Own Wesfarmers shares? Here’s why the company is shifting with the times

Wesfarmers’ AGM describes the importance of the company staying relevant…

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Wesfarmers Ltd (ASX: WES) shares have finished Thursday lower after the company held its annual general meeting (AGM).

At the end of the session, the Wesfarmers share price finished 1.21% lower to $55.55. That puts the company’s share price 17.3% below its 52-week high of $67.20.

Although there weren’t any price-sensitive details shared, the AGM shed a light on management’s decision-making over the past year. Specifically, it highlighted the 107-year-old company’s willingness to adapt to the times.

What moved the Wesfarmers’ share price today?

Staying relevant

Wesfarmers conducted its AGM in the later hours of this afternoon — 1pm Perth time to be precise. During this event, the chairman and managing director shared some insights into the year gone by for the company.

Firstly, the chairman, Michael Chaney, described the turbulent year dominated by the ongoing presence of COVID-19. Despite the disruptions, Wesfarmers managed to deliver increased profits and a sturdy balance sheet throughout the year. Chaney put this partly down to the type of businesses Wesfarmers owns, but also the efforts of the management team and all other employees.

Building on that, the chairman spoke on the company’s openness to innovation. He said this openness has played a critical role in Wesfarmers’ success over its 37 years of publicly listed life so far. As a result, Wesfarmers shares have delivered shareholders returns 12 times higher than the All Ordinaries Index (ASX: XAO).

Giving an example, when Wesfarmers listed in 1984 its fertiliser operations accounted for roughly 60% of the company’s profits. Today, that same business makes up only 2% of the group’s total earnings. This was noted as a philosophy of ‘logical incrementalism’ — where the company tries new endeavours, pushes forward with those that work, and retreats from those that don’t.

In recent years, this approach has resulted in a large range of ventures made by the Australian conglomerate. This includes its foray into lithium production through its Kidman Resources acquisition in 2019. There’s also the company’s expansion into e-commerce with the Catch acquisition. Another example is its disposal of the Wesfarmers’ coal business.

Looking forward

Looking to the future, it appears the $63 billion conglomerate is set to explore further with its logical incrementalism approach. Addressing shareholders, Wesfarmers chairman Chaney stated:

The future prosperity of Australia relies on companies like ours making significant investments. We are certainly doing that, with almost $900 million of capital expenditure in the 2021 financial year and more than that planned this year. In addition, we’re making substantial expenditures in data and digital activities to ensure that we are well equipped to compete in the online world.

Additionally, managing director Rob Scott gave comments on recent trading conditions. While overall sales growth remains impacted by restrictions, Wesfarmers is positioned to resume normal trading once restrictions ease. Stores that have already begun to re-open in New South Wales are seeing a high level of pent-up demand.

Despite the information shared at the AGM, Wesfarmers shares finished lower today. They are still up 7.8% this year to date, and almost 18% over the past 12 months.

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Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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