Business Risk Analysis of Wesfarmers Limited

CONTENTS
Executive summary.............................................................................1
Introduction.....................................................................................1
Business overview, operations and industry................................................2-3
Areas of Business risk..........................................................................3-5
Analytical review of financial statements...................................................5-6
Corporate Governance.........................................................................6-7
Conclusion........................................................................................7
References........................................................................................8
EXECUTIVE SUMMARY
This report gives an overview of the business of Wesfarmers limited with all its segments.
The company has significant business risks as it operates in multiple segments. It reported a
high intangibles and is prone to changes in commodity prices. The company also has
financial risks which can impact its financial statements like interest rate risk and credit risk.
The risk mentioned are not exhaustive in nature. This report discusses about the transactions
affected and consequently assertions as well. Corporate governance plays a crucial role in the
success of the organisation. Some of the key highlights are also mentioned for the same.
INTRODUCTION
Wesfarmers Limited, an Australian conglomerate with revenue reported for 2018 being $66
billion is engaged in multiple businesses. It operates in the retail as well as industrial
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segment. The company is headquartered in Perth, Australia. The company got listed in
Australian Securities Exchange in 1984 and as per its latest annual report has 217,000
employees. The chairman of the company is Michael Chaney AO, who is the chairman since
June 2015. Rob Scott is the managing director of the company.
a)
BUSINESS OVERVIEW, OPERATIONS AND INDUSTRY
RETAIL
Bunnings – It is a retailer of outdoor living products and home improvement in Australia and
New Zealand. It employs more than 43,000 employees and its stores stock around 45,000
products. The company’s revenue exceeded $12.5bn from this segment. During the year
2018, 10 new stores were opened on a net basis. The company divested its BUKI/Homebase
business in June 2018. (Wesfarmers Annual report, 2018)
Coles – Coles provide fresh food, groceries, general merchandise, liquor, financial services,
and fuel through its stores and online channels. It includes supermarkets, Liquorland, Vintage
Cellars, First Choice Liquor, Spirits hotels, Coles Financial services and Coles online. It
reported a revenue of $39.39 bn. (Wesfarmers Annual report, 2018)
Departmental Stores – It has two further segments, Kmart and Target. Kmart offers
customers apparel and general merchandises at low prices. It also provides retail automotive
services. Target is in clothing, cosmetics, electronics,hardware. Together this segment
reported $8.83bn revenue. On a net basis they opened 5 service centres this year.
(Wesfarmers Annual report, 2018)
Office works – Officeworks is Australia’s retailer and supplier of office products and
solutions. It serves micro, small and medium sized businesses, households and students.
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Office works delivered revenue of $2.14 bn during the year. (Wesfarmers Annual report,
2018)
INDUSTRIALS
Chemicals, energy and fertilisers – The chemicals segments include manufacture and
supply of ammonia, AN, queensland nitrates, PVC resin, vinyls and modwood. It reported
revenue of $1.83bn. The earnings reported were 1.3% lower than prior year,
Industrial and Safety – It operates four main businesses. Blackwoods, Workwear Group,
Coregas and Greencap. Blackwoods provides industrial supplies, Workwear provides
industrial and corporate workwear, Coregas provides medical gases, Greencap is an expert
risk management. It generated a revenue of $1.75bn. (Wesfarmers Annual report, 2018)
Resources – It comprises of coal mines where coal is extracted and sold. Revenue generated
was $1.69bn. The coal is primarily exported to Japan and North Asia. During the current year
the company approved the sale of Curragh coal mine in Queensland for $700 mn and booked
gain of $123 million. (Wesfarmers Annual report, 2018)
b)
AREAS OF BUSINESS RISK
Risk to a company in terms of business can be internal as well as external. A list of
business risk are given below -
Labour strikes risk – Employee safety is an important factor for every organisation.
Although most of the function’s in today’s industry are using automated
functions but still some functions still require labour. Labour demanding for
higher wages or lower working hours may lead to labour unrest. Such labour
unrest can disturb the functioning of the organisation. Child labour, illegal labour
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