many years – at supermarkets giant Woolworths for over a decade, and more recently as the head of Australia’s second-largest private health insurer, Bupa.

“I feel like both my health and my retail background has set me up well because I think you have to be able to set up a vision, but you really do need to learn how businesses operate to understand how work flows through the organisation so that you can actually deliver on the transformation agenda,” she tells The Australian Financial Review.

Amos held various roles at Woolworths, including setting up the Everyday Rewards loyalty program, looking after data and analytics, and spearheading the buyout of data service firm Quantium. She also had a stint as finance director of Endeavour Drinks. Before her time at the supermarket giant, she worked at Sainsbury’s in UK.

Not only has she become familiar with some of the key tools that retailers are using to deliver growth in digital, data and ecommerce, but she also has experience of senior finance roles.

Adept at fixing businesses

“There’s nothing like a stint as a finance director of a business to really focus you on commercial performance,” she says from her home in Sydney’s eastern suburbs.

The 50-year-old mother of three teenagers is adept at fixing and building businesses. This is just as well because API – which owns the Priceline Pharmacy chain and Clear Skincare clinics – has never quite lived up to its full potential.

API is the foundation asset of what one day, according to Scott, will be a $10 billion health and wellbeing division for the WA-based conglomerate, whose stable already includes Kmart, Bunnings and Officeworks.

Amos has been travelling around Australia, spending time in stores, meeting people in warehouses and learning what pharmacists do day-to-day. A key part of wrangling API is dealing with a large number of franchisee pharmacists. There is a group that is unhappy – about 30 signed up to and then abandoned a class action lawsuit that alleged they were being charged unfair fees in breach of state regulations.

“I think it’s important for leaders to be really visible, and actually allow all of your team members to ask you questions,” she says.

Amos is looking to prioritise digital and data investment. This may include developing new and innovative products and services within the busines,s including digital health initiatives. Other targets could include rivals such as Sigma Healthcare, and eventually private hospitals and beauty businesses.

API’s Sister Club, which boasts over 7.5 million members and is the fourth-largest loyalty program in Australia in terms of market penetration, represents the biggest opportunity. Amos plans to use this data to jumpstart sales, help expand ranges, and improve pricing and promotions.

Over the past financial year, Priceline was supported by strong sales in all major health categories due to the large numbers of cold, flu and COVID-19 cases that came with people returning to more normal patterns of working, travelling and socialising as lockdowns ended.

This was partially offset by weakness in beauty, as people cocooned at home amid the pandemic. Amos says beauty is pivotal to Priceline – which plays in the affordably priced market where many teenagers experiment with make-up.

While Amos seems to be excited by the opportunity to enter the fast-growing $30 billion health, wellbeing and beauty sector, it will be no easy task.

The big grocery chains have been beefing up their beauty offerings and discount rival Chemist Warehouse is also pressuring Priceline’s sales. Specialty beauty retailers such as Mecca and Sephora, and online players like Adore Beauty, are also growing. Amos is a former director at Adore.

More clinics envisaged

She will also need to steer the Clear Skincare business back on track after it was smashed during COVID-19. Amos says medical aesthetics will continue to grow because laser hair removal and botox are no longer considered discretionary right across the age spectrum. She sees room for up to 30 more clinics in Australia and New Zealand, from the current 96 sites.

“It’s a good margin business, so it’s really about operational execution and discipline,” she says.

Since taking over API, Wesfarmers has also revealed staff underpayment problems dating back about six years. Amos says Wesfarmers will announce more details on this in early 2023, but she is not expecting a blowout like the $500 million-plus underpayment scandal at Woolworths.

API’s wholesale drug business is the engine room – it posted about $3 billion in sales in fiscal 2021 – but it also earns low margins. Amos understands having a more efficient warehouse (at Marsden Park) is one way to solve this problem, and expects gains from the second half of this year from the highly automated distribution centre.

API operates 90 Priceline stores, 376 Priceline pharmacy franchise stores and 93 Clear Skincare Clinics. Amos is passionate about making healthcare more accessible and seamless for consumers, and plans eventually to add other businesses.

“Populations are ageing, we’re coming out of COVID and everyone’s really focused on how they can be well, stay well, and get healthier,” she says.

Screening, diagnosis, and treatment management are all areas of the digital health journey, which API could further extend. Priceline already offers SiSU Health Stations, which provide services such as measuring blood pressure, heart rates and the body mass index (BMI). Amos says this could be linked to a telehealth offering.

Amos grew up in Parramatta, the oldest of five children. Her father is an architect and her mother stayed home, although she trained as a primary school teacher. Amos is an early riser: often starting the day with yoga, a walk, or a ride on her Peloton.

Those who have worked with Amos say she is driven and goal-focused. Despite being at the tail-end of a COVID-19 infection, she pushed ahead with this interview rather than postponing – an insight into her determination.

She claims she is not a detailed, “in the background thinker” but does like to understand how businesses work and know where the opportunities are to make money.

“But really, my job as a leader is to inspire the people that work for me to actually do the delivering,” she says.

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Remember - you heard it here first.

[even if you didn't]

30-May-2023: 2023 Strategy Briefing Day Presentation

View The Webcast: https://edge.media-server.com/mmc/p/6iyimda9

02-May-2023: Macquarie Australia Conference Presentation and Address by MD, Rob Scott

For all the latest WES results and presentations: Results & presentations (wesfarmers.com.au)

Today's 2023 Strategy Update (top link above) is long - at 104 slides - so I'm just going to reproduce the 4 that sum up this company best - in my opinion:

So this isn't your average microcap or nanocap stock that is largely under the radar and could go to zero or multibag. No, this one is a large cap that just keeps grinding higher over time. The best way to check how a company has looked after their shareholders is to look at their TSR - Total Shareholder Return - which include share price appreciation and dividends, and assumes that all dividends were reinvested back into the company using their DRP. In this case they also assume full participation in all of WES' capital management initiatives over the years.

Their TSR has well and truly outperformed the All Ordinaries Accumulation Index (XAO) which is represented there by that grey line. In fact, they've absolutely smashed it. Over that period, the All Ords Accumulation Index has performed almost identically to the ASX200 Accumulation Index (XJO). They both include reinvested dividends - that's the "accumulation" bit. Over shorter time periods there can be a little bit of divergence between the XAO and the XJO Indices, but they tend to have very similar returns to each other over decent time periods, like decades. WES, however, has done a LOT better than both of them.

Disclosure: I hold WES shares in real life and here on Strawman.com.

OK, one more slide:

How's this for a mission statement: Their primary objective is...

Tick.

20-Aug-2020:  Appendix 4E and 2020 Full-year Results   and   2020 Full-year Results Briefing Presentation   plus   Important Dates for Shareholders

Headline numbers:

• Revenue from continuing operations (A$m): 30,846, FY19: 27,920, +10.5%
• Profit after tax attributable to members:
  • From continuing operations excluding significant items (A$m): 2,083, FY19: 1,940, +7.4%
  • Significant items (A$m): (461), FY19: $0 
  • From continuing operations (A$m): 1,622, FY19: 1,940, (-16.4%)
  • From discontinued operations (A$m): 75, FY19: 3,570
• Net profit for the full-year attributable to members (A$m): 1,697, FY19: 5,510, (-69.2%)

Of course, WES spun out Coles Group (ASX: COL) during FY20, so they don't have all of that revenue from those 800 Coles Supermarkets, plus Coles Online, Coles Liquor (900 stores trading as Liquorland, Vintage Cellars, First Choice Liquor and First Choice Liquor Market and an online liquor retail offer), Coles Express (700 fuel/shop sites across Australia), flybuys (with over eight million active members, covering approximately six million households), Coles Financial Services (which provides insurance, credit cards and personal loans) and Spirit Hotels (which operates hotels in Queensland, Western Australia, South Australia and New South Wales).

WES still owns Bunnings Warehouse, Officeworks, KMart, Target, Catch.com.au, Geeks2u.com.au, plus Wesfarmers Chemicals, Energy & Fertilisers (WesCEF) which operates eight businesses in Australia and employs approximately 1,300 team members (including Kleenheat Gas, CSBP, Queensland Nitrates, EVOL LNG, Australian Vinyls, Australian Gold Reagents, Decipher and Covalent Lithium), plus Wesfarmers Industrial and Safety which operates four main businesses:  Blackwoods which distributes tools, safety gear, workwear and industrial supplies; Workwear Group which provide industrial and corporate workwear; Coregas a supplier of industrial specialty and medical gases; and Greencap, an integrated risk management and compliance company.

The main attractions for me (as a WES shareholder) are:

1. The conglomerate nature of the business where they will constantly evolve, much like a PE (private equity) firm, to take advantage of underpriced assets where they can add value and either keep them, sell them, or spin them out into a separate listed company.  The current pandemic is likely to present further opportunities to a cashed-up WES to pick up more quality assets at good prices.  In this respect they are in some ways similar to SOL (Washington H Soul Pattinsons) but also different, in that WES are more active with their asset portfolio turnover, and they also offloaded their coal assets early when the writing was first up on the wall, whereas Robert Milner at SOL is still stubbornly holding on to NHC (New Hope Coal) and is a climate change sceptic (he believes in climate change but that humans have very little to do with it).  In that respect I view WES as much more pragmatic, entrepreneurial and investable, not to mention better managed by smarter people.
2. Bunnings and Officeworks - the two jewels in the Wesfarmers crown.  The absolute best in their respective fields.  Loyal customers, and great businesses.
3. Wesfarmers expansion into battery metals, starting with lithium.  They also had a crack at buying Lynas (LYC) - for their rare earths - when the LYC share price was substantially lower - and they are rumoured to be looking closely at battery-grade nickel producers like WSA and/or IGO  (I currently hold shares in IGO, and do occasionally trade WSA shares but don't hold WSA at this point in time).  Matt Haupt, the lead PM at WLE (the WAM Leaders Fund) believes that WES want to build an integrated battery metals supply chain company and that they will not rush into purchases, but will follow their usual MO and buy quality assets at good prices when the opportunities present themselves.  In other words, it could take a few years, but we could end up with a very different looking Wesfarmers in the future that could be clearly facing the EV and clean-energy-storage markets as a one-stop-shop for battery metals and ingredients.

So, yes, I am a WES shareholder.

Further Reading:  https://www.wesfarmers.com.au/our-businesses/our-businesses

04-Aug-2020:  COVID-19 update - Trading restrictions in Victoria

[I hold WES shares]

09-June-2020:  Retail trading update

Overview:  Total sales growth by division from H2 to date:  Bunnings up 19.2%, Kmart up 4.1%, Target down 1.8%, Catch (GTV) up 68.7%, Officeworks up 27.8%.  In the calendar year to date, the group's retail businesses delivered total online sales growth of 89%.  Financial year to date total online sales across the group increased 60% to $1.9bn including Catch.

Disclosure:  I hold WES shares.

22-May-2020:  Kmart Group update and expected FY20 significant items

Kmart Group update

• First phase of Target review has identified actions to accelerate the growth of Kmart and address the unsustainable financial performance of Target
• Actions include the conversion of suitable Target stores to Kmart stores, the closure of a number of Target stores and a restructuring of the Target store support office
• Redeployment opportunities in Kmart and other Wesfarmers businesses will minimise the effect of these changes on Target team members

Significant items expected in the 2020 full-year results

• Restructuring costs and provisions in Kmart Group of approximately $120 to $170 million before tax, primarily reflecting Target store closure costs, inventory write-offs and a restructure of the Target store support office  
• Non-cash impairment in Kmart Group of approximately $430 to $480 million before tax, including an impairment of the Target brand name
• Non-cash impairment in the Industrial and Safety division of approximately $300 million before tax, primarily relating to the impairment of goodwill
• Pre-tax gain on sale of 10.1 per cent interest in Coles of $290 million, and one-off pre-tax gain of $221 million on the revaluation of the remaining Coles investment  
• The estimates of the significant items remain subject to auditor review

[...click on link above for further details...]

Disclosure:  I hold WES shares.

07-May-2020:  Macquarie Conference Briefing Presentation

That is a link to a copy of the presentation that is to be given today at the Macquarie Australia Conference today.  The presentation outlines Wesfarmers’ priorities and response to current market conditions.  It also includes an update on the Group’s trading performance in line with Wesfarmers’ announcement on 28 April 2020 and an update on the Group’s balance sheet position.  [28-Apr-2020:  COVID-19 update]

28-Apr-2020:  COVID-19 update

31-Mar-2020:  WES: Wesfarmers sells 5.2 per cent of Coles Group

Also:  COL: Sale by Wesfarmers of 5.2 per cent of Coles Group

Following the sale, Wesfarmers retains a 4.9 per cent interest in Coles and has agreed to retain its remaining shares in Coles for at least 60 days from today.

COL & WES also remain 50/50 JV partners in Flybuys and will continue to work together.

Wednesday 19th Feb 2020:  The following have all been released by WES (Wesfarmers) to the ASX announcements platform today:

2020 Half-year Results

2020 Half-Year Report (including Appendix 4D)

2020 Half-year Results Briefing Presentation

Wesfarmers sells 4.9 per cent of Coles Group for $1.05 billion

Disclosure:  I hold WES shares.  I like the exposure to Bunnings, Officeworks, Wesfarmers' natural gas and agricultural chemicals/fertilisers businesses, as well as their new foray into battery metals miners and their plans to develop a battery metals supply chain business.